3Meaning of the CompanyAccording to section 3(1) (i) of The Companies Act, 1956, “Company means a company formed and registered under this Act or an existing company”.A "Company" may be defined as a voluntary association of persons who have come together to carry on some business and sharing the profits, there from.It is an artificial person created by law, formed for the purpose of business, registered under law having an independent legal entity, a distinctive name, common seal and perpetual successionCompany - “ an association of many persons who contribute money or money’s worth to a common stock and employ it in some common trade or business (for common purpose) and who share the profit or loss arising there from”
4Characteristics of a Company Incorporated AssociationAn artificial person created by lawSeparate Legal Entity::Perpetual Existence /SuccessionCommon SealLimited Liability : By Shares, By GuaranteeFree Transferability of sharesOne Share-One VoteCapacity to sue and being suedSeparate PropertySeparate Management
5Merits of a Company i. Collection of huge financial resources ii. Limited liabilityiii. Free transferability of sharesiv. Durability and stabilityv. Growth and expansionvi. Efficient managementvii. Public confidenceviii. Social benefitsa. Democratization of managementb. Dispersal of ownershipc. Assumption of social responsibilities
6Limitations of Company Organization i. Lengthy and expensive legal proceduresii. Excessive government regulationsiii. Lack of incentiveiv. Delay in decision makingv. Conflict of interestvi. Oligarchic managementvii. Speculationviii. Growth of monopolistic tendenciesix. Influence government decisions
7Lifting the Corporate Veil MisrepresentationInvestigationsFradulent ConductProtection of RevenueEconomic OffencesImproper UsesMere Sham or Fly by Night
8Company Vs Partnership Regulated under Companies Act 1956Partnership Act 1932Exits after registration under Co.Act 1956Registration not mandatoryManaged by Directors, Board of DirectorsEvery partner should take part in the managementProperty and rights is nontransferable to shareholdersTransferable to any or all partners
9Company Vs Partnership Shares are transferable when the transferee becomes the memberShares cannot be transferred without the consent of all partnersShareholders is not the agent…has no powerEach partner is an agent…has powerMin-2Max- banking 10others 20Bound by law and audited annuallyNo statutory provisionsOnly it can be dissolved (Wound by provisions of companies Act 1956)Dissolved by death/ insolvency of partner or wound if it is for fixed period.MembersPublicPvtMin72MaxNo limit50
10Types of Companies i. Private Company Ii. Public Company iii. Government Companyiv. Holding and Subsidiary companiesV. Foreign Companies
11Types of Companies 1. Basis of incorporation: Chartered company :The royal prerogative has power to create a corporation by the grant of a charter to persons assenting to be incorporated. E.g. Bank of England, East India CompanyStatutory Company : These are companies created by a special act of the LegislatureE.g. Reserve Bank of India, State Bank of India, Life Insurance Corporation-- Registered or Incorporated Company: These are companies which are formed and registered under the companies Act, 1956.Private CompanyPublic Company
122.Based on Liabilitya company limited by sharesa company limited by guaranteean unlimited company3. On the basis of Number of members1) Private Limited Company2) Public Limited Company
134. Based on ControlGovernment CompanyForeign CompanyHolding and Subsidiary CompanyMulti National Company
14Government Company Features of Government Company i. Registered under Indian Companies Actii. Government holding of majority sharesiii. Board of Directors representing the Governmentiv. Relatively free from Government proceduresv. Overall control of the Government
15DifferencePrivate CompaniesPublic CompaniesMin no. of membersMinimum number of members in private company is twoMinimum number of members in public company is sevenMax.no. of membersMaximum number of members in private company is 50No maximum limit of membership in public companiesNumber of directorsMinimum number of directors is two.Minimum number of directors is threeIssue of shares to publicNot allowed to issue public invitation for investing in the companyPublic invitation of prospectus and public issue of shares, debentures and deposits allowed.Transferability of sharesPrivate co restricts the transfer of shares. The shares cannot be listed in stock exchangesA public company cannot put any restriction on the transfer of shares. They’re freely transferableMinimum CapitalThe minimum paid up capital for a private company is Rs.100,000.The minimum paid up capital of a public company is Rs.500,000Holding director shipDirectorships held in private companies are excludedA person cannot hold directorship in more than 20 public companies
16I. Promotion Meaning of Promotion Promotion is the first stage in the formation of a company. Promotion involves identification of a business opportunity or idea, analysis of its prospects and taking steps in implement it through the formation of a Company.A company may have more than one promoter. The promoter may be an individual, firm, an association of persons or a body corporate.
17Functions of a Promoter To Conceive Business IdeaTo make Detailed InvestigationTo Organize the ResourcesTo Obtain the Consent of Persons Willing to Act as First DirectorsTo Decide about the Name of the CompanyTo Get the Necessary Documents PreparedTo Arrange for Filling of the Necessary Documents with the Registrar
18II. Incorporation by Registration 1) Memorandum of Association: Document that governs the relationship between the company and the outside worlda) Name clause: Governed by “ Emblems and Names Act 1950”Seal to be present on all business letters, notices etcb) Domicile clause: Ascertains domicile and nationality of a companyc) Objects clause: Explains the utilization of shareholders fundsEnables the person dealing with the company to ascertain its powersd) Liability clause: It states the liability of the members of thecompany is limitede) Capital clause: It must state the authorized of nominal share capitalf) Association or Subscription Clause: It specifies the willingness of the subscribers to associate and form a companyViolation of MoA: “Doctrine of the ultra-vires”
19Alteration of the Memorandum Change of nameChange of registered officeChange of the Objects clauseTo carry on its business more economicallyTo attain its main object by new or improved meansTo enlarge or change the local area of its operationTo restrict or to abandon any of the objects specified in the memorandumTo sell or dispose of the whole or any part of the undertaking of the companyTo amalgamate with any other company or body of persons19
202) Articles of Association The Articles of Association (AA) contain the rules and regulations of the internal management of the company.1. Powers, duties, rights and liabilities of Directors and Members2. Rules for Meetings of the Company3. Dividends4. Borrowing powers of the company5. Calls on shares6. Transfer & transmission of shares7. Forfeiture of shares8. Voting powers of members, etc
21Contents of Articles The business of the company; The amount of capital issued and the classes of shares into which the capital is divided, the increase and reduction of share capital;The rights of each class of shareholders and the procedure for variation of their rights;The execution or adoption of a preliminary agreement, if any;The allotment of shares; calls and forfeiture of shares for non-payment of calls;Transfer and transmission of shares;21
22Contents of Articles Company’s lien on shares; Exercise of borrowing powers including issue of debentures;General meetings, notices, quorum, proxy, poll, voting, resolution, minutes;Number, appointment and powers of directors;Dividends – interim and final – and general reserves;Accounts and audit;Keeping of books – both statutory and others.Contents of Articles22
23Articles of Association Meaning and purpose:Articles of Association of a company and its bye laws are regulations which govern the management of its internal affairs and the conduct of its business.They define the duties, rights, powers and authority of the shareholders and the directors in their respective capacities and of the company is to be carried out.They are framed with the object of carrying out the aims & objects as set out in the memorandum of association.23
24Articles of Association The articles of association of a company have a contractual force between the members inter se in relation to their rights as such members.Articles cannot supersede the objects as setout in the memorandum of association.The articles must be:(i) printed,(ii) divided into paragraphs, numbered consecutively,(iii) signed by subscribers to the memorandum in the presence of at least one witness who shall attest the signatures. Also, articles are to be stamped with requisite stamp and filed along with the memorandum.Articles of Association24
25Memorandum of Association Articles of Association Distinction between Memorandum of Association & Articles of AssociationMemorandum of AssociationArticles of AssociationIt is the charter of the company indicating the nature of its capital. It also defines the company’s relationship with outside world.They are the regulations for the internal management of the company & are subsidiary to the memorandumIt defines the scope of the activities of the company, or the area beyond which the actions of the company cannot go.They are the rules for carrying out the objects of the company as set out in the memorandum25
26It, being the charter of the company, is the supreme document Distinction between Memorandum of Association & Articles of AssociationIt, being the charter of the company, is the supreme documentThey are subordinate to the memorandum. If there is a conflict between the articles & the memorandum, the latter prevails.Every company must have its own memorandumA company limited by shares need not have articles of its own. In such a case, Table A applies of sch I, sec 26.Any act of the company which is ultra vires the memorandum is wholly void & cannot be ratified even by the whole body of shareholdersAny act of the company which is ultra vires the articles (but in intra vires the memorandum) can be confirmed by the shareholders26
27Inspection and copies of the Articles A company shall, on being so required by a member, send to him within seven days of the requirement, on payment of five rupees, a copy of the articles.if a company makes default, the company and every officer of the company, who is in default, shall be punishable with fine up to Rs 5000 (s.39).27
28Alteration of Articles. Section 31 provides that subject to the provisions of the Act and to the conditions contained in its memorandum, a company may, by special resolution alter or add to its articles must be filed with the Registrar within 30 days of the passing of the special resolution.28
29Limitation on power to alter Articles Must not exceed the powers given by the memorandum or conflict with the other provisions of the memorandum.Must not be inconsistent with any provision of the companies Act or any other statue.Must not include anything which is illegal, or opposed to public policy or unlawful.The alteration must be bona fide for the benefit of the company as a whole. The alteration will not be bad merely because it inflicts hardship on an individual shareholder.29
30Limitation on power to alter Articles There cannot be alteration of the articles so as to compel the existing members to take or subscribe for more shares or in any way to contribute to the share capital, unless they given their consent in writingThe amended regulation in the Articles of Association cannot operate retrospectively, but only from the date of amendment.30
31Doctrine of Constructive Notice Every outsider dealing with a company is deemed to have notice of the contents of the Memorandum & the Articles of Association.These documents, on registration with the Registrar, assume the character of public documents. This is known as constructive notice of Memorandum and Articles31
32Doctrine of Indoor Management There is one limitation to the doctrine of constructive notice of the Memorandum & the Articles of company.The outsiders dealing with the company are entitled to assume that as far as the internal proceedings of the company are concerned, everything has been regularly done.They are presumed to have read these documents & to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the memorandum & the Articles.They can presume that all in being done regularly. This limitation of the doctrine of constructive notice is known as the “doctrine of indoor management”.32
33III. Registration of the Company IV. Certificate of Incorporation V. Commencement of Business ProspectusStatement In Lieu of Prospectus
34Types of shares 1.Equity shares 2.Preference Shares Types of Preference Shares 1.Cumulative or Non-cumulative2.Redeemable and Non- Redeemable3.Participating Preference Share or non-participating preference shares
35S.NoBasis of distinction Preference shareEquity Share1.Voting rightsThe holder of these shares do not enjoy any voting right except at their class meetingGenerally equity share holders enjoy voting rights.2.Payment of dividendThe holders of these shares have the preference right as to the payment of dividendEquity share holders get the dividend, after the payment to preference share holders.3.Repayment of capitalThe holders of these shares have the preference right as to the repayment of preference share capital Repayment of equity share capital is made after making repayment to profaner share holder.4.Rate of dividend The rate of dividend is fixedThe rate of dividend may vary year to year5.ConvertibilityPreference shares can be converted into equity sharesThe equity shares are non convertible6.Redemption The preference are redeemable during the life time of the companyThe equity shares are not redeemable during the life time of the company
36Prospectus – Red Herring Prospectus Buy-back of sharesRights IssueIssue of Bonus sharesSweat Equity and Employee Stock OptionsShare certificate
37Forfeiture of SharesDemat AccountsListing and DelistingShareholder and StakeholderQuorumProxyNBFCs
38Kinds of Meetings Statutory Meeting Annual General Body Meeting Extraordinary General Body MeetingBoard MeetingsMeetings of CreditorsMeetings of Debenture HoldersMeetings of the Committees of the Board
3939 MEETINGS Meetings of share holders: General meetings Extra ordinary meetingsAnnual general meetingsStatutory meetingsClass meetingsMeetings of directorsMeetings of creditors and debenture – holders39
40Meetings of Shareholders. Statutory Meeting (Section 165)Statutory meeting is the first meeting of the shareholders of a company. This meeting is held only once in the life time of the company.Objectives:To approve the preliminary contracts specified in the prospectus of the company with modification if any.To discuss the success of floating the project of the company.Provisions:1. Time: Every company , shall , within a period of not less than ONE month and not more than SIX months from the date on which the company is entitled to commence the business, hold the Statutory meeting
412. Notice: The company must give notice to its member at least 21 clear days before holding the statutory meeting stating time, date and place of meeting.Statutory Report: The Directors of the co., are required to send a report called statutory report to every member of the company along with the notice of the meeting at least 21 days before the date of the meeting.CONTENTS:Allotment of Shares: The total number of share allotted, distinguishing fully paid or partly paid up and the extent to which they are so paid up, shares issued otherwise than for cash.Cash Received: Total amount of cash received by the company in respect of all the shares allotted.Abstract of Receipt and Payment AccountNames, addresses and occupations of the company’s Directors, Auditors and all other managerial personnel.To approve the preliminary contracts specified in the prospectus of the company with modification if any.The extent to which the Underwriting Contracts has been carried out and the reasons thereof.The calls in arrears, if any, due from any Director and the Managers of the co.Commission and brokerage paid to any Director or Manager on the issue of shares or debentures of the company.
424) Certification of Statutory report: By not less than two directors , one of whom shall be the Managing Director. The Auditor of the co shall certify the particulars regarding the issue of shares, receipts and payment etc. And a copy of certified statutory report must be sent to the Registrar of company immediately after it is sent to the members of the company.5. Penalty: Maximum of Rs. 5000/-
43Quorum For A MeetingDictionary – least number of members required to carry on a meeting or for doing business.Minimum number of members required in order to consider a meeting valid.Generally, Articles provide for larger quorum. But not smaller than statutory minimum ,i.e., Five members personally present in case of Public Limited and two for a Private limited.
44ResolutionsQuestions which generally come for consideration at the general meeting of a company are presented in the form of proposals called Motions.A motion proposed by the chairman of the meeting/any other member . After discussions put to vote, final result accepted becomes Resolutions.Kinds of resolutions: a)Ordinary resolution[sec.189(1)].., b)Special resolution[sec189(2)].., c)Resolutions requiring special notice[sec190].
45When is an Ordinary resolution required? Is passed in a general meeting by a simple majority of votes. Votes cast in person/by proxy , and required notice of resolution duly given.It is required for.., matters concerning with Name Clause…, Capital Clause.., for appointing auditors and fixation of their remuneration…., appointing of first directors who are liable to retire by rotation….., for increasing/decreasing in number of directors….., appointment of managing director, removal of a director …, for winding up of a company voluntarily in certain events…, appointing and fixing of remuneration of liquidators
46Special resolutionsIs required for changing the place of registered office from one state to another.., for alterations of ‘Objects clause’…,omission/addition of ‘private’ from name.., alteration of Articles.., conversion of any portion uncalled capital into reserved capital..,for payment of interest out of capital.., applying to Central Govt for an inspector to investigate in company affairs.., for applying in court to wind up.,for authorizing a liquidator to accept shares as consideration for transfer of its assets.., and for disposal of books and papers of a company in voluntary winding up after completion of the process.
47Resolutions requiring Special Notice Its only a different kind of ordinary resolutions of which notice of the intention to move a resolution has to be given.Notice shall be given not less than 14days before the meetingto the members as notice of meeting is given/by advertisement.Is required for appointment of an auditor other than retiring ones.., to re-appoint the retiring auditor…, for removal of a director before expiry of his period.., for appointment of a director in place of who is removed.Passing of Resolutions by Postal Ballot[sec.192-A]a listed company may conduct it by postal ballot. It has send a notice along with a draft resolution explaining the reasons, which should be returned within a period of 30days from the date of posting of the ballot.
48CLB – Company Law BoardRoC – Registrar of CompaniesSEBI – Securities and Exchange Board of IndiaSensex, Nifty, BSE, NSEPrice BandMinimum SubscriptionOver Subscription
49Features of Debentures The rates of interest payable on debentures is fixed.The rates of interest payable on the face value of the debentures.The debenture holders do not have any voting right to participate in management.The holder of debentures are paid interest before the payment of profit to preference share holder.Debentures may be convertible
51S.NoBasis of distinctionSharesDebentures1.Capital Vs LoanA share is a part of owner' fundA Debenture constitutes a loan2.Status of holderShareholder are ownersDebenture holders are creditors3.Right to voteShares carry the right to voteDebentures did not carry the right to vote4.Charge on AssetsShares are not secured against any chargeNon convertible debenture issued for a period exceeding 18 months are always have a charge5.ReturnNo fixed dividend payable despite profitsFixed rate of interest payable even in the absence of profit6.Repayment of capitalPrincipal amount is repayable after debenture holderPrincipal amount is repayable before Preference share 7.Reward for Investment Reward is the payment of dividend Reward is the payment of interest8.ConvertibilityEquity shares can not be convertibleDebentures can be convertible9.Restriction on issue at discount Section 79, of the companies Act 1956, imposes certain restriction on issue of shares at discountThe is no restriction imposed on issue of debentures at discount.10Trust deed Share Trust Deed is not required to be executed Debentures Trust Deed is required to be executed.
52Kinds of Directors Appointment by First Directors Appointment at General Body MeetingsAppointment by Board Of DirectorsAppointment by Financial InstitutionsAppointment by GovernmentWhole Time Directors and Independent Directors
53Winding Up of Companies Meaning of Winding Up: Process of putting an end to the life of a company.In the course of such a dissolution, its assets are collected and debts are paid off.Winding up is the prior stage and dissolution is the next.Types of Winding Up:CompulsoryVoluntary (Members or Creditors)
54Circumstances for Winding Up On passing of a special resolution.Failure to hold statutory meeting.Failure of the company to commence business.Reduction in number of members below minimum.Company acting against the interest of sovereignty and integrity of India.When sick industrial company is unable to make its networth exceed its accumulated losses within a reasonable time.
55Winding Up of the Company Special ResolutionsDefault in holding statutory meetingFailure to Commence BusinessReduction in MembershipInability to Pay DebtsJust and Equitable
56Petition(439) “It’s an application to wind up the company.” Who Can File Winding Up Petition?CompanyCreditorsContributoryRegistrar of CompaniesCentral Government
57Official LiquidatorA member from the panel of the professional firms of chartered accountants, advocates, company secretaries, cost and work accountants which the central government may constitute.Body corporate approved by central government.Whole-time or part-time officer appointed by the central government.
58Duties of Liquidator To submit preliminary report To takeover company’s assetsTo convene meetings of creditors and contributoriesTo keep proper booksTo submit accountsTo submit information in pending liquidation
59Powers Of Liquidator To be exercised by sanction of court ( 457.1) Institute and defend suits, prosecutions in the name and on behalf of the companyCarry on business for the beneficial winding upSell movable & immovable property by public action or private contractRaise money on the security of any asset of the companyDo all other acts necessary to wind up & to distribute assets
60Powers Of LiquidatorTo be exercised without the sanction of the court(457.2)Do all acts & execute in the name of the company all deeds, receipts and documentsInspect records & returns on the files of the RegistrarDraw, accept, make & endorse bill of exchangeTo appoint agents where necessary