KRISHAN COMMERCE CLASSES 3.1 Best Coaching available for CS & CA (Inter & Final Law Subjects) 3.1 By CA CS CMA Jagdeep Arora KRISHAN COMMERCE CLASSES Promotion: The term Promotion includes all those steps which are required to bring the company into existence. Following steps are taken in the process of Promotion: Conceiving an Idea Taking necessary steps for the incorporation of a company Floatation i.e. raising of capital or arranging the financial resources so as to carry on its business operations Obtaining certificate of Incorporation from ROC Note: Now companies are not required to get certificate of commencement of business. Promoter: As defined by 2(69) “Promoter” means a person— (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act. Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity; CONTROL – 2(27) "Control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner; 3. Promotion and Formation of Company
17
Embed
3. Promotion and Formation of - · PDF fileKRISHAN COMMERCE CLASSES 3.5 Best Coaching available for CS & CA (Inter & Final Law Subjects) 3.5 a S 3) Civil Liability for...
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
KRISHAN COMMERCE CLASSES 3.1 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.1
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
Promotion:
The term Promotion includes all those steps which are required to bring the company
into existence.
Following steps are taken in the process of Promotion:
Conceiving an Idea
Taking necessary steps for the incorporation of a company
Floatation i.e. raising of capital or arranging the financial resources so as to
carry on its business operations
Obtaining certificate of Incorporation from ROC
Note: Now companies are not required to get certificate of commencement of business.
Promoter:
As defined by 2(69) “Promoter” means a person—
(a) who has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors
of the company is accustomed to act.
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a
professional capacity;
CONTROL – 2(27)
"Control" shall include the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting individually
or in concert, directly or indirectly, including by virtue of their shareholding or
management rights or shareholders agreements or voting agreements or in any other
manner;
3. Promotion and Formation of
Company
KRISHAN COMMERCE CLASSES 3.2 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.2
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
Position of Promoters:
Promoters are neither the Trustee nor Agent of a Co., because the Principal has not
come into existence and trust has also not yet constituted.
The Promoters stands in a fiduciary (trustworthy) relationship with the co.
The Fiduciary relationship requires full disclosure of the relevant facts, including
any profits made.
Q. A promoter is neither an agent nor a trustee of the company, but he occupies a
fiduciary position in relation to the company. Discuss. (June, 14 – 4 marks)
Q. Whether Holding company is considered as promoter?
Hint: By virtue of its shareholding, Holding company shall be considered to be a
promoter.
Q. Explain the provisions to determine in what circumstances an Individual will be
considered as a promoter of the Company, if Kundan has been identified as a promoter
in the recent annual return of the Company, please comment whether Kundan will be
considered as a promoter of that Company? In the event of a mis-statement in the
prospectus of the company, what will be civil liability of Kundan? (June, 17(F) – 4
marks)
Ans.
Q. A,B,C and D developed a business plan. To implement the plan, it was decided that A
and B will incorporate a company and C, a Chartered Accountant, will provide them his
professional services for the same. It was also decided that D will provide loan to
company the loan to be provided by D was essential to start the business of the
company. Advise, out of C and D, who shall be regarded as a promoter of the company.
(Dec, 14 – 4 marks)
Hint: C not to be considered promoter, but D to be if he enjoys control over the
affairs of the company.
Right to receive Preliminary Expenses
A promoter has no legal right to claim promotional expenses for his services unless
there is a valid contract. Without such a contract he is not even entitled to recover his
preliminary expenses. [Re. English & Colonial Produce Company (1906) 2 Ch. 435 CA].
KRISHAN COMMERCE CLASSES 3.3 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.3
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
The promoters are entitled to receive all the expenses incurred for in setting up and
registering the company from Board of Directors. The articles will have provision for
payment of preliminary expenses to the promoters. The company may pay the expenses
to the promoters even after its formation, but such payments should not be Ultra Vires
the articles of the company. The Articles may have provision regarding payment of
fixed sum to the promoters.
In India, promoters are eligible to claim such preliminary expenses, if company adopts
such contracts after incorporation.
Q. Promoter’s rights to receive preliminary expenses should have been enshrined in the
articles of association. (Dec, 13 – 4 marks)
Duties of the Promoter:
(a) BENEFIT ACCRUES ON THE BASIS OF NON DISCLOSURE OR INSUFFICIENT
DISCLOSURE:-
As per section 102 relating to explanatory statement, where any promoter,
director, manager(if any), or any other managerial personnel doesn’t disclose or
discloses insufficient information and as a result of it, he or his relatives directly
or indirectly get any benefit then without prejudice to any other action being taken
against him under this Act or under any other law for the time being in force, be
liable to compensate the company to the extent of the benefit received by him.
In case of non compliance of above provision, the person in default shall be
punishable with fine which may extend to Rs. 50000 or 5 times of benefit derived,
whichever is more
(b) DISCLOSURE OF INTEREST:- A promoter is not allowed to derive a profit from the sale of his own property to the
company unless all material facts are disclosed. If a promoter contracts to sell his own
property to the company without making a full disclosure, the company may either
repudiate the sale or
affirm the contract and recover the profit made out of it by the promoter.
A promoter is not prohibited to make profit but he is prohibited to make secret profit.
(c) EXIT OPPORTUNITY BY PROMOTERS
As per section 13(8), a company, which has raised money from public through
prospectus and still has any unutilised amount out of the money so raised, shall not
change its objects for which it raised the money through prospectus unless a special
resolution is passed by the company and the dissenting shareholders shall be given an
KRISHAN COMMERCE CLASSES 3.4 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.4
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
opportunity to exit by the promoters and shareholders having control in accordance
with regulations to be specified by the Securities and Exchange Board.
(d) EXIT OPPORTUNITY IN CASE OF CHANGE IN PROSPECTUS
As per section 27(2), the dissenting shareholders being those shareholders who have
not agreed to the proposal to vary the terms of contracts or objects referred to in the
prospectus, shall be given an exit offer by promoters or controlling shareholders at
such exit price, and in such manner and conditions as may be specified by the
Securities and Exchange Board by making regulations in this behalf.
(e) PROMOTER AS A DIRECTOR U/S 167
As per section 167(3), where all the directors of a company vacate their offices under
any of the disqualifications specified in sub-section (1), the promoter or, in his absence,
the Central Government shall appoint the required number of directors who shall hold
office till the directors are appointed by the company in the general meeting.
(f) PROMOTER AS A DIRECTOR U/S 168
As per section 168(3), where all the directors of a company resign from their offices,
or vacate their offices under section 167, the promoter or, in his absence, the Central
Government shall appoint the required number of directors who shall hold office till the
directors are appointed by the company in general meeting.
(g) CO-OPERATION TO COMPANY LIQUIDATOR
As per section 284(1), the promoters, directors, officers and employees, who are or
have been in employment of the company or acting or associated with the company shall
extend full cooperation to the Company Liquidator in discharge of his functions and
duties during winding up by the Tribunal.
LAIBILITY OF PROMOTER UNDER COMPANIES ACT, 2013
1) Incorporation of company by furnishing false information:- As per section 7(6),
where, at any time after the incorporation of a company, it is proved that the company
has been got incorporated by furnishing any false or incorrect information or
representation or by suppressing any material fact or information in any of the
documents or declaration filed or made for incorporating such company, or by any
fraudulent action, the promoters, the persons named as the first directors of the
company and the persons making declaration shall be liable for fraud under section
447.
2) Contents of Prospectus - Section 26 of the Act lays down matters to be stated and
reports to be set out in the prospectus. The promoter(s) may be held liable for the
non-compliance of the provisions of this Section. Further, as per section 26(1)(a)(xiv)
prescribed disclosures about sources of promoter’s contribution has to be made in
prospectus.
KRISHAN COMMERCE CLASSES 3.5 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.5
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
3) Civil Liability for misstatements in prospectus u/s 35 :- A promoter is liable for
any misleading statement in the prospectus to a person who has subscribed for any
securities of the company on the faith of the prospectus. By virtue of section 35(1),
where a person has subscribed for securities of a company acting on any statement
included, or the inclusion or omission of any matter, in the prospectus which is
misleading and has sustained any loss or damage as a consequence thereof, the company
and certain persons as mentioned in the said section, including a promoter of the
company shall, without prejudice to any punishment to which any person may be liable
under section 36, be liable to pay compensation to every person who has sustained such
loss or damage.
No promoter shall be liable under this section, if he proves that the prospectus was
issued without his knowledge or consent, and that on becoming aware of its issue, he
forthwith gave a reasonable public notice that it was issued without his knowledge or
consent.
4) Punishment for fraudulently inducing persons to invest money u/s 36:- As per
section 36, any person who, either knowingly or recklessly makes any statement,
promise or forecast which is false, deceptive or misleading, or deliberately conceals any
material facts, to induce another person to enter into, or to offer to enter into,
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or
underwriting securities; or
(b) any agreement, the purpose or the pretended purpose of which is to secure a profit
to any of the parties from the yield of securities or by reference to fluctuations in the
value of securities; or
(c) any agreement for, or with a view to obtaining credit facilities from any bank or
financial institution, shall be liable for punishment for fraud under section 447.
5) Contravention of provisions relating to private placement: If a company makes an
offer or accepts monies in contravention of the provisions of private placement as
stated in section 42, the company, its promoters and directors shall be liable for a
penalty which may extend to the amount involved in the offer or invitation or Rs. 2
crores , whichever is higher, and the company shall also refund all monies to
subscribers within a period of 30 days of the order imposing the penalty. [Section
42(10)]
6) Failure to cooperate with Company Liquidator during winding up: As per section
284 (2), where any promoter, without reasonable cause, fails to cooperate with the
Company Liquidator during winding up, he shall be punishable with imprisonment which
may extend to 6 months or with fine which may extend to Rs. 50,000 , or with both.
7) Public examination - A promoter may be liable to public examination like any other
director or officer of the company if the Tribunal so directs on a Company Liquidator's
KRISHAN COMMERCE CLASSES 3.6 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.6
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
report alleging fraud in the promotion or formation business or conduct of affairs of
the company since its formation [Section 300(1)].
8) Misapplication of company’s money/property - A company may proceed against a
promoter on action for deceit or breach of duty under Section 340, where the
promoter has misapplied or retained any money or property of the company or is guilty
of misfeasance or breach of trust in relation to the company.
9) Criminal Liability for misstatement in prospectus: Besides civil liability, the
promoters are criminally liable under Section 34 for the issue of prospectus containing
untrue or misleading statements in form or context in which it is included or where any
inclusion or omission of any matter is likely to mislead.
Section 447 imposes severe punishment for fraud on promoters who make untrue or
misleading statements in prospectus with a view to obtaining capital. that the
statement or omission was immaterial; or
(i) that he had reasonable grounds to believe, and did, up to the time of the issue of
prospectus, believe that statement was true or the inclusion or omission was
necessary.
Remedies available to subscribers deceived by misstatement in the
prospectus - The following are some of the remedies available to the subscriber who is
deceived by any misleading statement or the inclusion or omission of any matter in the
prospectus:—
(a) As per section 37, a suit may be filed or any other action may be taken under
section 34 or section 35 or section 36 by any person, group of persons or any
association of persons affected by any misleading statement or the inclusion or
omission of any matter in the prospectus.
(b) He may take proceedings to repudiate the contract and require repayment of his
money with interest.
(c) He may, in respect of any misleading statement or the inclusion or omission of any
matter in the prospectus, bring an action against the directors and promoters for
the recovery of compensation.
(d) He may, bring an action for damages against the directors and other persons
responsible for failure to disclose matters in a prospectus.
(e) He may, in respect of any misleading statement or the inclusion or omission of any
matter in the prospectus, bring an action against directors or those who are
responsible for the prospectus.
In addition to directors and promoters the liability under the section also attaches to
person who have authorised the issue of the prospectus. However, the words cannot
reasonably be held to apply to such persons as bankers, brokers, accountants, solicitors
and engineers who merely consent to their names appearing as such in the prospectus.
KRISHAN COMMERCE CLASSES 3.7 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.7
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
10) Liability during Revival and Rehabilitation: The liability of promoters is now dealt
under Insolvency and Bankruptcy Code, 2016.
KRISHAN COMMERCE CLASSES 3.8 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.8
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
RIGHT TO RECOVER PROPORTIONATE AMOUNT FROM THE CO-PROMOTERS
The promoters are held jointly and severally liable for the secret profits made by them
in the formation of a company. Therefore if the entire amount of secret profits is paid
to the company by a single promoter, he is entitled to recover the proportionate
amount from co-promoters. Likewise, if the entire liability arising out of mis-statement
in the prospectus is borne by one of the promoters; he is entitled to recover
proportionately from the co-promoters.
Remuneration to Promoters:
Right of the Promoter to Receive the
Remuneration: The Promoters shall have the right to
receive the remuneration only if
company after incorporation contracts
for the remuneration.
If Company does not contract for the
remuneration, later on provision
contained in the AOA can not the bind
the company.
Modes of Payment of Remuneration: Issue of shares at discount
Right to subscribe the shares of the
company at a fixed price in future.
Purchase of the Property of the
Promoter at a higher Price
Paying lump sum remuneration
Commission on any Property purchased
by the company.
Commission on the shares sold by them
Requirements of Section 3:
1. Association of Persons: Company is an association of Persons who are desirous to form a
corporate firm.
Min. Statutory
Limit of Members
(Sec. 3)
Private Company 2
Public Company 7
One Person
company (OPC)
1
2. Common & Lawful Object: The persons so associated shall have a common and lawful object
which the co. is going to pursue after incorporation.
3. Subscription: The MOA and AOA must be subscribed by at least
7 Persons In case of Public Company
2 Persons In case of Private Company
1 person In case of OPC
INCORPORATION OF A COMPANY
KRISHAN COMMERCE CLASSES 3.9 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.9
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
Subscribers to memorandum = Member u/s 2(55)
4. Compliance of Formalities:The requirements of the Company Law must be complied in
respect of registration.
Availability of Name: (Reservation of Name)
As per Rule 9 of the Companies (Incorporation) Rules, 2014, an application in form no.
INC 1 made with the fees prescribed for the reserving the name for the proposed
company or for company who wants to change its name.
Name
should not be too identical or resemble with the name of the already existing
company or should not be such that the use of its name will constitute an
offence of any law for the time being in force.
should not be undesirable in the opinion of CG
should not give any impression that company has any patronage from Govt.
should not be of those words or expressions prohibited by CG, unless approval of
CG has been obtained.
The ROC shall reserve the name for the 60 days of making application on the basis
of information provided.
Q. The promoters of a new company have decided to start their company with the name ‘i2
Technologies Ltd.’ However, the jurisdictional Registrar of Companies (ROC) has declined to
allow the name starting with small alphabets. Is the ROC’s contention valid under company law as
prevalent in India? (June, 11 – 4 marks)
Hint: ROC contention not valid.
Documents to be filed with ROC:
Compulsory Documents:
1. MOA & AOA - Preparation of Memorandum and Articles and the MOA & AOA of
the company shall be signed by each subscriber to the memorandum, who shall add
his name, address, description and occupation, if any, in the presence of at least one
witness who shall attest the signature and shall likewise sign and add his name,
address, description and occupation, if any.
2. Statutory Declaration - Statutory declaration in the prescribed form by an
advocate, a chartered accountant, cost accountant or company secretary in practice
and by a person named in the articles as a director, manager or secretary of the
company, who is engaged in the formation of the company, stating that all
requirements of Companies Act have been complied with. (Form No. INC 8)
3. Affidavit - The affidavit shall be submitted by each of the subscribers to the
memorandum and each of the first directors named in the articles in Form No. INC.
KRISHAN COMMERCE CLASSES 3.10 Best Coaching available for CS & CA (Inter & Final Law Subjects)
3.10
By
CA
CS
CM
A J
ag
dee
p A
rora
KR
ISH
AN
CO
MM
ER
CE
CL
AS
SE
S
9 that he is not convicted of any offence in connection with the promotion,
formation or management of any company, or that he has not been found guilty of
any fraud or misfeasance or of any breach of duty to any company under this Act or
any previous company law during the preceding 5 years and that all the documents
filed with the Registrar for registration of the company contain information that is
correct and complete and true to the best of his knowledge and belief;
4. Particulars of subscribers: At the time of incorporation some particulars of
subscribers shall be filed with ROC such as
If subscriber is a non corporate identity: Name (including surname), father’ or
mother’s name, nationality, date & place of birth, PAN number, email id, phone