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Company law
Company law

By Prof. Mayur Malviya

Object

Company law has been enacted to consolidate and amend law relating to companies and certain other associations. Objectives to be achieved:

1) To encourage investments 2) To ensure proper administration 3) To prevent malpractices 4) To allow for investigations

Prof. Mayur Malviya

Company [Sec.3]

Sec.3(1)(i) “A company means a company formed and registered under this act or an existing company.”

“a voluntary incorporated association which is an artificial person, created by law with limited liability having a common seal and perpetual succession.”

Prof. Mayur Malviya

CHARACTERISTICS OF A COMPANY

• An Incorporated Association

• Artificial legal person

• Separate legal entity • Perpetual existence • Common seal
• Separate legal entity
• Perpetual existence
• Common seal
• Common capital &limited liability • Transferable shares • Separate property • Capacity to sue
• Common capital
&limited liability
• Transferable shares
• Separate property
• Capacity to sue & to
be sued
• Not a citizen

Prof. Mayur Malviya

Doctrine of Lifting the Corporate Veil

Judicial Interpretation Protection of Revenue
Judicial Interpretation
Protection of Revenue
Veil Judicial Interpretation Protection of Revenue Statutory Exceptions No. of members below statutory
Statutory Exceptions No. of members below statutory minimum Failure to refund application money Misdescription of
Statutory Exceptions
No. of members below statutory
minimum
Failure to refund application money
Misdescription of Company’s name
Fraudulent trading

Holding and subsidiary

Company as an agent of Shareholders Company formed by certain persons to avoid their own
Company as an agent of
Shareholders
Company formed by certain persons
to avoid their own valid contractual
obligation
Company formed for some fraudulent
purpose
Company formed is against public
interest or Public policy

Prof. Mayur Malviya

Protection of Revenue. (Case Study – Jugilal vs Commissioner of Income Tax)

Prevention of Fraud or Improper conduct. (Case Study – Johns vs Lip man)

Company is a Sham. (Case Study – Gilford Motor Co Ltd vs Horne)

Determination of the character of the company. (Case Study – Daimler Co Ltd vs Continental Tyre & rubber Co.)

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Types of Company

On the basis of Incorporation

Chartered Companies

Statutory companies

Registered Companies

On the basis of Liability

- Limited by shares

- Limited by guarantee

- Unlimited Company

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On the basis of Number of members:

- Private Company

- Public Company

On the basis of Control:

- Holding Company

- Subsidiary Company

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On the basis of Ownership:

- Government

- Foreign

One Man Company

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Private Company

Private Company [Sec.3(1)(iii)] is a Company which by its articles of association:

Limits the no. of its members to 50, excluding employees who are members or ex-employees who were and continue to be members. Restricts the rights of transfer of shares, if any. Prohibits any invitation to the public to subscribe for any shares or debentures of the co.

Prof. Mayur Malviya

Public company

According to Sec.3(1)(iv), A Public Company is one which is not a Private Company.

Prof. Mayur Malviya

Difference between Private Company & Public Company

Criteria

Private [Sec.3(1)(iii)]

 

Public [Sec.3(1)(iv)

1. Minimum Capital

1 Lakh

5 Lakhs

2. Number of members

Minimum is 2 maximum is

Minimum is

7.

No

50

restriction on maximum.

3. Minimum numbers of directors

Two

Three

4. Mode of appointment of directors

Consent

letter

is

not

Consent letters by the directors is required

required

5. Subscription for shares

No invitation to the public

Public may be invited to and can subscribe

6. Transferability of shares

Members

restricted in

Members can transfer their shares freely

transferring shares

 

7. Minimum quorum

Two

Five

8. Managerial remuneration

No restriction

 

Should not exceed 12% of the profits

Prof. Mayur Malviya

9. Borrowing powers

 

A

private company can

A public limited company can borrow loans only after obtaining certificate to commence business

 

borrow funds immediately

after incorporation

10.

Share warrant

No such right

Can issue share warrant

11.

Name

Name, must add the word ‘Private limited’ at the end

Name must add the word ‘Limited’ at the end

12.

Statutory meeting

Not required

Must hold statutory meetings and file a statutory report by the registrar

13.

Commencement

of

Soon after incorporation

Only after

obtaining

business

certificate of commencement

 

of business

14.

Further issue of Capital

Shares must be first offered to the existing members.

Can be issued to outsiders

   

Prof. Mayur Malviya

 

Conversion of Private into Public

Conversion of Private Company into a Public Company

Public Conversion of Private Company into a Public Company By Default By Operation of Law By
Public Conversion of Private Company into a Public Company By Default By Operation of Law By
By Default
By Default
By Operation of Law
By Operation of Law

By Choice

Prof. Mayur Malviya

Conversion of Public into Private

1)

2)

3)

4)

5)

The co. in general meeting has to pass special resolution for altering the articles so as to include therein the necessary restrictions, limitations and prohibitions, and to delete any provision inconsitent with the restrictions Word ‘Private’ should be added before limited. The approval of the Central govt. to the alteration in the articles for converting a public company into a private company should be obtained. Within one month of the date of the receipt of the approval, a printed copy of the altered articles must be filed with the registrar. Within 30 days of the passing of the special resolution, a printed or typed written copy thereof should be filed with the registrar.

Prof. Mayur Malviya

Formation of Companies

Stages in Formation

Formation of Companies Stages in Formation Registration/ Incorporation Capital subscription/ Floatation Promotion
Registration/ Incorporation
Registration/
Incorporation

Capital

subscription/

Floatation

Promotion
Promotion
Registration/ Incorporation Capital subscription/ Floatation Promotion Commencement of Business Prof. Mayur Malviya

Commencement of Business

Registration/ Incorporation Capital subscription/ Floatation Promotion Commencement of Business Prof. Mayur Malviya

Prof. Mayur Malviya

Promotion Stage

Discovery of business opportunity

Conduct of preliminary investigation Assembling

Financing

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Role of Promoter

Ideation

Arranging resources

Preparing preliminary documents

Preliminary investigation

Preliminary Contracts

Naming the company

Finance

Appoint bankers, brokers, solicitors and underwriters

Obtaining license

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Incorporation

Availability and approval of the name

Filing of documents

MOA AOA Notice Agreements Return containing first director’s particulars List of directors Written consent Statutory declaration Undertaking of shares for qualification shares Payment of fee

Registration

Certificate of incorporation Prof. Mayur Malviya

Commencement of business

Prospectus or Statement in lieu of prospectus

Minimum subscription

Qualification shares

Return of allotment

Declaration

Statutory declaration

Certificate of commencement of business

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Memorandum of association

Sec.2(28).

“Memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act.”

Establish the relationship between the company and the outside world

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Memorandum of association

Significance

Basis of incorporation

Charter of company – objects

Future structure

Limits its activities

Investments and risks

Liabilities

Authorisation

Promoters

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Name clause

Objects clause

Registered office

Capital

Liability

association

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Doctrine of Ultra vires

Beyond powers

An act is said to be ultra vires which though legal in itself,is not authorised by the objects clause in the Memorandum of Association.

Restricts misuse of corporate funds

All activities and transactions beyond the objects of the company shall be entirely void.

All actions against MOA

Directors will held personally resposible if any acts ultra vires

Prof. Mayur Malviya

Alteration of Memorandum

Change of name

Change of Registered office

Alteration of objects

Change in liability clause

Capital clause

Prof. Mayur Malviya

Articles of association

Regulations which govern the management of its internal affairs

Duties, rights,powers and authority of the management and the board of directors in their respective capacity

A public company will be deemed to have adopted Table A in Schedule I if the Companies act, if it does not file its own Articles of Association (Properly stamped, duly signed and attested.)

Prof. Mayur Malviya

Contents

Share capital

Lien on shares

Calls on shares

Procedure of allotment of shares

Transfer of shares

Share certificates issued

Transmission, forfeiture and reissue

Share warrants

Alteration of capital

Meetings and proceedings

Voting rights

Directors and capacities

Manager

ecre ary

Dividends and reserve

Book keeping

Accounts, audit and borrowing powers

Capitalisation

Winding up

S

t

Prof. Mayur Malviya

Prospectus

Sec.2(36) ‘Document described or issued as prospectus and includes any notice, circular, advt., or other documents inviting offers from the public for the subscription or purchase of any shares or debentures of a body corporate’ 1) Invites subscription to shares, debentures or deposits 2) Aforesaid invitation is made to public.

Prof. Mayur Malviya

1) If the private company is changed into Public Company 2) If there is automatic or immediate collection of capital at the time of incorporation 3) If the company has not issued prospectus due to any reason 4) If the company has decided that it will not issue shares or debentures to public.

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Offer

Draft

Red-Herring

Abridged

Shelf

Types

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Contents

Objects

Shares

Body of Management

Q

Minimum subscription

Application and allotment

Preliminary expense

lifi

ti

on s ares

h

ua

ca

Amount of premium

Vendors

Benefit paid or given to promoters

Auditors, Creditors, Underwriting Commission

Reserves and profits

Prof. Mayur Malviya

Statement in lieu of Prospectus:

Section 70

Issued atleast 3 days before the allotment of shares or debentures, there has been delivered to Registrar for registration duly signed by each of the acting or proposed director in the following cases:

Prof. Mayur Malviya

APPOINTMENT OF DIRECTORS

By the court
By the
court
By promoters
By promoters
APPOINTMENT OF DIRECTORS By the central government By the
APPOINTMENT
OF DIRECTORS
By the central
government
By the
third parties
third
parties

By the

company

By the company

By the board of directors

Prof. Mayur Malviya

General powers of company boards

General powers of the board • Company Act • AoA
General powers of
the board
• Company Act
• AoA
Powers exercisable by the board at the board meeting • to make calls on shares
Powers
exercisable by
the board at the
board meeting
• to make calls on
shares
• to borrow money
• to fill casual vacancy

Prof. Mayur Malviya

POWERS EXERCISABLE BY THE BOARD SUBJECT TO

INTERFERENCE BY THESHAREHOLDERS

• Malafides acts of directors

• Deadlock in management

DUTIES OF DIRECTORS

Statutory duties

Fiduciary duties

Duty not to delegate

Duty to take reasonable care

Duty to take part in company meetings

Duty to disclose interest

Prof. Mayur Malviya

Shares

Sec.2(46) of the Companies act, 1956 has defined:

“Share means share in the shares capital of the company and includes stock, except where a distinction between stock and shares is expressed or implied.”

Interest

Liability

Right

Binding

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Types

Shares

Preference shares

Equity Shares

Sweat equity shares

Listing of Shares [sec.73]

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Statutory Annual general Extraordinary Class

Quorum

Resolution

Meetings

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Winding Up

Compulsory Voluntary Supervision under court

Winding up and Dissolution

Prof. Mayur Malviya

Winding up the Company Act session!!

Any Queries?

Lets move ahead towards taxation

Thank you……

Prof. Mayur Malviya