COMPANY LAW

Company Law is that branch of law which deals exclusively with all aspects relating to the companies, such as Incorporation of companies, Allotment of Shares, share capital, Membership in Companies, Management & Winding of company .

Application of Companies Act, 1956 :

1) Companies registered under companies act . 2) Companies registered any previous companies acts. 3)Unlimited Companies registered as limited companies in pursuance any previous Companies Act . 4) Banking, Insurance & Electricity Companies not covered by their Respective Acts . 5) Government Companies . 6) Nidhis are Mutual benefit societies declared as such under notification by the central Government .

w w w w w w w

OBJECTIVES OF THE COMPANIES ACT :

1) To Protect the Interest of the Share Holders . 2) To Protect the Interest of Creditors . 3) To Enforce proper Performance of Duties . 4) To prevent Misconduct and Malpractices . 5) To promote Healthy Growth of the Companies 6) To Ensure that the Activities of the Company are carried also in Furtherance of the Economic & Social Policy . 7) To Empower the Government to Interfere & Investigate .

COMPANY

The Companies ( amendment ) Act, 1956, defined company as A company performed and registered under this act or an existing company .
A joint stock company is a voluntary association of persons performed for some common purpose with capital devisable into parts, known as shares and with limited liability . It is a creation of the law and is also known as an artificial person with perpetual succession and a common seal . An incorporated company is a totally different person or thing or entity from its members or the individuals composing it .

CHARACTERISTICS OR FEATURES OF JSC : The main features of JSC are as follows : 1) Voluntary Association : Or Organizations of persons free to become member & can live in membership . 2) Incorporate or registered Association : Under Companies Act, which absolutely necessary for an association of persons or company to become JSC .Advantages of Registration : > Separate legal existence . > Limited liability of members . > Transferability of shares . > Control of company by acquiring majority shares . > Separation of ownership with management . > It contributes to large ownership .

3) Specific Objective : Stated in MOA . d) Artificial person created by law : It has no physical and natural existence . 4) Not a citizen : It cannot claim to be a citizen of the country . But it has nationality, domicile or residence for jurisdiction of court and income tax matters . 5) Separate legal entity or corporate personality or veil of Incorporation : E.g. Salmon VS salmon & company limited . 6) Separate property : JSC has the right to own, enjoy and dispose of property in its own name .

7) Perpetual succession or Continuous Existence : i.e. Members may come and go . But the company goes on until it is wound up according to law . 8) Common seal : As company is a artificial person, so there must be a device which could serve as the companies signature as a official signature ( i.e. common seal ) which is kept in the custody of security of the company SECRATORY.

9) Limited liability of the members : i.e. limited by shares ( the amount paid ). k) Transferability of shares : i.e. freely transferable, which provide liquidity to the investors . 10) Large membership : No maximum limit . 11) Separation of ownership from management :As JSC has a distinct or separate legal entity of its own. i.e. share holders directly cannot participate in the management . Board of directors control management . There is a VEIL or CURTAIN separating a JSC from its membership . EXCEPTIONS : LIFTING or PIERCING CORPORATE VEIL .

LIFTING PIERCING THE CORPORATE VEIL : ( PCV )

This Doctrine is an exception of companys feature separation of legal entity . PCV states in certain circumstances . The court ignore the separate legal entity of the company, and treat the company and its members as one person . The VEIL can be LIFTED under two circumstances 1) Under judicial interpretation . 2) Under Express Statutory Provisions . 1) Under judicial interpretation : > For determining the character of the company . > For protecting the revenue of the government. > For preventing fraud . > Where a company is a shame .( mere cloak or hoax )

> Where company acts as agent or trustee of members . > For protecting public policy . 2) Under statutory provisions : > Reduction in members below statutory minimum limit . > Failure to repay the application money . > Misstatement in prospectus . > Misdiscription of companies name . > Fraudulent conduct of business . > Directors or members violating company act . > When there is holding & subsidiary company under suspicious .( relations )

COMPANY VS PARTNERSHIP :The company and partnership firm can be differentiated based on following characteristics. 1) Regulating Act . 2) Mode of Creations . 3) Number of Members . 4) Property Ownership . 5) Company or Single person . 6) Management . 7) Perpetual Succession . 8) Liability . 9) transfer or Shares . 10) Statutory Obligations . 11) Profit Sharing. 12) Death/Insolvency/Incapacity of members.

KINDS OF COMPANIES :
1) ON THE BASIS OF INCORPORATION : a) Chartered companies , b) Statutory companies c) Registered companies. 2) ON THE BASIS OF LIABILITY : a) Limited by shares , b) Limited by guarantee c) Unlimited companies. 3) ON THE BASIS OF NUMBER OF MEMBERS : a) Private company : ( min. 2& max. 50) Pvt Ltd. b) Public company : ( min. 7, max. unlimited ) . Private company to Public company . 4) ON THE BASIS OF CONTROL : a) Holding company : (>50%) . b) Subsidiary company : control of BoD, shares . 5) ON THE BASIS OF OWNERSHIP : a) Government company, (LIC, UTI) b) Non government company .

EXPLANATION :

1) ON THE BASIS OF INCORPORATION :

a) Chartered companies : Those companies which are incorporated under a special charter granted by king or queen ( in England) EX. The East India company or The bank of England .

b) Statutory companies : Created by a special ACT of the legislature. EX. RBI & SBI e.t.c.
c) Registered companies : This type of companies are formed under Companies Act 1956 and are where common types of companies found in India.

2) ON THE BASIS OF LIABILITY :

a) Companies limited by shares : In this type of companies member is not liable to pay anything more than the fixed value of the share, what ever may be the liabilities of the company . b) Companies limited by guarantee : In these companies members promises to pay a fixed some of money in the event of liquidation of the company. This amount is called the Guarantee ( or shares & Guarantee). c) Unlimited companies : Sec 12 Specifically provides that those companies in which the liability of share holders is unlimited as in partnership firms is called unlimited companies.

3) ON THE BASIS OF NUMBER OF MEMBERS : a) Private company : A private company is one which buy its articles i) Restricts the right of the members to transfer the shares, if any, ii) Limits the number of its members ( not counting its employees) to 50; iii) Prohibits any invitations to the public to subscribe for any shares or debentures of the company. A PVT must have its own Article of association which contains the condition as laid down in [ sec(3) (1) (iii)]. b) Public company :[sec 3 (1) (iv)] all companies other than private companies are called Public companies. In other words, a public company means a company which by its article (i) Does not restrict the right to transfer of the shares if any, (ii) Does not limit the number of members ; and (iii) Does not prohibit any invitation to the public.

Distinction between a public company and private company : the major differences are
a) Minimum and maximum number of members. b) Number of directors. [pub. co min 3, pvt .co 2]. c) Restriction on appointment of directors. [pub.co under taking for qualification shares. d) Transferability of shares. e) Invitation to subscribe for shares. f) Special privileges : only for Pvt.co. g) Quorum for meeting : min 2 Pvt.co & 5 Pub.co. h) Managerial remuneration : cannot exceed 11% of net profit. (pub. co)

When does a private company becomes a public company ?

Where a default is made by pvt.co [no. of members..] Where at least 25% of its paid up share capital is held by one or more of the body corporate. Where its average annual turn over during the last 3 consecutive financial year is R.s 10 corers or more. Where the pvt.co holds at least 25% of share capital of a pub.co. Where a pvt.co invites, accepts, renews deposits from the public. When a pvt. co becomes pub. co it must inform the Registrar within 3 months from the date of conversion .

3.ON THE BASIS OF CONTROL: a) Holding company: Sec.4.(4) a Co is deemed to be the holding Co. of another if but only if that other is its subsidiary ( >50% or control BoD) b) Subsidiary Company: Sec.4(4)a company is deemed to be subsidiary of another Co. in the following cases: i) Controlling the composition of BoD. ii) Holding of majority shares. iii) Subsidiary of another subsidiary.

5.ON THE BASIS OF OWNERSHIP: a) Government Company:

51% capital held by state or central govt. e.g. State Trading Corporation( STC).

b) Unregistered Company: C) Foreign Company: A company incorporated

out side India.

D) One-Man Company:

FORMATION OF A COMPANY: Promotion of company refers to stages of formation of a company. They are

1.Promotion Stage. 2.Selection of Name. 3. Incorporation (Registration) Stage. 4. Raising of Share Capital Stage:

Explanation: 1) Promotion Stage: This includes Discovery of business opportunities. Detailed investigation. Assembling Necessary Requirements: Financing the proposition: 2) Selection of Name: to be identified for legal and business purposes. (Ltd. or Pvt. Ltd). The name should not be similar to the existing.

3) Incorporation Stage:
A company is said to be incorporated when it fulfill the formalities of registration and obtain Certificate of Incorporation". By submitting the MoA , AoA and written consent of all the directors.
A public to commence business, should raise the required capital and obtain Certificate of Commencement of Business.

4) Raising the Capital: Which includes

following steps; A) entering onto agreement with underwriters. B) Applying to the stock exchange for listing of shares. C) Issue of prospectus inviting public to subscribe Allotting shares.

PROMOTERS OF A COMPANY:

A promoter is one who undertake a to form a company with reference to a given object and to set it going who takes the necessary steps to accomplish that purpose

Liability of promoters: Liable to hand over any

secret profit and any personal interest in dealings. Liable to untrue statement in the prospectus.

Remuneration to promoters: If personal

skills are involved in promotion.

The Memorandum of Association (MoA)

The MoA is a document which contains the Fundamental Rules regarding the constitution and activities of the company. It is the charter of the company defines its raison detre( reason for existence). It lays down the area of operation of the company. It also regulates the External Affairs of the company.

CONTENT OF MoA :Sec.13.

1)The name clause: The name of the company. 2)The Register Office Clause: The name of the state.. 3)The Object Clause: The Object of the company. 4) The capital Clause: The Registered/ Authorized /Nominal Capital. 5) The Liability Clause: The nature of liability of the members. 6) The Association Clause: Names , addresses and description of the subscribers and the number of shares taken by each of them. The MoA must be signed by at least seven subscribers in the case of Public Company and Two in the case of Private company.

Doctrine of Ultra-Vires (Beyond the Powers):

The company exists only for the purposes stated in its MoA and any act done outside the expressed or implied powers is Ultra-Vires and therefore null and void.

Ashbury Railway Company Vs Riche.

Object of co. sell and lend railway carriages. Lease mines and building. Entered contract with Riche for financing Construction of railway line in Belgium. The contract is not binding on railway co. as it is Ultra-vires the MoA.

Exceptions To (DoUV) :

1. If an act is ultra-vires the powers of the directors. 2. If an act is within the powers of the company, irregularly done ,shareholders can validate it . 3. The companies right over property is protected by ultra-vires act.

Doctrine of Constructive Notice (DCN):

Any person who enters into contract with a company, is expected to have knowledge of the power and position of the company and its directors, and he is presumed to have gone through its MoA and AoA. This rule is popularly called as DCN.

DOCTRINE OF INDOOR MANAGEMENT (DIM):

Is exception to the DCN. The outsider cannot be expected to know the internal affairs of the company or to inquire into the irregularities of the companys internal affairs. He is entitled to presume that the internal management of the company is regular. This is known as DIM or TURGUANDS RULE.

DIM Rule

case ROYAL BRITISH BANK Vs TURGUAND Case: Director issued Bond to Turguand without passing any resolution. Bond rejected on the ground of DCN. Turguand filled a case against bank and pleaded not knowing irregularities of management. Judgment: Turguand can sue the bond (valid) presumed as resolution passed i.e. under DIM.

was given by Lord Hatherly in the

Exceptions to DIM:
1. Knowledge of Irregularity. 2. Negligence of outsider: Forgery of document: Acts outside the Apparent Authority: No Knowledge of the Content of the MoA and AoA

ARTICLE OF ASSOCIATION (AoA):

The AoA contains regulations regarding all matters concerning the internal affairs of the company. CONTENT OF AoA: 1. Division of share capital of the company and rules regarding allotment, Issue, Transfer and Forfeiture of shares. 2. Procedure of holding and conducting the various company meetings. 3. Voting rights of members and rules regarding methods of voting. 4. Matters relating to appointment, powers duties, qualification and remuneration of directors. 5. Methods to increase or decrease capital. 6. Terms of appointment ,remuneration, delegation of authority e.t.c .of secretary or

7) Rules relating to issue of share capital. 8) Declaration of dividend and rules regarding its payment. 9) Rules relating to accounts, audit charging of depreciation and creation of reserves etc. 10) Methods of securing loans. 11) Rules regarding common seal of the company. Procedure of winding up of a company. AoA should be printed , divided into paragraphs and serially numbered. And all the subscribers who has put their signature on the MoA are required to put their signature , addresses etc. Alteration of AoA: By Passing a Spl. Resolution.

PROSPECTUS
Prospectus means any document described or
issued as a prospectus inviting deposits from public or inviting offer from public for the subscription or purchase of any shares in, or debentures of the company. Certificate in Lieu of Prospectus is issued by a public co. where the company doesnt invite public subscription. ESSENTIAL CONTENT OF THE PROSPECTUS: 1) Date of issue of prospectus. 2) Name and register office of the company. 3) Consent of Central Govt. for the present issue or compliance with the with the SEBI guidelines. Voting rights Dividend ,expenses on issue etc.

4) Name of the stock exchange. 5) Punishment for fictitious application. 6) Refund of issue if 90% min. subscription not received. 7) Issue of allotment letter or refund within 10 weeks with interest. 8) Date of opening and closing of issues. 9) Names and addresses of lead managers. 10) Credit rating from CRISIL (The Credit Rating Information Services of India Limited.) 11) Terms of Underwriting.& Risk Factors. 12) Capital Structure of the company, size of present issue ,paid up capital 13) Terms and particulars of the issue. 14) Promoters ,Directors names addresses 15) Restriction on transfer and transmission of shares.

LIABILITY FOR MIS-STATEMENT IN THE PROSPECTUS: Sec 65 of the companies act lays

down that the term Un true statement in connection with a prospectus shall be deemed to include. a) A statement which is misleading in the form & context in which it is included; & b) An omission ( of any matter) which is calculated to mislead. PERSONS LIABLE FOR UNTRUE STATEMENTS IN THE PROSPECTUS: sec 62 (i). i) Every person who is the director of the company at the time of issue of prospectus. ii) Every person who has authorised himself to be named. iii) Every person who is a promoter of the co. iv) Every person who has authorised the issue of prospectus.

The liabilities for untrue statement: The companies act imposes a two fold liability on the persons responsible for untrue statement in the prospectus. i) Civil liability. & ii) Criminal liability. i) civil liability : sec 62 (i) Such persons are liable to pay compensation for any loss or damage which any person may suffer from the purchase of any share or debenture on the basis of untrue statement. ii) Criminal liability : sec 63 (i) every person who has authorised the issue of prospectus containing untrue statement, shall be punishable with imprisonment which may extend to two years or with fine which may extend to Rs.5,000 or with both. Defense against the civil and criminal liability.

SHARE CAPITAL
Various categories of share capital are: 1) Nominal or Authorized Capital: max capital. 2) Issued Capital : Offered to public. 3) Subscribed Capital: Taken up by public. 4) Called up Capital: amount collected by share holders. 5) Paid up Capital : Paid up by shareholders.

Transfer of Shares: by delivery and

endorsement.

Transmission of Shares: means transfer of

property or title in share by law. Transfer of shares from deceased member to his legal representative or in case of bankruptcy to his Official Receiver.

CLASSIFICATION OF SHARES: 1) Preference Shares :again divided into

a) Cumulative and Non cumulative. b) Redeemable and Non redeemable.( return back ) c) Convertible and Non convertible. d) Participating and Non participating.( in surplus profit )

2) Equity or Ordinary Shares:

a) Preferred Ordinary Shares: preference for Dividend & capital repayment. b) Deferred Ordinary Shares:

3) Founders or Management Shares: 4) Co- Partnership Shares: to employees. Share certificate Vs Share warrant.

MEMBERSHIP OF A COMPANY : Member sec 45: The term member of a company means i) The subscribers of MOA of co. ii) every other person who has agrees to become a member of a co. And whose name is entered in its register of members.

How is membership created :

By signing the MOA, By getting allotment of shares, By obtaining shares in inheritance, By allowing his name to remain in the register of members .

How membership is terminated :

By death, By insolvency, By rescission of the contract, By forfeiture of shares, By surrender, By transfer, By sale, By mortgage of shares & By winding up.

DIVIDEND POLICY :

Dividend is a part of a profit which is paid to the share holders of a company Rules and regulations Regarding Payment of Dividend: Sec. 94 and 205 t0 207. 1.BoD decision is final in payment of dividend (of Profit) 2.Payment of Interim dividend. 3. In proportion to paid up capital 4. Transfer to Reserve Fund up to 10% of profit. 5. Dividend paid in cash only. 6. Unpaid Dividend Account: Transfer to gen. a/c of Central govt. if unpaid. 7. Dividend paid only to Registered share holders only. 8. Penalty : if dividend not declared within 42 days. 9. Dividend becomes debt from the date of declaration.

includes debenture, stock, Bonds and other securities of the company whether constituting a charge on the assets of the company or not. Kinds of Debentures: 1) Bearer or Unregistered Debentures. 2) Registered Debentures. 3) Secured Debentures. 4) Unsecured debentures. 5) Redeemable Debentures. 6) Irredeemable Debentures. 7) Convertible and Non convertible debentures.

DEBENTURE

Debentures Vs Shares :

MEETINGS, RESOLUTIONS AND GENERAL MANAGEMENT:

TYPES MEETINGS: The companies act provide
for Four types of meetings:

1.Meeting of Shareholders: These may be

further divided into a) Statutory Meeting. b) General meetings: again divided into i) Annual General Meetings. ii) Extraordinary General Meetings :

2. Class Meetings : 3. Meetings of Creditors and Debenture Holders : 4. Meeting of Directors.

1.Meetings of Share holder

a) STATUTORY MEETING: Sec.165 Every
public company limited by shares and every company limited by guarantee and having a share capital must within in a period of not less than one month not more the six months from the date at which the company is entitled to commence business, hold a general meeting of members which is called the statutory meetings.

certified by at least two directors of which one is MD. Which is sent to every member of , at least 21 days before meeting. Statutory report contains details about fully and partly paid shares, cash received Expenses of brokerage etc., Details about directors, Particulars of contracts.

Statutory Report : drafted by directors and

b). General Meetings:

General meeting of the company is called by the board of directors by giving short notice or 21 days if it is annual meeting. General meeting is called when ever is required.

i) The Annual General Meeting: (AGM) Sec.166.

provides First annual meeting within 18 months. Next annual meeting within 12 months and shld not exceed 15 months. Registrar may extend the time holding other meetings. Written Notice of 21 days to the members before meeting. Annual meeting should be called during business hours. Persons responsible for the default are liable to be fined up to Rs. 50000 and Rs.2500 for continuing default.

ii) Extraordinary General Meeting: (EGM)

Any general meeting other than AGM is called EGM. It is called for transacting some urgent or special business which cannot be postponed till the next AGM. The BoD can be compelled to hold a EGM upon request or requisition made for it under the following conditions. * The requisition must be signed by members holding at least 1/10th of the paid up capital or 1/10th of voting power. * The requisition for the meeting must mention matter for discussion. * The requisition must be deposited at the register office of the company. 21 days-Notice ,45 days- Meeting to be held from the date of requisition

2) CLASS MEETINGS : Class meetings of

share holders holding different class of shares. 3) MEETINGS OF CREDITORS OF DEBENTURE HOLDERS : This type of meetings or held during the life time of company & the winding up of company. 4) MEETINGS OF DIRECTORS : The companies act contains the following provisions relating to board meetings. a) Directors must hold at least 4 meetings in a year, at least once in every 3 months. b) Notice of the meeting must be given to the directors and quorum will be 1/3rd of the total strength or two directors, which ever is higher. c) Lack of quorum will lead to adjournment of the meeting.

RULES AND PROCEDURE REGARDING MEETINGS :The general rules of procedure as

regard share holders meetings are as follows:

1) Notice. 2) Agenda : Ordinary and special business. 3) The quorum for meeting : min. members 5&2. 4) Chairman of the meeting : Elect a chairman. 5) Proxy : To attend and vote on behalf of member. 6) Method of voting : Show of hands are a Poll.

RESTRICTION ON VOTING POWERS :Sec.181&182

An Equity share holders can vote on all resolutions; a preference share holder can vote only on questions affecting his interest, where the dividend payable is in arrears. The article of a company may provide that a member shall not exercise voting power in respect of a share on which a call or any other sum due to the company has not been paid. No other restrictions on voting rights can be imposed.

RESOLUTIONS :
Resolutions of members in a company are of three types : 1) Special resolution : 2) Ordinary resolution : 3) Resolution requiring special notice.

Resolution is a resolution which is passed by a majority of 3/4th of the members either by show of hands or by poll either in person or by proxy. Special resolution is essential for the following i) To alter the memorandum, place, Object. ii) To change the name of the company. iii) To alter the AoA. iv) To pay interest out of capital. v) To Wind up a co.

1) Special Resolution : Sec.189(2) Special

2) Ordinary Resolution:
A resolution is Ordinary Resolution when at general meeting, the vote cast in favour of resolution are more than the votes cast against the resolution by members entitled to vote and voting. Ordinary Resolution is required in the following i) For rectification of name. To issue the shares at discount. Alteration of Share capital. Passing of annual account and B/S. Appointment of auditors , Directors and fixation of remuneration. Voluntary winding up of co.

3. Resolution Requiring Special Notice:

Sec.190. Resolution requires a special notice of the intention to move the resolution has to be given to the company. The notice be given at least 14 days before the meeting at which the resolution is to be moved. A special notice is required in the following i) Appointment of auditors. ii) Removal of directors. iii) appointment of directors in place of one who is removed. Minutes of Proceeding: Minute means a written summary of the proceedings a of a meeting. Contains summary of the meetings names of members present, resolutions passed and opinion of chairmen.

Payment of Interest out of Capital:Sec208.

A company cannot pay interest out of capital, except in the following cases i) Where any shares in a co. are issued for the purpose of raising money to defray the expenses of construction of any work/ building or the provision of any plant , which cannot be made profitable for a lengthy period. ii) Authorized by AoA. iii)The prior permission or prior sanction by central govt.

DIRECTORS
Definition. Sec.2(13) any person who is

occupying the position of the director, by whatever name called. Sec303 any person in accordance with whose direction and instructions the BoD of a co. is accustomed to act shall be deemed to be director of the co. A director may, therefore, be described as an individual who guides , directs , governs, manages or superintends the policy and affairs of a co. by whatever name called.

Appointment of Directors: By following ways

A) By AoA by first directors. B) By the company in general meeting. C) By board of directors. D) By debenture holders & other creditors. E) By the central government. F) By the rule of proportional representation.

NUMBER OF DIRECTORSHIP: According to

sec 227 A person cannot hold the office at the same time as a director in more than fifteen companies.

SHARE QUALIFICATION: SEC 270.

a) director shall be deemed to be qualified if he secures the qualification shares with in two months after his appointment. b) The nominal value of qualification share or shares shall not exceed Rs 5000. c) Every director not being a tech. director appointed by the central or state government must file a statement of share qualification. d) The bearer of share warrant shall not be deemed holder of shares for the purpose of qualification shares. { Public co. }

DISQUALIFICATION OF DIRECTORS:
sec 274 Person of unsound mind, Un discharged insolvent, Convict, Those who has not paid any calls in respect of shares or Ordered by court.

RETIREMENT OF DIRECTORS :sec 255

provides that not less than 2/3rd of the total number of director of a public company or a private company which is a subsidiary of a pub co.. Shall be persons whose period of office is liable to terminate by rotation.

POWERS OF DIRECTORS : Normally derive

their powers and authority from two sources i) By article of association . ii) The companies Act. Sec 292 powers of directors are : Powers to make calls on share holders. To issue debentures. To borrow money otherwise than on debentures. TO invest the funds of the company. To make loans.

RIGHTS OF DIRECTORS : sec 318-321

Participate in the direction of the companies affairs. Entitle to receive remuneration fixed by AOA/Act. Directors or a MD may be given compensation by the co. in case of premature termination of services.

DUTIES OF DIRECTORS : sec 297,299-302

i) Fiduciary duties: Directors must exercise their power honestly and in the interest of the co. and shareholders. ii) Duties of care ,Skill and Diligence: iii) Other Duties: a) To attend board meetings. b) He must not delegate his functions except to the extent authorized by the act. C) He must disclose his interest the BoD.

LIABILITIES OF DIRECTORS:

The liabilities of directors may be discussed under four heads: i) Liabilities to Third Parties. Misstatement etc. ii) Liability to the Company. iii) Liability to the Breach of Statutory Duties: iv) Liability to the acts of his Co-directors. ii) Liabilities to the company: a) Ultra-vires act b) Liability for negligence. c) For any breach of trust. d) For any misconduct.

ACCOUNTS AND AUDIT: Sec.209.

Every co at it register office shall keep books of account with respect to, six months penalty or fine Rs.10,000 or both a) all sums of money received and expended. b) all sales and purchases of goods by the co. c) the assets and liabilities of the co. d) utilization of material or labour or other costs.

Inspection of Books of account: Annual Accounts and Balance sheet: Boards Report: co. affairs, reserves, dividend Filing of accounts with the Registrar: within
30 days from the date of B/S and P&L A/C filing.

AUDIT AND AUDITORS:

Audit of the co. is intended for the protection of
the shareholders.

Auditors are the person who will examine the

accounts maintained by the directors with a view to informing the shareholders of the true financial position of the co.

Rights and powers of the Auditors :

Right of Right to Right to Right to attend. Right to access to books of a/c and Vouchers. obtain information and Explanation. visit branch offices and access to books. receive notice of general meeting and to receive remuneration.

DUTIES OF AUDITORS: Sec 227

1.The auditor must acquaint himself with the AoA and Companies Act. 2. Auditor should report to the members of the company on the accounts examine by him. 3. Duty as watchdog.

Auditors Report: After examining the accounts

of the co. an auditor is required to make a report to the member of the company. The auditor report includes Loans and advances of co. Assets of the co. Personal expenses. Any shares allotted for cash. Proper books of a/c are maintained and other information.

Winding Up of a Company :
Winding up or liquidation of a co. means the termination of the legal existence of a co. by stopping its business, collecting its assets and distributing the assets among creditors and shareholders, in the manner laid down in the Companies Act.

Modes or Methods of Winding Up

There are three methods of winding up of a company, i.e., 1. Compulsory Winding Up of Company by the court 2. Voluntary Winding Up. This may be_ a) Member's Voluntary winding up. b) Creditors Voluntary winding up. 3. Winding up under the supervision of the court.

Explanation: Modes of winding up 1. Compulsory winding up of co. on following grounds. a) Special Resolution for the winding up. b) Default in holding Statutory meetings or in delivering Statutory Report. c) Failure to Commence Business within a year from the date of incorporation. d) Reduction in membership below statutory minimum. f) If the co. unable to pay its debt. g) If the court is of opinion that it is just and equitable that the co. should be wound up. Who can apply for winding up? *By the co. *By any Creditors. * By a Contributory. * By the Registrar.

2. Voluntary Winding Up: means winding up by

members themselves without the intervention of the court. a) By an Ordinary Resolution. (duration completed) b) By special resolution in other cases.
i) Members Voluntary Winding Up. ii) Creditors Voluntary Winding Up.

Types of Voluntary Winding Up:

Powers And Duties of Liquidators:

Contributories: Is a person who is liable to

contribute to the assets of the company in the event of winding up. The persons liable as contributories may be i) Present Members. ii) Past Members & iii) Directors.

3.Winding Up Under the Supervision of the Court. The court may make an order and may
regard to the wishes of the creditors and contributories. The court may appoint a additional liquidator.

Consequences of Winding Up :

1. Consequences as to Shareholders: Limited liability. 2. Consequences As to Creditors: The order of priority paying off debts in a winding up is i) Secured creditors ii) Cost and Charges of Winding. iii) Preferential Debts. Iv) Floating Charges. V) Unsecured Creditors