Company Law 2013

Meaning of company
In the ordinary common parlance a company means a

group of persons associated to achieve some common
objectives.
Definition:
Section 2 (20) of the Companies Act, 2013 defines a
company as a company incorporated under this act
or under any previous company law.
According to the Indian companies ct 1956, a company
is A company formed and registered under this act or
an existing company.
Existing company means a company formed and
registered under any of the former companies act.
Dr.D.vetrivelan/Assistant
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Nature of companies
1. Incorporated Association: Every company
must be compulsorily registered or
incorporated under the companys act, 2013.
According to Sec. 3 the minimum no. of
persons required for forming a private
company is two, seven for a public company
and one for one person company. These
persons are also known as the subscribers to
the memorandum
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2. Artificial person
A company is created with the sanction of law
and is not itself a human being, it is therefore
called artificial; and since it is clothed with
certain rights and obligations it is called a
person.
A company is accordingly an artificial person.
negatively speaking, it is not a natural person
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3. Separate Legal Entity
A company in Law is regarded as an entity
separate from its members. It has an
independent corporate existence. The
company money and property belong to the
company and not to the shareholders.
Case: Solomon Vs Solomon & Company
limited
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4.Limited Liability (accountability or
responsibility)
: A company may be company limited by shares or a
company limited by guarantee. In company limited by
shares, the liability of members is limited to the unpaid
value of the shares.
For example, if the face value of a share in a company
is Rs. 10 and a member has already paid Rs. 7 per
share, he can be called upon to pay not more than Rs.
3 per share during the lifetime of the company.
In a company limited by guarantee the liability of
members is limited to such amount as the member
may undertake to contribute to the assets of the
company in the event of its being wound up.
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5.Perpetual (long lasting or
continuous) Succession
The term perpetual existence means the continued
existence. The death, insolvency or unsoundness of
mind of its members or transfer of shares by its
members does not in any way affect the existence of
the company. Members may come and members may
go but the company goes on forever. The company can
be compared with flowing river where water
(members) keeps on changing continuously, still the
identity of the river (company) remains the same.
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6.Common Seal
The term Common Seal means the official signature of the
company.
Since the company being an artificial person cannot sign its
name on a document, every company is required to have
its common seal with its name engraved on the same.
This seal acts as the official signature of the company. Any
document bearing the common seal of the company and
duly witnesses by at least two directors will be binding on
the company .
It is made of metal and it is not a rubber stamp. The name
of the company and the date of incorporation and place of
registered office are engraven.
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7.Transferability of Shares
The shares of a public company are freely
transferable.
A shareholder can transfer association, even a
public limited company can put certain
restrictions on the transfer of shares but it cannot
altogether stop it.
A shareholder of public company possessing fully
paid up shares is at liberty to transfer his shares
to anyone he likes in accordance with the manner
provided for in the articles of association of the
company.
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However, in the case of a private company, the
articles shall restrict the right of member to
transfer their shares in companies with its
statutory definition.
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8.Separate property
The company is the real person in which all its

property is vested and by which it is
controlled, managed, and disposed of.
A company can own, enjoy and dispose of any
property in its own name.
Case: Bacha F Guzdar Vs CIT (Agri Income
case)
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9. Capacity to sue
A company can and be sued in its corporate
name.
It may also inflict or suffer wrongs.
It can in fact do or have done to it most of the
things which may be done by or to a human
being
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10. Voluntary Association
In a company, members come together only out
of there own free will without any force or
compulsion
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11. Termination of existence
A company was formed as a voluntary
association of its members. Therefore its
existence can also be terminated by its
members. Therefore its existence can also be
terminated by its creditors or by an order of
tribunal.
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Types or kinds or classification of
companies
1. on the basis of incorporation
2. On the basis of Liability
3. On the basis of No of Members.
4. On the basis of Control.
5. On the basis of Ownership.
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1. on the basis of incorporation
On the basis of incorporation the companies are

of three kinds:
1. chartered companies-
Charter means a written grant by the sovereign.
Those companies which are incorporated under a
special charter granted by the king or queen of
England. For example- East India Co was a
chartered company governed by its charter
through which the nature of the company.
Such companies do not exist in India.
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2. Statutory Companies
These companies are incorporated by a Special Act passed
by the Central or State legislature.
Reserve Bank of India, State Bank of India, Industrial
Finance Corporation, Unit Trust of India, State Trading
corporation and Life Insurance Corporation are some of the
examples of statutory companies.
Such companies do not have any memorandum or articles
of association.
They derive their powers from the Acts constituting them
and enjoy certain powers that companies incorporated
under the Companies Act have.
Alternations in the powers of such companies can be
brought about by legislative amendments
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3.Registered Companies
These are formed under the Companies Act,
2013 or under the Companies Act passed
earlier to this. Such companies come into
existence only when they are registered under
the Act and a certificate of incorporation has
been issued by the Registrar of Companies.
This is the most popular mode of
incorporating a company.
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2. On the Basis of Liability
On the basis of liability, an incorporated
company may either be
i. a company limited by shares
ii. a company limited by guarantee
iii. an unlimited company
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i. Company Limited by Shares
A Company limited by shares is a company in
which the liability of its members is limited by
its memorandum to the amount unpaid on
the share respectively held by them.
The companies limited by shares may be
either public companies or private companies.
If a member has paid the full amount of
shares, then his liability shall be nil.
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ii. Company Limited by Guarantee
These types of companies may or may not
have a share capital.
Each member promises to pay a fixed sum of
money specified in the Memorandum in the
event of liquidation of the company for
payment of the debts and liabilities of the
company [Sec 13(3)] This amount promised by
him is called Guarantee.
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The Articles of Association of the company
state the number of member with which the
company is to be registered [Sec 27 (2)].
Such a company is called a company limited by
guarantee.
Such companies depend for their existence on
entrance and subscription fees. They may or
may not have a share capital.
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iii. Unlimited Company
Section 12 gives choice to the promoters to form a
company with or without limited liability.
A company not having any limit on the liability of its
members is called an unlimited company [Sec 12(c)].
An unlimited company may or may not have a share
capital.
it has a share capital it may be a public company or a
private company.
If the company has a share capital, the article shall
state the amount of share capital with which the
company is to be registered [Sec 27 (1)]
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3. On the Basis of Number of
Members
Private Company
Public Company
One-person company
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I . Private Company
A private company means a company which has a minimum
paid up capital of Rs.1, 00,000 or such higher paid up
capital as may be prescribed, and by its articles-
a) Restricts the right to transfer its shares, if any
b) Minimum number of members required is 2
b) Maximum number of its members to 200, sec 2 (68) of
2031 act. and
c) Prohibits any invitation to the public to shares in or
debentures of the company.
d) Prohibits any invitation or acceptance of deposits from
persons other then its members, directors or their
relatives
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Paid up share capital means
Paid up capital is the amount of money that a
company receives for the issue of shares in
the IPO(Initial Public Offering) from the share
holders. It is the total of Par value and
additional paid in capital(also called share
premium).
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A share face value is Rs 10
Only 6 has been collected - 6 is paid capital
If company is having 100 shares of Rs10 and only 6 has been
collected
10X100 =1000 is authorised capital
6X100 = 600 paid up capital
4 X100 =400 is uncalled capital .The company can call this amount
later
The Authorised Capital is the capital according to the Memorandum
and Articles of Association of the company.
Issued capital is capital actually issued in IPO or other wise
Paid up capital is actual capital received
Uncalled capital is balance amount that can be called
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ii. Public Company
The term public company has been defined under
section 2(71) of companies act 2013.
A public company means which has minimum paid up
share capital of rs 5 lakh and which is not a private
company.
It has the following features:
It does not restrict transferability of shares
At least 7 members are required to start it
There is no restriction on maximum memebers.
It names end with the word Limited
It has atleast 3 directors.
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iii One-person company
The 2013 Act introduces a new type of entity
to the existing list i.e. apart from forming a
public or private limited company, the 2013
Act enables the formation of a new entity a
one-person company (OPC). An OPC means
a company with only one person as its
member [section 3(1) of 2013 Act].
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4.Classification On the Basis of
Control
On the basis of control, companies may be

classified into: Holding companies, and
subsidiary companies
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Holding companies:
A company in known as the holding company of
another company if it has control over the other
company.
Subsidiary companies:
A company in known as a subsidiary of another company
when control is exercised by the later over the former
called a subsidiary company.
1. Company controlling composition of Board of directors.
2. Holding of majority of shares.
3. Subsidiary of another subsidiary.
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Flowchart explaining a Holding
Company and a Subsidiary company
Company H
(Holding company)
Company S 1(Subsidiary
of Company H)
Company S2(Subsidiary
of Company S1)
Company S3(Subsidiary
of Company S2)
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5. Classification on the Basis of
Ownership
i. Government Company
ii. Foreign Company
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Government Company:
A government company means any company in which at
least 51% of the paid up share capital is held by the central
government or by any state government or government or
partly by the central government and partly by one or more
state governments and includes a company which is a
subsidiary of a government company as thus defined.
Example: Hindustan Aeronautics Ltd. state trading
corporation
Non-Government Company
A company which may not be termed as a government
company as a defined in Section 617 is regarded as a non-
government company
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Foreign Company
A foreign company means a company which is
incorporated in a country outside India under
the companies act 2013
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Equity shares
Equity shares are the main source of finance
of a firm. It is issued to the general
public. Equity shareholders do not enjoy any
preferential rights with regard to repayment of
capital and dividend.
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Equity shares and preference shares
A Company can issue two types of shares viz. Equity Shares
and Preference Shares.
Equity shares are also known as Ordinary Shares.
While Preference shareholders enjoy the benefit of
receiving their dividend distribution first;
the equity shareholders enjoy voting rights in major
company decisions, including mergers or acquisitions.
Preference shares have the right to receive dividend at a
fixed rate before any dividend is paid on the equity shares.
Further, when the company is wound up, they have a right
to return of the capital before that of equity shares.
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Minimum Subscription
. The minimum shares the company needs to
get from the public out of the total issue by
the date of closure. (Presently every company
need to raise 90% of the issued amount). Else,
the company shall refund the whole amount
received.
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IPO
An initial public offering, or IPO, is the very
first sale of stock issued by a company to the
public.
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Underwriting
Securities underwriting refers to the process
by which investment banks raise investment
capital from investors on behalf of
corporations and governments that are
issuing securities (both equity and debt
capital). The services of an underwriterare
typically used during a public offering in a
primary market.
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Reliance power
The objects of the Issue are to achieve the
benefits of listing on the Stock Exchanges & to
raise capital to
1. Fund subsidiaries to part-finance the
construction and development costs of certain
of 12 power generation projects currently
under various stages of development;
2. General corporate purposes;
3. Achieve the benefits of listing on the Stock
Exchanges.
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Reliance power
Issue Open: Jan 15, 2008 - Jan 18, 2008
Issue Type: Book Built Issue IPO
Issue Size: 260,000,000(two sixty million
Equity Shares of Rs 10 aggregating up to Rs
11,563.20 Cr
Face Value: Rs 10 Per Equity Share
Issue Price: Rs 405 - Rs 450 Per Equity Share
Market Lot: 15 Shares
Minimum Order Quantity: 15 Shares
Listing At: BSE, NSE
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Special Privileges of a Private
Company
i.Number of Members: a private company may have
minimum 2 members and maximum 200
ii. Allotment before minimum subscription: a private
company can allot shares before the minimum
subscription is subscribed for or paid
iii. Prospectus or statement in lieu of prospectus:
may allot shares without issuing a prospectus or
delivering to the registrar a statement in lieu of
prospectus.
iv.A private company is not required to have
independent directors
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A private company is exempt from the constitution of a
nomination & remuneration committee (Section 178(1)
as well as stakeholders relationship committee (section
178(5)
v. Kinds of shares: a private company may issue share
capital of any kind, and with such voting rights, as it
may think fit.
vi. Commencement of Business: a private company
can commence business immediately on
incorporation.
vii. Index of members: need not keep any index of
members
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.
viii. Statutory meeting and statutory report:
need not hold statutory meeting or file with the
registrar the statutory report.
ix. Demand for Poll: even one member having
the right to vote and present in person or by
proxy (substitute) may demand a poll. If the
number of members present in more than 7,
two members present in person or by proxy may
demand a poll.
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Managerial Remuneration: The rule of overall
maximum managerial remuneration does not
apply to a private company which is not a
subsidiary of a public company; the overall
managerial remuneration must not exceed 11
percent of the net profits.
xi. Number of Directors: A private company can
have minimum of two directors and maximum is
15directors by passing a special resolution. xii.
Rules regarding directors: The rules regarding
directors of a private company are less stringent.
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When does a private company
become a public company?
(a)Conversion by Default:
Where a default is made by a private company in complying with essential
requirements of a private company, the company ceases to enjoy the
privileges and exemptions conferred on a private company.
(b). Conversion by Choice or Volition (wish or desire):
A private company which becomes a public company shall also

(i) File a copy of the resolution (declaration or decision) altering the
articles, within 30 days of passing thereof, with the registrar;
(ii) Take steps to raise its membership to at least 7 if it is below that
number on the date of conversion, and also increase the number of its
directors to more than two if it is below that number;
(iii) Alter the regulations contained in the articles which are inconsistent
with those of a public company
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Conversion of Public Company into a
Private Company:
Section 14 (1) states that subject to the provisions of
the Companies Act 2013 and the conditions contained
in the Memorandum, a company may, by special
resolution, alter its Articles including alterations which
may have the effect of converting a public company
into a private company (or vice versa).
Further any alteration which has the effect of
converting a public company into a private company
will not have any effect except with the approval of the
Tribunal which may pass such order as it deems fit.
Hence, the broad procedure for conversion of a public
company into a private company would
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Conversion of Public Company into a
Private Company:
comprise of the following steps:
1. Check that the Memorandum of Association does not
contain any restrictive clause. If yes, alteration of the
Memorandum will be necessary through a special resolution;
2. Alteration of the Articles to incorporate the restrictions
required u/s 2 (68) by a special resolution
3. Application to the Tribunal for approval of the change .
After the approval of the Tribunal, every alteration of the
articles and a copy of the order of the Tribunal approving the
alteration shall be filed with the Registrar, within a period of
fifteen days, who shall register the same.
5. Any alteration of the articles registered as above shall be
valid as if it were originally in the articles.
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Difference between public company
and private company
1.Minimum member: In case of a private
the minimum number company is 2
of persons required to
form a public company
is 7
2. Maximum Member- Where as the maximum
there is no restriction number of members
on maximum number of cannot exceed 200 in a
members in a public private company.
company
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3. Minimum Capital- a A private company must
public company must have minimum capital
have a minimum of rs of rs 1,00,000.
5,00,000 as capital
4. Number of Directors- a 4. where as a private
public company must limited company must
have atleast 3 directors have atleast 2 directors.
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5. Name of the company- 5. In a private company,
in a public company the the words Private
word Limited only Limited must be added
shall be added at the at the end of its name.
end of its name
6. Public subscription- a 6. Private company cannot
public company may invite public for issuing
invite the public to shares and debentures
purchase its shares or
debentures
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7.Issue of Prospectus- a A private company cannot
public company may invite public for issuing
issue a prospectus or shares and debentures.
file a statement in lieu
of prospectus with the
registrar before allotting
shares.
8.Transfers of shares- a In a private company
public company shares there is no freedom to
are freely transferable transfer of shares
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9.Special privileges- a In case of private
public company enjoys company they enjoy
no special privileges special privileges
10. Managerial
Remuneration- total 10- no such restriction
managerial applies to a private
remuneration in a company.
public company cannot
exceed 11 percent of
the net profit
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Formation of company
Documents to be filed with the Registrar
1. Before a company is registered, it is desirable
to ascertain from the Registrar of Companies.
(For the state registered office)
After the name is approved, the following
documents duly stamped together with the
necessary fees are to be filled with the
Registrar.
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2. The Application should contain the
following documents
a. Memorandum of Association
b. Articles of Association
c. Statement of the Authorized Capital
d. Address of the registered office of the company should
be done within 30 days
e. A list of directors
f. A underwriting in writing and signed by each director
g. Finally declaration may be signed by an Advocate of the
Supreme\ High court
h. Items number e and f are not required in case of a
private company
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3. If the documents are in order, registrar will register
the company,
4. The Registrar will be satisfied on the following points,
a. Relevant provision of the act have been complied with
b. Object of the company is lawful
c. Number of persons required under the act have
subscribed and duly signed
d. Memorandum and Articles comply with the act
e. Statutory declaration properly made
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5. If the registrar is satisfied with the above points, he will
register the company
6. On refusal to register the company, he may be
compelled to write a mandamus
7. On registration, Registrars will issue Certificate of
Incorporation
8. From the date of Incorporation, the company becomes
a Legal person
9. It is the birth certificate of a company
10. If the signature is done by one person, the certificate
indicates that company was duly registered.
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Promoter
Before a company is formed, certain
preliminary steps are necessary, ex- whether it
should be a private company or a public
company, what its capital etc.
All these steps are taken by certain persons
known as Promoters
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Who is a promoter?
A promoter is a person who does the
necessary preliminary work incidental to the
formation of a company .
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Functions of promoter
1 ideation- it is the basis for every important
activity- he must have some idea about size,
nature, and objects of the proposed company.
2. Preliminary investigation.
3. Arranging resources/ factors of production
4. Arranging finance
5. Preparing preliminary documents
6. Naming the company.
7. Appointing bankers, solicitors and underw
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Commencement of Business
A private company may commence business
immediately after obtaining the certificate of
incorporation.
A public company must obtain a certificate to
commence business from the registrar before
it can commence business.
The registrar will grant this certificate only when
the public company files the following
documents:
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1. Prospectus
2. Minimum subscription
3. Qualification of share- it has been made
compulsory for the directors of public
company that they must take qualification
shares and make payment for that. It shows
that the proposed directors must be
shareholders first in order to become a
director.
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4. Return of allotment.
5. Declaration
6. Statutory declaration.
( refer text book for more information)
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Primary documents of incorporation
In order to get incorporated of the company,
promoters have to deposit along with the
application a copy of Memorandum of
association and a copy of articles of
association and prospectus.
These documents are called the primary
document of incorporation.
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Memorandum of Association
Definition Section 2(28)defines a
memorandum to mean the memorandum of
association of a company as originally framed
or as altered from time to time in pursuance
of any previous company law or of this act.
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Memorandum of Association
It is one of the fundamental documents which have to

be filed, with the registrar of companies at the time of
Incorporation
It is the charter (license or agreement) of the
company and defines its reason for existence
It contains the fundamental conditions upon which
the company is allowed to be incorporated
The purpose of the memorandum is to enable
shareholders, creditors and those who deal with the
company to know what is the permitted range of the
activities of the enterprise
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Purpose of Memorandum of
Association
The purpose of Memorandum is two-fold
First, to enable the intending shareholders to
know the purpose for which their money is
going to be used and within what field they are
taking risk in making the investment.
Second, to enable the outsiders intending to
deal with the company to know with certainty
as to whether the contractual relationship which
they intend to enter into with the company is
within its corporate objects or not [Cotman v.
Broughman, (1918) A.C. 514]
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Printing and signature of
Memorandum
The memorandum must be, printed
divided into paragraphs numbered consecutively, and

signed by at least 7 persons in case of a public company and by at
least 2 persons in case of a private company. The persons signing
the Memorandum are known as subscribers to the Memorandum.
Each subscriber must give his address, description and occupation (if
any).
The signature of each subscriber must be attested in the presence of
at least one witness.
The witness must attest the signature and add his address,
description and occupation (if any).
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Contents of Memorandum
1. The Name Clause:
2. The Registered Office Clause:
3. The Objects Clause;
4. The Capital Clause
5. The Liability Clause;
6. The Association clause
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1. The Name Clause
The name of a company establishes its identity and is
the symbol of its existence.
Rules regarding name-Undesirable name should be
avoided
- Too similar name of another company
- Injunction if identical name adopted
- Limited or Private limited as the last words
- Probhition of use of certain names the emblems and
names of government of India, name or pictorial
representation of rashtrapathi bhawan mahatma
Gandhi
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2. The Registered Office Clause
Every company shall have a registered office from
the day on which it begins to carry on business or
as from the 15 th day after the date of its
incorporation, whichever is earlier.
All communications and notices are to be
addressed to that registered office
Notice of the situation of the registered office
and every change shall be give to the registrar
with 30 days after the date of incorporation fo
the company.
If default is done rs 500 fine .
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3. The Objects Clause
The Company registered after the commencement of the Companies
(Amendment) Act, 2013 must divide its object clause into two sub-clauses,
namely:
(a) Main Objects
This sub-clause covers the following two:
Main Objects of the Company to be pursued on its incorporation, and
Objects incidental or ancillary (additional) to the attainment of the main objects
(b) Other Objects

This sub-clause covers the other objects which are not included in Main Objects.
The Objects Clause Purpose
i. to enable the subscribers to the memorandum to know the uses to which their
money may be put
ii. To enable creditors and persons dealing with the company to know what its
permitted range of enterprise or activities is
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4. The Capital Clause
The memorandum of a company, having a share
capital, shall state the amount of the share capital with
which the company is to be registered and the division
thereof into shares of a fixed amount.
The capital with which a company is registered is
called registered or nominal capital.
A company cannot issue more shares than are
authorised for the time being by the memorandum.
The shares issued the company only be equity shares
or preference shares.
a private company which is not a subsidiary of the
public company may issue shares of any kind.
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5. The Liability Clause
i. A Company limited by shares is a company in which the
liability of its members is limited by its memorandum to the
amount unpaid on the share respectively held by them.
ii. A Company limited by guarantee is a company in which
the liability of its members is limited by its memorandum to
such an amount as the members may respectively
undertake to contribute to the assets of the company in the
event of its being wound up.
iii. An unlimited company is a company in which the liability
of its members is not limited by its memorandum.
The members of such companies may be required to pay
companys losses from their personnel property
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6. Association Clause
It contains the consent of the members as regards the
formation of the company and the number of shares
taken by each
- Each member should mention their name, address,
business, qualification and declare their name
The Memorandum of Association shall be signed by at
least 7 subscribers (public company) and at least by 2
subscribers (private company).
The signature of each subscriber shall be attested by at
least 1 witness who cannot be any of the other
subscribers
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Memorandum of association of Mishra
private limited
The name of the company is Mishra Pirvate
Limited.
The registered office of the company will be
situated in the state of tamilnadu
The objective of the firm:
(a) main objective-running of resurantants
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Alteration of memorandum
1. Change by name: the name of the company
can be changed:
(a) By resolution:
(b) By ordinary resolution
2.Change of registered office
3. Alteration of objects
4. Change in liability clause
5. Change in capital clasue.
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1.Name Clause
According to section 13 (1) of the companies Act
2013, a company may, by special resolution, and
after complying the procedure specified in this
section alter the provisions of its memorandum.
The Name clause can be altered:
By passing a special resolution of members at a
duly convened general meeting.
Hence in order to convene the general meeting it
will be preceded by a board meeting.
The change in the name should be in accordance
with the provisions of the act
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The name of the co. can be changed any time by a sp. Resolution
and with the written approval of the central government. If the
change merely involves the addition or deletion of the word
PRIVATE on the conversion of a public co. into pvt. Co. or vice
versa, no approval of the central govt. is necessary.
It must be communicated to the registrar by filing a printed or type

written copy of sp. Resolution within 30 days of the passing thereof.
The registrar will then issue a fresh certificate of incorporation, and
the change of name will be effective only there after. The changed
name should be noted in each copy of the memorandum and articles.
It affect any rights and obligations of the company, or legal

proceedings commenced under the old name.
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2. Alteration in Registered office clause
(i)Change within the local limits of same town :
-Simply by a Board resolution and then giving a notice of the change to the
Registrar in e-Form No. 18 within 30 days of such change.
-There is no need to alter memorandum.
(b) Change from one city to another within the same State
-By passing a special resolution in the general meeting of the company
and filing e-Form 23 with a copy of the resolution to ROC within 30 days
Also a notice to ROC of the new location of the office in e-Form No. 18
No need to alter memorandum.
c) Change of Registered office from one State to another-As per Section 17,
the company to pass a special resolution and it must be confirmed by the
Company Law Board/Central Government.
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3.Alteration in object clause
The companies act 2013 has made alteration of
the memorandum simpler and more flexible
under section 13 (1) of the act a company, by a
special resolution any after complying with the
provision of section 13, alter the provisions of it
memorandum.
Section 13 (10) further stipulates that no
alteration in the memorandum shall take effect
unless it has been registered with in the registrar.
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Procedures in alteration:
Holding a Board Meeting for the purpose of convening
the meeting of members for approving the alteration in
objects clause by a special resolution
Approving the alteration to the objects clause by
passing a special resolution in general meeting of
members
Filling the special resolution with the registrar of
companies
Registration of the alteration to be done by the
registrar with in one month from the date of filing of
the special resolution along with a printed copy of the
MOA as latered.
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4.Alteration in Liability Clause
Ordinarily, the limited liability clause of a company
cannot be altered so as to make the liability unlimited,
unless permitted by the articles and consented by the
person like manager or director concerned who is likely
to be affected by the same.
-Section 32 permits an unlimited company to register as
a limited company but it shall not affect any debts or
liabilities incurred before the conversion.
The whole procedure for forming a new company will
have to be followed in respect of the above sections.
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5. Alteration in Capital Clause
A company can make the certain alterations by an ordinary

resolution, if authorised by its articles to do so (Section 94):
-increase its share capital or consolidate existing shares or

subdividing existing shares or converting fully paid shares
into stock and vice versa or cancelling unissued shares.
-The above alterations do not need the confirmation of CLB but

notice of the resolution to be filed with ROC within 30 days
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Cont:
) Increase in Share Capital is possible if permitted by AOA

and by passing an ordinary resolution
Notice of resolution to be filed with ROC within 30
This procedure is not necessary if it is ordered by CG to

convert any debentures into shares or where any PFI
converts any debentures issued by company based on
options attached
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Doctrine of Ultra Vires
Doctrine- means principle which reveals truth
Ultra mean- beyond
vires means- powers
company has the power to do all such things as
are,:
i. Authorized to be done by the Companies
Act,2013
ii. Essential to the attainment of its objects specified
in the Memorandum
iii. Reasonably and fairly incidental to its objects
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The purpose to protect:
(1) investors in the company so that they may
know the objects in which their money is to
be employed and
(2) creditors by ensuring that the companys
funds are not wasted in unauthorized
activities.
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Articles of Association
The Articles of Association or just Articles are
the rules, regulations and bye-laws for the
internal management of the affairs of a
company.
The Articles are next in importance to the
memorandum of association which contains
the fundamental conditions upon which alone
a company is allowed to be incorporated
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What is Articles of Association?
The Articles of Association is a document that
contains the purpose of the company as well as
the duties and responsibilities of its members
defined and recorded clearly. It is an important
document which needs to be filed with the
Registrar of Companies.
As per Section 2(2), articles means the
articles of association of a company as originally
framed or as altered from time to time in
pursuance of any previous company law or of
this Act.
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Contents of Articles
1. Share capital, rights of shareholders, variation of these rights, payment
of commissions, share certificates
2. Lien on shares
3. Calls on Shares
4. Transfer of shares (voluntary transfer of shares from one person to
another)
5. Transmission of shares (transfer of shares from one person to another
by operation of law)
6. Forfeiture (surrender or give up) of shares
7. Conversion of shares into stock
8. Share warrants
9. Alteration of capital
10. General meetings and proceedings there at
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Directors, their appointment, remuneration,
qualification, powers and proceedings of board of
directors
12. Voting rights of members, voting and poll, proxies
13. Manager
14. Secretary
15. Dividends and reserves
16. Accounts, audit and borrowing powers
17. Capitalization of Profits
18. Winding up
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CONVERSION OF SHARES INTO STOCK
Stock is a consolidation of shares into one
divisible unit. When it is impossible for the
share capital to be one share, any amount
of stock may be transferred. ... A company can
convert its fully paid shares into stock as per
Section 94(c) of The Companies Act, 1956
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Share Warrant
It is a document issued by a public company
stating that its bearer is entitled to the shares
specified therein.
It is transferable by mere delivery and is a
substitute for the share certificate.
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Forfeiture of shares
If a shareholder, having been called upon to
pay any call on his shares, fails to pay the call,
the company has two remedies against the
shareholders, namely:
1 it may sue him for the amount due
2. it may forfeit his shares.
(forfeit means a fine or penalty for
wrongdoing)
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Nomination of shares
Every holder of shares in or holder of
debentures of a company may, at any time,
nominate a person to whom his shares in or
debentures of the company shale vest in the
event of his death.
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Transfer of shares Transmission of shares
It is effected by a voluntary It takes place by operation
act of the parties of law. Eg due to death,
It takes place for insolvency
consideration No consideration is involved
The transferor has to There is no prescribed
execute a valid instrument instrument of transfer.
of transfer.
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Calls on shares
A call is a demand by a company on its
shareholders to pay the whole or part of the
balance remaining unpaid on each share
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Lien of shares
Lien of shares : A lien is the right to retain
possession of a thing until a claim is satisfied.
In the case of a company lien on a share
means that the member would not be
permitted to transfer his shares unless he pays
his debt to the company.
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Distinction between Memorandum
and Articles
1.Contents -It contains It contains the internal
the fundamental rules and regulations
conditions upon which relating to management
alone the company is of internal affairs.
allowed to be
incorporated
2. Fundamental / Articles is subordinate
Subordinate document: to the Memorandum
Memorandum is
Fundamental
document.
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3. Compulsory or A public company
optional :Every limited by shares need
company must have its have its own Articles. It
own memorandum. may adopt Table A as
its articles.
4. Relationship It defines the
defined:It defines the relationship between
relationship between the company and its
the company and members and members
outsiders. only and as members
inter se.
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5. Alteration whether Articles can be easily
easy or difficult :There altered by passing a
are strict restrictions on special resolution.
its alteration. Some of
the conditions of
incorporation contained
in it cannot be altered
except with the sanction
of the National
Company Law Tribunal
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6.Binding Effect of ultra An act is intra vires the
vires act:Any act of the Memorandum but ultra
company which is ultra vires the Articles may
vires the memorandum be ratified by share-
is wholly void and holders by passing a
cannot be ratified special resolution.
(approve) even by the
whole body of
shareholders.
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Doctrine of constructive notice (OR)
constructive Notice of Memorandum
and Articles
Every outsider dealing with a company is deemed to have
notice of the contents of the Memorandum and the
Articles of Association.
These documents, on registration with the Registrar,
assume the character of public documents.
This is known as constructive Notice of Memorandum and
Articles.
The Memorandum and the Articles are open and accessible
to all.
It is the duty of every person dealing with a company to
inspect these documents and see that it is within the
powers of the company to enter into the proposed
contract.
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Doctrine of Indoor Management
The doctrine of indoor management is a

limitation to the doctrine of constructive
notice.
An outsider is presumed to know the

constitution of a company but not what may
or may not have taken place within the doors
that are closed to him.
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Prospectus
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Prospectus
In order to finance its activities, a company
needs capital which is raised by a public
company by the issue of a prospectus inviting
deposits or offers for shares and debentures
from the public.
A private company is prohibited from making
any invitation to the public for any shares or
debentures, hence, it need not issue
prospectus.
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Prospectus - Definition
It has been defined under section 2(70) so as to mean

any document described or issued as a prospectus and
includes a red herring prospectus referred to in section
32 or shelf prospectus referred to in section 31 or any
notice, circular, advertisement or other document
inviting offers from the public for the subscription or
purchase of any securities of a body corporate.
A red herring prospectus, section 32 of the companies
act 2013: A red herring prospectus means a prospectus
which does not include complete particulars of the
price of the quantum of securities offered there in.
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Section 2 (70) of the companies act 2013-
Shelf registration or shelf offering or shelf
prospectus is a type of public offering where certain
issuers are allowed to offer and sell securities to the
public without a separate prospectus for each act of
offering and without the issue of further prospectus.
The term `Prospectus` means a document which

invites deposits from the public or invites offers from
the public to subscribe or buy the shares or
debentures of the company.
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Thus, a prospectus is not an offer in itself but an invitation to
make an offer.
Application for making a deposit or for purchase of shares or

debentures constitutes an offer by the applicant to the company.
It is only on the acceptance of the offer, by the company, a binding
contract comes into existence.
The prospectus must be in writing.
An oral invitation to subscribe for shares will not be considered
prospectus.
Television or film advertisement cannot be treated as prospectus.
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Rules for Issuing Prospectus under
section 26(1) of the companies Act
2013
A Prospectus is required to be issued only after the
incorporation of company.
The prospectus must contain all the particulars, listed
in the schedule II of Companies act.
The prospectus must be dated.
Before a prospectus is issued, a copy of it must be
registered with the registration of companies, a copy
thereof signed by every person or his duly authorized
representative, who is named therein as a director or
proposed director of the company
Prospectus shall be issued within ninety days of its
registration
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Contents of Prospectus
1. General Information :
Name & address of registered office of the company
Details of letter of intent/industrial license
Name of stock exchange where listed
Date of opening, closing of the issue
Name, address of lead manager, bankers to the issue, brokers to
the issue
Underwriting arrangement
-------------------------------------------------------------------------------------------
Under writer meaning-refers to the issuing of stocks or bonds by a
corporation or a government agency to raise capital. The
underwriter is a company, often an INVESTMENT bank, that agrees
to sell the Securities. Under its contract with the corporation, the
underwriter agrees to pay for any unsold shares.
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2. Capital Structure of the company
Authorized, issued, subscribed, paid up capital of the
company should be mentioned
Size of the issue
3. Details of the issues

Objects of the issues
Tax benefits available to the company
Rights of the instrument holders
Authority of the issues & details of resolution passed for
the issues
Terms of payment
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4. Details about the company
management
History, main objects, present business of the
company
Subsidiaries of the company
Promoters and their background
Name, address occupation of manager,
managing directors relationship with the
company
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5. Details about the project
Cost of the project & means of financing .

Location of the project .
Plant & machinery for the projects.
Infrastructure facilities for raw materials.
Expected date of trial production and
commercial production.
Schedule of Implementation of the projects.
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Misstatements in Prospectus and
their consequences
If there is any misstatement of a material fact
in a prospectus or if the prospectus is
wanting in any material, there may arise,
Civil Liability (sec 35 )
Criminal Liability(34) (Illegal or against the
law or unlawful)
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Liability for Mis-statements in
prospectus
1. civil liability
2. criminal liability
---------------------------------------------------------------
Civil Liability-1 against the company and against the directors and
promoters
------------------------------------------------------------
Against the company-recession of contract and claim for damages
--------------------------------------------------------------------
Against the directors-damages, compensation and damages for non
compliance.
-----------------------------------------------------------------------------
Damages-For Fraudulent Misrepresentation and For Innocent
Misrepresentation
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Civil Liability( Sec 35 New Companies
Act )
A person who has been induced to subscribe for
shares (or debentures) on the faith of a misleading
prospectus has remedies against the company, and
the directors, promoters and experts.
1. Remedies against the company
If there is a misstatement or withholding of material
information in a prospectus, and if it has induced any
shareholder to purchase shares, he can,
i. Rescind (withdraw or cancel) the contract and,
ii. Claim damages from the company whether the
statement is fraudulent or an innocent one.
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(1)Rescission of the contract :
Any person, who takes shares on the faith of

statements of fact contained in a prospectus,
can apply to the court for the rescission of
the contract if those statements are false or
fraudulent or if some material information
has been withheld. The contract can be
rescinded if the following conditions are
satisfied:
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(i)The statement must be a material
misrepresentation of fact
(ii) The statement must have induced the
shareholders to take the shares.
(iii) The statement must be untrue:
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Examples Rex vs Lord Kylsant (1932). A prospectus was
issued by a company stating that the company has
paid a dividend every year between 1921 and 1927
(years of depression) thus giving the impression of a
financially stable company.
However, the company had in each of those years
considerable trading losses and was able to pay
dividents.
This fact was suppressed. Held, the prospectus was
false in a material particular in that it conveyed a
false impression.
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Iv)the deceived ( Deceived means deliberately
cause (someone) to believe something that is
not true) shareholder is an allottee and he
must have relied on the statement in the
prospectus: if a person purchases share in the
open market, he has no rights against the
company.
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V) the omission of material fact must be
misleading before recession is granted:
Case study: coles v.white city Greyhound Assn Ltd
(1929) A prospectus describe land as eminently
suitable for greyhound racing. However, before
any buildings such as kennels or stands for the
public could be erected, local authoritys approval
was necessary as a result of a town planning
resolution. The local authority refused approval.
Held, the description of land was misleading and
recession was granted.
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2. Damages for Deceit (Cheating)
Any person induced by a fraudulent statement
in a prospectus to take shares is entitled to
sue the company for damages.
He must prove the same matters in claiming
damages for deceit as in claiming recession of
the contract.
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2. Remedies against the directors,
promoters and experts
The persons who are liable to pay compensation for
any loss or damage to subscribers for any shares or
debentures on the faith of a prospectus containing
untrue statements are the,
(a) Directors at the time of the issue of the
prospectus;
(b) Persons who have authorized themselves to be
named as directors in the prospectus;
(C) Promoters; and
(d) Persons who have authorized the issue of the
prospectus
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1. Liability for damages for
misstatement in prospectus section 36
of new companies act 2013
Every director, promoters and every person
who authorize the issue of the prospectus is
liable to pay compensation to the aggrieved
party for loss or damage he may have incurred
by reason of any untrue statement in the
prospectus.
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2. Liability for damages for non-
compliance with sect 26
Non compliance means failure to act in
accordance with a wish or command.
The omission from the prospectus of a matter
required to be included by section 26 may give
rise to an action for damages at the instance
of a subscriber for shares who has suffered
loss thereby, even if the omission does not
make the prospectus false or misleading.
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3. Liability under the general law.
Under the general law, a shareholder can hold
all or any of the person responsible for the
issue of a prospectus liable for any
misstatement or fraud on their or his part if he
was actually deceived the reason of his having
acted on the faith of the misstatement of
fraud in the prospectus.
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A person can only be liable in fraud in a
prospectus where he make a statement to be
acted upon by others, which is false and is
made:
(a) knowingly;
(b)Without belief in its truth; or

Recklessly, not caring whether it was true or
false
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II Criminal Liability(Sec 34 companies
act 2013)
Where a prospectus contains any untrue
statement, every person who authorized the
issue of the prospectus is punishable with
imprisonment which may extend to 2 years ir
with fine which extend to rs 5000 or with both.
The punishment for issuing an application for
share that is not accompanied with a
memorandum containing salient features of a
prospectus is a fine which may extend to rs
50,000 (sec 63(1)
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Directors :
A Company in the eyes of the law is an

artificial person
It has no physical existence. It has neither
soul nor a body of its own. As such, it cannot
act in its own person
The Directors are the brain of the company,
they occupy a pivotal (essential) position in
the company
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Definition - Directors
DEFINITION DIRECTOR means a director

appointed to the Board of a Company. 2(34) .
BOARD OF DIRECTORS or BOARD, in relation
to a company, means the collective body of
the directors of the Company. 2(1)(10)
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It does not matter by what name he is called. If
he performs the functions of a director, he
would be termed a director in the eyes of the
law even though he may be named differently.
A director may, therefore, be defined as a

person having control over the direction,
conduct, management superintendence of the
affairs of a company.
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Every public company (other than a deemed public
company) shall have be at least 3 directors and every
other
company (e.g., a private company, a deemed public
company) at least 2 directors. [Sec. 252(1)].
Every company shall have a maximum of 15 directors
in the Board of Directors. Provided it should pass a
special resolution.
Such class or classes of companies as may be
prescribed, shall have at least one women director.
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An independent director (also sometimes
known as an outside director) is
adirector (member) of a board
of directors who does not have a material or
pecuniary relationship with company or
related persons, except sitting fees.
Every listed companies shall have atleast one
third of the total number of directors as
independent directors section 149 (4)
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Power of Director
As per section 179(1) of CA 2013, the Board f Directors of

a company shall be entitled to exercise all
such powers, and to do all such acts and things, as is
authorised to exercise and do. That means: BOD can
exercise all such powers for which company is
authorised
1General Powers of the Board.

2. Powers to be Exercised at Board Meetings.
3. Powers to be exercised with the approval of Company
in General Meeting
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1) General Powers of the Board (Sec.
291).
The Board of directors of a company is entitled to exercise
all such powers and to do all such acts and things as the
company is authorized to exercise and do.
This proposition is, however, subject to two conditions:
First, the Board shall not do any act which is to be done by
the company in general meeting.
Second, the Board shall exercise its powers subject to the

provisions contained in the Companies Act, or in the
Memorandum or the Articles of the company or in any
regulations made by the company in general meeting.
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(2) Powers to be exercised at Board
meetings (Sec. 292)-
The Board of directors of a company shall exercise the
following powers on behalf of the company by means
of resolutions passed at the meetings of the Board,
viz., the power to-
make calls on shareholders in respect of money unpaid
on their shares;
issue debentures;
borrow moneys otherwise than on debentures (say
through public deposits);
invest the funds of the company; and
make loans.
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(3) Powers to be exercised with the
approval of company in general
meeting (Sec. 293).

The Board of directors of a public company, or of a private
company which is a subsidiary of a public company, s shall
exercise the following powers only with the consent of the
company in general meeting:
(a) To sell, lease or otherwise dispose of (say under
amalgamation [merger] scheme) the whole, or substantially
the whole, of the undertaking of the company.
(b) To remit or give time for repayment of any debt due to
the company by a director except in the case of renewal or
continuance of an advance made by a banking company to
its director in the ordinary course of business.
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(c) To invest (excluding trust securities) the amount of
compensation received by the company in respect of the
compulsory acquisition (acquirement) of any undertaking or
property of the company
(d) To borrow moneys where the moneys to be borrowed (together
with the moneys already borrowed by the company) are more than
the paid-up capital of the company and its free reserves (that is to
say reserves not set apart for any specific purpose, e.g., balance in
the share premium account, general reserve, profit and loss
account, capital redemption account). The amount of temporary
loans raised from banks in the ordinary course of business is
excluded.
The expression temporary loans does not include loans raised for
the purpose of financing expenditure of a capital nature
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Duties of directors Sec 166
1.Fiduciary Duties
2.Duties of Care, Skill And

Diligence(attentiveness)
3. Other duties of Directors
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1. Fiduciary duties.
As fiduciaries, the directors must-
(a) exercise their powers honestly and bonafide
for the benefit of the company as a whole; and
(b) not place themselves in a position in which
there is a conflict between their duties to the
company and their personal interests. They must
not make any secret profit out of their position. If
they do, they have to account for it to the
company.
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Fiduciary duties owed to the company. The
fiduciary duties of directors are owed to the
company and not to the individual shareholders.
An individual, corporation or association holding
assets for another party, often with the legal
authority and duty to make decisions regarding
financial matters on behalf of the other party.
A fiduciary is someone who has undertaken to act
for and on behalf of another in a particular
matter in circumstances which give rise to a
relationship of trust and confidence
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(2) Duties of care, skill and diligence.
(Diligence- proper attention to the task)
Directors should carry out their duties with
reasonable care and exercise such degree of
skill and diligence as is reasonably expected of
persona of their knowledge and status. He is
not bound to bring any special qualifications
to his office.
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Standard of care.
The standard of care, skill, and diligence depends upon the
nature of the companys business and circumstances of the
case.
There are various standards of the care depending upon:
(a) the type and nature of work;
(b) division of powers between directors and other officers;
(c) general usages and customs in that type of business; and
(d) whether directors work gratuitously or remuneratively
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3) Other duties of directors.
The other duties of a director are-
(1) to attend Board meetings.
(2) not to delegate his functions except to the
extent authorized by the Act or the
constitution of the company, and
(3) to disclose his interest.
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Liabilities of directors
(1)Liability to third parties.

(2)Liability to the company.
(3) Liability for breach of statutory duties.
(4) Liability for acts of his co-directors.
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1) Liability to third parties.
This may arise-
i. Under the Act.
ii. Independently of the Act
Under the Act. Liability of directors to third
parties may arise in connection with the
issue of a prospectus which does not contain
the particulars required by the Companies
Act, or which contains material
misrepresentation.
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Directors may also incur personal
liability-
a) on their failure to repay application money if minimum subscription
has not been subscribed (Sec. 69).
(b) On an irregular allotment of shares to an allottee (and likewise to the
company) if loss or damage is sustained (Sec. 71).
(C) On their failure to repay application money if the application for the
securities to be dealt in on a recognized stock exchange is not made or is
refused (Sec. 73).
(d) On failure by the company to pay a bill of exchange, hundi,
promissory note, cheque or order for money or goods wherein the name
of the company is not mentioned in legible characters (Sec. 147).
---------------------------------------------------------------------------------------
(A hundi is a financial instrument that developed on the Indian sub-
continent for use in trade and credit transactions. Hundis are used as a
form of remittance instrument to transfer money from place to place, as a
form of credit instrument or IOU to borrow money and as a bill of
exchange in trade transactions)
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Independently of the Act.
Directors, as agents of a company, are not
personally liable on contracts entered into as
agents on behalf of the company.
But there are a number of exceptions to this rule.
If a director fails to exclude personal liability, for
instance, by signing a negotiable instrument
without mentioning the companys name and the
fact that he is signing on companys behalf, he is
personally liable to the holder of such
instrument. He is also personally liable if he acts
in his own name.
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2)Liability to the company.
The liability of director towards the company
may arise from-
(a) Ultra vires acts. Directors are personally liable
to the company in respect of ultra vires acts and
it is not necessary to prove fraud in such cases,
e.g., when they pay dividends out of capital or
when they dissipate (waste) the funds of the
company in ultra vires transactions. They are
liable jointly and severally and, inter se, they have
a right to rate able (chargeable) contribution.
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(b) Negligence.
A director may incur liability for the negligence in
the exercise of his duties. There is no statutory
definition of negligence, and as such each case
has to be decided after due consideration of the
particular facts thereof.
The question to be answered in each case is: Has
the director exercised the necessary care and
shown the necessary diligence in the discharge of
his duties? If he has not, he is liable. If he has,
there can be no question of liability.
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Breach of trust.
Directors of a company, being in a fiduciary
position, hold the position of trustees as regards
its money and property which comes into their
hands and of the powers entrusted to them by
the Articles. They must discharge their duties as
such trustees in the best interest of the
company. They are liable to the company for any
loss resulting from breach of trust.
Directors are also accountable to the company for
any secret profits they might have made in
transactions on behalf of the company.
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d) Misfeasance.
Directors are liable to the company for
misfeasance which means willful misconduct
of directors for which they may be sued in a
Law Court. (In case of misfeasance
proceedings the directors may apply for relief
under Sec. 633.)
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(3) Liability for breach of statutory
duties.
There are numerous statutory duties of
directors which they must carry out. Most of
these duties relate to maintenance of proper
accounts, filing of returns or observance of
certain statutory formalities. If they fail to
perform these duties, they render
themselves liable to penalties
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(4) Liability for acts of his co-directors.
A director is not liable for the acts of his co-
directors provided he has no knowledge and
he is not a party. His co-directors are not his
servants or agents who can by their acts
impose liability on him.
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Winding Up of Companies
Winding up or liquidation of a company represents the

last stage in its life.
It means a proceeding by which a company is dissolved.
The assets of the company are disposed of, the debts
are paid off out of the realized assets (or from
contributions from its members), and the surplus, if
any, is then distributed among the members in
proportion to their holdings in the company.
The two terms winding up and liquidation are used
interchangeably.
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MODES OF WINDING UP
1. Compulsory winding up (winding up by
tribunal)
2.Voluntary winding up- (a) voluntary winding
up and (b) creditors voluntary winding up
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WINDING UP BY THE TRIBUNAL
1. Special resolution of the company
2. Default in delivering the statutory report to
the Registrar or in holding statutory meeting
3. Failure to commence, or suspension of
business
4. Reduction in membership
5. Inability to pay its debts
6. Just and equitable
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Winding up by the tribunal (Secs. 433 to 483)
Winding up of a company under the order of a
Tribunal is also known as compulsory winding
up.
Groups for compulsory winding up (Sec. 433)
A company may be wound up by the Tribunal
in the following cases:
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1. Special resolution of the company
[Sec. 433 (a)].
Winding up order under this head is not
common because normally the members of a
company prefer to wind up the company
voluntarily for in such a case they shall have a
voice in its winding up. Moreover, a voluntary
winding up is far cheaper and speedier than a
winding up by the Tribunal.
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2. Default in delivering the statutory
report to the Registrar or in holding
statutory meeting [Sec. 433 (b)].
If default is made in delivery the statutory report
to the registrar or in holding the statutory
meeting, the company may be ordered to be
wound up.
A petition on this ground can be made either by
the Registrar or by a contributory. In the latter
case the petition for winding up can be filed only
after the expiry of 14 days from the day on which
the statutory meeting ought to have been held
[Sec. 439 (7)].
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3. Failure to commence or suspension
of business [Sec. 433 (c).
The Tribunal exercises power in this case only if the
company has no intention of carrying on its business or
if it is not possible for it to carry on its business.
If a company has not begun to carry on business within
a year from its incorporation or suspends its business
for a whole year, the Tribunal will not wind it up if
(a) there are reasonable prospects of the company
starting business within a reasonable time, and
(b) there are good reasons for the delay, i.e., the
suspension of business is satisfactorily accounted for
and appears to be due to temporary causes.
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4. Reduction in membership [Sec. 433
(d)].
If, at any time, the number of members of a
company is reduced in the case of a public
company, below 7 or in the case of private
company, below 2, the company may be
ordered to be wound up by the Tribunal.
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5. Inability to pay its debts [Sec. 433
(e)].
A company may be wound up by the Tribunal if it
is unable to pay its debts. The test is whether
the company has reached a stage where it is
commercially insolvent-that is to say, that its
existing and probable assets would be
insufficient to meet the existing liabilities.
Commercially insolvent- means that the
company is unable to pay debts or liabilities as
they arise in the ordinary course of business.
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Voluntary winding up (Secs. 484 to
520)
Voluntary winding up means winding up by the
members or creditors of a company without
interference by the Tribunal. The object of a
voluntary winding up is that the company, i.e. the
members as well as the creditors are left free to
settle affairs without going to the Tribunal. They
may however apply to the tribunal for any
directions if and when necessary .
Circumstances in which a company may be
wound up voluntarily (sec. 484)- A company may
be wound up voluntarily
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1) By passing an ordinary resolution:
When the period, if any, fixed for the duration
of a company by the Articles has expired, the
company in general meeting may pass an
ordinary resolution for its voluntary winding
up. The company may also do so when the
event, if any, on the occurrence of which the
Articles provide that the company is to be
dissolved, has occurred.
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2) By passing a special resolution
A company may at any time pass a special resolution that it be wound up
voluntarily. No reasons need be given where the members pass a special
resolution for the voluntary winding up of the company. Even the Articles
cannot prevent the exercise of this statutory right.
Commencement of voluntary winding up (Sec. 486)- A voluntary winding
up shall be deemed to commence at the time when the resolution
(ordinary or special, as the case may be) for its voluntary winding up is
passed.
Advertisement of resolution. (Sec. 485)
Within 14 days of the passing of the resolution for voluntary winding up of

the company, the company shall give notice of the resolution by
advertisement in the Official Gazette, and also in some newspaper
circulating in the district of the registered office of the company
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Types of voluntary winding up
A voluntary winding up may be a
members` voluntary winding up, or
creditors` voluntary winding up
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Members Voluntary winding up
This is possible only in the case of a solvent company.(The
definition of solvent is having more assets than liabilities
and something that has the power to dissolve other items.
An example of a company that is solvent is a company that
makes a profit and has enough money to pay its debts.
An example of solvent is a description for a chemical that can
dissolve rust.)
A winding company in the case of which a declaration has
been made by the board and filled with the registrar is
referred to as members voluntary winding up.
Section 490 to 498 apply in relation to members voluntary
winding up are as follows:
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1. Appointment and remuneration of
liquidators (Sec. 490)
The company in general meeting shall appoint
one or more liquidators for the purpose of
winding up its affairs and distributing the
assets. It shall also fix the remuneration, if
any, to be paid to the liquidator or liquidators.
Any remuneration so fixed shall not be
increased in any circumstances. The liquidator
shall not take charge of his office before his
remuneration is fixed as aforesaid.
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2.Board's powers to cease on
appointment of a liquidator (sec.
491).
On the appointment of a liquidator, all the
powers of the Board of directors, the
managing or whole-time directors, and
manager, shall cease except when the
company in general meeting or the liquidator
may sanction them to continue.
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3.Power to fill vacancy in office of
liquidator (sec. 492)
If a vacancy occurs by death, resignation or
otherwise in the office of any liquidator
appointed by the company, the company in
general meeting may fill the vacancy. For this
purpose a general meeting may be convened
by any contributory or by the continuing
liquidator or liquidators, if any.
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4. Notice of appointment of liquidator
to be given to Registrar (Sec.493).
The company shall give notice to the Registrar
of the appointment of a liquidator or
liquidators. It shall also give notice of every
vacancy occurring in the office of liquidator
and of the names of the liquidators appointed
to fill every such vacancy. The company shall
give the notice within 10 days of the event to
which it relates.
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5. Duty of liquidator to call creditors`
meeting in case of insolvency
(Sec.495)
If the liquidator is at any time of opinion that
the company will not be able to pay its debts
in full within the period stated in the
declaration, he shall forthwith summon a
meeting of the creditors. He shall lay before
the meeting a statement of the assets and
liabilities of the company. Thereafter the
winding up shall become creditors voluntary
winding up.
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6. Duty to call general meeting at the
end of each year (Sec. 496).
In the event of the winding up continuing for
more than 1 year, the liquidator shall call a
general meeting of the company at the end of
the first year from the commencement of the
winding up. Likewise, he shall call a general
meeting at the end of each succeeding year.
He shall lay before the meeting an account of
his acts and dealings and of the conduct of the
winding up during the year.
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7.Final meeting and dissolution (Sec.
497).
As soon as the affairs of the company are fully
wound up, the liquidator shall make up an
account of the winding up, showing how the
winding up has been conducted and how the
property of the company has been disposed of.
He shall then call a general meeting of the
company and lay before it the accounts showing
how the winding up has been conducted.
-----------------=----------------------------
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2. Creditors voluntary winding up
A voluntary winding up of a company in which
a declaration of solvency is not made is
referred to as a creditors` voluntary winding
up.
Provisions applicable to creditors` voluntary
winding up
Secs. 500 to 509 shall apply in relation to a
creditors voluntary winding up (Sec.499).
The provisions of these Sections are as follows:
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1.Meeting of creditors (Sec. 500)
The company shall call a meeting of the creditors of the
company on the day on which there is to be held the
general meeting of the company at which the
resolution for voluntary winding up is to be proposed,
or on the next day.
- It shall send notices of the meeting to the creditors by
post simultaneously with the sending of the notices of
meeting of the company.
- It shall also cause notice of the meeting of the
creditors to be advertised once at least in the Official
Gazette and once at least in 2 newspapers circulating in
the district of the registered office of the company.
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2. Notice of resolution to be given to Registrar
Notice of any resolution passed at a creditors` meeting shall be given
by the company the Registrar within 10 days of the passing thereof.
3. Appointment of liquidator (Sec. 502).
The creditors and the members at their respective meeting may
nominate a liquidator. If they nominate different persons, the
creditors` nominee shall be the liquidator. But any director, member
or creditor of the company may apply to the Tribunal for an order
that the person nominated as liquidator by the company or any
other Tribunal within 7 days after the nominate, on which the
nomination was made by the creditors.
If no person is nominated by the creditors, the person nominated by
the members shall be the liquidator. Likewise, if no person is
nominated by the company, the person nominated by the creditors
shall be the liquidator.
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4. Appointment of committee of
inspection (Sec. 503).
The creditors at their meeting may, if they think
fit, appoint a committee of inspection consisting
of not more than 5 persons. If such a committee
is appointed, the company may also at a general
meeting appoint not more than 5 members to
the committee. However, the creditors may, if
they think fit, dissolve that all or any of the
persons appointed by the company ought to be
members of the committee of inspection. If the
creditors and members do not agree on a
common list, the Tribunal may constitute a
committee of inspection.
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5. Liquidators remuneration
(Sec.504),
The committee of inspection, if there is no
such committee, the creditors, may fix the
remuneration of the liquidator. Where the
remuneration is not so fixed, it shall be
determined by the Tribunal. The remuneration
shall not be increased in any circumstances.
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6) Boards powers to cease on
appointment of liquidator (Sec.505).
On the appointment of a liquidator, all the
powers of the Board of directors shall cease.
But the committee of inspection, or if there is
no such committee, the creditors in general
meeting, may sanction the continuance of the
Board.
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7) Power to fill vacancy in office of
liquidator (Sec.506).
If a vacancy occurs by death, resignation or
otherwise, in the office of a liquidator (other
than a liquidator appointed by, or by the
direction of, the Tribunal), the creditors in
general meeting may fill the vacancy
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8) Power of liquidator to accept
shares, etc., as consideration for sale
of property (Sec. 507).
The provisions of Sec. 494 shall apply in the
case of a creditors` voluntary wounding up.
However the powers of the liquidator under
Sec. 494 shall not be exercised except with the
sanction either of the Tribunal or of the
committee of inspection.
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9) Duty of liquidator to call meeting
at the end of each year (Sec.508).
The liquidator shall call a general meeting of
the company and a meeting of the creditors
every year, within 3 months from the close of
every year. This will be so if the winding up
continues for more than 1 year. He shall lay
(put down ) before the meeting an account of
his acts and dealings and of the conduct of
winding up during the preceding year and
position of the winding up.
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10) Final meeting and dissolution
(Sec. 509)
As soon as the affairs of the company are fully
wound up, the liquidator shall make up an
account of the winding up showing how the
winding up has been conducted and how the
property of the company has been disposed. He
shall then call a general meeting of the company
and a meeting of the creditors for the purpose of
laying the account before the meeting and giving
explanation thereof. Thereafter the procedure
shall be the same and laid down in Sec.497
-----------------------------------------------------------
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Corporate Governance
Corporate governance is the set of processes, customs,
policies, laws, and institutions affecting the way a
corporation (or company) is directed, administered or
controlled. Corporate governance also includes the
relationships among the many stakeholders involved
and the goals for which the corporation is governed.
The principal stakeholders are the shareholders, the
board of directors, employees, customers, creditors,
suppliers, and the community at large.
A corporate stakeholder is a party that can affect or
be affected by the actions of the business as a who.
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definition
According to Cadbury committee Corporate
governance is defined as the system by which
companies are directed and controlled
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Parties of corporate Governance
1. Board of directors.
2. share holders.
3. management.
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Principles of corporate governance
1) Rights and equitable treatment of
shareholders
2) Interests of other stakeholders
3)Role and responsibilities of the board
4) Integrity and ethical behavior
5) Disclosure and transparency:
(Refer text books for more information)
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Company Law 2013

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Meaning of company

In the ordinary common parlance a company means a

The company is the real person in which all its

On the basis of incorporation the companies are

On the basis of control, companies may be

A private company which becomes a public company shall also

It is one of the fundamental documents which have to

divided into paragraphs numbered consecutively, and

(b) Other Objects

It must be communicated to the registrar by filing a printed or type

It affect any rights and obligations of the company, or legal

A company can make the certain alterations by an ordinary

-increase its share capital or consolidate existing shares or

-The above alterations do not need the confirmation of CLB but

) Increase in Share Capital is possible if permitted by AOA

Notice of resolution to be filed with ROC within 30

This procedure is not necessary if it is ordered by CG to

The doctrine of indoor management is a

An outsider is presumed to know the

It has been defined under section 2(70) so as to mean

The term `Prospectus` means a document which

Application for making a deposit or for purchase of shares or

3. Details of the issues

Cost of the project & means of financing .

Any person, who takes shares on the faith of

A Company in the eyes of the law is an

DEFINITION DIRECTOR means a director

A director may, therefore, be defined as a

As per section 179(1) of CA 2013, the Board f Directors of

1General Powers of the Board.

Second, the Board shall exercise its powers subject to the

meeting (Sec. 293).

2.Duties of Care, Skill And

3. Other duties of Directors

(1)Liability to third parties.

Winding up or liquidation of a company represents the

Advertisement of resolution. (Sec. 485)

Within 14 days of the passing of the resolution for voluntary winding up of

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