Company Law.

COMPANY LAW*

NATURE OF COMPANYA company is a person, artificial, invisible, intangible and existing only in the eyes of the law. Being a mere creation of law, it posses only those properties which the charter of its creation confers upon it either expressly or as accidental to its very existence. - - Chief Justice Marshall.

Salomon v. Salomon & Co. Ltd., (1897). A company is distinct and separate from the share holder who it is comprised of.*

CHARACTERISTICS OF A COMPANYSeparate legal entity.Limited liability.Perpetual succession.Common seal.Transferability.Separate property of its own.Capacity to sue.*

LIFTING OR PIERCING THE CORPORATE VEIL

Protection of revenue.Prevention of fraud or improper conduct.Determination of character of a company whether it is enemy.Where the company is a sham.Company avoiding legal obligations. *

Company acting as agent or trustee of the share holders.Avoidance of welfare legislation.Protecting public policy.Number of members below statutory minimum. [sec 45].Failure to refund application money.[sec 69].Fraudulent trading.

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KINDS OF COMPANIESClassification on the basis of incorporation:-Statutory corporations.Registered companies.Classification on the basis of liability.Companies limited by shares.Companies limited by guarantee.Companies with unlimited liability.*

Classification on the basis of numbersPrivate company.Public company.Classification on the basis of controlHolding companies.Subsidiary companies.Classification on the basis of ownershipGovernment company.Non- government company.(private sector).Foreign company.*

FORMATION OF A COMPANYDocuments to be filed with Registrar.Memorandum of association.Articles of association.Agreement, if any.A list of directors.Declaration of compliance.*

Certificate of incorporation and its conclusiveness.Effect of registration.Promoter.

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MEMORANDUM OF ASSOCIATION

Contents of memorandum:-Name clause Registered office clauseObject clauseCapital clauseLiability clauseAssociation clause*

ALTERATION OF MEMORANDUM

Change of name :-By special resolution (sec.21)By ordinary resolution (sec.22)Fresh certificate of incorporationChange of registered office:-Within a state from jurisdiction of one ROC to anotherOne state to another

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ALTERATION OF OBJECTS (Sec.17)

Purpose:-To carry on its business more economically or more efficientlyTo attain its main purpose by new or improved meansTo enlarge or change the local area of its operationTo carry on some business which may conveniently and advantageously be combined with the existing objects in the memorandum*

Procedure:-

Special resolutionCopy of the special resolution to be filed with ROC Certificate of registrationChange in liability clauseChange in capital clause*

DOCTRINE OF ULTRA VIRESUltra vires the companyAsbury Rly. Carriage and Iron Co. Ltd V. Riche (1875) LR. 7 HL.653Ultra vires the directorsUltra vires the articles

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ARTICLES OF ASSOCIATIONContents of ArticlesCompanies which must have their own Articles (Sec.26)Alteration of ArticlesLegal effect of Memorandum and ArticlesConstructive notice of Memorandum and Articles

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DOCTRINE OF INDOOR MANAGEMENTRoyal British Bank V. Turquand (1856) 6 E & B 327Exceptions to the doctrine of indoor management:-Knowledge of irregularity NegligenceForgeryActs outside the scope of apparent authority*

Prospectus *

ProspectusAny document inviting offers from the public for the subscription of shares or debentures of a company or inviting deposits from the public is a prospectus. (Sec 2[36])

It includes any notice, circular or advertisements*

It must be dated and the date shall be taken as the date of publication of the prospectusIt has to be signed by all the directors of the company or by their agentA prospectus can be issued only when a copy of thereof has been delivered to the Registrar for registrationNon registration of prospectus makes everybody who is knowingly a party to the issue punishable with a fine which may extend to Rs. 50,000/- *

Shelf Prospectus is a prospectus issued by any financial institution or bank for one or more issues of securities.

Information memorandum is a notice, circular, advertisement or document issued by a company prior to filing of a prospectus to assess the demand, price and terms of the issue.*

Red herring prospectus is a prospectus which doesnt have details of either price or number of shares being offered or the amount of issue

The law applicable to prospectus is also applicable to both Information Memorandum and Red Herring Prospectus*

Contents of/ Disclosures in ProspectusThe Golden Rule for framing the prospectus was laid down in New Brunswick & Canada Rly. & Land Co. v. Muggeridge (1860).those who issue prospectus holding out to the public the great advantages which will to persons who will take the shares----are bound to state everything with strict and scrupulous accuracy and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature or extent and quality of the privileges and advantages which the prospectus holds as inducement to take shares*

According to Sec 56, the prospectus shall:- state matters specified in part I of schedule II andSet out reports specified in part II of schedule II.

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Part I of Schedule IIGeneral informationCapital structure of the companyTerms of the present issueParticulars of the issue with regard to objects, project cost and means of financingAbout company, management and projectParticulars regarding the company and other listed companies under the same managementOutstanding litigation Managements perception of risk factors*

Part II of Schedule IIGeneral InformationConsent of directors, auditors, managers to the issue, experts and others connected with the issueExpert opinion, if any.Changes, if any in directors and auditors during the last 3 years and reason thereof.Authority for the issueProcedure and time schedule for allotment and issue of certificatesNames and addresses of company secretary, legal advisor, lead manager, auditors etc*

Financial InformationReport by the auditorsReport by the accountants

Statutory and other information*

Misstatement in Prospectus and their ConsequencesCivil Liability Remedies Against the CompanyRescission of the contract: the contract can be rescinded if the following conditions are satisfied:-Statement must be a material misrepresentation of factStatement must have induced the share holders to take the sharesStatement must be untrueThe deceived share holder is an allottee and he must have relied on the statement in the prospectus. The omission of material fact must be misleading The proceeding of rescission must be started as soon as the allottee comes to know of the misleading statement*

Damages of Deceit.Remedies against the directors, promoters and experts. All of them are liable for damages for misstatement in prospectus if authorization was given by them.Defences of directors, promoters etcWithdrawal of consentAbsence of consentIgnorance of untrue statementReasonable ground for beliefStatement is a correct and fair representation or extract or copy of an experts statement who is competent to make it

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Criminal LiabilityFor any untrue statement in the prospectus, every person who authorized the issue is punishable with imprisonment up to 2 years or with fine up to Rs. 5000/- or with both.A person who fraudulently inducing other persons to invest money shall be punishable with imprisonment which may extend to 5 years or with fine up to Rs. 10,000/- or with both.

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Commencement of BusinessA public company can commence business only after obtaining a certificate of commencement of business.Restrictions on commencement of business by a company which issued a prospectusAllotment up to minimum subscriptionPayment of application and allotment money by every directorNo liability to repay any money to applicants for shares or debenturesFiling of a duly verified declaration with the Registrar*

Restrictions on commencement of business by a company which had not issued a prospectusFiling a statement in lieu of prospectus Payment of application and allotment money by every directorFiling of a duly verified declaration by a RegistrarUnderwriting commission and brokerage (Sec 76)*

Book BuildingWhat is Book Building?Process of Book BuildingEvaluation of book building

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Dematerialized SharesMeaningBenefits of holding securities in dematerialized formDepositoryDepository participant

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MEMBERSHIP IN A COMPANYA registered share holder is a member but a registered member may not be a share holder.The bearer of a share warrant is a share holder but not a member.A legal representative of a diseased member is considered a share holder even though not registered as a member.*

ANNUAL RETURNEvery company having a share capital or not shall, within 60 days from the date of AGM to file annual return.The annual return of a company having share capital shall also state the details of shares and debentures distinguishing wherever possible between shares issued for cash bonus shares and shares other than bonus shares issued as fully or partly paid up otherwise than in cash.*

SHARE CAPITALKinds of share capitalAlteration of capital [sec 94].To increase nominal share capital by issuing new shares.Consolidate and divide shares.Convert fully paid shares into stock or vice versa.Subdivide its shares.Cancel shares.

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Reduction of capital with the consent of the court [sec 100 103].Special resolution Application to the courtRegistration of order of court with registrar.

Reduction of capital without the sanction of the court.*

FURTHER ISSUE OF CAPITALBy allotment of new shares.By conversion of debentures and loans into shares.

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COMPANY MANAGEMENT*

Director DefinedDirector includes any person occupying the position of director, by whatever name called.Only individuals can be director.Every public company shall have at least three directors every private company at least two directors.Increase in number of directors to be sanctioned by Central Government if total exceeds twelve (Sec.259)*

APPOINTMENT OF DIRECTORSFirst directors named in articles.Directors appointed by the company.Retirement by rotation.Appointment of directors by directors.Appointment of directors by third parties.Appointment by proportional representation.Appointment of directors by Central Government.

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POSITION OF DIRECTORSDirectors as agents.Directors as employees.Directors as officers.Directors as trustees.Trustees of the companys money and property.Trustees of the powers entrusted to them.

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DISQUALIFICATION OF DIRECTORSA person of unsound mind An un-discharged insolvent.A person who has applied to be adjudicated as an insolvent and his application is pending.A person who has been convicted by Court of any offence involving moral turpitude for six months and a period of five years as not elapsed.*

A person whose calls where in arrears for more than six months.A person who is disqualified by court u/s.203.A person who is already a director of a public company which has not filed annual returns/accounts for three consecutive years or failed to repay deposits, redeemed debentures or pay dividend for one year or more.

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VACATION OF OFFICE AND REMOVAL OF DIRECTORSVacation of Office (Sec 283):-Fails to obtain qualification shares within 2 months of his appointment or ceases to hold thereafter.Adjudged to be of unsound mind.Applies to be adjudged as an insolventAdjudged as insolventConvicted by court for any offence involving moral turpitude for a period not less than 6 monthsHas calls in arrears for more than 6 months*

Absents himself from 3 consecutive board meetings or for 3 months whichever is longer without leave of absenceHe or his firm or any private company of which he is a director accepts loan or any guarantee or security without central government approvalFails to make disclosure of his disinterest in any contractBecomes disqualified by an order of court on the ground of conviction of an offence in promotion, formation or management or found guilty of fraud or misfeasance in relation to winding upHe is removed by the company by ordinary resolutionCeases to hold office or employment in the holding company*

Removal of Directors

By share holders (Sec 284)By central government (Sec 388-B to 388-E)Removal by company law board (Sec 402)

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THANK YOU*