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Company Law

TILAK MAHARASHTRA VIDYAPEETH

Mahadeo Nalawade

LLB-5th Semester

Company Laws

Q1- Define the term “Company” under Companies Act 2013 ?

Ans : Section 2(20) of Companies Act, 2013 states that a company means any association of person registered under the present or the previous companies act. It is called a
“body corporate” because the persons composing it are made into one body by incorporating it according to the law and clothing it with legal personality. Under common law, a
company is defined as a ‘legal person’ or ‘legal entity’ separate from its member and capable of being surviving beyond the lives of its members. Whereas it is not merely legal,
it is rather a legal device for attainment of any social or economic end and to a large extent publicly and socially responsible. It is, therefore, a combined political, social,
economic and legal institution.

Q2- Define ‘Debenture’ under Companies Act 2013.

Ans : Debenture is most important instrument and method of raising the loan capital by the company. A debenture is like a certificate of loan or a loan bond evidencing the fact
that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does
not become share capital. Section 2 (30) of the Companies Act, 2013 define inclusively debenture as “debenture” includes debenture stock, bonds or any other instrument of a
company evidencing a debt, whether constituting a charge on the assets of the company or not.

Q3- Define fixed and floating charge.

Ans: The Companies Act,2013 defines a Charge as an interest or lien created on the assets or property of a Company or any of its undertaking as security and includes a
mortgage U/s 2(16). The charges are of two kinds:

Fixed Charge: A charge which is identifiable with specific and clear asset/property at the time of creation of charge. The Company cannot transfer such identified and defined
property unless the charge holder (creditor) is paid off his dues.

Floating Charge: It covers the floating and circulating nature of properties of a company, like sundry debtors, stock in trade etc., The nature of the property charged may change
from time to time. The floating charge crystallizes into fixed charge if the Company crystallizes or the undertaking ceases to be a going concern.

Q4- “Company can purchase its own shares out of certain proceeds’ enlist those proceeds.

Ans : As per section 68 of Companies Act 2013, the power of company to purchase its own securities is as follows :- Notwithstanding anything contained in this Act, but
subject to the provisions of sub-section (2), a company may purchase its own shares or other specified securities out of—

1. its free reserves;

2. the securities premium account; or
3. the proceeds of the issue of any shares or other specified securities:

Provided that no buy-back of any kind of shares or other specified securities shall be

made out of the proceeds of an earlier issue of the same kind of shares or same kind of other

specified securities.

Q5- Define share and share capital.

Ans : A share is the interest of a member in a company. Section 2(84) of the Companies Act, 2013 “share” means a share in the share capital of a company and includes stock. I
represent the interest of a shareholder in the company, measured for the purposes of liability and dividend. It attaches various rights and liabilities. According to Section 43 of
the Companies Act, 2013, the share capital of a company is of two types viz Preferential Share Capital & Equity Share Capital.
Q6- Transfer and transmission of shares.

Ans : Transferability is an important feature of a share in a company registered under the Companies Act, from which emanates another feature of a company- perpetual
succession. It endows a company with perpetual and uninterrupted existence. Upon incorporation, a company acquires its own independent legal personality and legal entity in
the company. Section 82 [6] states that the share shall be a movable property and transferable in a manner provided by the articles of the company. It has, however, been
consistently held by the courts that subject to restrictions imposed by the articles, a shareholder is free to transfer shares to a person of his own choice and that the articles
cannot put a complete ban or unreasonable restriction on the transfer. While shares in a private company are not freely transferable and are subject to the restrictions imposed
by the articles of the company, shares in a public company are freely transferable.

Transfer of shares is a transaction resulting in a change of share ownership. A shareholder, whether in public or private company, has a property in his share which he has a
right to dispose of, subject only to any express restriction which may be found in the articles of the company.

Transmission is the automatic process; when a shareholder dies, his shares immediately pass to the personal representatives or, if a member is declared bankrupt, their
shares will vest in the trustee in bankruptcy.

Q7- Contents of Prospectus

Ans : Section 2(70) of the Companies Act, 2013 defines a prospectus as ““A prospectus means Any documents described or issued as a prospectus and includes any notices,
circular, advertisement, or other documents inviting deposit fro the public or documents inviting offer from the public for the subscription of shares or debentures in a company.”
A prospectus also includes shelf prospectus and red herring prospectus. A prospectus is not merely an advertisement.

Contents of a prospectus:

1. Address of the registered office of the company.

2. Name and address of company secretary, auditors, bankers, underwriters etc.
3. Dates of the opening and closing of the issue.
4. Declaration about the issue of allotment letters and refunds within the prescribed time.
5. A statement by the board of directors about the separate bank account where all monies received out of shares issued are to be transferred.
6. Details about underwriting of the issue.
7. Consent of directors, auditors, bankers to the issue, expert’s opinion if any.
8. The authority for the issue and the details of the resolution passed therefore.
9. Procedure and time schedule for allotment and issue of securities.
10. Capital structure of the company.
11. Main objects and present business of the company and its location.
12. Main object of public offer and terms of the present issue.
13. Minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash.
14. Details of directors including their appointment and remuneration.
 15. Disclosure about sources of promoter’s contribution.
16. Particulars relation to management perception of risk factors specific to the project, gestation period of the project, extent of progress made in the project and
deadlines for completion of the project.

Q8- Kind of Companies

Ans : There are totally 15 types of companies can be formed under the Companies Act, 2013.

Public Limited Companies

1. Public Company limited by shares

2. Public Company limited by Guarantee having share capital
3. Public Company limited by Guarantee and having no share capital
4. Public unlimited Company having share capital
5. Public unlimited Company not having share capital

Private Limited Companies

1. Private Company limited by shares

2. Private Company limited by Guarantee having share capital
3. Private Company limited by Guarantee and having no share capital
4. Private unlimited Company having share capital
5. Private unlimited Company not having share capital

One Person Company (OPC)

1. OPC Company limited by shares

2. OPC Company limited by Guarantee having share capital
3. OPC Company limited by Guarantee and having no share capital
4. OPC unlimited Company having share capital
5. OPC unlimited Company not having share capital.

Public Limited Company : Public limited company is a company which can raise a large amount of capital not only from its promoters, close relatives or investors but also from
the public at large by offering its securities for sale in open market. The shares of a public limited is a freely tradeable item and can be listed on a stock exchange for real-time
sale, purchase and deliver. These are generally large companies which need a huge amount of resources.

Private Limited Company : Private limited company is a types of company which is formed with minimum two shareholders and two directors. The maximum of 200 persons
can become a shareholder in the company. A private limited company is exempted from various provisions of the Companies Act 2013 in comparison with the public limited
company. In other words, some of the sections and proviso is applicable to only public limited companies as they have been specifically marked as not applicable to a private
limited company.

One Person Company (OPC) : One Person company Popularly also known as OPC, which can be incorporated by only one person as its owner, however, it can have many
directors subject to limits prescribed by the act. A nominee of the owner of one-person company must be declared with the consent of such nominee.

Section 8 Company is a company which has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of
the environment or any such other object; and which intends to apply its profits, if any, or other income in promoting its objects; and intends to prohibit the payment of any
dividend to its members.

Q9- Legal position of the promotor.

Ans : In the eyes of law, a promoter is not an agent or a trustee of the company. He stands in a fiduciary relationship with the company he is promoting. Fiduciary relationship is
the relationship based on trust and faith. The promoter must ac honestly and sincerely in the best interest of the company. He must not make secret gains out of dealings on
behalf of the company. If there is any gain out of dealings, it must be disclosed. The promoter is not an agent of the company because a person cannot be agent of a principal
(company) who is yet to come into existence. The company will come into existence only after it has been incorporated. This means promoters will remain personally liable for
preliminary contracts even after incorporation of the company.

The legal obligations of a promoter are as under:

1. To exercise due care and intelligence in the work of promotion.

2. To act without deceit, misfeasance or breach of trust towards the company.
3. To disclose full details of the nature and extent of money taken by him in the process of promotion.
4. To deposit all money received on behalf of the company in the company’s bank account.
5. To refrain from selling his own property to the company at unreasonably high prices.
6. To surrender any profits made during promotion of the company.
7. To be personally liable for preliminary contracts till they are approved by the company.
8. To pay compensation to those who have invested money in the company on the basis of untrue statements or misrepresentation in the prospectus.

Q10- Company and Partnership

Ans : Any voluntary association of persons registered as a company and formed for the purpose of any common object is called a company. But a partnership is the relation
between two or more individuals who have agreed to share the profits of a business carried on by all or any of them acting for all. The partners are collectively called as a firm.

1. Registration: A company is formed only after-registration under the Companies Act In case of partnership, registration is not compulsory.
2. Legal Status: A company is regarded by law as a single person. It has a legal personality. It acts in its own name. A partnership has no legal existence apart from
the partners. The firm and the partners are one and the same.
 3. Limited Liability: The liability of the members of a company is limited while that of the partners is unlimited.
4. Minimum Number of Members: The minimum number of persons required to form a company is 2, in case of private company and 7 in case of public company.
The minimum number of persons required to form a partnership is 2.
5. Maximum Number of Members: A public company may have any number of members. A private company cannot have more than 200 members. A partnership
firm carry on business other than banking cannot have more than 20 members while, in case of banking business, cannot have more than 10 members.
6. Contractual Capacity: The shareholders of a company can enter into contracts with the company and can be an employee of the company. Partners can contract
with other partners but not with the firm as a whole.
7. Management: A partnership firm is managed by the partners themselves. A company is managed by the Board of Directors or Managing Director or Manager who
are selected in the manner provided by the Act. A shareholder as such, cannot participate in the management.
8. Length of Existence: A company has perpetual succession. The death or insolvency of any member does not affect its existence. A partnership comes to an end
when a partner dies or become insolvent.
9. Transferability: The shares in a company are transferable with the result that shareholders can go on changing. A partner cannot transfer his share and interest in
the partnership business without the consent of all other partners.
10. Authority of Members: The property of a partnership is the joint property of the partners. Each partner has the authority to bind the firm by his acts. The property of
the company belongs to the company. A shareholder in his individual capacity cannot bind the company in any way.
11. Capital: A company raises its financial resources from the savings of a large number of people. A partnership has to depend on the resources of the partners. It
may borrow from the banks but it cannot issue debentures to the public, which a company can.
12. Compulsory Audit: By law a company is required to have its accounts audited once a year by a practising Chartered Accountant. There is no such obligation for a
partnership firm.
13. Control: The govt. that creates a company has the right to regulate its action. In the case of partnership there is no such statutory obligation.
14. Change of Objects: A company can change its objects and powers with the permission of the Court. But the partners can, by mutual agreement, change them as
and when they like.

Q11- SEBI

Ans : The Securities and Exchange Board of India was established as a non-statutory regulatory body in the year 1988, but it was not given autonomous, statutory powers until
January 30, 1992, when the Securities and Exchange Board of India Act was passed by the Parliament of India. SEBI supplanted the Controller of Capital Issues, which
hitherto had regulated the securities market in India, as per the Capital Issues (Control) Act of 1947, one of the first acts passed by the Parliament of India following its
independence from the British Empire. he SEBI headquarters is located in the business district at the Bandra Kurla Complex in Mumbai, but the entity also possesses Northern,
Eastern, Southern and Western regional branch offices in the cities of New Delhi, Kolkata, Chennai, and Ahmedabad, respectively. It also has small local branch offices in
Bangalore, Jaipur, Guwahati, Bhubaneshwar, Patna, Kochi, and Chandigarh.

The hierarchical structure of SEBI consists of the following members:

The chairman of SEBI is nominated by the Union Government of India.

Two officers from the Union Finance Ministry will be a part of this structure.
One member will be appointed from the Reserve Bank of India.
Five other members will be nominated by the Union Government of India.
Functions of SEBI

SEBI is primarily set up to protect the interests of investors in the securities market.
It promotes the development of the securities market and regulates the business.
SEBI provides a platform for stockbrokers, sub-brokers, portfolio managers, investment advisers, share transfer agents, bankers, merchant bankers, trustees of trust
deeds, registrars, underwriters, and other associated people to register and regulate work.
It regulates the operations of depositories, participants, custodians of securities, foreign portfolio investors, and credit rating agencies.
It prohibits inner trades in securities, i.e. fraudulent and unfair trade practices related to the securities market.
It ensures that investors are educated on the intermediaries of securities markets.
It monitors substantial acquisitions of shares and take-over of companies.
SEBI takes care of research and development to ensure the securities market is efficient at all times.

Authority and Power of SEBI : The SEBI board has three main powers:

1. Quasi-Judicial: SEBI has the authority to deliver judgements related to fraud and other unethical practices in terms of the securities market. This helps to ensure
fairness, transparency, and accountability in the securities market.
2. Quasi-Executive: SEBI is empowered to implement the regulations and judgements made and to take legal action against the violators. It is also authorised to
inspect Books of accounts and other documents if it comes across any violation of the regulations.
3. Quasi-Legislative: SEBI reserves the right to frame rules and regulations to protect the interests of the investors. Some of its regulations consist of insider trading
regulations, listing obligation, and disclosure requirements. These have been formulated to keep malpractices at bay.

Q12- Kinds of Debentures

Ans : Various kinds of debentures are as follows :

1. Types of Debentures on the basis of Security: In terms of security, a debenture may basically either carry some security or it might not. Thus, debentures can be
of two types here:
1. Secured Debentures: These debentures carry a charge on some assets of the issuing company. In case the company fails to repay the debt, its assets
will be sold off to pay creditors. This security on debentures may be of two types: Fixed-charge or Floating charge. In the case of a fixed charge, the
security relates to a specific asset of the company. On the contrary, a floating charge covers all assets of the company in general.
2. Unsecured Debentures: These debentures are very risky for investors. This is because they do not carry any security or charge on the company’s
assets. The company only promises to pay the debt amount and interest. Its assets are not liable for attachment in case of its failure to repay.
2. Types of Debentures on the basis of Convertibility : In order to make their debentures attractive to investors, companies can make them convertible. On grounds
on convertibility, debentures may be of the following two types:
1. Convertible Debentures: These debentures convert into equity or preference shares after a specific period of time. This conversion may be either
compulsory or optional at the debenture holder’s discretion. Further, it may be either fully convertible or partly convertible. In terms of the value of the
shares that debentures convert into, they may be at par or even at premium or discount.
2. Non-convertible Debentures: On the contrary to convertible debentures, non-convertible ones remain debentures. They are not convertible into shares.
3. Types of Debentures on the basis of Permanence: In terms of permanence and duration, debentures are of the following types:
 1. Redeemable Debentures: These debentures are redeemable on a specified date. For example, if a debenture’s maturity period is 5 years, it becomes
redeemable on the expiry of 5 years. These 5 years will start from the date of issue of the debenture.
2. Irredeemable Debentures: Irredeemable debentures do not have a specific maturity date. They last throughout a company’s lifetime. Thus, the company
redeems them only when it faces liquidation.
4. Types of Debentures on the basis of Negotiability The aspect of negotiability basically relates to transferability. This ground differentiates debentures on the
basis of whether they are freely transferable. It divides debentures on the following two grounds:
1. Registered Debentures: As the name suggests, the details of these debenture holders are registered in the company’s records. Only the debenture
holders can redeem these debentures. Hence, they are not freely transferable. They can be transferred only if relevant provisions of the Companies Act,
2013 are fulfilled.
2. Bearer Debentures: Companies do not register details of debenture holders in this case. They can be redeemed by the person owning them, without
their identity being checked. This happens because these debentures are freely transferable. Thus, anybody can sell and buy them from their holders.
5. Types of Debentures on the basis of their Priority: Just like shares, companies rank debentures also in terms of priority. Investors prefer buying instruments
having priority because it helps them reduce their risks. Debentures can be of the following two types in this case:
1. First Mortgage Debentures: As the name suggests, companies repay these debentures first. Debenture-holders get their money before all others in their
category.
2. Second Mortgage Debentures: These debentures are repaid only after the first mortgage debentures are satisfied.

Q13- “When the legal entity of corporate body is misused for fraudulent and dishonest purposes, the individual concerned will not be allowed to take a shelter
behind the corporate personality “Discuss the circumstances in which court will disregard the separate personality of the company with case laws.

Ans: A corporation will be looked upon as a legal entity as a general rule……but when the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud or defend crime, the law will regard the corporation as an association of persons. When the human ingenuity started using the veil of corporate personality blatantly as a
cloak for fraud or improper conduct, it became necessary for the Courts to break through or lift the corporate veil and look at the persons behind the company who are the real
beneficiaries of the corporate fiction. Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in the control of the
company.

Statutory Provisions: The Companies Act, 2013, integrated with various provisions, points out the person liable for any such improper/illegal activity as “officer who is in
default” under Section 2(60) of the Act, and also includes people holding the positions of directors and key-managerial personnel’s. A few instances of lifting of the corporate
veil cases are listed below:

1. Misstatement in Prospectus: Under Section 26 (9), Section 34 and Section 35 of the Companies Act, it is a punishable offence to furnish untrue or false
statements in prospectus of a company offering securities for sale. He is subject to penalty or imprisonment or both, as prescribed under the aforesaid sections.
2. Failure to return application money: Under Section 39 (3) of the Companies Act,gives provision against allotment of securities. If the minimum stated amount has
not yet been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, then the officers
in default are fined with an amount of one thousand rupees for each day till the time the default continues or one lakh rupees, whichever is less.
3. Misdescription of Company’s name: The name of the company is very important. Attention should be paid to every detail in the spelling and pronunciation of the
name of company. Usage of approved name entitles the company to enter into contracts and make them legally binding. The name of the company requires prior
approval as under Section 4 and printed under Section 12 of the Companies Act. Thus, if any representative of the company collects bills or sign on behalf of the
 company, and enter in incorrect particulars of the company, then he is personally liable. Case Law: Hendon vs. Adelman, signatory directors were held personally
liable for stating company’s name on a signed cheque as “L R Agencies Ltd” while the original name was “L & R Agencies Ltd.”
4. For investigation of ownership of company: Under Section 216 of the Act, the Central Government has authority to appoint inspectors to investigate and report
matters relating to the company, and its membership for the purpose of determining the true persons, financially interested in the success or failure of the company;
control or to materially influence the policies of the company.
5. Fraudulent conduct: Under Section 339 of the Act, in case of winding up of the company, it is found that company’s name was being used for carrying out a
fraudulent activity, the Court is empowered to hold any such person be liable for such unlawful activities, be it director, manager, or any other officer of the company.
6. Inducing persons to invest money in company: :Under Section 36 of the Companies Act, any person making false, deceptive, misleading or untrue statements
or promises to any other person or concealing relevant data from other person with a view to induce him to invest in the company
7. Furnishing false statements: Under Section 448 of the Act, if in any return, report, certificate, financial statement, prospectus, statement or other document
required, any person makes false or untrue statements, or conceals any relevant or material fact, then he is liable under Section 447 of the Act.
8. Tax Evasion: It’s the duty of every earning person to pay taxes. Company is no different than a person in eyes of law. If anyone attempts to unlawfully avoid this
duty, he is committing an offence. What rule applies to a human being also applies to a company.
9. Sham Companies:- The Courts are also empowered to lift the corporate veil if they are of the opinion that such companies are sham or hoax. Such companies are
mere cloaks and their personalities can be ignored in order to identify the real culprit. This principle can be seen in the prior discussed case of Gilford Motor Co Ltd
vs. Horne where it was held that the new found company was mere cloak or sham, for purpose of enabling Sir Dinshaw to commit breach of his covenant against
solicitation.
10. Companies intentionally avoiding legal obligations:-Wherever an incorporated company is deliberately tries to avoid legal obligations, or wherever it is found
that this incorporation of a company is being used to avoid force of law, the Courts have authority to disregard this legal personality of the company and proceed as
if no company existed. The liabilities can be straight away imposed on persons concerned.

Conclusion : In this manner, it is bounteously certain that incorporation does not cut off individual liability consistently and in all conditions. “Honest enterprise, by methods for
organizations, is permitted; however people, in general, are ensured against kitting and humbuggery”. The holiness of a different entity is maintained just in so far as the entity
is consonant with the fundamental approaches which give it life.

Q14- Define allotment of shares. Discuss general principles of allotment and statutory restrictions on allotment.

Ans : When a company issue a prospectus inviting the public to subscribe for the shares of a company, it is merely an invitation rather than an offer. An application for shares is
an offer by the prospective shareholders to take the shares of the company. Such offers are made on application forms supplied by the company. When an application is
accepted, it is called allotment. Allotment is the acceptance by the company of the offer made by the applicant. Allotment results in a binding contract between the parties. The
term allotment has not been defined in the Companies Act. In Sri Gopal Jalan & Co. v. Calcutta Stock ExchangeAssociation Ltd., (1963), allotment of shares was explained by
the Supreme Court as “the appropriation, out of the previously unappropriated capital of the company, of a certain number of shares to a person. It is only after allotment that
shares come into existence. Reissue of forfeited shares is not an allotment’.

General Principles regarding Allotment : The provisions of the law of contract regarding the acceptance of an offer apply to the allotment of shares by a company. The
general principles relating to the allotment of shares are as follows:-

1. Proper Authority:- Allotment must be made by a resolution of the Board of Directors or by a committee authorised to allot shares on behalf of the Board if permitted
by the articles.
 2. Absolute and unconditional:- The allotment must be absolute and unconditional. If an application for shares in made subject to a condition then that condition
has to be fulfilled in order to make the allotment effective. In case that condition is not fulfilled, the applicant is not bound to take the shares.
3. Within a reasonable time:- The allotment must be made within a reasonable time after the receipt of the application. Otherwise the applicant shall not be bound to
accept it. In Ramasgate Victoria Hotel Co. v. Monterfiore, Monterfiore applied for shares on June 28. But allotment was made on November 23 and he refused to
take the shares. In this case it was held that the offer had lapsed and the applicant was not liable to pay for the allotment.
4. Must be communicated:- The allotment must be communicated to the person making the application so that it is legally complete. Communication need not be in
a particular form unless the articles of the company provide otherwise. Whatever is the mode of communication, it must be made to the applicant or his agent who is
duly authorised to receive it. In case of postal communication, allotment is complete as soon as the letter of allotment is posted even though it is never received (
Household Fire Insurance Co. v. Grant ).
5. Revocation of the offer:- An offer to take shares can be revoked at any time before the allotment is communicated. H applied for shares in a company which were
allotted to him. The letter of allotment was sent by the company’s agent to be delivered by hand to H. Before the delivery of the letter of allotment, H withdrew his
application. It was held that H was not a shareholder of the company. In the same way, the allotment can be withdrawn by the company before it is communicated
completely to the applicant.

Statutory restrictions on allotment (S. 39):- The first step towards a valid allotment is the fulfilment of required minimum subscription amount. Every company offering shares
to the public has to state a minimum subscription amount in the prospectus. Further, there is a restriction on the company towards allotment of shares until the minimum stated
amount has been subscribed and the application money has been received by the company in the form of a cheque or any other instrument. Also, the minimum application
money cannot be less than five percent of the nominal value of security or any other percentage or amount specified by SEBI. Another restriction imposed upon the company is
towards receiving of minimum subscription amount within a period of thirty days, failing which the company has to return the amount so received within a period as may be
specified. Also, a company making allotment of securities is required to file a return of allotment with the registrar of companies in a prescribed manner.

Q15- “The memorandum of association of company is the most important documents it sets out the constitution of the company.” Discuss the various contents of
Memorandum along with it significance.

Ans : The importance of memorandum of association of a company is extreme, together with the AOA, to the shareholders, creditors, investors, and other people and
companies dealing with the company, in contexts of complete guidance and safety. Actually, all these people and entities are presumed to have read the MOA and AOA of any
company well before initiating any relations with the company. Again, a company can never go against anything which is clearly specified in its MOA, even the AOA of the
company is bound to comply with the MOA of the company. Hence, drafting of the MOA as well as the AOA of a company must be guided by a veteran and expert corporate
lawyer.

Contents of Memorandum of Association : Under Section 4 of the Companies Act 2013, a Memorandum of Association should comprise of the following clauses as
discussed below:

1. Name Clause: It is mandatory to mention the name of the company while drafting the Memorandum of Association. A company may select any name that it prefers
but it should not be identical to an existing company. The chosen name of the company as it appears in the Memorandum of Association should be exactly the
same as the one approved by the Registrar of Companies. A Public Limited Company should end with the word “Limited” and likewise, a Private Limited Company
should end with the words “Private Limited”.
2. Situation Clause: The Memorandum of Association of a company must contain the name of the state where the company operates and the jurisdiction of the
Registrar of Company must be specified. It is mandatory for the company to have the registered office within 15 working days. Likewise, the verification of the
 registered office must be completed in 30 days. This procedure is done to fix the domicile of the company which may or may not be the place where the company is
operating.
3. Object Clause: The objective for which the company is formed must be mentioned in the Memorandum of Association. It is one of the key clauses and should be
drafted carefully mentioning all the types of businesses that the company may possibly engage in the future. A company is legally prohibited from carrying out any
activity that is not specified in the object clause. The objects are classified as ‘Main Objects’, ‘Ancillary Objects’ and ‘Other Objects’. The objects must be stated
articulately and must not be ambiguous in nature. The objects must not also be illegal or against the prohibition of the Act or the public policy of the country.
4. Liability Clause: The liabilities of the members of the company must be clearly stated in the Memorandum of Association. They may be limited by shares or by
guarantee. In case of unlimited liability company, the entire clause can be eliminated.
5. Capital Clause: The maximum amount of authorised capital that can be generated by the members of the company is ought to be specified in the Memorandum of
Association. Stamp duty is applicable on this amount. Although there is no legal limit to the maximum amount of capital that can be raised by a company, it cannot
increase the authorised share capital once it has been incorporated. The denomination for each such share has to be either RS 10 or RS 100 in case of equity and
preference shares respectively. A company should make sure that the raised authorised capital is sufficiently high for further expansion of business in the future. All
other rights and privileges, as agreed upon by shareholder, creditors, investor and other members of the company may also be specified in this charter.It is not
mandatory for an unlimited company having an authorised share capital to mention it in the memorandum.
6. Association or Subscription Clause: The amount of authorised capital and the number of shares owned by each member of the company should be mentioned
in the Memorandum of Association of the company. The subscribers to the memorandum must own a minimum of one share each. Each subscriber must write the
number of shares owned by him and sign the memorandum in the presence of at least one witness who is required to attest the signature.

Q16- In relation to the winding up of the company, Discuss

1. Winding up by Tribunal
2. Duties of Company Liquidator.

Ans : The winding up of a company is the last stage of a companies’ existence. There may be several reasons for winding up of the company including mutual agreement
among stakeholders, loss, bankruptcy, death of promoters etc. Winding up is the process by which the company is put to an end that is the process through which its corporate
existence is ended and it is thereafter finally dissolved. As per section 270 of the Companies Act, 2013 a company can be wound up either by a tribunal or by way of voluntary
winding up. The provisions of the act lay down proper procedures for the winding up of a company.

Winding Up By A Tribunal : Winding up of a company takes place by a tribunal by appointing a liquidator if the company is unable to pay its debts or the company has passed
a special resolution to that effect or the company is acting against the interest or morality of India, security of state, or has spoiled any kind of friendly relations with foreign or
neighbouring countries or the company has not filed the financial statements or annual returns for preceding five consecutive years or it is deemed just and equitable to the
tribunal to wind up the company or the company has undertaken fraudulent activities or any other unlawful business or any person or management connected with the formation
of company is found guilty of fraud or any kind of misconduct. Under section 272 of the companies act, the petition for winding up of a company in any of the circumstances
stated above can be filed by any of the following parties- Such winding up petition shall be filed in form no. 1, 2 or 3, as required along with the statement of affairs in form no. 4.
The statement of affairs shall contain facts up to specific date which shall not be more than 15 days prior of the date on which the statement of affairs is filed. Also, it shall be
certified by a certified chartered accountant.

Powers and duties of Company Liquidator in voluntary winding up.

 1. The Company Liquidator shall perform such functions and discharge such duties as may be determined from time to time by the company or the creditors, as the
case may be.
2. The Company Liquidator shall settle the list of contributories, which shall be prima facie evidence of the liability of the persons named therein to be contributories.
3. The Company Liquidator shall call general meetings of the company for the purpose of obtaining the sanction of the company by ordinary or special resolution, as
the case may require, or for any other purpose he may consider necessary.
4. The Company Liquidator shall maintain regular and proper books of account in such form and in such manner as may be prescribed and the members and
creditors and any officer authorised by the Central Government may inspect such books of account.
5. The Company Liquidator shall prepare quarterly statement of accounts in such form and manner as may be prescribed and file such statement of accounts duly
audited within thirty days from the close of each quarter with the Registrar, failing which the Company Liquidator shall be punishable with fine which may extend to
five thousand rupees for every day during which the failure continues.
6. The Company Liquidator shall pay the debts of the company and shall adjust the rights of the contributories among themselves.
7. The Company Liquidator shall observe due care and diligence in the discharge of his duties.
8. If the Company Liquidator fails to comply with the provisions of this section except sub-section (5) he shall be punishable with fine which may extend to ten lakh
rupees.

Q17- Dividend

Ans : Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payment, stocks or any
other form. A company’s dividend is decided by its board of directors and it requires the shareholders’ approval. However, it is not obligatory for a company to pay dividend.
Dividend is usually a part of the profit that the company shares with its shareholders. After paying its creditors, a company can use part or whole of the residual profits to reward
its shareholders as dividends. However, when firms face cash shortage or when it needs cash for reinvestments, it can also skip paying dividends. When a company
announces dividend, it also fixes a record date and all shareholders who are registered as of that date become eligible to get dividend payout in proportion to their
shareholding.

Q18- Red hearing prospectus

Ans : A red herring is a preliminary prospectus filed by a company with the Securities and Exchange Commission (SEC), usually in connection with the company’s initial public
offering (IPO). A red herring prospectus contains most of the information pertaining to the company’s operations and prospects but does not include key details of the security
issue, such as its price and the number of shares offered. The term “red herring” is derived from the bold disclaimer in red on the cover page of the preliminary prospectus. The
disclaimer states that a registration statement relating to the securities being offered has been filed with the SEC but has not yet become effective. That is, the information
contained in the prospectus is incomplete and may be changed. Thus, the securities may not be sold and offer to buy may not be accepted before the registration statement
becomes effective. The red herring does not state a price or issue size.

Q19- Define charge under companies Act.

Ans : Charge means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage. The Act
prescribes for registration of charges with the Registrar of Companies. Borrowing funds is an important source for a company to raise capital for financing large-scale projects
and expanding its business. Corporate borrowings involve loans obtained by a company by way of creating a charge on its assets as security to the lender company. According
to Section 77(1) of the Act, it is the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or
otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating
such charge, with the Registrar of Companies within thirty days of its creation.

Q20-Define Holding and subsidiary company

Ans : A Holding Company is a Parent Company that holds a majority interest in several companies. For instance, if the shares of a limited or a private company are held by
another company, then such a company is called a ‘Holding Company’. Holding companies are recognized under the Companies Act, 2013, as the controlling company that
exerts a certain amount of control over subsidiary companies. The ‘control’ factor is an important factor in determining the status of a holding company and the relationship with
its subsidiaries. In most case, the control of the holding company is exerted through shares, where the controlling company holds at least 51% of the total holdings. A company
becomes its associate when the holdings over 20% (but not beyond 51%).

Subsidiary company is any company whose interests are held and controlled or held by another company. Paid up equity share capital and preference share capital of the
subsidiary company can be used to determine the holding company, subsidiary company relationship between two companies. A subsidiary company is a company that is
either owned or owned in part by another company. When one company is 100% owned by another company, it is called Wholly Owned Subsidiary of the company who had
made 100% investment in it.

Q21-Kinds of Resolutions

Ans : A Company being an artificial person, any decision taken by it shall be in the form of a Resolution. Accordingly, a resolution may be defined as an agreement or decision
made by the directors or members (or a class of members) of a company. A proposed resolution is a motion. When a resolution is passed a company is bound by it. The
resolutions could be on just about any subject in case of Board meetings since they are ultimately responsible for running the Company. The Act generally specifies the matters
in respect of which resolutions are required to be passed by the members in general meetings. Basically, there are three types of resolutions: Ordinary Resolution, Special
Resolution and Unanimous Resolution. In case of Board Meetings, there is no concept of Special Resolutions and also unanimous resolutions are required in very few cases.
However, in case of general meetings, all three are covered.

Ordinary Resolution : A resolution will be an ordinary resolution if the notice required under the Companies Act has been duly given and it is necessary to be passed by the
votes cast, whether on a show of hands, or electronically or on a poll. When a motion is passed by a simple majority of the members related the company who are permitted to
voting at the General meeting, it is said to have been passed by an ordinary resolution. The votes cast in favor inclusive of the chairman if any are more than the votes cast in
opposition to the resolution. Some of the matters passed as an ordinary resolution:

1. Alteration in authorized capital

2. Declaration of dividend
3. Appointment of auditors
 4. Fixation of remuneration
5. Election of directors
6. Special resolution : A special resolution is one which is passed by at least 3/4th majority of the members voting on it at the General Meeting. A 21 days’ notice
must have been given for the meeting in which such a resolution is passed. Notice calling the meeting should indicate that the resolution is intended to be
proposed as a special resolution. The main feature of special resolution is that the number of votes cast in favour of the resolution should be three times the number
of votes against it. A number of matters applicable to Special Resolution:
1. Alter object clause of memorandum.
2. Change in registered office of company from one state to another.
3. Reduce share capital of the company.
4. Alteration of Articles of association.

Q22- Doctrine of ultra-vires

Ans : The doctrine of ultra vires applies to the memorandum of a company. The memorandum of association contains the permitted range of activities in its objects clause and a
company cannot practice any other activity which is not defined under the scope of objectives mentioned in the memorandum. Any activity done out of the purview of the
memorandum is considered as an ultra vires activity. Such activities are null or void and all ultra vires transactions can never be subsequently ratified or validated, not even by
the consent of the shareholders. This rule is meant to protect the interests of the shareholders and creditors of the company.

Effects of Doctrine of Ultra Vires

The effects or the consequences of the Doctrine of Ultra vires are –

1. Personal Liability of Directors – The funds of the company can only be used for authorised objectives. In case if any director makes an unauthorised payment, he
will be compelled to refund the money to the company. The director will be personally liable for any loss suffered by the company due to him.
2. Ultra vires acquired property – If the money has been spent on purchasing ultra vires property, the company will have the secured right over the property. If the
property is legally and formally transferred, it will become the asset of the corporation, even though the company was not entitled to acquire such property.
3. Ultra Vires Contract- Any contract by the company officials outside its scope is completely void and it has no legal effect.
4. Ultra Vires Lending – When the company makes any ultra vires lending or when a person borrows money from the company under an ultra vires contract, he can
be sued by the company to recover the amount. The promise to get back the money on the borrowed amount is not illegal.
5. Ultra Vires Tort– A company cannot be liable for any tort committed by its officers in connection with the business outside its scope of objectives. If officers have
performed a tort which is intra-vires, the company will be held liable.

Exceptions of Doctrine of Ultra Vires Following are the exceptions to the doctrine of ultra vires–

If the company has made any ultra vires lending, it has the right to recover the amount from the borrower.
If the company has acquired any property under ultra vires contract, the amount can be recovered from company by the order of the court.
If the director makes payment which is ultra vires the company, the director can be compelled to refund the amount and he also has the right to be indemnified.
An act which ultra vires theatricals but intra vires the memorandum of the company, it may be altered and included in the acts of the company.
 An act which is intra vires the company but ultra vires the director, the director is liable and but if it is out of the authority of the directors the company can ratify it in
proper form.
If the act is ultra vires the company but it is done in an irregular manner, it can be validated by the consent of the shareholders.

Q23- Modes of acquiring membership in the company.

Ans : A person may become a member or shareholder of the company in any one of the following ways:

1. By subscribing to the Memorandum of Association: The subscriber to the Memorandum of a company are deemed to have agreed to become a member of the
company and on the registration of the company their names are entered as members on the register of members
2. By agreeing to take qualification Shares: According to the section 266 directors of the company on delivering to registrar a written undertaking to take their
qualification shares and to pay for them become the members of the company and they are in same position as if they were subscribers to the Memorandum.
3. By transfer of shares: Shares in a company are movable property and are transferable in the same way as provided in the Articles of the company. Thus one
person possesses the right to transfer his shares to another person. On the registration of transfer the transferee becomes the member of the company.
4. By application and allotment of shares: A person may become a member of a company by an application for shares to the formal acceptance by the company.
On valid allotment, the name of the shareholder is entered in the register of members
5. By succession: On the basis of the succession certificate the legal heirs of the deceased member/shareholder get the right to be a member of the company. The
company on this basis enters their name in the register of members.
6. By estoppel or acquiescence: A person who knowingly permits entering his name in the register of members, becomes a member by estoppel or acquiescence.

Q24- Kinds of Directors

Ans : According to “Section 2(34) of Companies Act 2013 ” a director is appointed to the Board of a Company. There are many types of directors which have a different role to
play accordingly. Here in this article we will discuss types of directors in a company according to the companies act, 2013.

Types of Directors :

1. Residential Director: – According to Section 149(3) of Companies Act,2013, Every company should appoint a director who has stayed in India for a total Period of
not less than 182 days in the previous calendar year.
2. Independent Director: – According to Section 149(6) an independent director is an alternate director other than a Managing Director which is known as Whole
Time Director Or Nominee Director. According to Rule 4 of Companies (Appointment and Qualification of Directors) Rules,2013 these are the following type of
companies which have to appoint minimum 2 independent directors:-
1. Public Companies which have Paid-up Share Capital-Rs.10 Crores or More; –
2. Public Companies which have Turnover- Rs.100 Crores or More:-
3. Public Companies which have total outstanding loans, debenture, and deposits of Rs. 50 Crores or More.
3. Small Shareholders Directors: – Small shareholders can appoint a single director in a listed company. But this action needs a proper procedure like handing over
a notice to at least 1000 Shareholders or 1/10th of the total shareholders.
 4. Women Director: – As per Section 149 (1) (a), there are certain categories according to which there should be at least one woman as a director on the Board.
Such companies are any listed company or any public company having. There are types of directors in women director also:
5. Additional Directors:- Any Individual can be appointed as Additional Directors by a company under section 161(1) of the New Act.
6. Alternate Directors: – As per Section 161(2), a company may appoint, if the articles confer such power on the company or a resolution is passed (if a Director is
absent from India for at least three months).
7. Shadow Director: –A person who is not the member of Board but has some power to run it can be appointed as the director but according to his/her wish.

Q25- Share and Stock

Ans : As per Section 61, Companies Act, 2013, the company can convert its shares which are fully paid up, into stock. A ‘Share‘ is the smallest unit into which the company’s
capital is divided, representing the ownership of the shareholders in the company. A ‘Stock‘ on the other hand is a collection of shares of a member that are fully paid up. When
shares are transformed into stock, the shareholder becomes a stockholder, who possess same right with respect to the dividend, as a shareholder possess. All the shares are of
equal denomination, whereas the denomination of stock differs. When one wants to invest in shares, he/she must be aware of the difference between shares and stock, along
with the conditions, when shares are converted into stock.

A share is defined as the smallest division of the share capital of the company which represents the proportion of ownership of the shareholders in the company. The shares
are the bridge between the shareholders and the company. The shares are offered in the stock market or markets for sale, to raise capital for the company. The shares are
movable property which can be transferred in a manner specified in the Articles of Association of the company.

The stock is a mere collection of the shares of a member of a company in a lump sum. When the shares of a member are converted into one fund is known as stock. A public
company limited by shares can convert its fully paid-up shares into stock. However, the original issue of stock is not possible. For the conversion of the shares into stock the
following conditions are to be fulfilled in this regard:

1. The Articles of Association should specify such conversion.

2. The company should pass an Ordinary Resolution (OR) in the Annual General Meeting (AGM) of the company.
3. The company shall give notice to the ROC (Registrar of Companies) about the conversion of shares into stock within the prescribed time.

Key Differences Between Share and Stock : The principal points of difference between share and stock are as follows:

1. A share is that smallest part of the share capital of the company which highlights the ownership of the shareholder. On the other hand, the bundle of shares of a
member in a company, are collectively known as stock.
2. The share is always originally issued while the original issue of Stock is not possible.
3. A share has a definite number known as a distinctive number which distinguishes it from other shares, but a stock does not have such number.
4. Shares can be partly paid or fully paid. Conversely, Stock is always fully paid.
5. Shares can never be transferred in the fraction. As opposed to stock, can be transferred in the fraction.
6. Shares have nominal value, but the stock does not have any nominal value.
Q26- “The incorporation of the company makes it an independent entity from its share holders and consequently, the company has legal personality of its own”
discuss this statement with leading case laws an elaborate nature of company.

Ans : The principal effects of the formation of a company are twofold. First, its shareholders, and their transferees, become members of an association and are granted rights as
such. Pre-eminent among these are, usually, powers of control in the widest sense of an entitlement to participate, by voting, in the management of the company through the
appointment and removal of its directors, the distribution of profits and other decisions of the company in general meeting, and also by the power to enforce the company’s
regulation. Secondly, and consequently, the members relinquish all proprietary and other interests in the monetary or other consideration which they have given for their shares
and which becomes wholly vested in the company. In effect, therefore, the members’ rights of ownership of their assets are completely reconstituted and the powers conferred
by membership substituted for powers of direct this result is achieved by.

Basic Principles:

1. The legal capacity of the company is restricted or limited in its extent, both by the objects of the company and, more basically, by the common law, to activities
which are both lawful and appropriate to the general scope of its purposes.
2. Within the scope of its particular objects the company is accorded legal capacity for proprietary, contractual and other purposes which is of exactly the same nature
as that possessed by natural persons of full capacity. This capacity is entirely separate from, and not derived from or related in any way to, the individuals who
ultimately comprise the company’s membership.
3. The company itself is accorded full and independent procedural capacity both vis-h-vis its members and outsiders.

From the combination of these principles flow all the well-known practical aspects of separate legal entity. For example, due to its separate proprietary and other capacity the
company may enjoy perpetual existence, its usefulness as an entity for accounting purposes is given a legal foundation, and the possibility is opened that its members may limit
their liability.

Legal Capacity :

To the extent that a company is properly authorised to act, what is the nature of the legal capacity which it may exercise? Is it real,” or ‘‘fictitious”? The terms “fictitious” and
‘‘artificial,” as sometimes used to describe companies can only be understood by taking account of the twofold nature of the corporation. It consists both of an association of
members, which may themselves be corporate bodies; and of an entity possessing independently of its membership the legal capacity to exercise proprietary, contractual and
other powers. Clearly, as an association of members it has as real an existence as any other formally constituted society, and the above terms must therefore refer primarily to
the nature of its legal rights and obligations. It may be thought, for example, that when a company ‘‘owns or deals in property, or enters into service, sale or other contracts, it
does so not in its own right, as a natural person may do, but merely for or on behalf of its members and for their benefit. This being so, the company in reality exists simply as the
agent of its members, or as a trustee for them, of property and contractual rights and obligations which in a true sense, taking into account.

Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 is a landmark UK company law case. The effect of the House of Lords’ unanimous ruling was to uphold firmly the
doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the company’s shareholders to pay up
outstanding debts owed.

Conclusion :

It can be concluded that the concept of separate legal entity is of great importance as it imposes rights and duties on non living persons by attributing legal personality to them.
Clothed with the legal personality these corporations can own, use and dispose of property in their own name. Moreover in case of any dispute such conferment of title of legal
personality enables the entity to sue or be sued in its own name.

Q27- Explain in detail “ Turquand’s Rule’ alongwith its exceptions.

Ans : The doctrine of Indoor management, popularly known as the Turquand’s rule initially arose some 150 years ago in the context of the doctrine of constructive notice. The
rule of Doctrine of Indoor Management is conflicting to that of the principle of Constructive Notice. The latter seeks to protect the company against outsiders; the former operates
to protect outsiders against the company. The Doctrine of Indoor Management lays down that persons dealing with a company having satisfied themselves that the proposed
transaction is not in its nature inconsistent with the memorandum and articles, are not bound to inquire the regularity of any internal proceeding. The rule had its genesis in the
case of Royal Bank v Turquand. In this case the Directors of the Company were authorized by the articles to borrow on bonds such sums of money as should from time to time
by a special resolution of the Company in a general meeting, be authorized to be borrowed. A bond under the seal of the company, signed by two directors and the secretary
was given by the Directors to the plaintiff to secure the drawings on current account without the authority of any such resolution. Then Turquand sought to bind the Company on
the basis of that bond. Thus the question arose whether the company was liable on that bond. The Court of Exchequer Chamber overruled all objections and held that the bond
was binding on the company as Turquand was entitled to assume that the resolution of the Company in general meeting had been passed.

Exception to the Rule : The rule is now more than a century old. In view of the fact that companies having come to occupy the central position in the social and economic life
of modern communities, it was expected that its scope would be widened. But the course of decisions has made it subject to the following exceptions:

1. Knowledge of Irregularity : Where a person dealing with a company has actual or constructive notice of the irregularity as regards internal management, he
cannot claim the benefit under the rule of indoor management. He may in some cases, be himself a part of the internal procedure. The rule is based on common
sense and any other rule would “encourage ignorance and condone dereliction of duty”. Some instances in this regard are as follows:T.R. Pratt (Bombay) Ltd. v.
E.D. Sassoon & Co. Ltd. –Company A lent money to Company B on a mortgage of its assets. The procedure laid down in the Articles for such transactions was not
complied with. The directors of the two companies were the same. It was held in this case that the lender had notice of the irregularity and hence the mortgage was
not binding.
2. Negligence : Where a person dealing with a company could discover the irregularity if he had made proper inquiries, he cannot claim the benefit of the rule of
indoor management. The protection of the rule is also not available where the circumstances surrounding the contract are so suspicious as to invite inquiry, and the
outsider dealing with the company does not make proper inquiry. If, for example, an officer of a company purports to act outside the scope of his apparent authority,
suspicion should arise and the outsider should make proper inquiry before entering into a contract with the company. In Anand Bihari Lal v. Dinshaw & Co. case ,
the plaintiff, in this case, accepted a transfer of a company’s property from its accountant. It was held in this case that the transfer was void as such a transaction
was apparently beyond the scope of the accountant’s authority. The plaintiff should have seen the power of attorney executed in favour of the accountant by the
company.
3. Forgery : The rule in Turquand’s case does not apply where a person relies upon a document that turns out to be forged since nothing can validate forgery. A
company can never be held bound for forgeries committed by its officers. The leading case on this point is: The plaintiff was the transferee of a share certificate
issued under the seal of the defendant company. The certificate was issued by the company’s secretary, who had affixed the seal of the company and forged the
signatures of two directors. The plaintiff contended that whether the signatures were genuine or forged was a part of the internal management and, therefore, the
company should be estopped from denying genuineness of the document. But it was held that the rule has never been extended to cover such a complete forgery.
Lord Loreburn said “It is quite true that persons dealing with limited liability companies are not bound to inquire into their indoor management and will not be
affected by irregularities of which they have no notice. But this doctrine, which is well established, applies to irregularities which otherwise might affect a genuine
transaction. It cannot apply to a forgery”.
 4. Representation through Articles This exception deals with the most controversial and highly confusing aspect of the Turquand Rule. Articles of association
generally contain what is called the “power of delegation”. Lakshmi Ratan Cotton Mills v. J.K. Jute Mills Co. This case explains the meaning and effect of a
delegation clause. One G was a director of a company. The company had managing agents of which also G was a director. Articles authorized directors to borrow
money and also empowered them to delegate this power to any one or more of them. G borrowed a sum of money from the plaintiffs. The company refused to be
bound by the loan on the ground that there was no resolution of the board delegating the power to borrow to G. Yet the company was held bound by the loan. Thus
the effect of a delegation clause is that a person who contracts with an individual director of a company, knowing that the board has power to delegate its authority
to such an individual, may assume that the power of delegation has been exercised.\
5. Acts outside the scope of apparent authority : If an officer of a company enters into a contract with a third party and if the act of the officer is beyond the scope of
his authority, the company is not bound. In such a case, the plaintiff cannot claim the protection of the rule of indoor management simply because under the Articles
the power to do the act could have been delegated to him. The plaintiff can sue the company only if the power to act has in fact been delegated to the officer with
whom he has entered into the contract.

Q28- Discuss the Rule in ‘Foss Vs Harbottle’ along with its exceptions.

Ans : Introduction : A company is a juristic person which is conferred with a legal personality distinct from the members who form it. Decisions of the company represent the
animus component of its personality and are taken by the Member Shareholders and the Board Members on behalf of the Company. The company also takes decisions
regarding pursuing litigation. Courts do not in general interfere in the management of the company on the insistence of shareholders in matters of internal administration as long
as the directors are acting within the powers conferred to them under the Articles. Judges have for long been reluctant to interfere in the internal affairs of companies. For
redressal of wrongs done to a company, it is believed that the action should prima facie be brought by the company which was laid down in Foss v Harbottle and Mozley v
Alston. This rule is the foundation of common law jurisprudence regarding who may bring an action on behalf of the company.

The rule in Foss v Harbottle: “The rule in Foss v. Harbottle provides that individual shareholders have no cause of action in law for any wrongs done to the corporation and
that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself (through management) or by way of a derivative action.”

The rule in Foss v Harbottle is prudent since it is unnecessary to give recourse to the courts in regard to a matter which a company can settle on its own, or an irregularity which
it can ratify or condone through its own internal procedure. Without this rule, there would be such a large amount of frivolous litigation that the normal functioning of companies
would be threatened.

However, a balance must be struck between the effective control of the company and the interests of the individual shareholders. In certain circumstances therefore, an
individual member is also allowed to bring an action on behalf of the company to compel the company to comply with its constitution and seek for remedy even when no wrong
has been done to him personally and the majority of members do not wish for the action. There may also be collective litigation by a group of shareholders.

Exceptions to the majority rule

1. Ultra Vires : A shareholder may bring action against a company in those instances where an act is ultra vires the Articles of Association. These actions cannot be
made legal through ratification by majority members. The court held in Bharat Insurance Co Ltd v Kanhaiya Lal that although a company is the best judge of its
affairs with regard to its internal management, ultra vires application of its assets cannot be considered as internal management and any member may bring action.
2. Fraud on Minority: This exception was recognized by courts since Edwars v Halliwell. In Greenhalgh v Arderne Cinemas Limited a special resolution would be
liable to be impeached if the effect of it were to discriminate between majority and minority shareholders to give the former an advantage which the latter would be
 deprived of.
3. Wrongdoers in Control: Rights of a minority shareholder is not limited to cases of fraud alone. It also extends to instances of breach of duty. A controlling
shareholder or director has a fiduciary duty toward the company. The majority cannot appropriate to themselves the property of the company or the interest of the
minority shareholders. When two directors who were also majority shareholders sold property belonging to the company to one of the directors knowing that the
sale was undervalued, it was held that there was a breach of duty of the directors to the company even if there was no fraud alleged.
4. Acts requiring special majority: A special resolution was introduced in a general meeting to increase the monthly allowance and commission of the Managing
Directors which was decided by a show of hands since no poll was demanded. The plaintiff sought a declaration that the resolution was not binding since it did not
have the appropriate majority. The court rule in favour of the plaintiff.
5. Individual Membership Rights: These rights are personal or individuals rights vested in each shareholder either by Articles or by a statute. The articles and the
stature form the rights which the shareholder may personally enforce in the court. It was held in Nagappa Chettiar v Madras Race Club, a shareholder is entitled to
enforce his individual rights against the company like the right to vote, right to stand in elections for director etc. If the shareholder however intends recover
damages alleged to be due to the Company, the action should ordinarily be brought by the company itself.
6. Class Action : Class action gives a member, depositor, or a group of them falling a class locus to restrain the company and its directors from a manner prejudicial
to the interests of the company, its members or depositors. They must total to 100 members or the prescribed percentage for a company having share capital or for a
company not having share capital, the class must be at least one-fifth of the total number of members or if they are depositors, they must be 100 depositors or the
prescribes percentage of depositors. As long as the action is brought by a group satisfying the abovementioned statutory requirements, it doesn’t need to be a
majority shareholder.
7. Oppression and Mismanagement: In instances where section 214 of Companies Act, 2013 applies or section 397 and 398 of Companies Act 1956 applies. This
a statutory right granted to a shareholder which overrides the limitations of the majority rule. The application must be made by one hundred members or members
having one-tenth of voting power in companies having share capital or the must constitute one-fifth of the members in the company’s register.

Q29- Winding up is the term commonly associated with the ending of a company’s existence.’ In the light of this statement, discuss various modes of winding up of
company under the Companies Act and also highlight who may file petition for winding up of a company to the Tribunal.

Ans : The winding up of a company is the last stage of a companies’ existence. There may be several reasons for winding up of the company including mutual agreement
among stakeholders, loss, bankruptcy, death of promoters etc. Winding up is the process by which the company is put to an end that is the process through which its corporate
existence is ended and it is thereafter finally dissolved. The modes of winding up may be discussed under the following three heads, namely:- 1. Compulsory winding up by the
court. 2. Voluntary winding up without the intervention of the court. 3. Voluntary winding up with the intervention of the court i.e., under the supervision of the court.

Mode # 1. Compulsory Winding Up by the Court: Winding up of a Company by an order of the court is called the compulsory winding up. Section 433 of the Companies Act
lays down the circumstances under which a Company may be compulsorily wound up. They are:

1. If the Company has by special resolution, resolved that the Company may be wound up by the court.
2. If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting.
3. If the Company does not commence its business within a year from its incorporation or suspends it for a whole year.
4. If the number of members is reduced, in the case of a public Company below seven, and in the case of a private company below two.
5. If the Company is unable to pay its debts.
6. If the court is of the opinion that it is just and equitable that the company should be wound up.
Persons Entitled to Apply for Liquidation: The Petition for winding up of a Company may be presented by any of the following persons (Sec. 439):

1. The Company.
2. The creditors which include contingent creditors, prospective creditors, secured creditors, debenture holders, or a trustee for debenture holders.
3. The contributories – comprise present and past shareholders of a Company (Secs. 426 and 428).
4. The Registrar.
5. Any person authorised by the Central Government on the-basis of report of inspectors.

Mode # 2. Voluntary Winding Up: A voluntary winding up occurs without the intervention of the court. Here the Company and its creditors mutually settle their affairs without
going to the court. This mode of winding up takes place on:

1. The expiry of the prefixed duration of the Company, or the occurrence of event whereby the Company is to be dissolved, and adoption by the Company in general
meeting of an ordinary resolution to wind up voluntarily; or
2. The passing of a special resolution by the Company to wind up voluntarily.

Section 488 provides for two types of voluntary winding up;

1. Member’s voluntary winding up : This type of winding up occurs only when the Company is solvent. It requires a declaration of the Company’s solvency at the
meeting of Board of Directors. The declaration must specify the director’s opinion that the Company has no debt or it will be able to pay its debts in full within three
years of the commencement of the winding up.
2. Creditor’s voluntary winding up : It occurs in the absence of declaration of solvency i.e., when the company is insolvent. Hence, the Act empowers the creditors
of dominate over the members in this mode of winding up so as to effectively protect their interest. It requires the company to hold the creditors’ meeting wherein the
Board must make a full statement of the company’s affairs together with a detailed list of creditors including their estimated claims.

Mode # 3. Winding Up Subject to Supervision of the Court: Windings up with the intervention of the court are ordered where the voluntary winding up has already
commenced. As a matter of fact, it is the voluntary winding up but under the supervision of the court. A court may approve a resolution passed by the Company for voluntary
winding up but the winding up should continue under the supervision of the court. The court will issue such an order only under the following circumstances:

1. If the resolution for winding up was obtained by fraud by the company; or

2. If the rules pertaining to winding up are not being properly adhered to; or
3. If the liquidator is found to be prejudicial or is negligent in releasing the assets of the company.

The Court may exercise the same powers as it has in the case of compulsory winding up under the order of the court.

Q30- Contents of Articles of Association

Ans : The articles generally deal with the following

1. Classes of shares, their values and the rights attached to each of them.
 2. Calls on shares, transfer of shares, forfeiture, conversion of shares and alteration of capital.
3. Directors, their appointment, powers, duties etc.
4. Meetings and minutes, notices etc.
5. Accounts and Audit
6. Appointment of and remuneration to Auditors.

Q31- Appointments of Directors

Ans : According to the Companies Act, only an individual can be appointed as a member of the board of directors. Usually, the appointment of directors is done by
shareholders. A company, association, a legal firm with an artificial legal personality cannot be appointed as a director. It has to be a real person. In public or a private company,
a total of two-thirds of directors are appointed by the shareholders. The rest of the one-third remaining members are appointed with regard to guidelines prescribed in the Article
of Association. In the case of a private company, their Article of Association can prescribe the method to appoint any and all directors. In case the Articles are silent, the directors
must be appointed by the shareholders.

Q32- Who is promoter and explain liabilities and duties of Promoter.

Ans : A promoter conceives an idea for setting-up a particular business at a given place and performs various formalities required for starting a company. A promoter may be a
individual, firm, association of persons or a company. The persons who assist the promoter in completing various legal formalities are professional people like Counsels,
Solicitors, Accountants etc. and not promoters. “A promoter is the one, who undertakes to form a company with reference to a given object and sets it going and takes the
necessary steps to accomplish that purpose.” —Justice C.J. Cokburn.

Characteristics of a Promoter:

The above given definitions bring out the following characteristics or features of a promoter:

1. A promoter conceives an idea for the setting-up a business.

2. He makes preliminary investigations and ensures about the future prospects of the business.
3. He brings together various persons who agree to associate with him and share the business responsibilities.
4. He prepares various documents and gets the company incorporated.
5. He raises the required finances and gets the company going.

The liabilities of promoters are given below:

1. Liability to account in profit: As we have already discussed that promoter stands in a fiduciary position to the company. The promoter is liable to account to the
company for all secret profits made by him without full disclosure to the company. The company may adopt any one of the following two courses if the promoter fails
to disclose the profit.
1. The company can sue the promoter for an amount of profit and recover the same with interest.
 2. The company can rescind the contract and can recover the money paid.
2. Liability for mis-statement in the prospectus: Section 62(1) holds the promoter liable to pay compensation to every person who subscribes for any share or
debentures on the faith of the prospectus for any loss or damage sustained by reason of any untrue statement included in it. Sec. on 62 also provides certain
grounds on which a promoter can avoid his liability. Similarly, Sec. 63 provides for criminal liability for mis-statement in the prospectus and a promoter may also
become liable under this section. The promoter may also be imprisoned for a term which may extend to two years or may be punished with the fine upto Rs. 5,000
for untrue statement in the prospectus. (Sec. 63).
3. Personal liability: The promoter is personally liable for all contracts made by him on behalf of the company until the contracts have been discharged or the
company takes over the liability of the promoter. The death of promoter does not relieve him from liabilities.
4. Liability at the time of winding up of the company: In the course of winding up of the company, on an application made by the official liquidator, the court may
make a promoter liable for misfeasance or breach of trust. (Sec. 543).

Duties of Promoter: The duties of promoters are as follows:

1. To disclose the secret profit: The promoter should not make any secret profit. If he has made any secret profit, it is his duty to disclose all the money secretly
obtained by way of profit. He is empowered to deduct the reasonable expenses incurred by him.
2. To disclose all the material facts: The promoter should disclose all the material facts. If a promoter contracts to sell the company a property without making a full
disclosure, and the property was acquired by him at a time when he stood in a fiduciary position towards the company, the company may either repudiate the sale
or affirm the contract and recover the profit made out of it by the promoters.
3. The promoter must make good to the company what he has obtained as a trustee: A promoters stands in fiduciary position towards the company. It is the duty
of the promoter to make good to the company what he has obtained as trustee and not what he may get at any time.
4. Duty to disclose private arrangements: It is the duty of the promoter to disclose all the private arrangement resulting him profit by the promotion of the company.
5. Duty of promoter against the future allottees: When it is said the promoters stand in a fiduciary position towards the company then it does not mean that they
stand in such relation only to the company or to the signatories of memorandums of company and they will also stand in this relation to the future allottees of the
shares.

Q33- What is misrepresentation in prospectus? And explain its remedies.

Ans : A prospectus is issued either by or on behalf of a public company on its formation or subsequently or on behalf of a person engaged in formation of a public company.
Pursuant to section 2(70) of the Companies Act, 2013, prospectus is a document that invites offers from the public for the subscription or purchase of the securities of a
company. Since prospectus is relied on by the members of the public to subscribe or purchase the securities of a company, any misstatements on it invite penal consequences.
Misstatement may occur when a statement which is untrue or misleading in form or context is included in the prospectus. Also, any inclusion or omission of any matter which is
likely to mislead will also be considered as a misstatement (sec. 34). For e.g., a statement on the purpose of offering shares which is untrue, or statement on the locations of
offices for a company which is misleading will amount to misstatement in the prospectus.

Remedies in case of Misrepresentation: Civil and criminal liabilities follow if the promoters are found guilty of misrepresentation. Section 34 of the Companies Act, 2013
deals with criminal liability for misstatement it has the same liability as that of fraud under Section 447 of the Act. As per Section 447 a person guilty of fraud shall be punishable
with imprisonment for a term ranging from six months to 10 years. He is also liable to a fine, which can extend to three times the amount involved in the fraud. In cases where
the fraud involves public interest, the term of imprisonment shall not be less than three years. Since, in this case, an IPO public interest is involved, any misstatement in the
prospectus will lead to a minimum punishment of three years, said another lawyer. Section 35 of the Companies Act provides for civil liability for misstatement in prospectus.
Under Section 36, those liable to pay compensation include the directors of the company at the time of the issue of the prospectus and the promoters, among others, to every
person who has sustained loss or damage. According to Section 37 of the Act, those seeking compensation have to file a law suit. A corporate law expert said any claim made
by an investor or a shareholder will have to be proved in a court of law. The compensation will be decided by the court bearing in mind the facts and circumstances of the case,
he added. Though the Companies Act provides for affected shareholders or investors to file class action law suit against the company, however the provision will not get
invoked as this section in the Act is yet to be notified, said Rajesh Narain Gupta, managing partner, SNG & Partners.

Q34- Reduction of Share Capital

Ans : For any company, a capital reorganization issue is a process by which restructuring takes place and surplus cash is returned to shareholders. The other diagonally
opposite reasons for reduction of capital is that there is no cash, in fact, capital is lost. The need of reducing capital may arise in various circumstances, for example,
accumulated business losses, assets of reduced or doubtful value. As a result, the original capital may either have become lost or a company may find that it has more
resources that it can profitably employ. So, in either of these cases, the need will arise to adjust capital and assets.

Reason for Reduction: The requirement to reduce capital may arise because of many factors like to distribute assets to shareholders, pare off debt, make up for trading losses,
capital expenses, etc. Many a times companies may have more capital resources and reserves than they can employ. Also, when the company is making losses, the financial
position does not present a true and fair view of the company. The assets are overvalued and the balance sheet consists of fictitious assets with debit balance in profit and loss
account. In order to reduction of capital will write-off that portion of capital which is already lost and will make the balance sheet look healthy. So, reconstruction in which the
once again reorganized by re-evaluation assets and liabilities and writing off the losses by reducing the paid up of shares. Such a process is called internal reconstruction
which is carried out without liquidating the company. It is an agreement to pare losses by creditors and shareholders.

Moreover, external reconstruction, which is totally different from internal reconstruction, can also take place because of the following reason:

1. To increase or to create distributable reserves to enable future dividends to be paid to shareholders

2. To return surplus capital to shareholders
3. To facilitate a share buyback or redemption of shares
4. As a part of a scheme of arrangement

Q35- Share Certificate

Ans : A share Certificate refers to a document which is issued by a company evidencing that a person named in such certificate is the owner of the shares of Company as
stated in the share certificate. The Indian Companies Act mandates companies for issuing share certificates post their incorporation.

Details to be provided in a share certificate

Every share certificate issued in India should contain the below mentioned:

1. Name of issuing Company

 2. CIN no. (Corporate Identification Number) of such Company
3. Address of the company’s registered office
4. Name of owners of such shares
5. Folio number of members
6. Number of shares which is represented by such share certificate
7. An amount which is paid on such shares
8. Distinct number of the shares

The timeframe for issuing share certificates: After the incorporation of the company, the company needs to issue the share certificates within two months from incorporation
date. Where additional shares are allotted to the new or existing shareholders, the share certificates should be issued within two months from allotment date. In a case related
to the share transfers, the share certificates should be issued to transferees within a period of one month of receipt of the instrument of transfer by such Company.

Q36- Write on Auditor

Ans : Requirement for appointment of the auditor under Companies Act, 2013 is mandatory for evaluating the validity and reliability of financial statements of the company. It
involves an intelligent scrutiny of the books of account of a Company with reference to documents, vouchers and other relevant records to ensure that the entries made therein
giving a clean and clear picture of the business. Hence, the need to appoint Statutory Auditor arises. As per section 139(6) the first auditor of the company other than a
government company shall be appointed by the Board within 30 days of Incorporation. In case of Board’s failure, an EGM shall be called within 90 days to appoint the first
auditor.

Q37- Annual General Meeting

Ans : As per Section 66 of Companies Act 2013, every company other than a One Person Company shall in each year hold in addition to any other meetings, a general
meeting as its annual general meeting. The company shall specify the meeting as such in the notices calling Annual General Meeting. The 2013 Act states that the first annual
general meeting should be held within nine months from the date of closing of the first financial year of the company [section 96(1) of 2013 Act]. Every annual general meeting
shall be called during business hours, that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday and shall be held either at the registered office of the
company or at some other place within the city, town or village in which the registered office of the company is situate:

Q38- What is abridged prospectus?

Ans : The dictionary meaning of ‘abridge’ is to shorten something without destroying the meaning of the original. An abridged prospectus is a summary of the prospectus
containing such details as be prescribed by the SEBI. A prospectus is a very voluminous document, and one cannot be expected to read it completely and invest in this fast
pacing world. One needs quick, relevant and crisp information about the company. To serve this purpose, an abridged prospectus is made. It is short in length (5 sheets) and
contains all information in bullets. Sec33 of The Companies Act 2013, lays down no form of application for the purchase of any of the securities of a company shall be issued
unless such form is accompanied by an abridged prospectus. This implies that a company is barred from accepting offers from the public and the public is barred from investing
into the company unless it has received an abridged prospectus.

Q39- Explain the merits and demerits of incorporation

Ans : Advantages of Incorporation of a Company

1. Creates a Separate Legal Entity:This states that a company is independent and separate from its members, and the members cannot be held liable for the acts of
the company, even when a particular member owns majority of shares.
2. Company has Perpetual Succession:The term perpetual succession means continuous existence, which means that a company never dies, even if the
members cease to exist. The membership of a company changes from time to time, but that has no effect on the existence of the company. The company only
comes to an end, when it is wound up according to law, as per the provisions of the Companies Act, 2013
3. Can own Separate Property: Since a company is termed as a separate legal entity in the eyes of law, it can hold property in its own name and the members
cannot claim to be the owner of the companies property.
4. Capacity to sue and be sued: The company has the capacity of suing a person or being sued by another person in its own name. A company, though can be
sued or sue in its own name, it has to be represented by a natural person and any complaint which is not represented by a natural person is liable to be dismissed
in the same way in which an individual complaint is liable to be dismissed in the absence of the complainant.
5. Easier access to Capital: Raising capital is easier for a corporation, since a corporation can issue shares of stock. This may make it easier for your business to
grow and develop. If the in the market for a bank loan, that’s another reason to incorporate, since n most cases, banks prefer and easily lend money to incorporated
business ventures.

Disadvantages of Incorporation of a Company

1. Cost – The initial cost of incorporation includes the fee required to file your articles of incorporation, potential attorney or accountant fees, or the cost of using an
incorporation service to assist you with completion and filing of the paperwork. There are also ongoing fees for maintaining a corporation.
2. Double Taxation – Some types of corporations such as a C Corporation, have the potential to result in “double taxation.” Double taxation occurs when a company
is taxed once on profits, and again on the dividends paid to shareholders.
3. Loss of Personal “Ownership” – 
If a corporation is a stock corporation, one person doesn’t retain complete control of the entity. The corporation is governed by a
board of directors who are elected by shareholders.
4. Required Structure – 
When you form a corporation, you are required to follow all of the rules outlined by the state in which you filed. This includes the
management of the corporation, operational requirements and the corporation’s accounting practices.
5. Ongoing Paperwork – Most corporations are required to file annual reports on the financial status of the company. The ongoing paperwork also includes tax
returns, accounting records, meeting minutes and any required licenses and permits for conducting business.
6. Difficulty Dissolving – While perpetual existence is a benefit of incorporating, it can also be a disadvantage because it can require significant time and money to
complete the necessary procedures for dissolution.
7. Lifting of Corporate Veil – The company has a corporate personality which is distinct from its members. But, in a number of circumstances, the Court will pierce
the corporate veil or will ignore the corporate veil to reach the person behind the veil or to reveal the true form and character of the concerned company. The
rationale behind this is probably that the law will not allow the corporate form to be misused or abused. In those circumstances in which the Court feels that the
corporate form is being misused, it will rip through the corporate veil and expose its true character and nature.
Q40- Explain what is private placement under Sec 42.

Ans : As per Section 42 of the Companies Act, 2013, Rule 14 of the Companies (Prospectus and allotment of Securities) Rules, 2014, The term ‘Private Placement’ means any
offer of securities or invitation to subscribe securities to a select group of persons by a Company (other than by way of public offer) through issue of a private placement offer
letter and which satisfies the conditions specified in the section 42 of the Indian Companies Act, 2013. The offer for subscribing to any securities of the Company can be made
to such number of persons not exceeding 50 (200 in aggregate in a financial year) excluding the QIBs and the employees of the Company to whom the securities have been
offered under a scheme of employee’s stock option.

Q41- Statement in lieu of prospectus.

Ans: Where a public company does not invites public to subscribe for it shares but arrange money from private sources, it needs not issue the prospectus to the public. But the
company has to get its prospectus registered three days before the allotment of shares. Thus, the company not inviting public to subscribe, prepare a draft prospectus which
contains the information given in schedule III of the act, such a draft prospectus is knows as a statement in lieu of prospectus.

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Provisions: Only public company which does not invite public for subscription can issue this prospectus. Responsibility will be same as that when actual prospectus is issued.

When issued: Section 70(1) requires a public company having a share capital to file with the Registrar of Companies a statement called “Statement in lieu of prospectus” in the
following cases:

1. Where it does not issue a prospectus (because it feels that it can raise enough capital without inviting a subscription from the public); or
2. Where it issues a prospectus but has not proceeded to allot any of the shares offered to the public for subscription (because the issue has been a failure and the
minimum subscription has not been received)

Statement in lieu of prospectus must be filed with Registrar of Companies at least three days before any allotment of shares or debenture is made.

Form of statement in lieu of prospectus: Schedule III contains a model form of a statement in lieu of prospectus in pursuance of section 70; Schedule IV contains a model
form of a statement in lieu of prospectus when a private company is converted into a public company in pursuance of section 44.

Consequences/Penalty for misstatement in, or not filing of, statement in lieu of prospectus: If the allotment of shares or debenture is made without filing the statement in
lieu of prospectus.

1. The allottee may avoid the allotment within two months after the statutory meeting, or where no such meeting is held, within two months of the allotment [section
71(1)]
2. The person who authorized the delivery of SLP may be punished with imprisonment upto 2 years or with fine Rs. 50,000 or with both. [section 70(5)]
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