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BusinessLawQuickGuide
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BusinessLawCompanyLaw
WhatisaCompany?
Organizationsrequirehugeinvestments.Astheinvestmentsarebig,therisksinvolvedarealsoveryhigh.While
undertakingabigbusiness,thetwoimportantlimitationsofpartnershipsarelimitedresourcesandunlimited
liabilitiesofpartners.Thecompanyformofpartnershipshasbecomepopulartoovercometheproblemsof
partnershipbusiness.Variousmultinationalcompanieshavetheirinvestorsandcostumersspreadthroughoutthe
world.
Inordertomaximizeandutilizetheorganizationalandmanagerialabilitieseffectively,itisnecessaryfora
limitedliabilitycompanytobesupportednotonlybyitsownorgansbutalsobyclearandpreciseregulations.It
isnecessarytohaveabriefoverviewofthebusinessorganizationfromtheframeworkofcompanylaw.
Commercialsectorrecognizesthreeprincipalcategoriesofbusinessorganizations
Therearethreetypesofpartnerships
Persecutionperdatagovernedbythecivilcode
Persecutionfirmsgovernedbythecivilcodeaswellasthecommercialcode
Persecutiongovernedbythecivilcodeaswellasthecommercialcode
Itisdifficulttodeterminetheabsoluteequivalentsbetweenthesepartnershipsandpartnershipsundercommon
lawtradition.
MeaningandNatureofCompany
AccordingtotheCompaniesAct,1956,Acompanyisaperson,artificial,invisible,intangible,andexisting
onlyinthecontemplationofthelaw.Beingamerecreatureofthelaw,itpossessesonlythosepropertieswhich
thecharacterofitscreationconfersuponiteitherexpresslyorasincidentaltoitsveryexistence.
Itcanclearlybedefinedthat
Acompanyisdefinedasagroupofpeoplethatcontributesmoneyortheworthofmoneytoacommon
stocktoemployitinsometradeorbusiness.Thepeopleinthisgroupsharetheprofitorloss
asthecasemaybe arisingasaresult.
Thecommonstockisusuallydenotedintermsofmoneyandisthecapitalofthecompany.
Thepersonswhocontributetothecommonstockarethemembers.
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Theproportionofthecapitalentitledtoeachmemberiscalledthemembersshare.
Sharesarealwaystransferrablesubjecttotherestrictionsandliabilitiesofferedbytherightstotransfer
shares.
Themaincharacteristicsofacompanyarediscussedbelow.
IncorporatedAssociation
AcompanycanbecreatedonlyundertheregistrationoftheCompanyAct.
Itcomesintoexistencefromthedatewhenthecertificateofincorporationisissued.
Atleastsevenpersonsarerequiredtoformapubliccompany.
Atleasttwopersonsarerequiredtoformaprivatecompany.
Thesepersonswillsubscribetothememorandumofassociationsandalsocomplywiththeotherlegal
requirementsoftheCompanyActinrespectofregistrationtoformandincorporatethecompany,withor
withoutliability.
ArtificialLegalPerson
Acompanycanbeconsideredasanartificialpersonapersonwhocannotactonhisownwill.Ithastoact
throughaboardofshareholderselectedorselectedbythemembersofthecompany.
Theboardofdirectorsworksastheonlybrainofthecompany.
Ithastherightstoacquireanddisposetheproperties,toenterintocontractwiththirdpartiesinitsown
name,andcansueandcanbesuedinitsownname.
However,itcannotbeconsideredasacitizenasitcannotenjoytherightsofacitizen.
SeparateLegalEntity
Acompanyisperceivedtobeadistinctlegalentityandonethatdoesnotdependonitsmembers.Themoney
creditedbythecreditorsofthecompanycanberecoveredonlyfromthecompanyandthepropertiesownedby
thecompany.
Individualmemberscannotbesued.
Similarly,thecompanyinanywayisnotliablefortheindividualdebtsofthemembers.
Thepropertiesofthecompanycanonlybeusedforthedevelopment,betterment,maintenance,and
welfareofthecompanyandcannotbeusedforpersonalbenefitsoftheshareholders.
Amembercannotclaimanyownershiprightsoverthecompanyeithersinglehandedlyorjointly.
Themembersofthecompanycanenterintocontractswiththecompanyinthesamemannerasanyother
individualcan.
TheIncomeTaxActalsorecognizescompanyasaseparatelegalentity.
Thecompanyhastopayincometaxasitearnsprofitsandwhendividendsarepaidtotheshareholders,
theshareholdersalsohavetopayincometaxbasedonthedividendsearned.Thishighlightsthefactthat
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theshareholdersandthecompanyaretwoseparateindividualentities.
PerpetualExistence
Acompanyissaidtobeastableformofbusinessorganization.
Acompanyslifedoesnotdependuponthedeath,insolvencyorretirementofanyorallofits
shareholdersordirectors.
Itiscreatedbylawandcanonlybedissolvedbylaw.
Memberscanjoinorleavethecompanybutthecompanycancontinueforever.
CommonSeal
Acompanycannotsigndocumentsbyitself.
Itactsthroughnaturalpersonswhoarecalleditsdirectors.
Acommonsealisusedwiththenameofthecompanyengravedonitasasubstituteofitssignature.
Tobelegallybindingonthecompany,adocumenthastocarrythecompanysealonit.
LimitedLiability
Acompanymaybelimitedbysharesorbyguarantee.
Inacompanylimitedbyshares,theliabilityofmembersislimitedtotheunpaidvalueoftheshares.
Inacompanylimitedbyguarantee,theliabilityofmembersislimitedtosuchanamountasthemembers
mayundertaketocontributetotheassetofthecompanyintheeventsofitbeingwoundup.
TransferrableShares
Thesharescanbefreelytransferredincaseofapubliccompany.
Therighttotransfersharesisastatutoryrightanditcannotbetakenawaybyanyprovision.
However,themannerinwhichsuchtransferofsharesistobemadeshouldbeprovidedanditmayalso
containbonafideandreasonablerestrictionsontherightsofmembersfortransferoftheirshares.
However,incaseofprivatecompanies,thearticleshallrestricttherightsofthememberstotransfertheir
sharesincompanieswithitsstatutorydescription.
Ifacompanyrefusestoregisterthetransferofshares,ashareholdermayapplytotheCentralGovernment
inordertomaketherighttotransfershareslegal.
DelegatedManagement
Anycompanycanbeconsideredasanautonomous,selfgoverningandselfcontrollingorganization.
Duetothepresenceofalargenumberofmembers,allmemberscannottakepartinthemanagementof
differentaffairsofthecompany.
Controlandmanagementisthereforedelegatedtotheelectedrepresentativescalleddirectors,whoare
electedbytheshareholders.
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Thedirectorssupervisethedaytodayworkandprogressofthecompany.
ClassificationofCompanies
AllthecompaniesmustberegisteredundertheCompaniesAct.Acertificateofincorporationmustbeissuedby
theregistrarofthecompanyafterregistration.Differentjurisdictionscanformdifferentcompanies.Someofthe
mostcommontypesofcompaniesareasfollows
PrivateCompany
Acompanyissaidtobeaprivatecompanyifitdoesnotallowitsshareholderstotransfershares.
Ifanytransferofsharesisallowed,thecompanylimitsthenumberofitsmembersto50anddoesnot
entertainanyinvitationstothepublicforsubscribinganysharesofthecompany.
Thesetypesofcompaniesofferlimitedliabilitiestotheirshareholdersbutalsoplacesomerestrictionson
theirownership.
Aprivatecompanycanhaveaminimumof2membersandamaximumof50members,excludingthe
employeesandtheshareholders.
Aprivatecompanyisdesirableinthosecaseswhereitisintendedtotaketheadvantageofcorporatelife,
haslimitedliabilityandthecontrolofthebusinessisinthehandsoffewpersons.
Inprivatesector,anindividualcangaincontroloftheentirebusinessfirm.
PublicCompany
Atleastsevenmembersareneededtoformapubliccompany.
Themaximumnumberofmembersremainsunrestrictedinthecaseofpubliccompanies.
AProspectusisissuedbythepubliccompaniestoinvitepeopletobuythesharesofthecompany.
Theliabilityofthemembersislimitedbythevalueofthesharestheypurchase.
Thesharesofapubliccompanyaresoldandboughtfreelywithoutanyobstructioninthestockmarket.
CompaniesLimitedbyGuarantee
Everymemberofthesecompaniespromisestopayafixedamountofmoneyintheeventofliquidationof
thecompany.
Thisamountisdenotedasguarantee.
Thereisnoliabilitytopayanythingmorethanthevalueoftheshareandtheguarantee.Someofthe
substantialresultantsofcompanieslimitedbyguaranteearecharities,communityprojects,clubs,
societies,etc.
Mostofthesecompaniesarenotintoanyprofitmaking.
Thesetypesofcompaniescanbeconsideredasprivatecompaniesofferinglimitedliabilitiestotheir
members.
Aguaranteecompanysubstitutessharecapitalswithguarantorswillingtopayaguaranteeamountupon
theliquidationofthecompany.
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CompaniesLimitedbyShare
Inthecaseofcompanieslimitedbyshares,theshareholderspayanominalvalueofmoneycontributingtothe
sharecapital.Thepaymentscanbedoneeitheratatimeorbyinstallments.
Themembersdonothavetopayanythingmorethanthefixedvalueoftheshare.Companieslimitedby
sharesarethemostpopularamongtheregisteredcompanies.
ThesetypesofcompaniesarerequiredtohavethesuffixLimitedattheendoftheirnamessothatthe
peopleknowthattheliabilityofitsmembersislimited.
UnlimitedCompany
Unlimitedcompaniesarethecompanieswheretheliabilitiesoftheshareholdersareunlimitedasinthe
caseofpartnershipfirms.
SuchcompaniesarepermittedundertheCompaniesActbutarenotknown.
Thesetypesofcompaniesareincorporatedeitherwithorwithoutasharecapital.
Theshareholdersareliabletodonatewhateversumsarerequiredtopaytheoutstandingdebtsofthe
company,shoulditgointoformalliquidationandifthereisanyneedtomeettheinsufficiencyofassetsto
paythedebtsandliabilitiesandthefixedcostofliquidation.
Themembersorshareholdershavenodirectliabilitytothecreditorsorsecurityholdersofanunlimited
company.
PrincipleofSeparateLegalExistence
ThePrincipleofSeparateLegalExistenceisafundamentalprincipleinthefieldofcompanylaw.Accordingto
thisprinciple,thecompanyistreatedasanentityseparatefromitsmembers.
FunctionsofSeparateLegalExistence
Inordertocreateacompany,thepromotersofthecompanymustproducecertaindocumentstothe
registrarofcompanies.
TheregistrarpresidesoverthegovernmentagencyknownastheCompaniesHouse.
Aftercheckingthedocuments,theregistrarwillissueacertificateofincorporationandthecompanystarts
toexistasacorporatebody.
SeparateLegalEntity
Themostimportantconsequenceofincorporationisthatacompanyisregardedasaperson.Ithasitsownrights
andtherightsaredifferentfromtherightsofitsowners.
LimitedLiability
WhenShareholdersbuysharesfromacertainCompanyandpayacertainpercentageamountoftheshares
ratherthanpayingthefullamount,andwhenthecompanyisdissolved,thentheshareholdersareliableto
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paytherestoftheamount.
Ifashareholderhaspaidthefullamount,he/sheisnotliabletopayanyamountupondissolutionofthe
company.
Therefore,shareholdershavealimitedliability.
PerpetualSuccession
Thisreferstotheexistenceofanyorganizationdespitethedeath,bankruptcy,insanity,changeinmembershipof
anymemberfromthebusiness.Insuchinstances,thesharesarepassedontothenextgeneration.
OwnershipofProperty
Certainpropertiescanbeownedbyacompany.Thesepropertiescontinuetobeownedbythecompanies
regardlessoftheirshareholdersandmembers.
Thesepropertiesareusedwhenacompanyneedstoborrowmoneyasasecurity.
Thesepropertiesmaybethepresentorfutureassets.
ContractualCapacity
Acompanyhastheabilitytomakecontracts.
Thecompanycansueorbesuedonthebasisofthesecontracts.
Thepowertomakecontractsisdelegatedtohumanagentsworkingforthecompany.
Thecontractsarecarriedoutbythedirectorsandotheragentsofthecompany.
Thecompany,asapersonitself,issubjectedtotherightsandliabilitiesimposedbythecontract.
CriminalLiability
Forsomeonetobefoundguiltyofcommittingacrime,theindividualsactionsandmindsetmustfitthe
crime.
Itisgenerallyperceivedthatcompaniescannotcommitanycrimeastheydonothavemindsoftheirown.
However,thecourtsassumethecontrollersofthecompanytobethemindsofthecompany.
BusinessLawTheCorporateVeil
Itisseenthatacompany,asaperson,hasalegalidentityofitsown.Anobviousconsequenceisthatthe
companyinquestionmaybecomeliablefortheactionsofthecompany.
Usually,theownersofthecompanyarefreefromanyliability.
Itisassumedthattheownersofthecompanyareprotectedfromliabilitiesbythecompanyunderaveilof
incorporation.
However,therearecertaincircumstanceswhenthecourtoflawremovestheveilsothatthemembersof
thecorporationarenotprotectedanymorebytheveil.
However,thereisnospecificlistofcircumstanceswhenthecourtoflawissupposedtoremovetheveil.
However,theveilhasbeenremovedinthepastunderthefollowingcircumstances
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Wheretheformationofthecompanywasintendedforafraudulentpurpose.
Wherethecompanywasconsideredasanenemyatthetimeofwar.
Whereseveralgroupsofcompanieswereregardedasone.
Whereacompanywastreatedasapartnershipwithanintenttowindup.
DutiesofSeparateLegalExistence
Acompany,afterbeingincorporated,isconsideredasaseparatepersonintheeyesofthelawandthecourtof
justice.Hence,thecompanyisconsideredseparatefromitsshareholdersandtheowners.
Ithastherighttosueandthecompanycanbesuedjustasanaturalperson.
Theliabilitiesoftheownersandshareholdersofthecorporationareonlylimitedtothevalueofshares
investedinthespecificcompany.
ConversionfromaPrivateCompanytoaCloseCompany
Variousdifficultiesmayariseforabuyerwhenhetriestoobtainamortgagebondforpayingthepurchaseprice.
Accordingtosection38oftheCompaniesAct,nocompanyisallowedtoofferanyfinancialhelpforthe
purposeofacquisitionofsharesofacompany.
Thisjustifiesthatifacompanyownsaparticularproperty,thebuyercannotraisemoneybasedonthisproperty
topaythepurchaseprice.
Foravoidingthislimitation,acompanyhastobeconvertedintoaclosecorporation.
NosuchlimitationisinvokedintheCloseCompaniesAct.
Foracompanytobecomeaclosecorporation,thenumberofshareholdersofthecompanymustbelimited
to10.
Theshareholdersmustalsoqualifytheterms,conditionsandsetofqualificationsasaforesaidbytheClose
CompaniesAct.
Aregistrationnumberwillbeallottedtothecompanybytheregistraruponsuchconversion.
AccordingtotheCompaniesAct,inthecontextofsuchaconversion,theexistingshareholdersbecome
theonlyexistingmembersofthecompanyandnomoreshareholdersareallowedaftertheconversionis
performed.
Thenewfoundclosecorporationhenceadoptsthenameoftheprivatecompanyfromwhichitisderived.
Acertificateonthebasisofthefoundationoftheclosecorporationisissued.
Incasethemembersdesiretochangethenameoftheclosecorporationduringtheconversion,the
registrarsconsentisrequired.
CloseCorporation
Aclosecorporationcanbeconsideredanalogoustoayoungerbrotherofthecompany.Itiswaysimplerand
quickertomanageandmaintain.
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Annualincometaxreturnsarerequired.
However,noauditedfinancialstatementisrequiredbythelaw.
Aclosecorporationcanhavethenumberofmemberslimitedto10.
Aclosecorporationalsohasaseparatelegalidentity,i.e.,itisalsoconsideredasapersonintheviewsof
thelawirrespectiveofitsmembers.
Inmanycases,aclosecorporationisintendedforitsownerstosellthepropertiesownedbytheclose
corporation.
Usually,anymemberoftheclosecorporationmaycomeintoacontractonbehalfoftheclosecorporation.
However,restrictionsmaybeimposedbyanassociationagreementandtheconsentofamemberholding
amembersinterestofatleast75%ortheconsentofthemembersholdingthatpercentageofmembers
interestcollectively.
Partnership
Apartnershipisconsideredtobeaformalrelationshipbetweenaminimumoftwoandamaximumoftwenty
membersbasedonanagreementintendedtoshareprofitsthroughvariousbusinessventures,whereeach
membercontributessomethingeithermoneyorskills tothebusiness.
Apartnershipfirmhasnoseparatepersonafromthepartners.
Nonetheless,itistreatedasaseparateentityfortransactionandregistrations.
Anagreementboundbythepartnershipcanbeconcludedbyanyofthepartners.
Thepartnershipwillnotbebindingifapartnerconcludesacontractoutsidethescopeofthepartnership.
Trusts
Atrustappearstobeacomplicatedconcept,noteasilyunderstoodasaclosecorporationoracompany.Atrust
doesnothaveaseparatelegalidentity.Thelawusuallylooksthroughtheentitytowhatisbehindit.
Therateofincometaximposedonatrustissimilartotherateofincometaximposedonanaturalperson
andnotaflatrateasimposedinthecaseofaclosedcorporationoracompany.
Apersondoesnotownatrust.
Atrustcanneitherhaveshareholdersnormembers.
Atrustcomesintoexistencewhenthefounderofthetrusthandsovertheownershipofanassettoa
trusteewhoadministersandmanagestheassetforthebenefitofabeneficiarythirdperson.
Usually,trustsarecreatedforcharitablepurposes.
Atrusteeactsinhisofficialcapacityratherthanhisprivatecapacity.
Theownershipofatrustdoesnotbelongtoanyindividual.
Theownershipisdividedbetweenthetrusteesofthetrustwhoworkfortheprofitofabeneficiary.
Thebeneficiarydoesnothaveanycontrolovertheassetsofthetrust.
ASoleProprietorship
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Asoleproprietorshipcanbeconsideredasasinglepersonbusiness.ItSmallscaleenterprisesaregenerally
ownedandoperatedonthebasisofsoleproprietorship.Enterprisesbasedonthisdonotrequireanyregistration.
Aninformaltraderorestateagentareprobablythebestexamplesofsoleproprietors.
Asoleproprietorisconsideredtobeanindependentlegalentity.
Thereisnolegalprotectionagainstclaimsofasoleproprietor.
Thepersonalpropertiesorassetsofasoleproprietorwillbeatstakeincaseheissued.
Astheproprietorofthebusiness,theownercarriesthefullriskofhisassetsandlosses.
Theownermayalsobesubjectedtosequestration.
Inthecontextofsequestration,iftheproprietorismarriedinacommunityofproperty,theownershipof
theestateownedbyhisspousemayalsobeheldbyanaturalperson,atrustoranyotherseparatelegal
entity.
Incaseofanyuncertaintieswhethertoholdapropertyinapersonspersonalname,legalconsultantsmust
beconsultedbeforesigninganylegalagreement.
Liabilities&RightsofPromoters
Apromoterofacompanycannotbeconsideredasanagentofthecompanyasthecompanyisnotinexistence
duringpromotion.Apromoterisnotatrusteeofthecompany.Apromotercannotmakeanysecretprofit.
FormationofaCompany
Thefollowingthingsarerequiredfortheformationofacompany.
Promotersarerequired.
Objectivesofthepromotersmustbelaiddown.
Thenamesofthepromotersmustbesubscribedtothememorandumofthecompany.
ThepromotersmustcomplywiththeCompanyAct,1956.
Privatecompaniesandpubliccompanieshavingasharecapitalcanimmediatelystartbusinessafterthe
certificateofregistrationisissuedbytheregistrar.Theincorporationofacompanytakesapproximately35days
inIndia.Publiccompaniescanoffertheirsharesforsaletothepublic.Theminimumsharecapitalforapublic
companytobeincorporatedmustbeINR50,000.Aprivatecompanyplacescertainrestrictionsonownership.
Fortheformationofacompany,acompanypassesthroughthefollowingthreestages
Promotionalstage
Incorporationstage
Commencementofbusiness
PrivateCompanyandPublicCompany
Thedirectorofaprivatecompanymaynotbespecificallyqualified.Aprivatecompanymayhaveonly
onedirectorwhocanalsobetheonlyshareholder.
Apubliccompanymusthaveatleast2directorsand2shareholders.
Aprivatelimitedcompanycanuseitsresourcestopurchasethesharesofthecompanywhensomeone
wishestoleavethecompany.
Aprivatecompanycannotofferanysecuritiesofthecompanytothepublic.
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Publiccompaniesareabletoselltheirsharestothepublic.
Todifferentiatepubliccompaniesandprivatecompanies,thefollowingfactorsaretakenintoconsideration
MinimumNumberofMembers
Aminimumnumberof7membersandaminimumnumberof2membersarerequiredforapubliccompanyand
aprivatecompanyrespectively.
MaximumNumberofMembers
Aprivatecompanycanhave50membersatmaximumwhereasthereisnolimitforpubliccompanies.
CommencementofBusiness
ApubliccompanyneedsaCertificateofCommencementforcommencementofbusinesswhereas,aprivate
companycancommencebusinessafterthecertificateofregistrationisissued.
InvitationtothePublic
Apubliccompanycaninvitethepublictobuyshareswhereasaprivatecompanycannotsellitssharestothe
public.
TransferabilityofShares
Thereisnorestrictiononashareholderofapubliccompanytotransfershares.Shareholdersofprivate
companiesarerestrictedfromtransferringshares.
NumberofDirectors
Aprivatecompanycanhaveatleast1directorbutapubliccompanymusthaveatleast2directors.
StatutoryMeeting
Apubliccompanymustholdastatutorymeetingandfileastatutoryreportwiththeregistrar.Thereisnosuch
obligationforaprivatecompany.
RestrictionsontheAppointmentofDirectors
Adirectorofapubliccompanyshouldfilehisconsentwiththeregistrar.Hecannotvoteorparticipateinany
discussiononacontractonwhichheisinterested.
ManagerialRemuneration
Forapubliccompany,theremunerationpayabletoamanagercannotexceed11%ofnetprofits.Aminimumof
INR50,000canbepaidatthetimeofinadequacyofprofit.Privatecompaniesdonotfacetheserestrictions.
FurtherIssueofCapital
Apubliccompanymustofferfurtherissueofsharestoitsexistingmembers.Aprivatecompanyontheother
handisfreetoallotnewissuetooutsiders.
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Name
PrivatecompaniesarerequiredtohavethesuffixPrivateLimitedattheendoftheirnames.Apubliccompany
isrequiredtohavethesuffixLimitedattheendofitsname.
MemorandumofAssociationConcepts
Thememorandumofassociationofacompanyisadocumentthatgovernstherelationshipofacompanywith
theoutsideworld.Itisoneofthemostimportantdocumentsneededfortheincorporationofacompany.
MeaningofMemorandumofAssociation
TheMemorandumofAssociationisconsideredastheconstitutionofacompany.Itprovidesthefoundationto
thestructureorthebuildingofthecompany.Thememorandumofassociationisdefinedasacompanyscharter.
Itdefinesthelimitationsofacompanyspowers.
Particularpartsofthememorandumcanbealteredbythecompanywheneverandhoweverrequired.
Thememorandumofassociationenablesshareholders,creditorsandinvestorstoknowthepermitting
rangeofthecompany.
Itregulatesthecompanysexternalaffairs.
ImportanceofMemorandum
Thememorandumofassociationcomeswithitsownimportance
Itdefinesthelimitationsofthecompany.
Thewholestructureofthecompanyisbuiltonthebasisofthememorandum.
Itdefinesthescopeofactivitiesofthecompany.
Itsetsoutacompanyswrittengoals.
ClausesofMemorandums
Thememorandumofassociationcontainsthefollowingclauses
TheNameClause
Acompanybeingaseparatelegalentitymusthaveaname.
Thenameofacompanyshouldbeuniqueandshouldnotresemblethenameofanyothercompany.
Itshouldnotcontainwordslikeking,queen,emperorornamesofanygovernmentbodies.
ApubliccompanyisrequiredtohavethesuffixLimitedattheendofitsname.
PrivatecompaniesarerequiredtohavethesuffixPrivateLimitedattheendoftheirnames.
Thenameofthecompanymustbepaintedoutsideeveryplacewherebusinessofthecompanyistobe
carriedout.
RegisteredOfficeClause
Everycompanymusthavearegisteredoffice.
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Thelocationoftheofficecanbeintimatedtotheregistrarwithin30daysofincorporation.
Withintimationtotheregistrar,acompanycanchangeitsplaceinthesametown.
However,forchangingtheplaceoftheofficeinadifferenttowninthesamestate,aspecialresolution
mustbepassed.
Tochangethelocationoftheofficefromonestatetoanother,variousreformsareneededtobeperformed
onthememorandum.
ObjectClause
Itdeterminestherights,powersandsphereoftheactivitiesofacompany.
Itshouldbedefinedcarefullyasitisdifficultfortheclausestobealteredlateron.
Thecompanycannotincorporateanyactivity,whichisnotpresentintheobjectclause.
Thesubscriberstothememorandumchoosetheobjectclause.
Shareholdersareprotectedbytheobjectclauseasitensuresthatthefundsraisedfortheundertakingwill
notbeusedbyanyotherundertaking.
LiabilityClause
Itstatesthattheliabilitiesoftheshareholdersarelimitedtothevalueofthesharesownedbythem.
Theshareholdersareliabletopaytheunpaidbalanceoftheirshares.
Theliabilitiesofthemembersmaybelimitedbyguarantee.
Italsocontainstheamountthateverymemberofthecompanyundertakestocontributetotheassetsofthe
companyintheeventofwindingup.
CapitalClause
Itstatesthetotalcapitaloftheproposedcompany.
Thetotalnumberofsharesofeachcategoryshouldbepresentinthecapitalclause.
Theexactnatureofanyspecialrightsandprivilegesenjoyedbyanyshareholdersmustbementionedin
thecapitalclause.
Associationclause
Thenamesandsignaturestothememorandumofassociationiscontainedinthisclause.
Atleast7personsshouldsignthememorandumincaseofpubliccompanies.
Atleast2personsshouldsignthememorandumincaseofaprivatecompany.
ContentsoftheMemorandumofAssociation
ThecontentsoftheMemorandumofAssociationaredetailedoutbelow.
PurposeofMemorandum
Shareholdersmustknowthefieldofbusinessinwhichtheirmoneyisgoingtobeusedandtherisks
involvedintheinvestment.
Outsidealliesofthecompanymustalsoknowtheobjectsofthecompany.
PrintingandSigningofMemorandum
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Thememorandumofassociationshouldbedividedintoparagraphsandshouldbenumbered
consecutivelybeforeprinting.
Atleastonewitnessshouldbepresentwhileasubscribersignstheassociation.
FormofMemorandum
TheMemorandumofAssociationshouldbeintheformB,C,D,orEtabularforminaccordancewiththe
CompaniesAct,1956.
ContentsofMemorandum
ThefollowingclausesshouldbeincludedintheMemorandumofassociationofeachandeverycompany.
Thewordlimitedorthewordprivatelimitedarerequiredtobeaddedassuffixesattheendofthe
nameofapubliccompanyoraprivatecompanyrespectively.
Themainobjectivesofthecompany.
Theobjectivesauxiliarytothemainobjectivesofthecompany.
Sharescapital
Incaseofacompanyhavingitscapitalinshares,
Eachsubscribershalltakeatleastoneshareandshallwritehisnameoppositetothenumberofshareshe
takes.
Acompanylimitedbyguaranteeshouldensurethateachmembercontributesacertainsumtotheassetsof
thecompany.
DoctrineofUltraVires
AcompanycaninvokeallitspowersasallowedbytheCompaniesAct,1956.
EverythingelseisUltraViresU ltrameansbeyondandV iresmeanspower.
AcompanyactingUltraViresmeansitisactingillegalintheeyesofthelaw.
UltraViresbytheDirectors
IfatransactionismadebyaDirectorbeyondthepowerofaDirectorbutwithinthepowerofthe
company,theshareholderscanrectifyitinageneralmeeting.
Anyirregularitiescanbecuredbytheconsentoftheshareholders,iftheactiswithinthereachofthe
company.
BusinessLawArticlesofAssociation
ArticlesofAssociationisadocument,whichismandatoryforeverycompanytoprepare.Itcontainsthe
followingdetails
Thepowersandprivilegesenjoyedbythedirectors,shareholdersandofficerswhilevoting.
Thetypeofbusinesstobecarriedoutbythecompany.
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Thetypeofchanges,whichcanbemadeintheinternalregulationsofthecompany.
Therights,duties,powersandprivilegesofthecompanyanditsmembers.
ArticlesofAssociation
ArticlesofAssociationcanbeconsideredasacontractbetweenthemembersandthecompany.Thesearticles
bindthepresentaswellasthefuturemembersofthecompany.Thecompanyanditsmembersareboundbythe
articlesassoonasthedocumentissigned.
Membershavevariousrightsanddutiestowardsthecompany.
Thearticlestogetherwiththememorandumofassociationmaketheconstitutionofthecompany.
TheArticlesofassociationmaycoverthefollowingtopics
Theissuinganddifferentclassesofshares
Valuationofintellectualrights
Theappointmentofdirectors
Thedirectorsmeetings
Managementdecisions
TransferabilityofShares
Thedividendpolicy
Windingup
Confidentialityofknowhowandthefoundersagreementandpenaltiesfordisclosure
Thecompanyisessentiallyrunbytheshareholdersbutforconvenience,itisrunbyaboardofdirectors.The
shareholderselectaboardofdirectorsandthedirectorsareelectedattheAnnualGeneralMeeting.Thedirectors
mayormaynotbeemployeesofthecompany.Shareholdersmayalsoelectindependentdirectors.
Onceelected,theboardofdirectorsmanagesthecompany.
TheshareholdersplaynoparttillthenextAnnualGeneralMeeting.
TheshareholdersandtheMemorandumofAssociationdeterminetheobjectivesandthegoalsofthe
companyinadvance.
TheauditorsoftheAnnualGeneralMeetingsareelectedbytheshareholders.
Theauditorsmaybeinternalauditorsemployeesorexternalauditors.
TheBoardmeetsseveraltimesinanyear.
Anagendaispreparedbeforeeachmeeting.
Theboardmeetingsarepresidedoverbyachairperson.
Intheabsenceofthechairperson,thevicechairpersonpresidesoverthemeetings.
MeaningofAssociation
PurposeofanArticle
Thearticleofassociationcontainsthefollowingdetails
Thevotingpowersofofficers,directorsandshareholders.
Theformofbusinessthatthecompanycarriesout.
Theformoffreedomtochangethecompanysinternalregulations.
Therights,dutiesandpowersofthecompanyanditsmembers.
ArticlesofAssociationofaCompany
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Thearticlesofassociationrecordsclearlythedutiesandpurposeofthecompanyanditsmembers.
Itisfiledwiththeregistrarofcompanies.
RegistrationoftheArticles
Everyprivatecompany,whetheracompanylimitedbyguaranteeoranunlimitedcompany,shouldbe
registeredwiththeregistrarofcompaniesalongwiththememorandumaccordingtosection26ofthe
CompaniesAct,1956.
Foracompanylimitedbyshares,itisnotmandatorytohaveitsownarticles.
AcompanylimitedbysharesmaypartlyortotallyadoptthetableAoftheScheduleoftheCompanies
Act,1956.
Ifacompanylimitedbysharesdoesnothaveanyarticlesofassociation,thenthetableAoftheschedule
oftheCompaniesActwillbeappliedbydefault,untilandunlessitismodified.
Thereare3waysforacompanylimitedbyshares
ItmaytotallyadopttableA.
ItmaytotallyexcludetableAandformitsownarticlesofassociation.
ItmayadoptjustapartoftableAandcreateitsownarticlesofassociation.
ItisnotneededtoregisterthearticlesofassociationofacompanyifittotallyadoptstableA.
ForacompanyadoptingtableA,itshouldbementionedinthememorandumofassociationthatthe
companyhasadoptedtableAasitsarticlesofassociation.
Thearticlesofaprivatelimitedcompanyshouldcontainthefollowing
Thecompanymusthaveaspecificamountofsharecapitalwithwhichthecompanyistoberegistered.
Thenumberofmembersincludedtoregisterthecompany.
Foracompanylimitedbyguarantee,thearticlesmuststatethetotalnumberofmembers,involvingwhom,the
companyistoberegisteredaccordingtoSection272oftheCompaniesAct,1956.
AsperSection30oftheCompaniesAct,1956,theArticlesofAssociationmustbesignedbyeach
subscriberofthememorandumofassociationinthepresenceofatleast1witness.
Thewitnessmustattestthearticleswithhissignature,designationandaddress.
DefinitionsusedinArticles
ActofincorporationreferstoanactfortheincorporationofInternationalAirTransportAssociation.
Airservicereferstopublictransportofpassengers,draftsorcargosviaaircraft.
Airlinereferstoanentityoperatingonairservice.
ApplicantAirlinereferstoanairlinethatmakesanapplicationforIATAmembershippursuittoarticle5
ofthesearticles.
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Articlesreferstothearticlesofassociation.
Boardmeanstheboardofgovernors.
CommitteeoftheBoardreferstoanycommitteeoftheBoardformedaccordingtotherulesand
regulationsoftheBoardofgovernors.
Duesreferstoaspecificamountofmoneytobepaidbymemberstomaintainmembership.
FeesreferstoaspecificamounttobepaidbyanApplicantAirlinetoacquiremembership.
GeneralmeetingreferstoAnnualGeneralmeetingoranyspecialgeneralmeeting.
IATAConferencereferstoconferencesorganizedbygeneralmeetingpursuanttoArticleXII3eof
thesearticles.
IndustryCommitteesreferstoCommitteesformedbythegeneraldirectorwiththeapprovalofBoard
pursuanttoArticleXV4ofthesearticles.
Limitationreferstolossofallrightsandprivilegesofmembership.
MembersreferstoamemberAirlineofIATA.
MembershipofficereferstoIATAdepartmentdesignatedbythegeneraldirector.
Presidingofficerreferstotheindividualpresidingoverageneralmeeting.
BusinessLawShares
Throughthecourseoftime,BusinessLawhasevolvedinthefieldofthedivisionandflexibilityin
transferabilityoftheownershipofacompany.Eachshareholderisconsideredanownerofthecompany.The
degreeofownershipdependsonthenumberofshareseachindividualbuys.
Anykindofsharescanbeissuedinaccordancewiththecompanysarticlesofassociation.Thearticlesof
associationareasetofguidelines,whichprovidetherulesforbuying,sellingandtransferringdifferenttypesof
shares.Thearticlesofassociationalsomentionthetypesofshares,whichcouldbetransactedbythecompany.
Ordinarysharesconstitutethebiggestamountofshares,butspecialtypesofshareslikethealphabetsharesalso
exist.
Sharecapitalisconsideredasthetotalamountofmoneyacompanyownsplusthetotalvaluationofits
assetsintermsofmoney.
Sharecapitalisdividedintoshares.
Sharesarevaluedintermsofmoney.
Inotherwords,theamountofmoneycollectedbythecompanyfromitsconsumerstocontributetoits
capitaliscollectivelyknownassharecapitalandindividuallyknownasshares.
Asharecontainsbundlesofrightsandobligationscontainedinthearticlesofassociation.
Asharecanbeconsideredasaninterestmeasuredbyasumofmoney.
Apersonwhoinvestsinthesharesofacompanycontributestopartialownershipofthecompany.
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Thedegreeofownershipofthecompanyofashareholderisdirectlyproportionatetothenumberofshares
theindividualbuys.
TypesofShares
Accordingtothesection85oftheCompaniesAct,1956,thesharecapitalofacompanyconsistsoftwokindsof
shares
Preferenceshares
Equityshares
PreferenceShares
Aspersection851oftheCompaniesAct,1956,ashareisconsideredasapreferenceshareifitcarriesthe
followingpreferencerights
Beforepayingdividendstoequityshareholders,thepaymentofdividendshouldbeatfixedrate.
Beforethepaymenttotheequityshareholder,thecapitalmustbereturnedatthetimeofwindingupofthe
company.
Novotingrightsaregiventotheshareholdersfortheinternalaffairsofthecompany.However,theshareholders
canenjoyvotingrightsinthefollowingsituations
Ifdividendisoutstandingformorethantwoyearsincaseofcumulativepreferenceshares
Ifdividendisoutstandingformorethanthreeyearsincaseofnoncumulativepreferenceofshares
Onresolutionofwindingup
Onresolutionofcapitalreduction
TypesofPreferenceShares
Theimportanttypesofpreferencesharesareasfollows
CumulativePreferenceShares
Ifdividendisnotpaidattheendofanyyearduetolossorinadequateprofit,thedividendwillaccumulateand
willbepaidintheforthcomingyears.
NonCumulativePreferenceShares
Dividendscannotaccumulateinthecaseofnoncumulativepreferenceshares.
ParticipatingPreferenceShares
Inadditiontobasicpreferentialrights,thesesharesmaycarryoneormoreofthefollowingparticipationrights
Receivingdividendsoutofsurplusprofitsleftafterpayingdividendstoequityshareholders.
Havingsharesinsurplusassets,whichremainafterthewindingupofthecompany.
NonParticipatingPreferenceShares
Inadditiontobasicpreferentialrights,thesesharesdonotcarryanyofthefollowingparticipationrights
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Receivingdividendsoutofsurplusprofitsleftafterpayingdividendstoequityshareholders.
Havingsharesinsurplusassetswhichremainsafterwindingupofthecompany.
ConvertiblePreferenceShares
Thesesharescanbeconvertedintoequitysharesonorafterspecificdatesasmentionedintheprospectus.
NonConvertiblePreferenceShares
Thesesharescannotbeconvertedintoequityshares.
RedeemablePreferenceShares
Thesesharescanberedeemedbythecompanyonorafteracertaindateaftergivingtheprescribednotice.
IrredeemablePreferenceShares
Thesetypesofsharescannotberedeemedbythecompany.Thesharesareredeemedonlyontheoccasionof
windingup.
EquityShares
Aspersection852oftheCompaniesAct,1956,equitysharesaredefinedastheshares,whichdonothavethe
followingpreferentialrights
Preferenceofdividendoverothers.
Preferenceofrepaymentofcapitaloverothersatthetimeofrepaymentofthecompany.
Thesesharesarealsocalledriskcapitals.
Theyonlyclaimdividends.
Theequityshareholdershavetherighttovetooneachandeveryresolutionpassedbythecompany.
SharesCapital
Sharescapitalmaymeananyofthefollowingdivisionsincapital
Authorizedcapital
ItistheamountstatedassharecapitalintheCapitalClauseofthememorandumofassociationofthe
company.Thisisthemaximumlimitamount,whichisauthorizedtoberaisedbyacompany.Acompany
cannotraisemoneyabovethisamountunlessthememorandumofassociationisamended.
IssuedCapital
Itisanominalpartoftheauthorizedcapital,whichhasbeen
Subscribedbythesignatoriesofthememorandumofassociation.
Allottedforcashorcashequivalentsand
Allottedasbonusshares.
Transfer&TransmissionofShares
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Transferofsharesisavoluntaryact.Itisthephenomenonoftransferringtheownershipofoneshareholderto
anotherperson.
FreeTransferabilityofSecuritiesofPublicCompanies
Thesharesofapubliccompanyarefreelytransferrable.
Theboardofdirectorsoranyhigherofficialdoesnothavetheauthoritytorefuseorholdanytransferof
shares.
Thetransfershouldbemadeeffectiveimmediatelybythecompanyassoonasthenoticeoftransferis
made.
RestrictionsonTransferofShares
Thearticlesofassociationempowerthedirectorstorejectanytransferofsharesunderthefollowinggrounds
Transferofpartlypaidsharestopaupersorminorities.
Thetransfereeisofunsoundmind.
Unpaidcallagainsttheshareoftransfer.
Thecompanyhaslienonsharesbecausethetransfereeisindebtofthecompany.
ProcedureforTransferofShares
Aninstrumentoftransfershouldbeexecutedintheformprescribedbythegovernment.
Beforeitissignedbythetransferorandbeforemakinganyentry,itisgiventoaprescribedauthoritywho
willattestitwithastampandtheauthorizeddate.
Thetransferorandthetransfereemustdulysigntheinstrumentoftransfer.
Thesharecertificatemustalsobeattachedtoit.
Aletterofallotmentmustbeattachedtothetransferformifnocertificateoftransferhasbeenissued.
Thecompletetransferformalongwiththetransferfeesshouldbegivenattheheadofficeofthecompany.
Theworkofregistrationoftransferistakenupifnoobjectionisreceivedbythetransferororthe
transferee.
Thedetailsoftransferareenteredbythesecretaryintheregisteroftransfers.
Thesecretarypresentstheinstrumentoftransferalongwiththesharecertificatesandtheregisterof
transferstotheboardofdirectors.
Theboardofdirectorspassesaresolutionandapprovesthetransfer.
BuybackofShares
Buybackofsharesreferstothebuyingofsoldshares.Incaseofbuyback,thecompanybuysthesharesback
fromtheshareholders.
ObjectivesofBuyback
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Acompanymaybuyitssharesbackfromitsshareholdersforoneormoreofthefollowingreasons
Forincreasingpromotersholding.
Forincreasingtheearningspershare.
Forrationalizingthecapitalstructurebywritingoffcapitalnotrepresentedbycapitalassets.
Forsupportingsharevalue.
Forpayingsurpluspaybacknotrequiredbybusiness.
ResourcesofBuyback
Thesharesofacompanycanbeboughtbackbythecompanyfromthefollowingresources
Freereserves
Securitiespremiumaccount
Proceedsofanysharesoranyspecifiedsecurities.
ConditionsofBuyback
Theauthorizationofthebuybackisdonebythearticlesofassociationofthecompany.Forauthorizationof
buyback,aspecialresolutionhastobepassedatthegeneralmeeting.
Thesharesinvolvedinthebuybackmustbefreefromnontransferability.
Thebuybackmustbelessthantwentyfivepercentofthetotalpaidupcapital.
Theratioofdebtstakenbythecompanyshouldnotexceedtwicethecapitalanditsfreereserves.
ProcedureforBuyback
Whenacompanydecidestobuybackitsshares,itshouldpublishanannouncementnoticeaboutthedecisionin
atleastoneEnglish,oneHindiandoneregionallanguagedailynewspapersintheplacewheretheregistered
officeofthecompanyislocated.Thenoticeofannouncementmustincludeaspecificdatefordeterminingthe
namesoftheshareholderstowhomtheletterofofferistobesent.
ApublicnoticecontainingthedisclosuresasspecifiedinaccordancewiththeSEBIregulationsmustbe
given.
AdraftcontainingtheofferlettershallbefiledwithSEBIthroughamerchantbanker.Thisofferletter
shallbedispatchedtothemembersofthecompany.
AcopyofboardresolutionshouldauthorizethebuybackandshouldbefiledwiththeSEBIandstock
exchanges.
Theopeningdateoftheofferlettershouldneitherbeearlierthansevendaysnorbelaterthanthirtydays
ofthespecifieddate.
Theoffershallremainopenforatleastfifteendaysandthirtydaysatthemost.
Anescrowaccountshouldbeopenedbyacompanyoptingforbuybackthroughpublicofferortender
offer.
Penalty
Ifacompanyisfoundtobeadefaulter,thecompanyoranyofitsofficerswhoisfoundguiltymaybepunished
inaccordancewithSection621AoftheCompaniesAct,1956.
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Thepunishmentmayincludeimprisonmentofuptotwoyearsand/orfineuptofiftythousandrupees.
BusinessLawDirectors
Directors,asthewordsuggests,areaspecialgroupofpeoplewhodirectthecompany.Thedirectorsgivecertain
directiontoalltheothermembersofthecompanytoachievecertaingoals.
Theremaybeonedirectororaboardofdirectorsofacompanydependingonthecompany.Alltheimportant
decisionsofthecompanyaremadebytheboardofdirectorsofthecompany.Manygeneralandspecialboard
meetingsareconductedbythecompanyforthedirectorstomakecrucialdecisionspertainingtothecompany.
Alltheimportantfutureplanningisalsodonebytheboardofdirectors.Theboardofdirectorsplaysthemost
vitalroleintheriseandfallofacompany.
Inotherwords,theboardofdirectorsactuallyistheleadingbodyofthecompany.Alltheothermembersofthe
companyhavetocomplywiththedecisionsmadebytheboardofdirectors.
PowersofDirectors
Thepowersofthedirectorsarenormallywritteninthearticlesofassociationofthecompany.Theshareholders
cannotmeddlewiththeaffairsundertakenbytheboardofdirectorstilltheboardmakesthedecisionswithin
theirspecifiedpower.Thegeneralpowersoftheboardofdirectorsarespecifiedinsection291oftheCompanies
Act,1956.
Thedirectormustnotexhibitanypowerordoanyact,whichisnotinaccordancewiththememorandum
ofassociationofthecompanyorwhichviolatestheCompaniesAct,1956.
Nopowersaregiventothedirectorsindividually.
Directorshavetheirpowersonlywhentheyarewiththeboardofdirectors.
Directorsareconsideredtobethefirstshareholdersofthecompany.
Anydecisionismadeifmajorityofdirectorsfromtheboardofdirectorsagreetothedecision.
Resolutionsmustbepassedatthemeetingsheldbytheboardofdirectorsforthedirectorstoenjoyany
specialpowers.
Someofthepowersexhibitedbythedirectorsareasfollows
Thepowertocallshareholdersonthecontextofanyunpaidmoney
Thepowertoannouncebuybackofshares
Thepowerofissuanceofdebentures
Thepowertoborrowanyamountofmoneyincaseofdebentures
Thepowerofinvestingfundsofthecompanyonvariouscommercialventures
Thepowerofmakingloans
Theboardofdirectorsisentitledtodoallsuchactsandexhibitsuchpowersasauthorizedbythememorandum
ofassociationandarticlesofassociationofthecompanyandasprescribedbytheCompaniesAct,1956.
However,whenanauthorizationisrequiredbyalawtobeinvoked,thedirectorscandosuchanactonlywhen
theyareauthorizedtodoso.
However,wheneveradelegationisrequired,theboardofdirectorscandelegatetheirpowerstotheir
lowerrankingofficers.
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Thedelegationisdonebypassingaresolutioninthepresenceofacommitteecomprisingofthedirectors,
themanagingdirector,themanagersandotherhighrankingofficersofthecompany.
Delegationisdefinedasthetransferofpowersofahigherofficertoalowerrankingofficerwiththe
consentoftheofficerwhosepoweristobedelegated,theofficertowhomthepowerisbeingdelegated
andotherimportantofficersofthecompanyasandwhenrequired.
Usuallydelegationisdoneincaseoftheabsenceofthehigherofficers.
DutiesofDirectors
Directorsareheldresponsibleforthecompanyscompliancewiththelaw.Thesedutiesarenormallydelegated
toacompanysecretary,adirectororatrustedemployeeofthecompany.Itmustbeensuredthatthese
responsibilitiesarebeingcarriedout.
Abbreviatedaccountsoftheresponsibilitiescanbesubmittedbysmalltomediumsizedcompaniesin
mostofthecases.
ItisnotmandatoryforsmallscalewithamaximumturnoverofINR6.5millionandassetvalueofINR
3.26milliontoaudittheiraccountsandrecruitauditorsfortheircompanies.
ItisnolongeramatterofobligationtomostoftheprivatecompaniestoconductanAnnualGeneral
Meetingeveryyear.
However,itiscompulsorytoholdanAnnualGeneralMeetingforacompanyifanydirectororatleast
fivepercentofthemembersofthecompanyrequesttoholdone.
ThesectionoftheAmendmentAct,1996,statesthatitisforbiddenforacompanytoissueirredeemable
preferencesharesorpreferencesharesredeemablebeyond20years.
DirectorsfoundresponsibleforanysuchissuesaretermedresponsiblefordefaultandafineofuptoINR
10,000maybeimposedasapenalty.
Incaseofaproposedcontract,therequireddisclosureshouldbemadeattheboardmeeting.
Thedecisionofwhethertoenterthecontracthastobetakenintheboardmeetings.
Adirector,whofailstocomplywiththerequirementsastothedisclosureofthecontract,willbe
punishablewithafine,whichmayextenduptoINR50,000.
Fordisclosureofreceiptofatransferofproperty,anymoneyreceivedbythedirectorsfromthetransferee
inthecontextofthetransferofthepropertyinsidethecompany,thepropertyofundertakingmustbe
disclosed.
Ifthelossofofficeofadirectorofacompanyresultsduetotransferofanyorallsharesofacompany,the
directordoesnotreceiveanycompensationunlessitisforesaidinageneralmeeting.
Anumberofpowersanddutiescanbeexercisedbytheboardofdirectorsinboardmeetings.
Itisthedutyofadirectortoattendboardmeetings.
Boardmeetingsshouldbeheldfromtimetotime.
Ifadirectorisunabletoattendthreeconsecutiveboardmeetingsorallthemeetingsforthreemonths
withouttheconsentoftheotherboardmembers,hisofficewillfallvacant.
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GeneralDutiesofaDirector
Adirectormustfulfillthefollowinggeneralduties
DutyofGoodFaith
Thedirectorsshouldactinthebestinterestsofthecompany.Thefoundationofthecompany,i.e.,theinterestof
thecompany,definedastheinterestofthepresentandfuturemembersofthecompany,wouldbecontinuedas
goingconcern.
DutyofCare
Adirectormustshowcareanddedicationtowardstheworkhehasbeenassignedalthoughheshouldnotbetoo
muchobsessivetowardshiswork.Anyprovisioninagreementwiththearticlesthatexcludestheliabilityofthe
directorsfordefault,negligence,breachofduty,breachoftrust,ormisfeasanceisconsideredtobevoid.The
directorscannotbeevenindemnifiedbythecompanyagainstsuchliabilities.
DutyNottoDelegate
Adirectorwhohasbecomeanactingdirectorasaresultofdelegationofferedbyadirectorofhigherorder
cannotdelegateanyfurther.Thefunctionsofadirectormustbeperformedbythedirectorpersonally,avoiding
delegationasbestaspossible.However,adirectormaydelegatehispowersundercertaincircumstances.
LiabilitiesofDirectors
Theliabilityofdirectorstothecompanyarisesunderfewcircumstances.
BreachofFiduciaryDuty
Adirectorwillbeliableforthebreachoffiduciarydutywhenheactsdishonestlytotheinterestofthecompany.
Thepowersofthedirectorsmustbeinvokedkeepinginmindtheadvantageandinterestofthecompanyandnot
intheinterestofthedirectorsoranymemberofthecompany.
UltraverseActs
DirectorsareneededtoexercisetheirpowerswithinthelimitsprovidedbytheCompaniesAct,1956,the
memorandumofassociationandthearticlesofassociationofthecompany.
Thearticlesofassociationofacompanymayinvokefurtherspecificrestrictionsonthepowersoftheboardof
directorsofthecompany.Beingultraverse,thedirectorswillbeheldliablepersonally,iftheyactbeyondthe
powerslimitedbythearticlesofassociationofthecompany.
Negligence
Reasonableskillandcareisexpectedfromthedirectorsofacompanyaslongastheyholdtheirdesignation.
Thedirectorsmaybedeemedforactingnegligentlyindischargeoftheirdutiesandtheywillbebothresponsible
andliable,ifanylossorliabilityisfacedbythecompanyduetotheirnegligence.
MalaFideActs
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Thedirectorsareconsideredtobethetrusteesofthemoneyandthepropertyofthecompanyhandledbythem.
Ifthedirectorsofacompanyperformtheirdutiesdishonestlyorinamalafidemanner,theywillbeliabletothe
companyinthecontextofmalafideandtheywillpersonallyprovideanycompensationforanylosstakenbythe
companyasaresultoftheirdishonestperformance.
Thiswillbeconsideredasabreachintrust.
Theyarealsoaccountableforanysecretprofitstheyhaveearnedinpastventuresonthebehalfofthe
company.
Directorsalsofacecertainliabilitiesonthecontextofmisconductandmisuseoftheirpowers.
LiabilitiesundertheCompaniesAct
ThefollowingdutiesandliabilitieshavebeenimposedonthedirectorsofcompaniesundertheCompaniesAct
Prospectus
Anymisstatementintheprospectusofacompanyorfailuretostateanyparticularsintheprospectusofa
company,accordingtotheprerequisitesofthesection56andscheduleIIoftheCompaniesAct,1956,willresult
inliabilityofthedirectors.
Thedirectorswillbepersonallyliablefortheabovementioneddefaultsandwillcompensateforany
damageorlosstakenbythethirdparty.
Accordingtosection62oftheCompaniesAct,1956,ifanylossisfacedbyashareholderduetountrueor
misleadingstatementsintheprospectusofacompany,thenthedirectorswillbeheldliableandwillhave
tocompensatefortheloss.
WithRegardtoAllotment
Thedirectorsofacompanyarealsoconsideredliableiftheyconductirregularallotments.Irregular
allotmentmaybeeitherallotmentbeforeminimumsubscriptionisreceivedorfilingacopyofthe
statementintheprospectusofthecompany.
Adirectormaybeheldliabletothecompanyandcompensateforanylossfacedbythecompanyifhe
fullyauthorizesthecontraventionofanyoftheprovisionsofsection69or70oftheCompaniesAct,
1956,withrespecttoallallotment.
FailuretoRepayApplicationMoneywhenMinimumSubscriptionHavingNotBeenReceivedwithin120
DaysoftheOpeningoftheIssue
Accordingtosection695oftheCompaniesAct,1956,andincompliancewithSEBIguidelines,ifthe
applicationmoneyisnotrepaidwithin130days,thedirectorswillbeheldseverallyliableandwillhavetopay
themoneywithsixpercentannualinterestonandafterthecompletionofthe130thday.However,adirectorcan
besavedfrombeingliableifhecanprovethatthedefaultinrepaymentisnotaresultofhismisconductor
negligence.
FailuretoRepayApplicationMoneywhenApplicationforListingofSecuritiesIsNotMadeorIsRefused
Ifthepermissionforliftingofshareshasnotbeengranted,thecompanyshallrepayallthemoneyreceivedfrom
alltheapplicantspursuedbytheprospectuswithoutanyinterest.
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Thecompanyanditsdirectorsmaybeheldliableifthemoneyisnotpaidbackwithineightdays.Oncompletion
oftheeighthday,thecompanyanditsdirectorshavetopaythemoneybackwithfourpercenttoeightpercent
interesttotheapplicants.Therateofinterestwillbedirectlyproportionaltothedelayintime.
AppointmentandRemovalofDirectors
Theappointmentandrecruitmentofdirectorsisacrucialproceduralrequirementofacompany.Inaccordance
withtheCompaniesAct,1956,onlyanindividualcanbeappointedasadirectorofacompany.
Anassociation,afirm,acorporationoranyotherbodywithartificiallegalidentitycannotbeappointedas
adirector.
Forapubliccompanyoraprivatecompany,whichisasubsidiaryofapubliccompany,twothirdsofthe
totalnumberofdirectorsareappointedbytheshareholders.Theremainingonethirdofthedirectorsare
selectedinaccordancewiththemannerprescribedinthearticlesofassociationofthecompany,failing
which,theremainingonethirdisalsoappointedbytheshareholders.
Thearticlesofacompanymayprovidetheconditionsforretirementofthedirectorsateveryannual
generalmeeting.
Ifthearticlesremainsilent,allthedirectorsareappointedbytheshareholders.
Formal,consideredandtransparentelectionscanbeconductedforelectionofdirectors.
Evaluationofskillsandabilitiesoftheboardisdonefromtimetotimetoensuresmoothprogressand
needforsuccessionintheboard.
Reelectionsandreappointmentsofthedirectorsareconductedfromtimetotime.
Incaseofoppressionandmismanagement,thirdpartiesorthegovernmentmayproposeforthe
appointmentofnomineedirectors.
AstatementcomprisingthenameofthefirstdirectorofthecompanymustbesenttotheRegistrarof
Companies.
Theappointmentofthesubsequentdirectorsisgovernedbythearticlesofassociationofthecompany.
QualificationsofDirectors
TheCompaniesActdoesnotprovideanyqualificationsforthedirectors.However,specificqualificationscan
bestipulatedinthearticlesofassociationofacompanyfortheappointmentofvariousdirectors.Thespecified
sharequalificationofthedirectorsishoweverlimitedbytheCompaniesAct,whichcanbeprescribedbya
companytobefivethousandrupees.
Insomecases,thearticlesofassociationofthecompanyimposesomeshareholdingqualifications,whichmust
becompliedwithtobecomeeligibleforthenominationasadirector.
Directorshavingspecialexpertiseandexperienceinvariousfieldsconstitutetoformtheboardofdirectors.The
mainobjectivehereisabalancedmanagementandsmoothfunctioningoftheboardofdirectors.
Theboardofdirectorshasthefollowingtwoprimaryobjectives
Toprovidesupportforthemanagementwithgoodcorporategovernance.
Toformulatebusinessstrategiestoachievevariousbusinessgoals.
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GeneralQualifications
Adirectorhavingaprofessionalandethicalmindshouldhaveknowledgeandexperienceinspecificfields.With
acommitmenttocreatelongtermvaluesandcommitmenttotheshareholders,adirectorshouldfullyunderstand
hisobligationsandpractices.
Enoughtimeshouldbegiventothedirectortoperformhisdutieseffectively.
Adirectorshouldbeabletojudgehimselfandinformtheboardifhefacesanyhindrancesorobstructions
inthecourseofhiswork.
SpecificQualifications
Thechairmanoftheboardofdirectors,beyondthedutiesmentionedabove,mustfulfillthefollowing
responsibilities
Toactasthechairmanoftheboardintheboardofdirectorsmeetings.
Toexerciseacastingvoteincaseoftieinthedirectorsmeeting.
Tocallforthemeetingsoftheboardofdirectors.
Topresideovertheshareholdersmeetings.
Thequalificationsofthechairmanareslightlydifferentfromthequalificationsofdirectorsasfollows
Thechairmanmustnotbeanexecutivedirector.
Thechairmanmustnotbeinvolvedindaytodaymanagement.
Thechairmanmustnotbeanauditor.
Thechairmanmustnotbealegalconsultant.
Thechairmanmustnotbeanemployeeofthecompany.
Thechairmanmustnotbeastaffofthecompany.
Thechairmanmustnotbeanadvisorofthecompany.
Thechairmanmustnotbeapersoncontrollingpowerofthecompany.
Thechairmanmustnotbeapersoncontrollingpoweroftheassociatedcompany.
Thechairmanmustnotbeapersoncontrollingpoweroftheauditingcompany.
Thechairmanmustnotbeapersonwhomayhaveconflictofinterest.
RemovalofDirectors
Theremovalofadirectorbeforetheexpiryofhistermintheofficecanbedonebypassinganordinary
resolutioninthegeneralmeetingofacompanyaftertheissuanceofaspecialnotice.However,theabove
processisnotapplicableforpromotionaldirectorsordirectorsappointedbythegovernment.
Adirectormayberemovedfromhisofficebyotherdirectorsbeforetheexpiryofhistermincaseofany
conductofoffenceandincasethedirectorisnolongerfoundtobequalifiedtoholdhisdesignationand
doesnotresignfromhispostvoluntarily.
Theresultingvacancymaybefulfilledbytheappointmentofanotherdirector.
Voluntaryresignationandrotationsarethemostcommonwaysfortheremovalofdirectors
Thecompanymustissueaspecialnoticetoallthedirectorsofthecompanyincaseoftheremovalofany
director/s.
Awrittenrepresentationfromthedirectorwhoissubjectedtoberemovedconcerningcircumstancesof
hisproposedremovalmustbeissuedtothecompany.
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However,thewrittenrepresentationmaynotbereadifthecompanyisabletoconvinceafederalhigh
courtjudgethatthewrittenrepresentationofthedirectorintendstocreateadversepublicityand/oris
defamatoryinnature.
Therefore,anabuseofthestatutoryrightsisconferredonthedirectoraccordingtotheCompaniesand
AlliedMattersAct.
Theremovalofadirectorisconsideredtobenullbytheconstitutedcourtoflawifacopyofthenoticeof
removalhasnotbeendeliveredtoallthedirectors.
Bypassinganordinaryresolutionbyasimplemajority,themembersofacompanymayremoveaspecific
directororanynumberofdirectors.
Apersonappointedasadirectorthroughouthislifecanberemovedbymakingvariouschangesinthe
articlesandthememorandumofassociation.
Aremoveddirectorcannotbedeprivedofcompensationordamagestowhichheisentitledundera
contractofemployment.
Corporatedemocracyisapractice,accordingtowhich,adirectorholdssubstantialnumberofsharesina
companyorrepresentsagroupofshareholders.
Considerablelitigationfollowsadecisiontoremoveadirectorfromtheboard.
Thelitigationconcernedwiththeremovalofadirectorbecomestoomuchcomplicatedtodealwithifthe
directorsubjectedtotheremovalorthegroupofpeopleherepresentsareextremelyresistanttotheactof
theremovalofthespecificdirector.
UsuallytheissueofremovalofadirectorisagitatedinthehighcourtortheCompanyLawboardunder
section397/398oftheCompaniesAct,1956.
Generally,manyconflictsandcontroversiesariseinthegeneralmeetingsamongstgroupsofshareholders
duringtheprocessoftheremovalofadirector.
Aremoveddirectormayseekjusticefromthecourtoflawifheperceiveshisremovaltobeonillegal
grounds.
BusinessLawWindingUpofaCompany
Windingupofacompanyisdefinedastheconditionwhenthelifeofthecompanyisbroughttoanend.The
propertiesofthecompanyareadministeredfortheprofitofitsmembersanditscreditors.
StepsofWindingUp
Thefollowingstepsarefollowedinthecaseofacompanywindingup
Anadministrator,usuallydenotedasaliquidator,isappointedinthecontextofliquefactionorwindingup
ofacompany.
Theliquidatortakescontroloverthecompany,assemblesitsassets,paysdebtsofthecompanyandfinally
distributesanysurplusamongstthemembersaccordingtotheirrightsandliabilities.
Thecompanyhasnoassetsorliabilitiesattheendofliquefactionorwindingup.
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Thedissolutionofacompanytakesplacewhentheassetsandliabilitiesofacompanyarecompletely
woundup.
Onthecontextofwindingup,thenameofthecompanyisstuckofffromthelistofcompaniesandits
identityasaseparatelegalpersonislost.
Ifacompanyisunabletopayitsdebtsorthedebtstakenbythecompanyisworthmorethantheassetsit
ownsandnoagreementshavebeenmadewiththecreditors,thenthecompanyisconsideredinsolventand
issubjectedtocompulsoryliquidationorcompulsorywindingup.
Ifaninsolventowesmoneytoanaturalperson,hemayaskthecourtoflawtomakeacompulsory
windinguporderagainstthecompany.
Ontheissuanceoftheorder,theorderisinformedbythecourttotheofficialreceiver,whoeventually
becomestheliquidator.
Theofficialreceiverinformsthecreditorsandconductsinterviewswiththedirectorsofthecompanyon
thecontextofthewindingup.
Ifitisbelievedbytheofficialreceiverthatthecompanyhasenoughassetstopayitscreditors,thenthe
officialreceiverwillseekfortheappointmentofaninsolvencypractitionerastheliquidator.
Theappointmentoftheliquidatorisdoneeitherbycallingacreditorsmeetingforthecreditorstoelecta
liquidatorbyvoteorbyrequestingtheSecretaryoftheStatetoappointone.
Iftherearenoassetsleft,thentheofficialreceiverwillbecometheliquidator.
ApersonmustbeowedaminimumamountofINR750withoutdisputebeforehecanaskforawinding
up.
Otherbusinesscorporationsorindividualscanrequesttheorderofwindingupofacompany.
InsolvencyService,anagentofthegovernment,isaninvestigatingagency,whichinvestigatesthe
windingupofacompany.
TheInsolvencyServiceinvestigatesfinancialfailureandmisconductofindividualsandcompanies.
TheofficialreceiverworksfortheInsolvencyService.
Theofficialreceiverfindsoutwhenandwhyanindividualbecamebankruptandfindsouttheprimary
causebehindtheliquidationofacompany.
Theprocedureofwindingupdiffersaccordingtotheregistrationstatusofthecompany,i.e.,ifthe
companyisregisteredorifitisanunregisteredcompany.
Ifthewindingupofacompanyisprocessedinthecourtoflaw,theliquidatoristermedasofficial
liquidator.
Theofficialliquidatoractsthrougharecognizedreportingsystemunderthesupervisionofthecourt.
PowersofaLiquidator
Anadministrator,usuallydenotedasaliquidator,isappointedinthecontextofliquefactionorwindingupofa
company.Theliquidatortakescontroloverthecompany,assemblesitsassets,paysdebtsofthecompanyand
finallydistributesanysurplusamongstthemembersaccordingtotheirrightsandliabilities.
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Thefollowingarethegeneralpowersofaliquidator
Illustratingordefendinganyaction,suit,prosecutionoranylegalproceedingsonbehalfofthecompany
Carryingoutthebusinessofthecompanyasfarasitisbeneficialforthecompany
Payingthecreditors
Makinganycompromiseorarrangementswiththecreditors
Compromisingallthecalls,debtsandliabilities,whichmayresultinfurtherdebtsonthecompany
Sellingallthemobileandimmobileassetsofthecompanybyconductingpublicauctionsorbyprivate
contracts,withpowertotransfertheassetstoasinglepersonortovariouspersonsinparcels
Performingalltheactsanddeedsneededforthewindingupwithreceiptsanddocumentsusingthe
companyssealandname
Drawing,accepting,makingandendorsinganybillofexchangeorpromissorynoteinthenameandon
behalfofthecompany
Raisingthesecurityofthepropertiesandmoneyofthecompany
CompulsoryWindingUp
Compulsorywindinguptakesplacewhenacreditorofaninsolventcompanyasksthecourtforawindup.Ifthe
companygoesintoliquidation,thecourtoflawappointsaliquidatorfortheliquidation.
Theprimaryobjectiveoftheliquidatoristoraiseasmuchfundsasneededtopaythecreditors.
Thecompanywillthenbedissolvedanditsnamewillbestruckofffromthelistofcompaniesinthe
registrarsoffice.
Anysurplusmoneyleftwillbedistributedamongsttheshareholdersofthecompany.
Thislegalprocessendswiththecompanysnamestruckofffromthelistofcompaniesintheregistrars
office.
Afterthenameisstruckoff,thecompanyceasestoexistanymore.
Windingupinvolvesthefollowing
Everycontractofthecompany,includingindividualcontractsarecompleted,transferredorended.The
companyisnomoreabletodobusiness.
Anyoutstandinglegaldisputesaresettled.
Alltheassetsofthecompanyaresold.
Moneyowedtothecompany,ifany,iscollected.
Fundsraisedaredistributedtothecreditors.
Surplusfundsleftafterallthetransactionsaredistributedamongstshareholders.
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ConsequencesofWindingUp
Themostimportantconsequencesofthewindingupofacompanyareasfollows
AsRegardstheCompanyItself
Windingupdoesnttakeawaytheexistenceofthecompanycompletely.
Thecompanycontinuestoexistasacorporateentitytillitsdissolution.
Alltheongoingbusinessofthecompanyisadministeredbytheliquidatorduringthephaseofliquidation.
AsRegardstheShareholders
Contributorsanewstatutoryliabilitycomesintoexistence.
Everytransactionofshareduringtheliquefactiondonewithouttheapprovaloftheliquidatoristermed
void.
AsRegardstheCreditors
Thecreditorscannotfileacaseagainstthecompanyexceptwiththeconsentofthecourt.
Ifthecreditorsalreadyhavedecrees,theycannotproceedwiththeexecution.
Theymustexplaintheirclaimsandjustifytheirclaimstotheliquidator.
AsRegardstheManagement
Withtheappointmentoftheliquidator,allthepowersofthedirectors,chiefexecutivesandotherofficers
tendtocease.
Onlythepowerstogivenoticeofresolutionandthepowerofappointmentoftheliquidatoruponwinding
upofthecompanyaregiventothemembers.
AsRegardstheDispositionoftheCompanysProperty
Allthedispositionsofthecompanyspropertiesarevoidifthedispositionsarenotapprovedbythecourtorthe
liquidator.
CircumstancesinwhichaCompanyMayBeWoundUp
Acompanymaybewoundupbyatribunalwherethepetitionhasbeenfiledunderthefollowingcircumstances
Aspecialresolutionispassedbythecompanythatthecompanyshallbewoundupbythetribunal.
Failureofthecompanyinreportingastatutoryreportattheregistrarsoffice.
Noncommencementofthecompanyinbusinesswithinoneyearofincorporation.
Numberofmembershasreducedbelow7forapubliccompanyor2foraprivatecompanyrespectively.
Thedebtsofthecompanyareunpayablebythecompany.
Thetribunalisjustequitabletowoundupthecompany.
Thecompanyisunabletofileitsbalancesheetorannualreturnforfivefinancialyearsconsecutively.
Thecompanyhasactedagainstthesovereigntyandintegrityofthecountry.
ApplicationofWindingUp
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Anapplicationofwindingupmustbefiledwiththepetitionofwindingupbythefollowingentities
Thecompany
Anycreditororcreditorsofthecompany
Anyofthecontributorycompany
Anypersonauthorizedbythecentralgovernment
Thestategovernmentorthecentralgovernment
Accordingtotheproceduresmentionedinsection439481oftheCompaniesAct,thetribunalwillmoveon
uponthereceiptofthepetition.
WindingUpoftheCompanybyTribunal
Whenaresolutionforthewindingupofacompanyispassedinsidethecompany,thecourtmaymakeanorder
forthevoluntarywindinguptocontinue.
However,thecourtremainsinsupervisionofthewindingup.
Thefreedomandlibertyofthecreditors,contributorsorotherstoapplytothecourtatsuchtimesis
limitedbythecourt.
Apetitionforthewindingupmustbefiledatthecourtforthesupervisionofthecourtoverthewinding
up.
Thewindingupofacompanybytheorderofthecourtisalsoregardedasacompulsorywindup.
Section305oftheordinancesjustifiesthefollowingcircumstanceswherethecourtmaywindupthecompany
baseduponapetitionsubmittedtoacourt.
Ifthecompanydecidesbyaspecialresolutionthatthecompanyshouldbewoundupbythecourt.
Ifthecompanyisfoundtobeadefaulterindeliveringstatutoryreportsattheregistrarsofficeorholding
statutorymeetingsorholdingtwoannualgeneralmeetingsfortwoconsecutiveyears.
Ifthecompanydoesnotstartitsbusinessforoneyearofincorporationoritsbusinessinsuspendedfor
oneyear.
Ifthenumberofmembersisreducedbelow2,3and7forprivate,publicandlistedcompanyrespectively.
Ifthecompanyisfoundnomoreabletopayitsdebts.
Ifthecompanyis
Carryingoutorcomplyingunlawfulandfraudulentactivities
Carryingoutbusinessactivitiesnotauthorizedbyitsmemorandumofassociation
Carryingoutbusinessinanoppressivemannertowardsitsmembersconcernedwiththepromotion
ofthecompany
Runningandismanagedbythehandsofpersonswhoareinadefaultinmaintainingproper
accountsorareinvolvedinfraudulentanddishonestactivities
Managedbypersonswhofailtoworkinsyncwiththememorandumofassociationofthecompany
orfailtocomplywiththeregistrarandthecourtoflaw.
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Ifthecompany,beingalistedcompany,doesnotstandouttoactlikeone.
Ifthecourtsopinionistowindupthecompanyor
Completedeadlockinthemanagementofthecompany
Failureofcompanysmainobjective
Recurringlosses
Oppressiveoraggressivepoliciesofthemajorityofshareholders
Incorporationofacompanywithintenttofraudulentorillegalpurpose
Publicinterest
Ifthecompanyceasestohaveamember.
ProcedureforWindingUpofaCompany
Aspecialresolutionmustbepassedinthecompanyinthecontextofwindingupandtheconsentof3/4th
ofitsmembersisrequiredforthewindinguptobecarriedoutbythecourt.
Alistofthetotalassetsmustbepreparedinordertoconfirmthatthecompanyisnomoreabletopayits
debts.
Alistofthecreditorsmustbeprepared.
Inthecontextofanydefaultsinpayments,thecreditorsofacompanyarerequiredtomakeadecisionfor
filingapetitioninthecourtoflaw.
Advocatesmustbeengagedtoprepareandfilethepetition.
VoluntaryWindingUp
Acompanymaybewoundupvoluntarilyunderthefollowingcircumstances
Anordinaryresolutionispassedinthegeneralmeetingofthecompanyonthecontextofwindingup
Iftheperiodprefixedbythearticlesofassociationofthecompanyhasbeenexpired.
Incaseofaneventaccordingtothearticlesofassociationofthecompany,underwhichthe
companyneedstobedissolved.
Ifaspecialresolutionispassedbythemembersofthecompanyforthevoluntaryliquidationofthe
company.
Aminimumnoticeof21cleardaysmustbegiveninordertoconveneageneralmeeting.
However,withtheconsentofthemembers,ageneralmeetingcanbeconvenedwithashorternotice.
Avoluntarywindingupiscommencedjustaftertheabovementionedresolutionhasbeenpassed.
Thenoticeforthebeginningofthewindingupofacompanymustbemadeinanofficialgazette,i.e.,by
applyingtotheregistrarofcompanieswithin14daysofcommencementoftheliquidation.
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Again,thenoticeofthewindingupofthecompanymustbepublishedinanewspaperintheplacewhere
theregisteredofficeofthecompanyissituated.
Thecompanybecomesunabletoconductanycommercialbusinessactivitiesafterthecommencementof
thewindingup.
However,businesscanbeconductedforthebenefitofthecompanyswindingupprocess,i.e.,paying
debtstothecompanyscreditors,etc.
Thecorporatestateanditscorporatepowercontinuetoremaininexistenceuntilthecompanyisfinally
dissolved.
Further,theretwokindsofvoluntarywindingup
Membersvoluntarywindingup
Creditorsvoluntarywindingup
Therulesforbothkindsofwindinguparethesame.
TheCompaniesActhoweverprovidessomespecificcriteriaforthesetwotypesofwindingup.
MembersVoluntaryWindingUp
Thistypeofwindingupiscarriedoutwhenthecompanyissolventandisabletopayitsliabilitiestotally.The
importantaspectsofmembersvoluntarywindingupareasfollows
DeclarationofSolvency
Forthewindingupofacompany,itisneededforthedirectorstoconductameeting,wherethemajority
ofthedirectorsmakeadeclarationapprovedbyanaffidavitthattheyhavemadeafullassessmentofthe
companyandthecompanyisabletopayallitsdebtswithinthreeyearsofthewindingupofthecompany.
Itisnecessaryforsuchadeclarationtobemadeatleast5weeksbeforetheresolutiontobecomeeffective.
Itshouldbenecessarilydeliveredtotheregistrarsoffice.
AppointmentandRemunerationofLiquidators
Thecompany,inageneralmeeting,mustexercisethefollowingthings&minsu
Appointmentofliquidatorsforthepurposeofwindingupofthecompanyasandwhenthecompanyis
abouttobewoundupandforthedistributionoftheassetsofthecompany
Fixinganadequateremunerationtobepaidtotheliquidators.Thisfixedremunerationcannotbechanged
inanycircumstances.Theliquidatordoesnottakechargeofhisofficeunlesstheremunerationisfixed.
BoardsPowertoCease
Duringthecourseofliquidation,allthepowersofthedirectorsandmanagersareceased.
However,thepowertogivenoticesandthepowertomakeappointmentstotheregistrarisnotceased.
However,thepowersofthedirectorsmaycontinuetoexistuponthesanctionoftheirpowersbythe
shareholdersortheliquidator.
NoticeofAppointmentoftheLiquidatorIsGiventotheRegistrar
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PowerofLiquidatortoAcceptSharesasConsiderationasSaleofPropertyofthe
Company
Theliquidatorcanacceptshares,policiesortakeintereststoconsiderthesaleofthecompanys
belongingstoanothercompany.
Hemaydosowithanaimtodistributethesameamountofmembersofthetransferorcompany,provided
Aspecialresolutionispassedinthecompanyforthisacttobeeffective.
Hebuystheinterestofanydissentingmemberatapricetobedeterminedbyanagreementor
arbitrarily.s
DutyofLiquidatortoCallCreditorsMeetinginCaseofInsolvency
Iftheliquidator,foranyreason,realizesthatthecompanyisonthevergeofinsolvency,i.e.,thinksthatthe
companywillbeunabletopayitsdebtsandliabilitieswithinthelimitedtimeasspecifiedbythedeclarationof
insolvency,hemustsummonameetingofthecreditorswherethestatementofalltheassetsandliabilitiesislaid
beforethem.
DutyoftheLiquidatortoInformtheIncomeTaxOfficer
Upontheappointmentofaliquidator,theincometaxofficemustbeinformedoftheappointmentofthe
liquidator.
Thismustbedonewithin30daysoftheappointmentoftheliquidator.
Thetaxassessmentofthecompanyistobecarriedout.
DutyoftheLiquidatortoCallGeneralMeetingattheEndofEachYear
Incasetheprocessofwindinguptakesmorethanoneyear,theliquidatormustcallforgeneralmeetings
attheendofeachyear.
Themeetingsshouldbeheldwithinthreemonthsfromtheendofeachyearorasspecifiedbythecentral
governmentofIndia.
Theliquidatormustpresentabriefaccountofhisactionsandthemattersheisdealingwithandthe
progressofthewindingupatthegeneralmeetingbeforealltheothermembersofthecompany.
FinalMeetingandDissolution
Whentheaffairsofthecompanyarefullyfinished,theliquidatormustdothefollowingthings
Makeareportonhowtheprocessofwindingupprogressed,ensuringallthepropertyofthecompanyhas
beendisposed.
Conductageneralmeetingofthecompanyforlayingthereportbeforethecompanyandprovide
justificationofthestepshehastakenforthesuccessfulwindingupofthecompany.
Sendacopyofthereporttotheregistrarsofficeandmeettheregistrartoreturnthereportwithinone
weekandmakeareporttothetribunalabouttheconductofthewindinguptoensurethatthatthe
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liquidationwentasperthemembersofthecompanysinterest.
DissolutionoftheCompany
Bringinganendtothelifeofacompanyistermedasdissolution.
Nopropertycanbeheldbyadissolvedcompany.
Thecompanycannotbesuedbythecourtafterliquidation.
Ifanypropertyofthecompanystillremainsafterthedissolutionofthecompany,thepropertywillbe
takenoverbythegovernmentimmediately.
CreditorsVoluntaryWindingUp
Creditorsvoluntaryliquidationisaprocedureinwhichthecompany'sdirectorschoosetovoluntarilybringthe
businesstoanendbyappointingaliquidatorwhomustbealicensedinsolvencypractitionertoliquidateallits
assets.Theimportantprovisionsofthecreditorsvoluntarywindingupareasfollows
MeetingoftheCreditors
Acreditorsmeetingmustbecalledupwithintwodaysofthedaywhentheresolutionforwindingupof
thecompany,asproposedbythecreditors,ispassed.
Anoticeofthecreditorsmeetingalongwiththenoticeofthegeneralmeetingofthecompanymustbe
deliveredtoallthecreditorsofthecompany.
Afullfledgedreportonthecompanysaffairs,thelistofthecreditorsofthecompanyandtheestimated
amountofclaimsmadebythecreditorsshouldbepresentedbythedirectorsbeforethecreditorsofthe
company.
NoticeofResolutiontoBeGiventotheRegistrar
Whenaresolutionofwindingupofacompany,asproposedbythecreditors,ispassed,anoticeoftheresolution
mustbedeliveredattheregistrarsofficewithin10daysfromthedaywhentheresolutionispassed.
AppointmentoftheLiquidator
Aliquidatorforthepurposeofthewindingupofthecompanymaybenominatedbythecreditorsofa
companyatthecreditorsmeeting.
However,iftherearedifferentpersonsnominatedatthegeneralmeetingsofthecompanyandthe
creditorsmeetingofthecompany,thenthepersonnominatedbythecreditorsisappointedasthe
liquidatorofthecompany.
AppointmentoftheInspectionCommittee
Ifthecreditorswish,theymayappointaninspectioncommitteeforwatchingovertheentireprocessofwinding
upofthecompany.
RemunerationoftheLiquidator
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Thecreditorsfixtheremunerationoftheliquidator.
Ifthecreditorsfailtofixtheremunerationoftheliquidator,theremunerationshallbefixedbythe
tribunal.
Noliquidatorshalljoinunlessarespectableremunerationisfixed.
Oncefixed,theremunerationcannotbechanged.
PoweroftheLiquidator
Theliquidatorenjoysallthepowersasvestedonadirector.
Furthertheliquidatorenjoysallthepowersasvestedonaliquidatorincaseofmembersvoluntary
windingupaccordingtosection494oftheCompaniesAct,1956.
DutyoftheLiquidatortoCallGeneralMeetingattheEndofEachYear
Incasetheprocessofwindinguptakesmorethanayear,theliquidatormustcallforgeneralmeetingsand
creditorsmeetingsattheendofeachyear.
ThemeetingsshouldbeheldwithinthreemonthsfromtheendofeachyearorasspecifiedbytheCentral
GovernmentofIndia.
Theliquidatormustpresentabriefaccountofhisactionsandthemattersheisdealingwithandthe
progressofthewindingupatthegeneralmeetingbeforealltheothermembersofthecompany.
FinalMeetingandDissolution
Whentheaffairsofthecompanyarefullyfinished,theliquidatormustdothefollowingthings
Makeareportonhowtheprocessofwindingupwent,ensuringallthepropertyofthecompanyhasbeen
disposed.
Conductageneralmeetingofthecompanyforlayingthereportbeforethecompanyandgivecertain
explanationaboutthejustificationofthestepshehastakenforthesuccessfulwindingupofthecompany.
Sendacopyofthereporttotheregistrarsofficeandmeettheregistrartomakeareturnofthereport
withinoneweekandmakeareporttothetribunalabouttheconductofthewindinguptoensurethatthe
liquidationwentasperthemembersofthecompanysinterest.
DissolutionoftheCompany
Bringinganendtothelifeofacompanyistermedasdissolution.
Nopropertycanbeheldbyadissolvedcompany.
Thecompanycannotbesuedbythecourtafterliquidation.
Ifanypropertyofthecompanystillremainsafterthedissolutionofthecompany,thepropertywillbe
takenoverbythegovernmentimmediately.
BusinessLawCompanyMeetings
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Acompanyisconsideredasalegalentityseparatefromitsmembersintheeyesoflaw.Alltheaffairsofthe
companyarepracticallycarriedoutbytheboardofdirectors.Theboardofdirectorsofacompanycarriesout
theseaffairswithinthelimitationsoftheirpowers,asinvokedbythearticlesofassociationofthecompany.The
directorsalsoexercisecertainpowersoftheirownwiththeconsentofothermembersofthecompany.
Theconsentoftheothermembersisensuredatthegeneralmeetingsheldbythecompany.Anymistakes
committedbytheboardarerectifiedbytheshareholderswhoarealsoconsideredasownersof thecompanyat
themeetingsofthecompany.
Theshareholdersmeetingsareconductedfortheshareholderstogivetheirverdictonthedecisionsand
stepstakenbytheboardofdirectors.
MeetingsareacrucialpartofthemanagementofacompanyasmentionedintheCompaniesAct,1956.
Meetingsenabletheshareholderstoknowtheongoingproceedingsofthecompanyandallowthe
shareholderstodeliberateoncertainissues.
Therearevarioustypesofmeetingsheldbyacompany.
Variouscriteriamustbefulfilledforthecalling,conveningandconductofthemeetings.
StatutoryMeeting
Astatutorymeetingisheldonceduringthelifeofacompany.Generally,itisheldjustafteracompanyis
incorporated.Everypubliccompany,limitedeitherbysharesorbyguarantee,mustpositivelyholdastatutory
meetingassoonasthecompanyisincorporated.
Astatutorymeetingshouldbeheldbetweenaminimumperiodofonemonthandamaximumperiodof
sixmonthsafterthecommencementofbusinessofthecompany.
Ameetingbeforeaperiodofonemonthcannotbeconsideredasastatutorymeetingofthecompany.
Thenoticeforastatutorymeetingshouldmentionthatastatutorymeetingisgoingtobeheldonaspecific
date.
Privatecompaniesandgovernmentcompaniesarenotboundtoholdanystatutorymeetings.
Onlypubliclimitedcompaniesareboundtoholdstatutorymeetingswithinthespecifiedperiodoftime.
ProcedureoftheStatutoryMeeting
Theboardofdirectorsmustforwardastatutoryreporttoeverymemberofthecompany.Thisreportmustbe
sentatleast21daysbeforethemeeting.Membersattendingthemeetingmaydiscusstopicsregardingthe
formationofthecompanyortopicsrelatedtothestatutoryreport.
Noresolutionscanbetakeninthestatutorymeetingofthecompany.
Themainobjectiveofthestatutorymeetingistomakethemembersfamiliarwiththemattersregarding
thepromotionandformationofthecompany.
Theshareholdersreceiveparticularsrelatedtosharestakenup,moneysreceived,contractsenteredinto,
preliminaryexpensesincurred,etc.
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Theshareholdersalsogetachancetodiscussbusinessideasandmethodsandthefutureprospectsofthe
company.
Anadjournedmeetingiscalledifthestatutorymeetingdoesnotmeetaconclusion.
Accordingtosection433oftheCompaniesAct,1956,acompanymaybesubjectedtowindingupifit
failstosubmitastatutoryreportorfailstoconductastatutorymeetingwithintheaforementionedperiod.
However,thecourtmayorderthecompanytosubmitthestatutoryreportandtoconductthestatutory
meetingandimposeafineonthepersonsresponsibleforthedefaultinsteadofdirectlywindingupthe
company.
AdjournmentofStatutoryMeeting
Accordingtosection1658oftheCompaniesAct,astatutorymeetingmaybeadjournedfromtimetotime.Any
resolutiononwhichnoticehasbeengivenaccordingtotheprovisionoftheCompaniesActmaybepassed
whethertheresolutionwastakenupbeforeorafterthelastmeeting.
Theadjourningmeetinghasthesamepowerastheoriginalstatutorymeeting.
Thepowertoadjourndependsonthedecisionofthemeeting.
Themeetingcannotbeadjournedbythechairmanwithouttheconsentofthemembersofthemeeting.
Thechairmanisexpectedtoadjournthemeetingifthememberswishtodoso,withoutinvokingany
discriminatorypowersgiventothechairmanbythearticlesofassociationofthecompany.
Usually,thechairmanisnotboundtoadjournameetingevenifmajorityofthememberswishforthe
adjournment.
Thestatuarymeetingprovidesanexceptionintherulethatonlyunfinishedbusinessattheoriginal
meetingmustbecarriedoutattheadjournedmeeting.
Membershavetherighttoinitiatenewtopicsofdiscussionintheadjournedmeeting.
Theadvantageofadjournedmeetingsoverstatutorymeetingsisthataresolutioncanbepassedinan
adjournedmeeting,whichisnotpossibleinthecaseofthelatter.
Ifanyresolutionisneededtobepassedbasedonthetopicsdiscussedinthestatutorymeeting,itmustbe
passedatanadjourningmeetingtogoinaccordancewiththelaw.
Default
Incaseofanydefaultmadeinfilingthestatutoryreportorinconductofthestatutorymeeting,themembers
responsiblewillbeliabletofineaccordingtosection1659oftheCompaniesAct.ThefinemayextendtoINR
5000.
Thecourtcanalsoordercompulsorywindingupofthecompanyinaccordancetosection433bofthe
CompaniesActifthestatutorymeetingisnotheldwithintheprescribedtime.
StatutoryReport
Theboardofdirectorsmustforwardastatutoryreporttoeverymemberofthecompany.Thisreportmustbe
sentatleast21daysbeforethemeeting.
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Theparticularstobementionedinthereportareasfollows
Thetotalnumberofallottedshareswiththeaccountoffullypaidandpartlypaidsharesandthereasons
forconsiderationsandextensionofthepartlypaidshares
Thenetamountofcashcollectedaftertheallotmentofshares
Abriefinsight,i.e.,anabstractofreceiptsandpaymentsmadewithin7daysofthedateofthereport,
balanceremaininginthehandsofthecompanyandanestimationofthepreliminaryexpensesofthe
company
Thenames,addresses,anddesignationsofthedirectors,managers,secretaries,andauditorsalongwiththe
changelogincaseofanyreplacementsmadefromthedateofincorporationofthecompany
Thedetailsofanymodificationsorcontractstobesubmittedinthemeetingforapproval
Thelimitofnoncarryingoutofanyunderwritingcontractalongwithjustifiedreasonsforthenon
carryingoutoftheaforementionedcontracts
Thearrearsdueonthecallsofeverymanageranddirector
Detailsonthecontextofcommissionorbrokeragepaidtoanydirectororanymanagerfortheissueof
saleofsharesordebentures
AnnualGeneralMeeting
AnAnnualGeneralMeeting,asthenamesuggests,isageneralmeeting,whichisheldonayearlybasis.
Accordingtosection166oftheCompaniesAct,allcompaniesmustholdAnnualGeneralMeetingsatstipulated
timeintervals.ThenoticeforanAnnualGeneralMeetingmustcontainalltheparticularsofthemeeting.
However,thetimetoholdthefirstAnnualGeneralMeetingforacompanyisrelaxedto18monthsfromthedate
ofincorporation.
Aspersection1661oftheCompaniesAct,acompanyisnotboundtoholdanygeneralmeetingstillthe
firstAnnualGeneralMeetingisheld.
Thisrelaxationisintendedforthecompanytosetupitsfinalreportsonthebasisofalongerperiodof
time.
Onemorerelaxationprovidedbysection1661oftheCompaniesActisthatwiththeregistrarsconsent,
thedateofanAnnualGeneralMeetingcanbepostponed.
Thisdatecanbepostponedtoamaximumtimeperiodofthreemonths.
However,thisrelaxationisnotapplicableforthefirstAnnualGeneralMeeting.
AcompanymaynotholdanAnnualGeneralMeetinginayeariftheextensionofthedateofthemeeting
ismadeundertheconsentoftheregistrar.
However,thereasonsfortheextensionofthemeetingshouldbegenuineandshouldbeproperlyjustified.
IntervalbetweenTwoAnnualGeneralMeetings
Aspersection1661oftheCompaniesAct,thetimegapbetweentwoAnnualGeneralMeetingsmustnotexceed
fifteenmonths.Accordingtosection210oftheCompaniesAct,acompanymustpresentareportcontainingthe
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accountsofalltheprofitsandlosses.Incasethecompanyisnottradingforprofit,anincomeandexpenditure
accountreportmustbemade.
Theaccountshallstatealltheprofitsandlossesearnedandenduredbythecompanyfromthedayofits
incorporation.
Theaccountshallbeupdatedforatleast9monthsfromthedateofthelastannualgeneralmeeting.
Abalancesheetisalsorequiredtobeattachedalongwiththeaccount.
TheAnnualGeneralMeetingissubjectedtothreerules
Themeetingmustbeheldeveryyear.
Amaximumgapof15monthsisallowedbetweentwoAnnualGeneralMeetings.
Themeetingmustbeheldwithinsixmonthsfromthepreparationofthebalancesheet.
FailuretocomplywiththeaboveruleswillbeconsideredasanoffencetotheCompaniesActbythelawand
willbetreatedasadefaultunlesstheregistrargrantsextensionoftimeforholdingameeting.
Date,TimeandPlace
AnAnnualGeneralMeetingcanbeheldatanytimeduringbusinesshours.ThedayoftheAnnualGeneral
Meetingmustnotbeapublicholiday.Themeetingcanbeheldeitherattheregisteredofficeofthecompanyor
anypreselectedvenuewithintheareaofjurisdictionoftheplacewheretheregisteredofficeofthecompanyis
situated.
Apubliccompanyoraprivatecompany,whichactsasasubsidiaryofapubliccompany,mayfixthetime
ofthemeetingaccordingtothearticlesofassociationofthecompany.
Aresolutionmayalsobepassedatageneralmeetingfortheselectionoftimeofthesubsequentgeneral
meetings.
However,foraprivatecompany,thetimeandvenueofthemeetingsisfixedbypassingaresolutionin
anyofthemeeting.
Thevenueforthemeetingoftheprivatecompanymaynotbesituatedwithintheareaofjurisdictionof
theplacewheretheregisteredofficeofthecompanyissituated.
Thesection25oftheNegotiableInstrumentsAct,1881,definesapublicholidaytobeaSundayorany
otherdayasdeclaredbytheCentralGovernmenttobeapublicholiday.Adaymaybedeclaredasa
publicholidayafterthenoticeforameetinghasbeenissued.Foravoidingdifficultiesthatmaybecaused
intheabovementionedscenario,section238oftheCompaniesActsaysthat,nodaydeclaredbythe
Centralgovernmenttobeapublicholidayshallbeaholidayinrelationtosuchameeting,unlessthe
noticeofdeclarationwasissuedbeforethedeclarationofthemeeting.
DefaultinHoldingAnnualGeneralMeeting
Notholdinganannualgeneralmeetingaccordingtosection166oftheCompaniesActisconsideredtobea
seriousoffenceintheeyesofthelaw.Everymemberofthecompanywhoisindefaultandthecompanywillbe
renderedasdefaulters.
AfineofuptoINR50,000maybeimposedonthedefaulters.
Accordingtosection168oftheCompaniesAct,ifthedefaultisfoundtobecontinuing,thenafineof
INR2,500willbeimposedonthedefaultersonadailybasistillthedefaultcontinues.
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ExtraordinaryGeneralMeeting
Anygeneralmeetingofacompanyisconsideredtobeanextraordinarygeneralmeeting,exceptthestatutory
meeting,anAnnualGeneralMeetingoranyadjournmentmeeting.Suchtypesofmeetingscanbefixedbythe
directorsatanytimethatseemsappropriatetothedirectors.However,themeetingsmustbeheldinaccordance
withtheguidelinesmentionedinthearticlesofassociationofthecompany.
Thesemeetingsareheldgenerallyforthetransactionofthebusinessofaspecialcharacter.Various
administrativeaffairsofacompany,whichcanbetransactedonlybyresolutionspassedingeneralmeetings,are
carriedoutinthesemeetings.
ItisnotpossibleforthemembersofthecompanytowaitforthenextAnnualGeneralMeetingforclearanceof
suchissues.Thearticlesofassociationofacompany,therefore,providesfreedomtoconductextraordinary
generalmeetingstosortoutsuchissues.
Anextraordinarygeneralmeetingcanbeconvened
Bytheboardofdirectorsorontherequisitionsofmembers.
Bytherequisitioniststhemselvesonthefailureoftheboardtocallforameeting.
BytheCompanyLawboard.
BytheBoardofDirectors
Ifsomebusinessofspecialimportancerequiresanapprovalofthemembersofthecompany,theboardof
directorsmaycallforanextraordinarygeneralmeetingofthecompany.Goinginaccordancewiththearticlesof
associationofthecompany,theboardofdirectorsofacompanymaycallforanextraordinarygeneralmeeting
whenevertheyfeelappropriate.
Thepowerofadirectortoconveneanextraordinarygeneralmeetingmustbeexercisedataboardofdirectors
meetingasinthecaseofallthepowersexercisedbythedirector.
Accordingtotheprovisionofthearticles,ifaresolutionissignedbyallthemembersoftheboardandisas
effectiveasapassedresolution,ageneralmeetingmaybeconvenedonthecontextoftheresolution.Thearticles
alsoprovidethefacilitythattheremaynotbesufficientnumberofdirectorstocallforageneralmeeting.
Thusincaseofinsufficientnumberofdirectors,anydirectororanytwomembersofthecompanycancallfor
thegeneralmeetinginthesamewayascalledbytheboardofdirectors.
OnRequisitionofMembers
Themembersofthecompanymayalsorequestforanextraordinarygeneralmeetingtobeconducted.Arequest
forholdinganextraordinarygeneralmeetingcanbemadebythemembers
Holdingatleast10%ofthecompanyspaidupsharecapitalandhavingtherighttovoteonthecontextof
themattertobediscussedatthemeeting.
Holding10%ofvotingpowersofthemembersincasethecompanyhasnocapital.
Preferenceshareholderscanalsocallforageneralmeetingiftheproposedresolutionisgoingtoaffect
theirinterest.
Ifamemberceasestowithdrawaftertherequisitionismade,thewithdrawalwillnotinvalidatethe
requisition.
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Theappointmentofsharesdoesnotaffecttherightsofamembertomakerequisitionsorvoteata
meeting.
BytheRequisitionistsThemselves
Incasethedirectorsfailtocallforthemeetingwithin21daysofarequisitionforameetingtobeheldwithin45
daysafterthesubmissionoftherequisition,thefollowingconsequencesmaybecalled
Incontextofacompanyhavingasharecapital,bytherequisitionistswhorepresenteitheramajorvalueof
thepaidupsharecapitalornotlessthanonetenthofthecompanystotalsharecapital.
Foracompanynothavingasharecapital,bytherequisitionistsholdingatleastonetenthofthetotal
votingpower
Thiskindofmeetingsmustbecalledwithinthreemonthsfromthedatewhentherequisitionisfiled.
Thesekindsofmeetingsshouldbeheldsimilartoboardmeetings.
Itisnotnecessaryfortherequisitioniststodisclosethereasonsfortheresolutiontobeproposedatthe
meeting.
BytheCompanyLawBoard
IfitispracticallyimpossibletocallameetingotherthananAnnualGeneralMeetingforanyarbitraryreasons,
theCompanyLawBoard,undersection186,mayorderameetingtobecalled,eitherofitsownaccordorbyan
applicationofanydirectorofthecompanytotheCompanyLawBoard.
Apetitionneedstobefiledundersection186oftheCompaniesActfortheCompanyLawBoardtocallfora
meeting.
MeetingofBoD
ThemeetingheldbytheBoardofDirectorsisanimportantaspectforthesmoothfunctioningandworkingofa
company.Forensuringthattheactionsapprovedbytheboardareintheinterestofthecompany,theCompanies
Act,1956,incorporatesseveralstatutoryprescriptions.
PeriodicityoftheBoardMeetings
Accordingtosection285oftheCompaniesAct,theboardmeetingsshouldbeheldeverythreemonths.The
boardofdirectorscanmeetanydaybetweenthe1stJanuaryandthe31stofMarch.Accordingly,thenext
meetingshouldbeheldbetween1stApriland30thJune.Thereisnoscopeinthesection285ofthecompanies
actforbackwardcalculation.
NoticeofBoardMeeting
Accordingtosection286oftheCompaniesAct,appropriatenoticeshouldbegiventoallthedirectorsaboutthe
meeting.Themeetingcanbeheldonlyafterthenoticeisgiven.Thenoticeshouldbedeliveredtoeverydirector
oftheboard.
Thenoticeshouldbedeliveredatleastsevendaysbeforethemeeting.Itisnotmandatorytogivenoticetoa
foreigndirectorstayingoutsideIndia.However,itisadvisedtodelivernoticestoallthedirectorswhetherinside
Indiaoroutside.
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DayofHoldingMeeting
Generally,boardmeetingsareheldduringthedaywithinbusinesshours.However,boardmeetingscanalsobe
heldonapublicholiday.
TimeofHoldingBoardMeeting
TheCompaniesAct,1956,doesnotimposeanyrestrictionsonthetimingofboardmeetings.Theycanbeheld
duringoroutsidebusinesshours,aspertheconvenienceoftheboard.
PlaceforHoldingBoardMeetings
Boardmeetingscanbeheldanywhereaspertheconvenienceoftheboard.Theboardisnotboundtoselecta
venueforthemeetinginthesamecitywherethecompanysregisteredofficeissituatedasinthecaseofgeneral
andstatutorymeetings.Boardmeetingscanalsobeheldabroad.
QuorumoftheBoardMeeting
AccordingtotheprovisionsgivenbytheCompaniesAct,atleastonethirdofthedirectorsortwodirectors
whicheverishighermustbepresenttoconductaboardmeeting.Ifafractionarisesduringthecountingofone
third,thefractioniscountedasone.Theserulesalsoapplytoaprivatecompany.Accordingtosection2872of
theCompaniesAct,thecompanycanraisethenumberofquorumthroughitsarticlesofassociation.
BusinessLawVariousLawsandActs
Lawscanbedefinedasasetofguidelinesandrules,whichmustbefollowedbyeverybusinessentitytocarry
outsmooth,justandlegalbusiness.AnyviolationinthelawistreatedasanoffencetotheIndianconstitution.A
hugenumberoflawsandActswerepassedintheIndianhistoryinthefieldofbusiness.Stillnewlawsarebeing
madeaccordingtothemarketscenarios.Manylawshavealsobeenremovedasandwhenrequired.
Thelawalsoprovidescertainrightsandprivilegestocertaingroupsorranksofpeople.
Sincethecreationoftheconstitution,variousActsweremade.
Theseactsmaycontainhundredsofsections.
Thesectionsareagainsubdividedintovariouspartsorarticles.
Althoughthelawsareconsideredtoberigidandstrict,corrections,termedasamendments,canbemade
torectifyacertainlawforaspecificamountoftime.
AnydefaultoroffencecommittedagainstthelawsmaybepunishablebytheCourtofLaw.
Dependingontheintensityoftheoffence,thepunishmentmayvaryfromapenaltyoffewthousand
Rupeestoimprisonmentforseveralmonths.
Allthecompaniesmustrespectandmaintaintheintegrityofthelaw.
BusinessLawLawofContractAct
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TheIndianContractActwaspassedbyBritishIndiain1872.Thislawisapplicablethroughoutthecountry,
exceptthestatesofJammuandKashmir.Thisactdealsmostlywiththeguidelinesandprinciplesrelatedto
contracts.
Thislawcanbesubdividedintotwoparts
Sections1to75arerelatedtogeneralprinciplesofcontracts.
Sections124to238arerelatedtospecialkindsofcontractssuchasindemnityandguarantee,bailment,
pledgeandagency.
AccordingtotheContractAct,acontractcanbedefinedasanagreementwhichcanbeenforcedby
law.Whentwopartiesmeanthesamethinginthesimilarsenseatthesametimeandworkforthe
samepurpose,theyaretermedtobeatapointofagreement.
Section2eoftheContractActdefinesanagreementtobeasetofpromises,whichformthe
considerationsofboththeparties.Obligationcanbedefinedasanactionoradutytowhicha
personiscommittedmorallyaswellaslegally.
Bothagreementandobligationconstitutetoformacontract.Anyagreementrelatedtosocial
matterscannotbeconsideredasacontract.Alegalrelationshipmustbecreatedbetweenthetwo
partiestoconstituteacontract.
EssentialElementsofaValidContract
Thefollowingaretheessentialelementsforavalidcontract
Anofferproposedbyonepartyshouldbeacceptedbytheotherpartywhichresultsinapointof
agreement.
Boththepartiesshouldbeinconsentofcreatingalegalrelationandstaypreparedforlegalconsequences.
Theagreementshouldbeintheconsentofthelaw.
Thecontractingpartiesmustbelegallyeligibleforthecontract.
Theconsentofboththepartiesmustbegenuine.
Theaimsandobjectiveofthecontractshouldbelegallyacclaimedandshouldnotopposeanypolicyof
thepublic.
Thereshouldbepreciseandcleartermsandconditionsinthecontract.
Theagreementshouldbepracticallypossibletobeenacted.
ProposalorOffer
Makinganofferisoneoftheinitialstepsincreatingacontract.Anofferoraproposalmustbemadebythefirst
party,whichinitiatesthecontracttothesecondparty.Thefirstpartyisoftentermedastheofferorandthe
secondpartyisoftentermedastheofferee.Iftheoffereeacceptstheentireofferwithoutanynegotiationsor
changes,thecontractcomesintoexistence.
RulesAdministratingOffers
Thefollowingrulesmustbefollowedforthevalidationofanoffer
Itismandatoryforanoffertobeclear,complete,definiteandfinal.
Foranoffertobeeffective,itmustbeconveyedtotheoffereesothattheoffereegetsthechoicetoaccept
orrejecttheoffer.
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Theoffercanbeconveyedorallyorinawrittendocumentormaybeimpliedbytheconduct.
Anoffermaybemadetothegeneralpublicortoaspecificpersonortoaspecificgroupofpeople.
Acceptance
Itisonlyupontheacceptanceofanofferthatacontractcomesintoexistence.Acceptanceofanoffereecanbe
definedasthepointwhentheoffereeagreeswiththeterms&conditionsandinterestoftheofferandgiveshis
consentincomplianceoftheoffer.Aproposalbecomesapromisewhenitisaccepted.
RulesAdministratingAcceptances
Itismandatoryfortheacceptancetobeunqualifiedandabsolute.
Theacceptancemustcomplywithallthetermsandconditionsoftheoffer.
Acceptancecanbeexpressedorallyorinawrittendocumentormaybeimpliedbytheconduct.
Aconditionalacceptanceorareturnoffermayisconsideredasarejectiontotheofferandmaycontribute
tolapseoftheoffer.
Theofferershouldbeconveyedoftheacceptancebytheofferee.If,inanycase,theoffereeintendsto
accepttheofferbutdoesnotconveytheacceptance,theofferisnotconsideredaccepted.
Nocommunicationtotheoffererisrequiredforacceptanceofanofferthatrequiressomeactionstobe
invokedasaresponseorsignofacceptance.
Theoffereemustaccepttheofferwithinthespecifiedtimelimitoftheoffer.
ContractofIndemnityandGuarantee
ContractofIndemnity
Acontractofindemnityisdefinedasaspecialcontractbyvirtueofwhichtwopartiesenterintoacontract,if
andonlyif,onepartypromisestheotherpartytosaveitfromanylossesincurredduetothecontractorany
otherspecificreasons.Thepartywhichmakesthepromiseistermedasindemnifier.Thepartywhichis
protectedbythepromiseistermedasindemnified.Thebestpossibleexampleofacontractofindemnitywould
bethecontractofinsurance.
ContractofGuarantee
Acontractofguaranteemaybedefinedasacontracttocarryoutthepromiseofathirdpersonincaseofany
defaults.Thepersonwhogivestheguaranteeistermedassurety.
Debtoristhetermusedforthepersonforwhomtheguaranteeisgiven.
Thepersontowhomtheguaranteewouldbegiveniscalledcreditor.
Aguaranteecaneitherbeoralorwritten.
Acontractmustqualifyallthenormsofavalidcontractjustlikeanindemnity.
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Thereishoweveraspecialconsiderationaccordingtosection127oftheContractAct,i.e.,itmaybea
sufficientconditionforthesuretytogivetheguaranteethatsomethingisdoneorsomepromisesaremade
forthebenefitoftheprincipaldebtor.
BusinessLawLawofSaleofGoods
Variousbusinessmenandconsumersnormallyhavethefreedomtogetintowhatevercontracttheyseefitfor
themselves.Contractsinvolvingsalesofgoodsmayhoweverbeliablebysomestatutoryrestrictions.Various
rulesandguidelinesarecreatedkeepinginmindthesafetyandsecurityoftheconsumers.
TheLawofSaleofGoodsprovidessuchguidelinesandliabilitiesforthesafetyandsecurityoftheconsumers.
Anyfirmorpersonenteringintothebusinessofsellinggoodstoconsumersshouldbeawareofthefactthatthe
lawwillimposecertaintermsandconditionsoneachtransaction.
Consumerscanbedefinedasthegroupofpeoplewhobuycertaincommoditieswhichwillnotbeinvolvedin
theirtrade,professionorbusiness.Consumerslieattheendofthetradechain.
ImportantSections
MostofthetermsandconditionsoftheLawoftheSaleofGoods,1979arefoundbetweensections12and15of
thelaw.Someoftheimportantaspectsofthelawarediscussedbelow.
Section12
Therighttosellgoodsmustbeheldbytheseller.
Incasethegoodsarefoundtobestolen,thesellerlosestherighttosellthegoods.
Insuchsituations,thebuyermighttaketheresponsibilityofreturningthegoodstotherightfulownerand
thesellermustcompensateforthebuyersloss.
Acommodityhiredbyasellercannotbesoldasthebuyerhasnolegalrightsonthecommodityandthe
commodityisstillinpossessionofthehiringparty.
Thesellercannotclaimafullrefundfromthebuyerincasethesellerdidnotknowthatthecommodityhe
soldwasstolen.
Section13
Ifacommodityisbeingsoldbyusingitsdescription,thecommoditymustcorrespondtothedescription.
Ifthebuyerreliesatleastonpartsofthecommodity,whichheisbuyingaccordingtothedescription,
thosepartsofthecommoditymustbepresentinthecommodity.
Thissectionisastrictliabilityandappliestoboththesellersandthosesellinggoodsinthecourseof
business.
Theinformationprovidedintheregistereddocumentsdoesnotprovideanydefense.
Section142
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Thissectiondealswiththequalityoftheproduct.Thissectionimposesthefollowingcriteriatobefulfilledbya
commoditytobeconsideredofsatisfactoryquality
Thecommoditymustbefitforservingallthepurposesforwhichitissold.
Theappearanceandfinishofthecommoditymustbeacceptable.
Thereshouldbefreedomforminordefectsoftheproduct.
Thegoodshouldbesafeanddurable.
Buyerscannotexpectlegalremediesinaccordancewiththefollowing
Fairwearandtear
Misuseoraccidents
Incasetheitemisnotneededanymore
Section143
Anyspecificpurposeforwhichacommodityisboughtbythebuyermustbeconveyedtothesellerbythe
buyerandthesellermustcomplywiththepurpose.
Thepurposemayberegardlessofthepurposeforwhichthecommodityiscommonlybought.
Section15
Thissectiondealswiththecontractsofsaledeterminedbysample.
Ifthesellerandthebuyercomeacrossacontractofsalebythesample,thesampleofgoodsprovidedby
thesellertothebuyermustcorrespondtothewholebulkofthecommodity.
BusinessLawLawofArbitration
Withtheincreaseintheinternationaltradeandtheeconomicdevelopmentofcountries,therehasalsobeenan
increaseinthenumberofdisputesrelatedtocommerce.Ourcountryhasalsobeenthebattlegroundofmany
disputes.ManyIndiancourtsarealreadyoverburdenedforjusticeinmanyseriouscases,resultinginthelackof
priorityforcommercialdisputes.Asaresult,variousalternativedisputeresolutionmechanismslikearbitration
comeintoplay.
OneofthebestexamplesofarbitrationinIndiawouldbethepanchayatsystem.Peopleusedtosubmittheir
disputestothepanchayatstoseekjustice.TheArbitrationActwaspassedin1940andhencewasthelaw
governingarbitrationinIndia.
TheArbitrationAct,1940
Onlydomesticarbitrationwasdealtwithbythisact.Accordingtothisact,therewerethreestagesofarbitration
Beforethereferenceofthedisputetothearbitraltribunal
Duringtheproceedingsbeforethearbitraltribunal
Aftertheawardwaspassedbythearbitraltribunal
Thisactrequiredalltheinterventionofthecourtinallthethreestagesofthearbitrationprocess.Itwasneeded
toprovetheexistenceofanagreementofthedispute.Itwasnecessaryfortheawardtobecomearuleofthe
courtbeforethemakingoftheaward.
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TheArbitrationandConciliationAct,1996
The1940actwasrevisitedin1996.The1940actwasrevisitedinordertoprovideaneffectivedispute
resolutionframework.The1996acthastwoimportantparts.
PartIisinvolvedinanyarbitrationconductedinIndiaandenforcementofawardsrespectively.
PartIIisinvolvedintheenforcementofforeignawards.
Anyarbitrationorenforcementofawardwithrespecttothearbitration
whetherdomesticorinternationalconductedinIndiaisenactedbyPart1ofthe1996Act.
Theenforcementofanyforeignaward,towhichtheNewYorkConventionortheGenevaConvention
applies,isenactedbyPartIIofthe1996Act.
The1940Actwasdesignedforinternationalarbitrationsonly,whereasthe1996Actappliesbothto
internationalaswellasdomesticarbitration.
The1996lawgoesbeyondthe1940Actwithrespecttotheareaofminimizingjudicialintervention.
BusinessLawLawofCarriageofGoods
Theglobalizationofvariousmarkets,internationaleconomicintegration,removalofbarriersinbusiness&trade
andincreasedcompetitionhassignificantlyincreasedthedependencyofbusinessontransportation.
Transportationthesedayshasbecomeoneofthecrucialgamechangersinthefieldofbusiness.
Propertransportationhelpsinsteppingaheadincompetitivepositioning.Goodsneedtobetransferredfromone
placetoanother.Acontractofcarriagemustbeenteredinordertotransportgoodsfromoneplacetoanother.
Theassociationororganizationsthatcarryoutthejoboftransportationsaretermedastransporters.
Goodsmaybetransportedeitherbylandorbywaterorbyairtransportationsystem.Thetransportationofa
cargousingtwoormoremodesoftransportationistermedasmultimodaltransportation.
TherearefourmodesofcarriagetransportationinIndia
Roadways
Railways
Sea
Airlines
CarriageofGoodsbyLand
ThecarriageofgoodsbylandisgovernedbytwolawstheCarriagebyRoadAct,2007andtheRailways
Act,1890.AccordingtotheCarriagebyRoadAct,acommoncarriercaneitherbeanindividual,personoran
organization,whichcarriesoutthetradeoftransportationoverthelandorinlandwaterwaysforthepurposeof
raisingmoney.
Aprivatecarrierisdefinedasanentitywhichcarriesitsowngoodsorthegoodsofselectedpersons.
PrivatecarriersaregovernedbytheIndianContractActratherthantheCarriagebyRoadAct,2007.
TheCarriagebyRoadAct,2007waspassedtorevisethethenobsoleteCarriersAct,1865.
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Theactdealswiththeregulationofcommoncarriers,limitingtheirliabilityanddeclarationofvalueof
goodsdeliveredtothemtodeterminetheirliabilityforlossordamagetosuchgoodsduetothenegligence
orcriminalactscarriedoutbythemselves,theirservantsoragents.
ExceptJammuandKashmir,theactappliestothewholeofIndia.
CarriageofGoodsbyRail
TheRailwaysAct,1989,governsthecarriagebyrailways.Someoftheimportantaspectsoftheactareas
follows
Accordingtosection61oftheact,everyrailwayadministrationmustmaintainratebooks,whichcontainthe
rateauthorizedforthecarriageofgoodsfromonestationtoanotherandmakethemavailableforthereference
ofanypersonduringallreasonablehourswithoutmakingdemandsforanyfees.
Accordingtosection63,ifthegoodsareentrustedtoarailwayadministrationforthecarriage,thensuch
typeofcarriagesshallbeatrailwayriskrate,exceptwhereownersriskrateisapplicableinrespectof
suchgoods.Thegoodsshallbedeemedtohavebeenentrustedattheownersriskrate,ifnorateisopted.
AccordingtoSection64,aforwardingnoteshouldbeexecutedbyeachandeverypersonentrustingany
goodstoarailwayadministrationforcarriageintheformasspecifiedbytheCentralGovernment.The
correctnessoftheforwardingnoteinassuredbythecosignerofthenote.Heshallbeheldresponsibleand
shallbesubjectedtocompensationforlossescausedduetoincorrectnessorincompletenessofthe
forwardingnote.
Accordingtosection65,arailwayreceiptshallbeissuedbytherailwayadministration,asspecifiedby
theCentralGovernment,incasethegoodsaretobeloadedbyapersonorontheacceptanceofthegoods.
Theweightandthenumberofpackagesshouldbestatedintherailwayreceipt.
Accordingtosection67,dangerousandoffensivecarriageshouldnotbecarriedbyanypersonunlessthe
dangerinvolvedandoffensivenessofthecarriageisapprovedbytherailwayadministrationasaresponse
toanoticecontainingtherisksinvolvedinthetransportationofthecarriagesubmittedbythepersonwho
istransportingthecarriageorthedangerousandoffensivenatureofthecarriageisdistinctlymarkedon
thepackageofthecarriage.
BusinessLawConsumerProtectionAct
TheConsumerProtectionAct,1986protectstheinterestsofconsumersinthemarket.Thisactcontainsthe
followingdefinitions
Definition1"Appropriatelaboratory"referstoalaboratoryororganizationwhichis
RecognizedbytheCentralGovernment
RecognizedbyaStateGovernment,
Anylaboratoryororganizationestablishedunderanylawforthetimebeinginforce,whichismaintained
andfinancedoraidedbytheCentralGovernmentoraStateGovernmentforcarryingoutanalysisortest
ofanygoodsfordefects.
Definition2Complainantrefersto
Aconsumer
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AnyvoluntaryconsumerassociationregisteredundertheCompaniesAct,1956
TheCentralGovernmentoranyStateGovernment
Consumershavingthesameinterest
Definition3"Complaint"referstoanyallegationinwritingmadebyacomplainantof
Anunfairorrestrictivetradepractice
Thegoodsboughtsufferingfromdefects
Theserviceshiredhavingdeficiencies
Goodssoldbyatraderbeinginexcessprice
Goodshazardoustolifeandsafetybeingsoldbyanytrader
Definition4Consumerreferstoapersonwho
Buysanygoods
Hiresanyservice
Definition5Consumerdisputereferstoadisputewhereaconsumermakeacomplaintagainstapersonand
thepersondeniestheallegationscontainedinthecomplaint.
"Defect"referstoanyfaultinthequalityorquantityofanygoods.
"Deficiency"referstofaultinthequalityorquantityofanyservices.
"DistrictForum"referstoaConsumerDisputeRedressedForum.
"Goods"referstogoodsasdefinedintheSaleofGoodsAct,1930.
"Manufacturer"referstoapersonwho
Makesandmanufacturesgoodsandparts
Assemblesgoodsmadebyothermanufacturesandclaimstheendproducttobemanufacturedby
him.
Putshistrademarkoncommoditiesmanufacturedbyothermanufacturersandclaimsthe
commoditiestobemanufacturedbyhim.
"NationalCommission"referstotheNationalConsumerDisputesRedressalCommission.
"Notification"referstoanotificationpublishedintheOfficialGazette.
"Prescribed"referstoprescribedrulesmadebytheStateGovernmentortheCentralgovernment.
"Service"referstoserviceofanydescription,whichismadeavailabletopotentialusers.
"StateCommission"referstoaConsumerDisputesRedressalCommissionestablishedinaState.
"Trader"referstoapersonwhosellsordistributesanygoodsforsale,includingthemanufacturer.
BusinessLawIndustrialDisputesAct
Thisactwasincorporatedin1947.ItextendstothewholeofIndia.TheTradeDisputesAct,1929wasreplaced
bythisactbecausetheTradeDisputeactimposedcertainrestrictionsontherightstostrikeandlockoutinpublic
utilityservices.
TherewasnoprovisionintheIndustrialDisputesActforthesettlementofindustrialdisputes.TheIndustrialAct
wasincorporatedinordertocompensateforthedeficienciesoftheDisputeAct,1929.Theobjectivesofthe
IndustrialDisputeActaretomaintainindustrialpeaceandtoachieveindustrialjustice.
IndustrialDisputeAct
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Themainaspectsofthisactareasfollows
Anyindustrialdisputecanbesortedoutatanindustrialtribunalbythemutualconsentofboththeparties
orbythestategovernment.
Anawardshallbindonboththepartiescreatingthedisputewithinoneyear.
Anykindofstrikesandlockoutsarerestrictedduringtheperiodwhentheconciliationandtheadjunction
ispending,whenthesettlementsreachedinthecourseofconciliationarependingandwhentheawardsof
industrialtribunaldeclaredbythegovernmentarepending.
Incaseofpublicinterestorinthetimeofemergency,thegovernmenthasthepowertodeclarethe
transport,coal,cottontextiles,foodstuffsandironandsteelindustriestobepubliccommodityservices
foramaximumofsixmonths.
Theemployerisrequestedtopaycompensationincaseoflayofforretrenchmentofworkmen.
Forindustrialdisputes,anumberofauthoritiesisprovidedirrespectiveoftherolestheyplayinthe
industry.
Arbitrator
Anarbitratorisanumpirewhopresidesoverthetribunalincaseofanindustrialdispute.
Averagepay
Theaveragepaymentoftheworkmenistermedasaveragepay.
Award
Aninterimofthefinaldeterminationofanindustrialdisputeistermedasaward.
Bankingcompany
BankingcompanyreferstoabankingcompanyasdefinedintheBankingCompaniesAct,1949.
Board
Aboardofconciliationconstitutedunderthisactistermedasboard.
Closure
Thepermanentclosingdownofaplaceofemploymentistermedasclosure.
Conciliationofficer
Aconciliationofficerappointedundertheactistermedasaconciliationofficer.
Conciliationproceedings
Anyproceedingsheldbytheconciliationofficerarecalledconciliationproceedings.
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Court
Thecourtofenquiryconstitutedunderthisactistermedascourt.
Industrialdispute
Itisadisputebetweentheemployeesandtheemployersorbetweentheemployersandtheworkmen.
BusinessLawFactoriesAct
TheFactoriesactwasincorporatedin1948.ThemainobjectiveoftheFactoriesActistoregulatetheconditions
ofworkinmanufacturingestablishmentscomingwithinafactory.Thisactcontainsdetailedprovisions
regardingsafety,healthandwelfareoftheemployeesofafactory.Italsocontainsprovisionsregardingthe
parameterssuchastheworkinghours,theminimumandmaximumagelimit,etc.
FactoriesAct
ThefollowingtermsaredefinedundertheFactoriesAct,1948
Factory
Afactoryisdefinedasanypremiseswhere,
Tenormoreworkersareworkingorhaveworkedforatleasttwelvemonths.
Twentyormoreworkersareworkingorhaveworkedforatleasttwelvemonths.
Afactorycanalsobedefinedasaplacewheretheprocessofmanufacturingisincorporatedbyaprescribed
minimumnumberofworkers.
Manufacturingprocess
Section2oftheFactoriesActdefinesthemanufacturingprocessasaplacethatincludes
Making,altering,ornamenting,finishing,packing,oiling,washing,cleaning,breakingup,demolishing,or
treatingandadoptinganyarticleorsubstancetouse,sale,transport,deliveryordispose.
Pumpingofoil,water,sewageoranyothersubstanceorgeneration,transformationortransmissionof
power.
Composingtypesforprinting,printingbyletterpress,lithography,photogravureorothersimilar
processeslikebookbinding.
Preservationandstorageofanyarticlesincoldstorage.
Power
Electricalenergyoranyformofenergyusedforthefunctioningofthemanufacturingprocessinthefactoryis
termedaspower.
Primemover
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Amachine,motororenginewhichprovidespoweriscalledprimemover.
Transmissionmachinery
Anyapplianceordevicebywhichthemotionoftheprimemoveristransmittedtoorreceivedbymachineryis
calledtransmissionmachinery.
Machinery
Theprimemovers,transmissionmachineryandallotherappliances,wherebypowerisgenerated,transformed,
transmittedorapplied,arecollectivelycalledmachinery.
Adult
Apersonwhohascompletedeighteenyearsofhislifeiscalledanadult.
Child
Apersonwhohasntcompletedfifteenyearsofageisconsideredachild.
Youngperson
Aperson,whoiseitherachildoranadolescent,iscalledayoungperson.
Calendaryear
TheperiodoftwelvemonthsbeginningfromthefirstofJanuarytillthethirtyfirstofDecemberistermedasa
calendaryear.
Day
Theperiodoftwentyfourhoursbeginningfromthemidnightistermedasaday.
Week
TheperiodofsevendaysbeginningfromthemidnightofSaturdayistermedasaweek.
ShiftandRelay
Iftwoormoresetsofworkersarecarryingoutthesametaskindifferentperiodsoftime,thenthesetsof
workersaretermedasrelaysandthedurationsoftimeforwhicheachsetworksistermedasshiftsoftherelays.
Occupier
Thepersonhavingtheultimatecontrolovertheaffairsofthefactoryistermedasanoccupier.
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