corporate law (CL) Under company act 2013

Niaz sahil

Niaz Sahil Z

urmati

Niaz sahilcorporate lawWhat is corporate law? The background of Companies Act 1956. What is the importance of this Act?

Characteristics of a company, Landmark case - Salomon vs. Salomon Co Ltd- Separate legal entity, Lifting the corporate veil. Types of companies, Promoters, Formation and incorporation of a company.

Memorandum of association. Doctrine of ultra vires. Articles of association. Doctrine of indoor management.

Contents

Niaz sahilWhat is corporate law

• Corporate law (also "company" or "corporations" law) is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another

Niaz sahilCOMPANIES ACT,2013

V/s

COMPANIES ACT,1956

• Structural Comparison

Companies Act 1956

13 Parts

658 SectionsAnd

15 Schedules

Companies Act 2013

29 Chapters

470 Sections And

7 Schedules

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Niaz sahilWHAT IS COMPANY

A company is an artificial person created by law.• A company means a group of persons associated together for the

attainment of a common end, social or economic.

• Section 3(1)(i) of the Companies Act, 1956 defines a company as: “a company formed and registered under this Act or an existing Company”.

• ‘Existing Company’ means a company formed and registered under any of the earlier Company Laws.

•

Niaz sahilCharacteristics of a company

Separate legal entityLimited liabilityPerpetual successionCommon sealTransferability of sharesSeparate propertyOne Share-One Vote:

Niaz sahilSEPARATE LEGAL ENTITY-

A company is in law regarded as an entity separate from its members. It has an independent corporate existence.

• The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately.

Niaz sahillandmark case

• A landmark case is a court case that is studied because it has historical and legal significance. The most significant cases are those that have had a lasting effect on the application of a certain law, often concerning your individual rights and liberties.

Why Study Landmark Cases?• To understand how the judicial branch works• To see how past judicial decisions have affected the law• To see how past court cases have affected your everyday life,

and your individual rights• To predict how past decisions will be applied to current cases

and issues

Niaz sahilSalomon v A Salomon and Co Ltd [1897] AC 22• Corporate separate personality• Salomon conducted his business as a sole trader. He sold it to a company

incorporated for the purpose called A Salomon and Co Ltd. The only members were Mr Salomon, his wife, and their five children. Each member took one £1 share each. The company bought the business for £39,000. Mr Salomon subscribed for 20,000 further shares. However, £10,000 was not paid by the company, which instead issued Salomon with series of debentures and gave him a floating charge on its assets. When the company failed the company's liquidator contended that the floating charge should not be honoured, and Salomon should be made responsible for the company's debts.

• Lord Halsbury LC stated (at 30-31):“… it seems to me impossible to dispute that once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are.”

• From this case comes the fundamental concept that a company has a legal personality or identity separate from its members. A company is thus a legal ‘person'.

Niaz sahilLimited Liability

:The liability of the members of the company is limited to contribution to the assets of the company up to the face value of shares held by him. A member is liable to pay only the uncalled money due on shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets. On the other hand, partners of a partnership firm have unlimited liability i.e. if the assets of the firm are not adequate to pay the liabilities of the firm, the creditors can force the partners to make good the deficit from their personal assets. This cannot be done in case of a company once the members have paid all their dues towards the shares held by them in the company.

Niaz sahilPERPETUAL SUCCESSION-

• Being an artificial person a company never dies, nor does its life depend on the life of its members. Members may come and go but the company can go on forever. It continues to exist even if all its members are dead. The existence of company can be terminated only by law

• A company does not die or cease to exist unless it is specifically wound up or the task for which it was formed has been completed

ابدي

Niaz sahil • Separate Property:A company is a distinct legal entity. The company’s property is its own. A member cannot claim to be owner of the company's property during the existence of the company.

• COMMON SEAL- • Since a company has no physical existence, it

must act through its agents and all such contracts entered into by its agents must be under a seal of the company. The common seal acts as the official signature of the company.

Niaz sahilTransferability of Shares:

Shares in a company are freely transferable, subject to certain conditions, such that no share-holder is permanently or necessarily wedded to a company. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares

Niaz sahilOne Share-One Vote:The principle of voting in a company is one share-one vote. I.e. if a person has 10 shares, he has 10 votes in the company. This is in direct contrast to the voting principle of a co-operative society where the "One Member - One Vote" principle applies i.e. irrespective of the number of shares held, one member has only one vote.

Capacity to sue and being sued:A company can sue or be sued in its own name as distinct from its members.

Niaz sahilDisadvantages of incorporation

• LIFTING OF THE CORPORATE VEIL• Formality and expense- • Company not a citizen-

Niaz sahilLIFTING OF THE CORPORATE VEIL

• In the eyes of law, a company is a legal person with a separate entity distinct from its members of shareholders. In essence it means that there is a veil or curtain separating the legal entity of the company from its members or shareholders.• When any fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality. The Courts will break through the corporate shell and apply the principle of ‘lifting or piercing the corporate veil’. The Court will make the members or the controlling persons liable for debts and obligations of the company.

Niaz sahillaw will lift the corporate veil

A: Under statutory provisions• Reduction of the number of members below

statutory minimum• For establishing the relationship of holding and

subsidiary company • For facilitating the task of an inspector to investigate

the affairs of the company• For investigation of the ownership of the company

Niaz sahillaw will lift the corporate veil

B: Under judicial interpretation• Fraud Or Improper Conduct:• For Benefit Of Revenue: • Enemy Character: e.g. Daimler Co. Ltd. vs.

Continental Tyre and Rubber Co. (GreatBritain) L• Company Avoiding Legal Obligations: • Single Economic Entity:• Agency Or Trust: • Public Interest:

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Formality and expense- Incorporation is a very expensive affair. It requires a number of formalities to be complied with both as to the formation and administration of affairs.Company not a citizen- In State Trading Corporation of India v. CTO, the SC held that a company though a legal person is not a citizen neither under the provisions of the Constitution nor under the Citizenship Act.•

Niaz sahilThe Company

• Company basically means a group of persons associated for any common object such as business, charity, sports and research etc.

• Legally, Company is an incorporated association which is an artificial person, having separate legal entity, with perpetual succession, a common seal, a common capital comprised of transferable shares and carrying limited liability.

• Classification is required to define legal guidelines clearly as per different objectives and ownership patterns

Niaz sahilCompanies are classified on the basis of

• Incorporation• Liability of members• Number of members• Ownership/ control

Niaz sahilON THE BASIS OF INCORPORATION

1:Statutory company :These companies are those in corporate under special act passed by the parliament or the state legislature.These are mostly concerned with public utilities. Reserve Bank of India, LIC, GIC, Railways, Tramways, NHAI.2: Registered companies Those companies are those formed and registered under the Indian companies act.BHEL, SAIL, GAIL, BEML, ONGC, OIL and RNRL.

Niaz sahilON THE BASIS OF LIABILITY1. Companies with limited liability may two types :(A). Companies limited by shares. The liability of the members limited only up to face

value of the share. It may be public or a private company.

The shareholders are not responsible for the liabilities of the company and they cannot be called upon to pay even a single paisa more than that of the unpaid amount of the shares. These types of companies are very popular in India. The principles of limited liability attract investors, to invest in the shares of the company.

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B: Company Limited by Guarantee: The liability of members of the company is limited up to specific amount guaranteed by them. The purpose of such a guarantee is to enable the company to have funds to meet its liability at the time of winding up. The important features of such companies are:-(a) Each member promises to pay a fixed amount in the event of wind up.(b) This amount is known as guarantee amount.(c) The amount of guarantee is laid down in the Memorandum of Association. (d) The amount of guarantee is paid only in the case of winding up of the company.(e) Such a company may or may not have share capital

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• 2 :Unlimited companies• A company not having any limit on the liability of its members

is termed as the unlimited companies. • Unlimited companies – Section 12 specifically provides that any

7 or more persons ( 2 or more in case of a private company ) may form an incorporated company, without limited liability. In case of such a company, every member is liable for the debts of the company.

• It means in the case of winding up of the company, the private property of the members can be taken over y the creditors for the recovery of their dues i.e. debts. Such companies are not popular in India.

Niaz sahilON THE BASIS OF NUMBER OF MEMBERS

1: Private companies :• A company whose ownership is private. A private

company which has minimum paid up capital of one lack rupees.

• Can have a minimum of 2 and maximum of 200 members • Has restricted the right to transfer its shares to any other

person • The major ownership restrictions are:• shareholders cannotsell or transfer their shares without

offering them first to other shareholders for purchase,• shareholders cannot offer their shares to the general

public over a stock exchange,

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• Restrictions imposed on private Companies: (1) A private limited company must include the words "private limited" with its name.(2) A private company must have its own Articles of Association.(3) The shares of private company are not transferable.(4) A private company cannot invite public to subscribe its shares or debentures.(5) The maximum number of members in a private company is restricted to 200.(6) Every year private company must file three copies of Balance Sheet and Profit and Loss Account together with Auditors Report, to the Registrar of companies.(7) A member of private company can appoint only one proxy.

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2: Public companies:A public company is a company with securities (equity and debt) owned and traded by the general public through the public capital markets.• Has a minimum paid-up capital of rupees five lakhs or more • Does not restrict the right to transfer its shares to any other

person • Can invite general public for the subscription of its shares or

debentures • Can invite or accept• Public Company has to file the documents like Memorandum

of Association, Articles of Association and Prospectus with the Registrar of Companies.

Niaz sahilContinue…• Public company has following features:-

(a) Public company collects capital from general public by way of issuing shares and debentures, (b) The shares of Public company are freely transferable, (c)The liability of the members of Public Limited Company is limited up to the extent of face value of he shares purchased by them, (d) Public company must collect minimum subscription and must obtain Trading Certificate i.e. Certificate of Commencement of Business to start the business, (e) Public company must start its business within one year of getting Incorporation Certificate otherwise it will be wound up by the court,(f) It is also compulsory for a Public Company to hold statutory meeting within six months of obtaining "Trading Certificate".

Niaz sahilDistinction Between Private Ltd. & Public Ltd. Company

Minimum capital required is 1,00,000

Minimum 2 and maximum 200 members

At least 2 directors No restriction on appointment of

directors Non-transferable shares Restriction on invitation to

subscribe for shares No restriction on managerial

remuneration Can start business without

obtaining certificate of commencement

Minimum capital required is 5,00,000

Minimum 7 members. No limit on maximum members

At least 3 directors No restriction on appointment of

directors Transferable shares Invitation to subscribe for

shares is allowed Managerial remuneration

cannot exceed 11% of net profit Can start business only after

obtaining certificate of comencement

Private Ltd. Public Ltd.

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Special Privileges of a Private Company Over Public Company

1. Can be started with minimum 2 members2. No provision regarding minimum subscription3. No need to file a Prospectus or Statement in Lieu of Prospectus.4. Further share issue5. It can issue share capital of any kinds6. Commence business immediately after getting certificate of

incorporation7. Need not to keep index of members8. Need not to hold a statutory meeting or file statutory report9. Provision regarding maximum limit of Director’s or Manager’s

remuneration does not apply

Niaz sahilON THE BASIS OF OWNERSHIP

• 1: A government company is one in which, 51% or more, paid-up capital of the company is taken over either by Sate Government or by Central Government or by both.

• The government companies are incorporated under Indian Companies Act. It may be noted that in a government company, government is the major shareholder and majority of directors are appointed by the government.

Niaz sahilContinue..2:Multinational Company:• A multinational company is the company

which is registered in one country but operated its business in multiple countries. The multinational companies have huge investments and huge profits. They build up big Business Empire in many countries.

Niaz sahilON THE BASIS OF OWNERSHIP/ CONTROL3: Subsidiary company :• It is the company which is holded by other is known as subsidiary of

other. • Company whose more than half of the nominal value of share capital is

held by another company or another company controls the composition of board of directors of such company.

• i.e. Holding Company is known as Subsidiary Company. The management of Subsidiary Company is controlled by Holding Company. But Subsidiary Company does not lose its identity.

4: Holding Company: • Company which holds 50% or more paid up capital of another company

i.e. Subsidiary Company is known as the Holding Company. Holding Company controls and manages the entire affairs of subsidiary company.

• Holding company is the company which holds and control the other company

كونكي مرسته

Niaz sahilOne person company

One Person Company (OPC) is a newly introduced type of company. OPC was introduced in the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a OPC is that there can be only one member in a OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership.

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Formation of a Company

Niaz sahilFormation of a Company

A Company comes into existence when a group of people come together with a view of forming an association t o exploit the business opportunities by bringing to gather ;men, material, money and managementSTAGES OF FORMATION OF A COMPANY• Promotion Stage• Incorporation (Registration Stage).• Capital Subscription • Raising the Share Capital Stage.

Niaz sahilSTAGES IN FORMATION OF A COMPANY

1:Promotion of a Company : • The promotion of a company refers to all those steps

which are taken from the time of having an idea of starting a company to the time of actual starting of the company business.

Who is a promoter• 1. People who think of forming a company and take

necessary steps in its formation are known as “Promoters” or “Company Promoters”.

• 2. The person who conceives such an idea is called “Company Promoter”

Niaz sahilpromoters

• Before a company can be formed, there must be some persons who have an intention to form a company and who take the necessary steps to carry that intention into operation. Such persons are called ‘promoters’

Niaz sahilFUNCTIONS OF PROMOTERS:• To discover an idea for establishing a company.• To make detailed investigations about the demand for the

product, availability of power, labour, raw material.• To investigate the idea and know whether the formation of

the company is possible and profitable.• To find out suitable persons who are willing to act as first

directors of the company. To settle the name of company. • To select bank, legal advisor, auditor, underwriter for the

company. • To submit all the documents required for incorporation

with the registrar.• To make proper arrangement for the office of the company.• Etc…….

Niaz sahilDUTIES AND OBLIGATION OF PROMOTERS

• The promoters must disclose fully all the material facts regarding the formation of a company.

• The promoters must faithfully disclose all the facts relating to the property which they want to sell to the company.

• The promoters must not make an unfair use their position.

• To disclose the liability and pay the secret profits if promoters have earned.

• The prospectus of the company should contain the true statements.

• Liability on statutory mistakes or frauds in the property.

Niaz sahilREMUNERATION OF PROMOTERS

• He may be paid a certain lump sum.• He may be given shares of the company.• He may be given commission of the shares sold

by the company.• He may be given an option to buy the shares of

the company at par when their market price is higher.

• He may sell his own property to the company at higher price and earn profit.

Niaz sahilLiability of the promoter

• A promoter can be compelled by the company to hand over any secret profit which he has made without full disclosure to the company. The company can also sue for the rescission of the contract of sale by the promoter where the promoter has not disclosed his interest therein.

• the promoters are criminally liable under section 63 for the issue of prospectus containing untrue statements.

• . A company may proceed against a promoter on action for deceit or breach of duty under section 543.

Niaz sahil2. 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 the “ CERTIFICATE OF COMMENCEMENT OF BUSINESS”

Niaz sahil3: capital subscription

• a public company can raise the required funds from the public by means of issue of shares and debentures. for doing the same, it has to issue a prospect which is an invitation to public to subscription to the capital of the company and undergo various other formalities.

• (i) SEBI Approval• (ii) Filling of prospectus• (iii) Appointment of Bankers, Brokers , Underwriters• (iv) Minimum subscription• (v) Application to stock Exchange• (vi) Allotment of shares

Niaz sahilWhat is 'Minimum Subscription

The "minimum subscription" is the minimum amount which, in the opinion of directors or the signatories of the memorandum, must be raised by the issue of shares in order to provide the sums in respect of each of the following heads:(1) the purchase price of any property purchased or to be purchased;(2) any preliminary expenses payable by the company and any commission (underwriting or otherwise) payable to any person;(3) the repayment of any moneys borrowed by the company;(4) working capital; and(5) any other expenditure.

Niaz sahil4: RAISING OF SHARE CAPITAL

• 4. Entering onto an agreement with underwriters.

• Applying to the stock exchange for listing of shares.

• Issue of prospectus inviting public to subscribe.

• Allotting shares.

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2nd unit

•

Niaz sahil: MEMORANDUM OF ASSOCIATION

IT IS AN IMPORTANT DOCUMENT WHICH DEFINES OBJECTIVES, POWERS, SCOPES AND RELATIONS WITH OUTSIDERS .A Memorandum of Association (MOA) is a legal document prepared in the formation and registration process of a company to define its relationship with shareholders. The MOA is accessible to the public and describes the company's name, physical address of registered office, names of shareholders and the distribution of shares. The MOA and the Articles of Association serve as the constitution of the company.

Niaz sahilCLAUSES (CONTENTS) OF MEMORANDUM OF ASSOCIATION

• 1. Name Clause.• 2. Registered Office clause.• 3. Objective Clause• 4. Liability Clause.• 5. Capital Clause.• 6. Association Clause• Note: The MoA must be signed by at least seven

subscribers in the case of Public Company and two in the case of Private company.

Niaz sahilNAME CLAUSE

• The Company is a legal entity. Therefore, it must have its name to establish its identity.

• The company is free to choose any name but it must not be undesirable or it should not be identical to the name of the existing company.

• The name should not be prohibited one.• The name of the company must end with the word limited

so all the persons dealing with the company must know that their liability is limited up to the extent of their of shares.

• In the case of private limited company the word private limited to be used as the last word of the name.

Niaz sahilRegistered Office Clause

• Every company must have a registered office from the day it starts its business or within 30 days of getting the Certificate of Incorporation, whichever is earlier.

• Memorandum of Association must state the name of the State in which the registered office of the company is situated.

• This clause is important as it mentions the residence for the purpose of the communication with the company.

• It determines the jurisdiction of the company and also mentions the place where all the records of company are maintained.

Niaz sahilOBJECTIVE CLAUSE

It is the essence of memorandum. it clearly defines the sphere of the company activities. It indicates a series of objects for which the company is established. HERE THE COMPANY SHOULD MENTION ITS• MAIN OBJECTIVES • SUBSIDARY OBJECTIVES • OTHER OBJECTIVES

Niaz sahilLIABILITY CLAUSE

• THE EXTENT AND NATURE OF THE LIABILITY OF SHARESHOLDERS SHOULD BE STATED

LIKE • LIMITED LIABILITY • LIMITED BY GAURANTEE • UNLIMITEDThe liability of the members is limited to the extent of the value of shares purchased by them.In a case if a shareholder has to pay the unpaid amount on the share investment, he can be compelled to pay to the extent of unpaid amount on the shares, nothing more.

Niaz sahilCAPITAL CLAUSE

• Amount of share capital with which the company is to be registered and its division into shares of a fixed amount must be stated in the Memorandum of Association of a company limited by shares.

• THE AUTHORISED CAPITAL SHOULD BE MENTIONED

• A COMPANY IS NOT AUTHORISED TO ISSUE ABOVE AUTHORISED CAPITAL

Niaz sahilSubscription/ASSOCIATION CLAUSE

• THIS CLAUSE CONTAINS DELCARATION OF MEMBERS

• THE NAMES, ADDRESSESS AND OCCUPATIONS OF THE SUBSCRIBERS SHOULD BE MENTIONED

• THE SIGNATURES ARE TO BE ATTESTED BY PROPER WITNESS

Niaz sahilDoctrine of ultra vires

• The expression “ultra vires” consists of two words: ‘ultra’ and ‘vires’. ‘Ultra’ means beyond and ‘Vires’ means powers. Thus, the expression ultra vires means an act beyond the powers.

• The object clause of the memorandum of the company contains the object for which the company is formed.

• An act of the company must not be beyond the object clause otherwise it will be ultra vires and therefore, void and cannot be ratified even if all the member wish to ratify. This is called the doctrine of ultra vires.

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ARTICLES OF ASSOCIATION

•

Niaz sahilARTICLES OF ASSOCIATION

• The articles of association are subordinate to the memorandum of association of the company.

• The AoA contains regulations regarding all matter concerning the internal affairs of the company

• The provisions of the articles must not be inconsistent with or repugnant to any of the provisions of the memorandum of the Act.

• AOA can be altered at any time according to the wishes of the member.

Niaz sahilAOA

• The articles of association is a document that contains the purpose of the company as well as the duties and the responsibilities of its members defined and recorded clearly. It is an important document which needs to be filed with the registrar of companies.

Niaz sahilContents in the Articles of Association

• Adoption of preliminary contracts. • Number and value of shares • Allotment of shares • Calls on shares• Transfer of shares • Forfeiture,reissue,surrender of shares • Alteration of share capital • Share certificates • Conversion of shares in to stocks • Meetings and proceedings • Voting rights , proxies and polls • Appointment , Remmunaration,etc of Directors • Borrowing powers ,. Dividend and Reserves, • Accounts and audit , Procedure of winding up , Seal of the company

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MOA1. Determines the

constitution and activities of the co.

2. It is fundamental charter3. Every co. must have a MOA4. Alteration of MOA is

difficult

AOA1. It contains rules and

regulations of internal management of co.

2. It is subsidiary to MOA& if conflicting, MOA would prevail

3. Public company limited by shares may or may not have AOA

4. Alteration is easier by special resolution

Difference Between MOA &AOA

Niaz sahilDoctrine of Indoor Management

• The Doctrine of Indoor Management says that if a person enters into a contract with a Company he has the rights to inquire into the correctness of the contract since Article and Memorandum of Association are public documents.

• It is invoked by the person.

Niaz sahil Constructive Notice of MOA & AOA

• MOA & AOA are public documents.• Lodged with the Registrar and are open for inspection. • Any person can obtain the inspection of these documents. • Duty of every person to inspect the documents before

dealing with the company. • Thus MOA & AOA is presumed to be notice of public. • Such notice is called “Constructive Notice”. • Every person dealing with a company must read the public

documents of the company.• If he does not read them, it is his fault

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• Every person dealing with the company is deemed to have a constructive notice of the contents of the memorandum and articles of the company.

• An outsider dealing with the company is presumed to have read the contents of the registered documents of the company.

• The further presumption is that he has not only read and inspected the documents but has also

• understood them fully in the proper sense. This is known as the rule of constructive notice.

• So, the doctrine or rule of constructive notice is a presumption operating in favor of the company against the outsider

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Prospectus

Niaz sahil Prospectus

• It is a valuable document containing important details about a company

• A prospectus is thus any document which invites the public to provide funds to the company bye law of deposits or subscriptions to its shares and debentures.

• It should be duly signed by the company.

نامه اطالع

Niaz sahilImportant s of Prospectus• . It is an invitation to the public to subscribe to the

shares and debentures of the company.• It informs public about the company and stimulates

people to invest money in the company.• It provides an authentic record of the terms and

conditions on which shares and debentures have been issued.

• It identifies the persons who can be held responsible for any untrue or incorrect statements made in it.

• It reflects the business policies and programes of the company.

• It helps the investors to take investment decisions.

Niaz sahilContents of the prospectusIt contains the following details about the company:• Name of the company• Address of the Registered office.• Nature and objects of business• Capital structure• History of the company• Particulars about Underwriters,auditors,brokers,bankers• Date of opening and closing subscription list• Name of stock exchanges where applications for listing has been made• Information about material contracts with managerial personnel• Outstanding liabilities• Financial information.• Consent of managerial personnel• Management perception of risk factors.• Statutory or other information.

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DIRECTORS OF A COMPANY•

Niaz sahilDirectors

• A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The person, acting on its behalf, is called Director. A Director is any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company.

Niaz sahilAppointment of Directors :

Director may be appointed in the following ways:

• 1. By the articles as regards first directors.• 2. By the company in general meeting.• 3. By the directors,• 4. By third parties• 5. By the principle of proportional representation• 6. By the central governmentRemoval of directors : a director of a company can be removed by• (a) shareholders• (b) central government, or• (c) the court

Niaz sahilWho can’t be a directors

The circumstances in which a person cannot be appointed as a director of a company are enumerated in section 247. According to this section, a person cannot be appointed as a director of a company, if• (i) He has been found to be of unsound mind by a competent court and the

finding is in force;• (ii) He is an undischarged insolvent;• (iii) He has applied to be adjudicated as an insolvent and his application is

pending;• (iv) He has been convicted of an office involving moral turpitude and

sentence to imprisonment for not less than 6 months and a period of 5 year has not elapsed since the expiry’s of his sentence;

• (v) He has not paid any call in respect of share of the company held by him for period of six month from the last day fixed for the payment;

• (vi) He has been disqualified by an order of the court under section 203, of an office in relation to promotion, formation and management of the company or fraud or misfeasance in relation to the company.

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Niaz sahilDuties of the directors

Duties of the directors are mainly divided into two parts. They are:-• 1. Statutory Duties• 2. General Duties

Niaz sahilStatutory Duties

• A) To file return of allotment: Section 75 of the Companies Act, 1956 requires acompany to file with the Registrar, within a period of 30 days

• (B) Not to issue irredeemable preference share or shares or share redeemable after 20years:

• (C) To disclose interest .• (D) To disclose receipt from transfer of property (sec. 319):

Any money received by the director from the transferee in connection with the transfer of the companys property or undertaking must be disclosed to the members of the company and approved by the company in general meeting. Otherwise, the amount shall be held by the directors in trust for the company

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• E) To disclose receipt of compensation from transferee of shares .

• (F) Duty to attend Board meetings. • (G) To convene statutory, Annual General meeting (AGM) and

also extraordinary general meetings • H) To prepare and place at the AGM along with the balance

sheet and profit & loss account a report on the company's affairs including the report of the Board of Directors .

• (I) To authenticate and approve annual financial statement.• (J) To appoint first auditor of the company • K) To appoint cost auditor of the company.• (L) To make a declaration of solvency in the case of Members’

voluntary winding up.

Niaz sahilGeneral Duties• (A) Duty of good faith: The directors must act in the best interest of the

company. Interest of the company implies the interest of the present and future members of the company on the footing that company would be continued as going concern.

• (B) Duty of care: A director must display care in performance of work assigned to him. He is, however, not expected to display an extraordinary care but that much care which a man of ordinary prudence would take in his own case. Any provision in the company's Articles or in any agreement that excludes the liability of the directors for negligence, default, misfeasance, breach of duty or breach of trust, is void. The company cannot even indemnify the directors against such liability.

• (C) Duty not to delegate: Director being an agent is bound by the maxim. delegatus nonpotest delegare. which means a delegate can not further delegate. Thus, a director must perform his functions personally. However, he may delegate his in certain conditions.

Niaz sahilLiabilities of the Directors of a company

• Breach of fiduciary duty: Where a Director acts dishonestly to the interest of the company, he will be held liable for breach of fiduciary duty.

• Ultra vires acts: Directors are supposed to act within the parameters of the provisions of the Companies Act, Memorandum and Articles of Association, since these lay down the limits to the activities of the company and, consequently, to the powers of the Board of Directors.

• Negligence: As long as the Directors act within their powers with reasonable skill and care, as expected of them as prudent businessmen, they discharge their duties to the company

• Mala fide acts: Directors are the trustees for the money and property of the company, handled by them, as well as for exercise of the powers, vested in them. If they dishonestly or in a mala fide manner, exercise their powers and perform their duties, they will be liable for breach of trust and, may be required to make good the loss or damage, suffered by the company by reason of such mala fide acts

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Meetings of a Company

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Niaz sahilMeetings of a Company

• A company is an association of several persons. Decisions are made according to the view of the majority. Various matters have to be discussed and decided upon. These discussions take place at the various meetings which take place between members and between the directors. Needless to say, the importance of meetings cannot be under-emphasised in case of companies. The Companies Act, 1956 contains several provisions regarding meetings. These provisions have to be understood and followed.

For a meeting, there must be at least 2 persons attending the meeting. One member cannot constitute a company meeting even if he holds proxies for other members.

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Niaz sahilMeetings of Shareholders

• These meetings are general meetings as they are attended by all the members.•

• The management of the company is undertaken through meetings of the company’s shareholders where major decisions are to be taken. The meetings are usually called by directors, but may also be called by the shareholders.

• The meetings of the shareholders are of three types:• 1. The Statutory Meeting• 2. The Annual General Meeting• 3. Extra Ordinary General Meeting

Niaz sahilstatutory meeting

The statutory meeting is the first meeting of the members of the company after it commences business. It is held once in lifetime of the company.• Section 157(1) states that “ every company limited by

shares and every company limited by guarantee and having a share capital shall , within a period of not less than three months, nor more than six months, from the date at which the company is entitled to commence business, hold a general meeting of the members of the company, which shall be called ‘the statutory meeting’”.

Niaz sahilObjects of Holding the Statutory Meeting:

• 1.To discuss the success of the formation of the company.

• 2.To approve/modify the contracts which were specified in the prospectus.

• 3.Providing information to the members regarding Shares. Allotted, Preliminary Expenses, Underwriting agreement and contracts entered by the company.

• Note: Sec-433(b) provides for that the Statutory report be delivered to the ROC otherwise company will be wound up

Niaz sahilRequirements to conduct a Statutory Meeting:

• 1.Notice: A clear 21 days notice must be given to all

• 2.Agenda: Since all items are of Special Business category therefore each must be accompanied with an explanatory note for each item.

• 3.Time, date and place of Statutory meeting:• Statutory Report: Directors must send a report

to every member 21 days before the date of the meeting.

Niaz sahil Annual General Meeting

Is a meeting which Must be held by every type of company, public or private, once a year. Every company must in each year hold an annual general meeting. Not more than 15 months must elapse between two annual general meetings.However, a company may hold its first annual general meeting within 18 months from the date of its incorporation. In such a case, it need not hold any annual general meeting in the year of its incorporation as well as in the following year only.

Niaz sahilRequirements of AGM• Following are the requirements of AGM:• i. It must be held every year.• ii. The first AGM is to be held within eighteen months of

incorporation.• iv. Notice of the date of the meeting is to be send twenty one

days before such date to the shareholders whereas in case of a listed company the notice is also required to be published in the newspaper.

• v. In case of default in complying with any of these requirements all officers party to such default shall be held liable.

• vi. The gap between two AGMs should not be more than fifteen months.

Niaz sahilAgenda of AGM

In this meeting the following matters are usually considered.Annual accounts of the companyDeclaration of dividend Retirement and appointment of auditorsretirement and appointment of Directors

Niaz sahilExtraordinary General Meeting

• All general meetings other than annual general meeting and statutory meeting are known as Extra-Ordinary General Meetings. This meeting is held on the special occasions or you can say in the emergency situations when directors think that it necessary. For example; at the plan of merger etc

Occasion:• This meeting is held on the special occasion and in the

emergency situation. Notice of the Meeting: • The directors will send a notice of the meeting to all the

members of the company at least 21 days before the meeting.

Niaz sahilDirectors meeting

When the meeting is held among the directors of the company it is called directors meeting. It is classified into two parts. They are:• Board meeting• Committee meeting

Niaz sahilSpecial meeting

For any special situation, when the meeting is arranged by the company, it is called special meeting. The types of the special meetings are as follows:• Class-meeting: The Company has different kinds of

shares. When the meeting is arranged by any one kind of shareholders it is called class meeting.

• Creditors meeting: The directors or their appointed lower can invite this type of meeting. Moreover this type of meeting may be arranged by the order of the court.

Niaz sahilUnit 5

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Niaz sahilTYPES OF Restructuring

• Expansion: Mergers, Acquisitions,Takeovers,Tender offer, Joint Venture

• Contraction: Sell offs, Spin offs, Split offs, Split ups, Divestitures, Equity Carve outs

• Corporate Control: Takeover Defenses, Share Repurchases, Exchange Offers, Proxy Contests

• Changes in Ownership: Leveraged Buyout, Going Private.3RubySharma, CBS ,Landran,Mohali

Niaz sahilmerger

• A merger refers to the process whereby at least two companies combine to form one single company. Business firms make use of mergers for consolidation of markets as well as for gaining a competitive edge in the industry. Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. Mergers occur when the merging companies have their mutual consent as different from acquisitions, which can take the form of a hostile takeover.

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Niaz sahil1: Vertical Merger

• A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations.

• Example• A vertical merger joins two companies that may not compete with each

other, but exist in the same supply chain. An automobile company joining with a parts supplier would be an example of a vertical merger

2:Horizontal Merger• A merger occurring between companies in the same industry. Horizontal

merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service

•Example A merger between Coca-Cola and the Pepsi beverage division, for example, would be horizontal in nature

Types of mergers

Niaz sahilcont…

3: Conglomerate Merger A merger between firms that are involved in totally unrelated

business activities.

Two types of conglomerate mergers:

1. Pure conglomerate mergers involve firms with nothing in common.

2. Mixed conglomerate mergers involve firms that are looking for product extensions or market extensions. Eg: Walt Disney Company and the American Broadcasting Company

Niaz sahilCont..

4:Concentric Merger• A merger of firms which are into similar type of

business.• Eg:Nextlink is a competitive local exchange

carrier offering services in 57 cities and building a nationwide IP network.

• Concentric, a national ISP, offers dedicated and dial-up Internet access, high-speed DSL and VPN services across the U.S. and overseas.

Niaz sahilAmalgamation

• This involves fusion of one or more companies where the companies lose their individual identity and the new company comes into existence to take over the business of companies being liquidated.

• The merger of Brook Bond India Limited and Lipton India Limited resulted in formation of a new company Brook Bond Lipton India Limited

Niaz sahiltakeover

The term takeover is understood to connote hostility. When an acquisition is a ‘forced’ or 'unwilling’ acquisition, it is called a takeover. A holding company is a company that holds more than half of the nominal value of the equity capital of another company, called a subsidiary company, or controls the composition of its Board of Directors. Both holding and subsidiary companies retain their separate legal entities and maintain their separate

Niaz sahilAcquisition

• Acquisition may be defined as an act of acquiring effective control over assets or management of a company by another company without any combination of businesses or companies.

• A substantial acquisition occurs when an acquiring firm acquires substantial quantity of shares or voting rights of the target company This involves buying assets of another company. The assets may be tangible assets like manufacturing units or intangible like brands.

• HLL buying brands of lakme is an example of asset acquisition

Niaz sahilJoint venture

This Involves two companies coming together and forming a new company whose ownership is changed. Generally this strategy is adopted by MNC’s to enter into foreign companies.• DCM Group and Daewoo Motors entered in to

a joint venture to form DCM Daewoo Limited to manufacture auto mobiles in India

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Unit------(SEBI)

Niaz sahil(SEBI)

• Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of securities market. AND in May 1992, SEBI was granted legal status by the government . SEBI is a body corporate having a separate legal existence and perpetual succession.

• Purpose and Role of SEBI:• SEBI was set up with the main purpose of keeping a

check on malpractices and protect the interest of investors.

Niaz sahilobjectives of SEBI

• The overall objectives of SEBI are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market. The objectives of SEBI are:

• 1. To regulate the activities of stock exchange.• 2. To protect the rights of investors and ensuring safety to their

investment.• 3. To prevent fraudulent and malpractices by having balance

between self regulation of business and its statutory regulations.

• 4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.

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unit6Winding up of a company

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Niaz sahilWinding up of a company

Winding up of a company is the stage, where by the company takes its last breath. It is a process by which business of the company is wound up, and the company ceases to exist anymore. All the assets of the company are sold, and the proceedings collected are used to discharge the liabilities on a priority basis.There are two ways, in which a company may be wound up. They are: • WINDING UP BY TRIBUNAL• Voluntary winding up.

– Members Voluntary winding up.– Creditiors Voluntary winding up.

Niaz sahilVOLUNTARY WINDING UP

A company may, voluntary wind up its affairs, if it is unable to carry on its business, or if it was formed only for a limited purpose, or if it is unable to meet its financial obligation, and etc. A company may voluntary wind up itself, under any of the two modes: • Members voluntarily winding up.• Creditors voluntarily winding up

Niaz sahilCont…• A company may voluntarily wind up itself, either by passing: • • An ordinary resolution, where the purpose for which the

company was formed has completed, or the time limit for which the company was formed, has expired.

• Or • By way of special resolution • Both types of resolution shall e passed in the general

meeting of the company. (484)• Once the resolution of voluntarily winding up is passed, and

then the company may be wound up, either through: Members voluntarily winding up, or Creditors voluntarily winding up

Niaz sahili. MEMBERS VOLUNTARILY WINDING UP • Directors of the company shall call for a Board of Directors Meeting, and

make a declaration of winding up, accompanied by an Affidavit, stating that;

• The company has no debts to pay, or • The company will repay it's debts; if any, within 3 years from the

commencement of winding up, as specified in declaration (488

ii. CREDITORS VOLUNTARILY WINDING UP • Where the resolution for winding up has been passed, but the Board of

Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (500)

• It is the duty of Board of Directors, to present a full statement of company’s affairs, and list of creditors alongwith their dues, before the meeting of creditors. [500 (3)]

Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of its passing. (501)

Niaz sahil2: WINDING UP BY TRIBUNAL

A company may be wound up by the Tribunal on a petition filed under Section 272 of the Act..This is called compulsory winding up. Section 433 lays down the following grounds for the winding up of a company by the tribunal.• 1. Special resolution of the company:• 2. Default in holding statutory meeting:• 3. Failure to commence or suspension of business:• 4. Reduction of members below minimum:• 5. Inability to pay debts:• 6. Just and equitable:

Niaz sahilCont..1. Special resolution of the company:• If the company has by a special resolution resolved that it may

be wound up by the court. The power of the court in such a case is discretionary. The court may refuse to order winding up where it is opposed to public or company’s interest.

2. Default in holding statutory meeting:• If a company makes a default in delivering the statutory report

to the registrar or in holding the statutory meeting, the court may order winding up of the company

3. Failure to commence or suspension of business:• Where a company does not commence its business within a

year from its incorporation, or suspends its business for a whole year, the court may order for its winding up.

Niaz sahilCont…

• 4. Reduction of members below minimum:• Where the number of members is reduced below 7 in the case

of public company and below 2 in case of a private company, the court may order the winding up of the company.

• 5. Inability to pay debts:• The court may order for the winding up of a company if it is

unable to pay its debts. The basis of an order for winding up under this clause is that the company has ceased to be commercially solvent i.e. it is unable to met its current demands, although the assets when realized may exceed its liabilities

Niaz sahilcont,…

6. Just and equitable:• The last ground on which the court can order the winding

up of a company is when the court is of the opinion that it is just and equitable that the company should be wound up. This clause gives the court a very wide power to order winding up wherever the court considers it just and equitable to do. The court will consider such grounds to wind up a company for just and equitable reasons as are not covered by the preceding fie clauses.

• The following are the instances where the courts have exercised their discretion under this clause:

Niaz sahilCont…

• i) Where there is a deadlock in the management.• ii) Where it is impossible to carry on the business of the

company except at a loss.• iii) Where the company has ceased to carry on its

authorized business and is engaged in an illegal business.• iv) Where the object for which the company is formed is

impossible of further pursuit.• v) Where the minority is being disregarded or oppressed.• vi) Where there is lack of confidence in directors.• vii) Where a company has been conceived and brought

forth in fraud.

Niaz sahil PRIORITY IN DISPOSING LIABILITIES

When the company is wound up, by any mode, the liabilities shall be discharged in following priority.• Workman's dues. • Debts due to secured creditors, in case of insolvency. • All , taxes, cesses and rates due from the company to the

central government or a state govt. • All wages and salary of any employee due within

four months. • • All holiday remuneration becoming payable to any

employee

Niaz sahilDuties of liquidator

• To conduct proceedings in winding up. • To submit preliminary report(sec.455). • To take custody of company’s property. • To take legal assistance (sec.459). • To maintain proper books. • To present accounts to tribunal. • To consider the wishes and directions of

creditors and contributories.