8 Company Law - Handout

8/12/2019 8 Company Law - Handout

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COMPANY LAW

Company

Company is an association of many persons who contribute to a common stock to use in

trade or business and share the profit or loss in proportion to the share of capitalcontributed.

Company is person, artificial, invisible, intangible and existing only in the eyes of the

law.It is a creature of law. Hence it can possess only those properties which the creator has

conferred upon it, either expressly or incidental.

It is therefore an artificial person with separate entity and perpetual succession and acommon seal. Hence it is a legal personality.

Characteristics

1. Company is an artificial person created by law.

2. It possess all the properties which the creator has conferred on through thememorandum and articles of association.

. It has limited power.

!ithin such power, it can do all acts as a natural person can.

It can"a# $nter into contracts.

"b# $nforce the contractual rights against others."c# %ue and be sued.

"d# &wn and hold properties

"e# Have its own nationality.'ut it has no physical shape or emotions or citi(enship nor commits crime.

It is a distinct and separate legal entity.

)octrine of corporate veil.Case of %alomon *s %alomon +imited

Concept of Corporate personality as distinct and different from that of its membersindividually and collectively. %alomon -%hoe businessforms Co. %alomon Co %alomon, wife, / sons and one

daughter. 0 , 'usiness sold. 2, shares1, debentureseach member 01

share+oss+i3uidated - 0 4, %alomon5s debenture discharged 6nsecured loan of 07, lost.

%alomon co has validly incorporated.

It had independent existence distinct from members.

%alomon was entitled to be discharged first.'usiness belonged to %alomon co and not %alomon.

8he fact all the members belonged to the same family was irrelevant.

Conse3uences

1. Company may enter into contract with its members and members with theCompany.

2. 9 member can be a debtor and creditor at the same time.

. :embers cannot be held responsible for the acts of the company, even if he held the

entire shares.

)r. : ;oteeswaran :'9 I - 212 Hand out <


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COMPANY LAW

/. :embers cannot claim ownership of company5s assets.

=. :embers cannot have any insurable interest in the company5s properties.

4. Creditor5s remedy for recovery lie against the company and not against its members.

Case of :9C96>9 *s ?orthern 9ssurance Co. +td..

:acaura - 8imber estate owner@ Aormed a company sold timber /2 'B

@ Burchase cost was paid as shares of 1'B each to him his family members.

@ 8he timber was destroyed in a fire@ :acaura had insured the timber in his name

@ He claimed

@ Held, timber belonged to the Company and not to :acaura

Case of BHI+IBB&6

@ :rs. :r Bhilippou formed two companies .

@ In both companies they were the only share holders and directors.

@ 8o buy a property for one of the companies, they transferred money from theother.

'oth were held guilty of theft as they had taken money belonging to the companywhich was different from them and had its own property.

Case of Catherine +ee *s +ee 9ir Aarming Co

+ee formed a crop spraying co. with 2 shares and his wife remaining 1 share . +ee was the :g.)irector and controlled the entire operation of the co. He appointed himself as the pilot of the co on a monthly salary. He died in an air crash while spraying operation. Catherine +ee claimed !orkers Compensation from the co. Held, +ee was an employee of the +ee 9ir Aarming Co and entitled to

compensation.

His being a :g. )irector and full owner was irrelevant.

Case of :rs. Du(dar *s I8 Commissioner

:rs. Du(dar owned shares in a 8ea co. Company paid dividends after income tax

9ssessee claiming exemption on dividend paid by 8ea co. Held, share holder5s income as dividend and the 8ea company5s profits were two

different things.

Berpetual existence

1. )eath, insolvency or unsound mind does not affect the company.2. :embers may come and go.



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COMPANY LAW

. Company is like a flowing river.

/. 9s it is a creation of law, it can bewound up by a process of law.

Common %eal

%eal is the signature of the company.

It is affixed witness or by at least 2 directors.

+imited +iability

Incase of company limited by share, the liability of a member is limited to the amountremaining unpaid on the shares held by a member.

Incase of company limited by a guarantee, the liability of a member is limited to the

amount guaranteed by a member.

Aree 8ransferability of shares

Bossible by public companies.

9 share holder can transfer his shares to anyone without the consent of other members.

+ifting the corporate veil

!hen the company uses the corporate veil for improper conduct or to protect fraud or toEustify wrongs, the law disregards the corporate veil and look at the persons behind and

treat the company and the members as same persons.

1. when no of members fall below the statutory minimum2. ?on disclosure of representative capacity.

. :isrepresentation in prospectus.

/. Aailure to return application money.

=. 8o examine the relationship of holding and subsidiary.4. 8o investigate the affairs of related companies.

7. 8o investigate the ownership of a company.


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COMPANY LAW

2.'y incorporation

1# Chartered

i# Chartered Companies - formed by royal prerogative - bank of $nglandF $astIndia Company

2# %tatutory

i# %tatutory Companies - +ICF >'IFAood Corporation of India Doverned by the9ct creating them. 9nnual >eport to be placed before the Barliament or %tate

+egislature

# >egistered

+imited 'y shares 'y guarantee

6nlimited Bublic

Brivate8wo members can form

Immediate commencement of business ?o prospectus to be filed

. Companies limited by guarantee liability to pay the share amount

the amount guaranteed

ClubsF8rade associationsF

>esearch associationsF

%ocieties/. 6nlimited Companies +iabilities not limited to share value but by the debt accrued

=. Holding Company and %ubsidiary company

i. Controls composition of the 'oardii. Holds more than =G of the nominal value of e3uity share

iii. Controls more than =G voting power

Holding company could be a subsidiary of another holding company4. Dovernment Company

i. Aormed under sec 417 of Companies 9ct

ii. =1G of share capital owned by central or state or states or central

and states

iii. 9uditor is appointed by Comptroller and 9uditor Deneral of Indiaiv. %tatutory auditor to submit audit report to C9D for Comments

v. 9nnual report tabled in both the houses of parliament statelegislature

7. Aoreign Companies

?ot less than =G is held by Indian citi(en


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COMPANY LAW

Charitable associationsF sports clubsF trade associations

Conversion of private to public

1. 'y choice2. 'y default

. 'y operation of law

i. !hen invites public depositii. Holds 2=G or more of paid up capital of a public company

iii. Bublic companies holding 2=G or more of its shares

iv. 8urn over exceeds 2= crores for three consecutive AsConversion of public to private

%pecial resolution 9pproval by central govt. Ailed with >&C

B>I*98$ C&:B9?I$%

?o need to hold statutory meeting Can issue shares with disproportionate voting rights 9ccounts submitted to >egistrar not open to public ?o share 3ualifications re3uired for a director ?o restrictions on managerial remuneration Can have minimum, two directors Interested director can participate in 'oard meetings

?o restrictions on further issue of capital

Can extend financial assistance to purchase its own shares

)I%8I?C8I&? '$8!$$? B6'+IC 9?) B>I*98$ C&:B9?I$%

?o )escription Bublic Brivate

1 :inimum number of members 7 2

2 :aximum no. of members unlimited =

Certificate of commencement of business re3uired not re3uired

/ Bublic issue by prospectus es

= 8ransferability of shares ?o restrictions 9s per articles

4 :in.?o.of directors 2

7 %tatutory meeting >e3uired ?ot re3uired

< 9ppointment of directors >estrictions ?o

:anagerial remuneration >estrictions ?o



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COMPANY LAW

1 Aurther issue of capital

)I%8I?C8I&? '$8!$$? B9>8?$>%HIB 9?) C&:B9?

>egistration ?o. of members +egal status Broperty Contracts :anagement +ife +iability Creditors )issolution on death of a partner $very partner an agent Bartner cannot transfer interest without consent of others

Dovernment company

9 company in which not less than =1G of paid up shares are held by central or state orstates or both

9uditor is appointed by C9D

9 report on the working of the company is placed before both the houses of Barliament state legislature

Aormation

1. Co. must be registered to start business2. 9pplication to be presented to >egistrar of companies in the state

. 9pplication must be accompanied by

:emorandum of association 9rticles of association %tatement of authorised capital ?otice of address of registered office 9 list of directors with their consent duly signed

9n undertaking by each director to take and pay for 3ualification shares 9 declaration that all re3uirements of have been complied with./. Certificate of incorporation.

=. Certificate of commencement of business

Certificate of incorporation.

'irth certificate



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COMPANY LAW

Company becomes a legal person %ecures perpetual succession Brevents reopening of matters prior to registration

Certificate of commencement of business 9lso known as 8rading certificate %hares payable in cash should be allotted to the extent of min. subscription $very director must have paid for and shares must have been allotted. 9 statutory declaration of compliance

B>&:&8$>

!ho undertakes to form a company with reference to a given obEective

9nd who takes necessary steps to accomplish that purpose.)ecides the scope of business

Brepares necessary legal documents to bring company to life.Brovides funds for all initial expenses for registration

9rranges for publicityCirculates prospectus

Blaces capital

H$ is not an agent nor a trusteeHe must fully disclose the exrent of expenditure he has incurred

Cannot make secret profits

%hould disclose his contractual interests+iable for untrue statements in prospectus

Compensate losses suffered by thirdparty on this count

$ntitled to ade3uate compensation against contract

:emorandum of association

?ame Clause with J+imited55Brivate +imited5 >egistered office clause with state in which is company is situated &bEects clause :ain obEects

&ther obEects

+iability clause of members Capital clause

9ssociation or subscription clause

1. ?ame Clause

Aree to choose any name %hould get name clearance from the registrar %hould not be identical or closely resemble any existing registered name %hould use Jlimited5 after its name and private limited in case of a private limitedcompany



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COMPANY LAW

?ame should not violate $mblems and names 9ct %hould display its name wherever it does business and carry it on all its letters andbills

2. >egistered office clause

%hows the state in which it is registered )etermines its domicile 8he place where all registers must be kept 8he address to which all communications must be sent and received

2. &bEects clauseCase of 9%H'6> >9I+!9 C9>>I9D$ I>&? C&. *s. >ICH$

:&9 of the company listed its obEectivesK 8o make or sell or lease carriages, wagons and all kinds of railway plants,

land and buildings, timber,coal,metals and minerals etc

8o carry on business of mechanical engineers and general contractors It provided finance to >iche for construction of a railway in 'elgium. +ater there was a dispute between the parties. Ainancing was ?&8 an obEect of the company. If anything goes beyond the :&9, it is ultra vires '$&?) B&!$>. 8he contract itself may be legal but the 3uestion is about the competency and

power of the contracting party - the company which is independent of its

owners.

6+8>9 *I>$% - )&C8>I?$ &A C&?%8>6C8I*$ ?&8IC$

Case of '$96A&>8$ *%. >e

8he obEective stated in :&9 was to manufacture garments. 8he directorsdecided in good faith to diversify into veneered panels.

It constructed the factory in 'ristol. +ater it could not pay the suppliers. %uppliers did not know that veneer business was ultravires the company. Contract was *&I)

6ltra vires - doctrine of constructive notice

Brotects the company from the outsiders. It means that each person must know all the public details of a company as this

information is in public domain

Informs the prospective investors the main purpose for which their money will beused

)r. : ;oteeswaran :'9 I - 212 Hand out < 1


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COMPANY LAW

Indicates the powers of the company +iability clause of members +iable to the extent of the face value of the share held

+iable to any amount unpaid on shares taken by the holder/. Capital clause

9uthorised share capital ;inds of shares ?ominal value of each share Indicates the investment re3uired to set the business and get going=. :emorandum of association

9ssociation or subscription clause 9t least 7 persons must have agreed to subscribe

8hey should have signed the memorandum $ach should write the no. of shares he shall take :inimum must be one

4. 9rticles of association

!here 9rticles are not registered, model articles in 8able 9 of schedule 1 willautomatically apply.

!here 9rticles are registered, exclusions from model articles in 8able 9 ofschedule 1.

9doption of preliminary contracts9rticles of association

?umber and value of shares 9llotment of shares Calls on shares +ien on shares 8ransfer of shares Aorfeiture of shares 9lteration of capital %hare certificates Conversion of shares into stocks

*oting rights and proxies :eetings )octrine of constructive notice":&9# - doctrine of indoor management"9&9# )octrine of constructive notice protects the company from the outsiders aseveryone is expected to know the obEectives and powers of the company while dealingwith it.



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COMPANY LAW

)octrine of indoor management protects the outsiders from the company asoutsiders do not know how the internal matters are managed which are contained in the

9&9.

)&C8>I?$ &A I?)&&> :9?9D$:$?8 IA 9 C&?8>9C8 I% !I8HI? 8H$ B6'+IC )&C6:$?8% ,I>>$D6+9>I8I$% 9>I%I?D &68 &A I?8$>?9+ A6?C8I&?I?D &A 8H$C&:B9? !I++ ?&8 9AA$C8 8H$ C&?8>9C8I?D B9>8.

)&C8>I?$ &A I?)&&> :9?9D$:$?8Case of >&9+ '>I8I%H '9?; *s 86>L69?8

6nder 9&9 directors had powers to borrow only such sums of money asauthorised by the general resolution of the company.

8wo directors and the company secretary signed the bond to borrow 2 Boundsfrom >''.

8he company claimed that no general resolution was actually passed by thecompany and hence bond was ultravires.

)octrine of Indoor :anagement applied.

Case of :9H&? *s. $ast Holyford :inig Co.

6nder 9&9 authorised by the general resolution of the company to sign che3ues if two of three directors and the company secretary. 9ccordingly, two directors and the secretary signed che3ues. 8he bank honoured the che3ues. 8he fact was that the directors and the secretary were never appointed to the posts by the company

even though they were acting as if duly appointed. )octrine of Indoor :anagement not applicable.

:emorandum of 9ssociation 9rticles of 9ssociation

1 Charter >ules and regulations

2 )efines scope of activities >egulates internal management

)efines relationship with outside world )eals with rights and internal relationships

/ Cannot be altered without due process Can be altered by special resolutions

= %upreme %ubordinate to memorandum

4 Have own memorandum Can adopt 8able 9

7 )eviations ultra vires Can be ratified



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COMPANY LAW

7. )irectors

'orrowing powers 9ccounts and audit )ividends and reserves

!inding up

&%B$C86%

Is a document inviting deposit or offer or subscription from public for shares ordebentures of a corporate body.

It must be dated Copy signed by every director Consent from %$'I :ust accompany every application Contain necessary information to nable public to invest or not

Deneral information Capital structure )etails of issue Company management BroEect &ther information Ainancial information %tatutory information 9dditional disclosures

. Deneral information

?ame and address +etter of intent %tock exchange :inimum subscription >efund of application of money )ates of opening, closing and earliest closing +ead managers Credit rating 6nderwriting arrangements

1. Capital structure

9uthorised Issued %ubscribed Baid up %i(e of issue and break up

)r. : ;oteeswaran :'9 I - 212 Hand out < /


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COMPANY LAW

+ock in period :aximum no. of shares to employees and no.of employees

)etails of issue

9uthority for issue

>esolutions passed 8erms of payment >ights of holders &bEects 8ax benefits Mustification for premium

Company management

History :ain obEects Bresent business %ubsidiary Bromoters ?ames and addresses of managers, :), )irectors

BroEect

Cost :eans of financing

+ocation Blant and machinery Collaboration Infrastructure !ater $lectricity Implementation schedule )ate of trial production

B>&%B$C86%

BroEect Broducts profile Consumer profile $xport Capacity utilisation $xpected year of making cash profits Highlow prices of e3uity shares in last years

)r. : ;oteeswaran :'9 I - 212 Hand out < =


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COMPANY LAW

1# >escission of contract

2# )amages

# $very director/# $very proposed director named

=# $very promoter name

4# $very person authorised the issue7# 'oth criminal and civil liabilities

9 person can become a member of a companyK1. 'y subscribing to :&9

2. 'y agreeing to take 3ualifying shares

. 'y application and allotment

/. 'y transfer of share=. 'y transmission of shares

4. 'y estoppel

'asis 8ransfer of share 8ransmission

&peration *oluntary 'y operation of law

'ase 8ransfer of property 8akes place on

1. )eath

2. Insolvency. +unacy of owner

Consideration ade3uate )oes not arise

+odgement +odgement of instrument

necessary

Broof of title necessary

%tamp ?ecessary ?o need

8ermination of membershipK

1. 'y transfer of shares2. !hen shares are forfeited

when shareholder fails to pay amount due on call, directors may if9&9 permits

Aorfeited shares become property of company 8hey can be reissued at par or dicount.

. 'y surrender there is no provision. It is voluntary./. 'y sale by company on its right of lien until the member pays up the debt

to company

=. !hen share holder dies4. !hen declared insolvent

7. 'y repudiating on the ground of misleading statement in prospectus


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COMPANY LAW

2. 'y not calling unpaid portion of share money

. 9ctually the assets may have diminished in value.

!ithout the consent of court1. !here redeemable shares are redeemed

2. !here shares are forfeited

. !here there is surrender/. !here unissued shares are cancelled

=. 'y buy back scheme

!ith the consent of court1. !here authorised by articles by special resolution and

confirmation of the court

2. >educe by the amount of unpaid

. Cancel by loss of assets/. Bay off paid up capital in excess of re3uirement.

;I?)% &A %H9>$

$3uity or &rdinary

Breference Cumulativeor non cumulative

Barticipating or non participating

Convertible or ?on convertible

>edeemable or Irredeemable

%weat $3uity %hares>ight %hares

'onus shares

>ight %hares

9 company at any time issue new shares to increase its capital by passing ordinary

resolution.%uch shares are to be offered to existing share holders in proportion to the shares each

holds

'onus shares

If the 9&9 permits, a company may capitalise profits by issuing fully paid up shares toits members.

8hese are regulated by %$'I guidelines on bonus shares 2.

%$'I guidelines on 'onus %hares 2.1. 8o be made out of free reserves

2. >eserves created by revaluation of fixed assets not t o be

capitalised

. ?ot in lieu of dividend/. 9ll partly paid shares must have have been fully paid up

=. Company should not have defaulted in payment of interest or

principal on fixed deposit4. Implemented in 4 months of decision

'asis 'onus shares >ight shares



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COMPANY LAW

:eaning 8o the existing share holders

out of profit and reserves of

the company

%hares meant for existing

share holders

&bEective Bayment dividend in theform of share

8o increase share capital

Consideration Issued without extra paymentAull payment is to be made

%8&C;

is the aggregate of fully paid up shares legally consolidated 9ggregate can be split into fractions of any amount

Bremium Issue9 company is free to sell its share at a premiumIt can be used forK

1. 8o issue fully paid bonus shares

2. 8o write off preliminary expenses. 8o write off discounts and commissions in issue of shares

/. Aor payment of premium during redemption

)ividends

Interim)ividend warrant

)ebenture 1. It is an instrument in writing

2. It is an acknowledgement of debt by company to the holder

. Issued under common seal of company/. Brovides for fixed rate of interest for specified period

=. Denerally secured

4. Could be on right basis

7. $ntitled to redemptionedeemable

4. Irredeemable or perputual

7. Convertible


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COMPANY LAW

)ebentures

Aixed charge

Aloating charge>egistration of charges

:$$8I?D%Company is an artificial person. 'ut it is a legal entity. Hence it must act through human

intervention.

8he owners are share holders. 8here may be millions of shareholders and changing allthee time. 9ll of them cannot meet all the time to transact business. %o some procedure

has been laid down in the act and articles.

9ct provides for different types of meetings of1. %hare holdersK

%tatutory 9nnual general $xtraordinary general Class2. )irectors :eeting

@ 'oard :eetings

@ :eetings of Committees of 'oard.:eetings of Creditors

@ Creditors :eeting@ :eeting of )ebenture holders%tatutory meeting

$very public limited company must hold this meeting Held only once in company5s life time Held after one month but before six months from the date of commencement ofbusiness

21 days notice is must $ach member must get statutory report along with notice and to the >egistrar %tatutory >eport must be certified by the :anaging )irector and another )irectorand auditor

:embers may discuss any matter relating to formation of company

)efault to hold the meeting will result in fine upto = >egistrar may move court to wind up the company

&bEective is

to provide the shareholdersat the earliest date

all important facts

relating to the company



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COMPANY LAW

%tatutory >eport

)etails of shares allotted1.8otal allotted

Aully paid up

Bartly paid up Aor cash Aor consideration2. 8otal cash received

. 9bstract of receipts and payments and balance on hand 7days before the report date/. Commission paid on issue of shares

=. ?ames, addresses and occupation of

)irectors 9uditors

:anagers

%ecretary

$xtent to which underwriting contract not carried out 9rrears due from directors or managers to issue

Commission paid to any director

9??69+ D$?$>9+'&) :$$8I?D "sec 144#

8his share holders meeting

is to be held every year.Airst 9D: within 1< months of date of incorporation

1= months between 2 9D:s

$N8>9 &>)I?9> D$?$>9+'&) :$$8I?D$very D: other than statutory and 9D: is an $D:

8o deal with any subEect which cannot be postponed till the next 9D:$x.K Change in obEects%hifting registered office

9lteration of capital

>emoval of director or auditor

Convened by

@ 'oard of )irectors or@ >e3uisition by sufficient members or

@ ?ational Company +aw 8ribunal

C+9%% :$$8I?DConvened by

Holders of a particular class of share

8o vary alter their rights and privileges or for conversion of one class into another'&9>) :$$8I?D%

8o formulate management policies

)ecision making>eview of progress



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COMPANY LAW

&ther matters related to company

B&!$>%

:ake calls of unpaid moneyIssue debenture

'orrow money

Invest funds:ake loans

>$L6I%I8$% &A *9+I) :$$8I?D@ Broper 9uthority

@ ?otice of 21 days clear days

@ ?ature of business to be transactedK

&rdinary%pecial

@ Luorum=. :inutes

@ >esolution&rdinary

%pecial

)octrine of 6ltravires

9ny act done beyond the powers of the company will be ineffective even if ratified by allthe members.

%uch act done outside the obEects and provisions of :o9 is ultravires the company.

:o9 binds the company and its members

Conse3uences of 6ltravires acts

InEunction may be obtained by any member to restrain the company from such ultraviresact)irectors are personally liable

)I>$C8&>%

@ 8rustee

@ 9gent

@ :anagement Bartner

@ Lualification shares if re3uired by 9o9

@ Can be director in 2 companies

)I%L69+IAIC98I&?% &A 9 )I>$C8&>

@ Berson of unsound mind

@ 6ndischarged insolvent

@ Berson convicted by court



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COMPANY LAW

@ Berson who has applied to be adEudged an insolvent

@ Berson not paid any call of shares

@ Berson dis3ualified by court

@ Berson already a director of a company not filed annual accounts and annual

returns for continuous fy

@ Berson already a director of a company not repaid its deposits or interest thereonor redeem debenture on due date

>$:&*9+ &A 9 )I>$C8&>

@ 'y shareholders

@ Central government

@ Court

>$:6?$>98I&? &A 9 )I>$C8&>

@ )etermined by 9o9

@ Bassed by resolution in general meeting

@ $ffective capital O 1 cr -upto 1.= lakhs pm

@ 1 to = Cr 2 lakhs pm@ = to 2= Cr

@ 2= to = Cr .=

@ P 1 Cr /

)68I$% &A )I>$C8&>%@ $xercise some degree of skill and diligence

@ 9ct honestly

@ 'ooks and papers are open to inspection by director

@ Berform their duties personlly

@ %hall not enter into contract with the company for sale, purchase or supply ofgoods, materials or services+I9'I+I8I$% &A )I>$C8&>%

@ 8o outsiders

@ 8o company@ Criminal liability

@ 8o outsiders8hey contract with outsiders

@ In their personal capacity

)r. : ;oteeswaran :'9 I - 212 Hand out < 1/


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COMPANY LAW

@ 9s agents of an undisclosed principal

@ &n behalf of a prospective company

@ !hen contract is ultravires the company

@ 8o the Company@ !hen they have acted@ ultravires the company

@ ?egligently

@ 8here is a breach of trust

@ Aor misfeasance

!I?)I?D 6B1. 'y Courts

@ %pecial resolution@ )efault in holding statutory meeting

@ Aailure to commence business

@ >eduction in membership

@ Inability to pay debts2. *oluntary winding up

@ %ubEect to supervision of court

@ )issolution

1. 'y Courts

@ %pecial resolution8he court has discretion to look into the interest of company or public and order not to

wind up

@ &n default in holding statutory meeting the >egistrar or a contributory petitionsthe court

@ Aailure to commence business within a year from incorporation or suspends for awhole year the court may order winding up

@ It examines the circumstances and possibilities or intention of starting orcontinuing business

@ >eduction in membership below 7

@ Inability to pay debts

@ !hen a creditor5s demand for payment outstanding more than >s. = remainsunpaid without reasonable excuse

&ther grounds

@ Must and e3uitable

)r. : ;oteeswaran :'9 I - 212 Hand out < 1=


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COMPANY LAW

@ !hen the affairs of the company have been completely wound up

@ !hen the court is of opinion that li3uidator cannot proceed with winding up forwant of funds

@ Must and reasonable under the circumstances

@ Aor any other reason:&8I&?% 9?) >$%&+68I&?%

)ecisions of a company are taken at meeting by passing resolutions.

9 motion is a proposal moved by a member of the meeting.8he proposal may be accepted as proposed.

9ny member may move an amendment to the proposal or motion to modify.

%uch motion when passed with or without amendment is called a resolution.:&8I&?%

9 motion must always be in writing.

?ecessary notice must be given for moving such a motion before the meeting.

8he proposer of the motion is called the :&*$>

8he motion must be signed by him.&nce the motion is put to members and they have voted in favour, it becomes a

resolution.>$%&+68I&?%

;indsK

@ &rdinary

@ %pecial

@ >esolution re3uiring special notice&rdinary >esolution

Is a motion is passed by simple maEority at a D:

%pecial >esolutionIs a motion is passed with thrice the number of votes in favour as the number of votesagainst.

21 days notice is necessary

8he intention to propose a special resolution must be made clear.Aor what purpose %pecial >esolutionQ

@ 9lteration of obEects

@ Change of registered office from one state to another

@ 9lteration of articles

@ Change in name of company

@ >eduction of share capital

>esolution >e3uiring ?otice?otice of intention be given 1/ days in advance

Company must give 7 days notice to members

9ppointing an auditor other than retiring

?ot to reappoint a retiring auditor



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>emoving a director before expiry of his term

@ >esolution by postal ballot

@ :anaging )irector2 or more companies at a timeF

@ = year term

@ !hole time )irector only one company at a time@ ?o restriction on term

MBA - I YEAR (2012-13) - ASSIGNMENT-4 - LEGAL ASPECTS OF MANAGEMENT(P1BAA04) - UNIT-4 - COMPANY LAW

PART-A

1 Define Company. List types of companies.

2 What is a government company?

3 What is meant by Memorandm of !ssociation?" What is meant by !rtic#es of !ssociation?

$ What is a %rospects?

& Who is a promoter?

' What are the minimm and ma(imm nmber of members in private #imited and pb#ic #imitedcompanies?

) What is the importance of a registered office of a company?

* +(p#ain capita# c#ase in Memorandm of !ssociation?

1, What is certificate of incorporation?

11 What is certificate of commencement of bsiness?

12 What is the difference bet-een certificate of incorporation and commencement of bsiness?

13 What is one man company?

1" When sho#d the stattory meeting be he#d?1$ states that he -as director in 2' companies. Co#d it be tre?

1& What is the ro#e of stattory meeting?

1' What is meant by -inding p of a company?

1) /f a company ses the 0ey-ord corporation in its name it mst have a minimm athorised capita#of a4 5s.2$ #a0h b4 5s.$, #a0h c4 5s.1,, #a0h d4 5s.$,, #a0h e4 5s.1,,, #a0h

1* 6he corporate vei# of a company can be #ifted a4 -hen revene of the state is to be protected b4 todetermine the character of an enemy company c 4 -hen the company does not refnd theapp#ication money on fai#re to ma0e a##otment d4 -hen the doctrine of corporate vei# conf#icts -ithpb#ic po#icy e4 a## of the above.

2, 7ince a company is registered as an entity separate from its members a4 6he shareho#ders haeinsrab#e interest in the property of the company b4 6he assets and #iabi#ities of the company area#so the assets and #iabi#ites of the members c 4 6he shareho#ders can enter into contracts -ith the

company d4 6he shareho#dres are the agents and trstees of the company e4 6he members of thecompany can be sed for the debts of the company.

21 6he aditor of a government company a4 /s appointed by the 7tate government b4 Can beapopointed either by 7tate government or Centra# government c 4 /s appointed by the Centra#government d4 Can be appointed by the management of the company e4 /s appointed by theComptro##er and !ditor 8enera# of /ndia

22 ! private company mst have at #east a4 ' directors b4 2 directors c4 3 directors d4 " directorse4 $ directors



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23 Which of the fo##o-ing e(emptions is9are granted to a 1,,: government o-ned company? a4 scha company need not ho#d a stattory meeting b4 there is no need to transfer npaid dividend to aspecia# dividend accont as re;ired by section 2,$! of the Companies !ct 1*$& c 4 theremneration of the managing director need not be commensrate -ith the profit d4 proviso tosection 2*&14 of the Companies !ct 1*$& -hich says that the interested directors sho#d ta0eboards approva# is not app#icab#e. e4 a## of the above.

2" Which of the fo##o-ing is9are regarded as pb#ic financia# instittions4 nder the Companies !ct1*$&? a4 +(port and /mport


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COMPANY LAW

3) ! company -i## be considered as a sbsidiary of another -hen a4 it ho#ds more than 192 in nomina#va#e of e;ity share capita# of the #atter b4 the #atter contro#s the composition of n#ess there is e(press po-er in the Memorandm and !rtic#es of !ssociation no charge can becreted on a4 a ship b4 good-i## c 4 npaid capita# d4 patents e4 a property ac;ired sbect tocharge.

"" 6here need not be a registered !rtic#es of !ssociation in case of a4 a private company #imited byshares b4 a pb#ic company #imited by shares c 4 !n n#imited company d4 a company #imited bygarantee e4 every company

"$ 6he memorandm and artic#es of a company are open for inspection for a4 the members andcreditors of the company b4 the members of the company c 4 the registrar d4 everybody e4 6he=CL6

"& Which of the fo##o-ing charges need not be registered -ith the 5egistrar of the Companies? a4 !charge on nca##ed share capita# of the company b4 a charge being p#edge on any movab#eproperty c 4 a charge on ca##s made bt not paid d4 a charge on any immovab#e property e4 acharge on any boo0 debt of the company

"' 6he registered office of =ice =y#ons Ltd. is shifted from Chandni Cho-0 =orth De#hi to Ma#viya=agar 7oth De#hi. 6he company sho#d give a notice to the 5egistrar of Companies -ithin . . . . . .. . . . . . . . . . . . . days of sch change. a4 1, b4 1$ c 4 3, d4 "$ e4 &,

") Which of the fo##o-ing matters is not contained in the !rtic#es of !ssociation? a4 a#teration of sharecapita# b4 conversion of shares into stoc0s c 4 ta0ing shares into other companies having simi#arobects d4 genera# meetings and procedres e4 adoption of pre#iminary contracts

"* 6he profit made by a promoter is a4 admissib#e if disc#osed b4 inadmissib#e if disc#osed c4admissib#e if not disc#osed d4 to be disc#osed to an independent board of directors e4


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COMPANY LAW

$3 ! shareho#der #oses the right to rescind a contract a4 When he attempts to se## the shares b4When he attends and votes at a genera# meeting by pro(y c 4 When the parties cannot bere#egated to their origina# position d4 both b and c above. e4 !## of a b and c above.

$" +very prospects issed by an e(isting company sho#d be signed by a4 the managing director ofthe company b4 the managing director and secretary of the company c 4 maority of the directorsof the company d4 a## the directors of the company e4 a## sch persons -hose names appear in theprospects.

$$ ! member prchased e;ity shares of a company throgh regiona# stoc0 e(change. /f theprospects of the company contained misstatements -hich of the fo##o-ing remedies is avai#ab#eto the member? a4 Ae can c#aim damages on#y bt cannot rescind the contract b4 Ae can rescindthe contract on#y bt cannot c#aim damages c 4 Ae can se every director responsib#e for isse ofprospects d4 Ae can se any person named in the prospects inc#ding directors. e4 Ae has noremedy against the company.

$& ! director sha## be #iab#e for misstatements in prospects if he a4 -ithdra-s his consent beforeisse of the prospects and the same -as pb#ished -ithot his consent b4 Aad reasonab#egronds to be#ieve that the statement -as tre c 4 5e#ied on the basis of fair representation of apb#ic docment d4 -ithdra-s his consent giving reasonab#e pb#ic notice on becoming a-are ofntre statement e4 /nforms on#y the company that his name -as inc#ded -ithot his 0no-#edgeor consent.

$' Managing Director of a company may be appointed by virte of a4 an agreement -ith the companyb4 a reso#tion passed in the genera# meeting of the company c 4 a reso#tion passed in themeeting of the board of directors of the company d4 the memorandm and artic#es of association ofthe company e4 either of a b c and d above.

$) Who among the fo##o-ing can become a director of a company? a4


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COMPANY LAW

&& 6ota# manageria# remneration to directors does not inc#de a4 e(penditre incrred in providingfree accommodation b4 garantee commission on the garantee given for company #oans c 4e(penditre incrred in providing #ife insrance d4 sitting fee payab#e for attending meetings e 4both b and d above.

&' !ppointment of Managing Director is comp#sory if a company has a a4 paid p capita# of 3 croresb4 issed capita# of $ crore c 4 sbscribed capita# of $ crore d4 paid p capita# of $ crore e 4athorised capita# of $ crore.

&) 7tattory meeting is to be condcted -ithin a period of a4 #ess than one month after incorporationof a private #imited company b4 #ess than si( month after commencement of bsiness of a pb#ic#imited company c 4 =ot #ess than one month nor more than & months after incorporation of apb#ic #imited company d4 =ot #ess than one month nor more than & months after a##otment ofshares e4 =ot #ess than one month nor more than & months from the date at -hich the company isentit#ed to commence bsiness

&* 7tattory report sho#d be for-arded at #east . . . . . . . days before the stattory meeting is to behe#d to every . . . . . . a4 1" days member b4 21 days debentre ho#der c 4 21 days member d421 days director e4 21 days emp#oyee

', ! specia# reso#tion is re;ired -hen a4 the registered office is shifted from one p#ace to another inthe same to-n b4 a so#e se##ing agent is to be appointed by a company having paid p capita# of5s."$ #a0h c 4 app#ying to the cort to -ind p a company d4 both a and b above e4 both b and cabove.

'1 >nder the Companies !ct 1*$& -hich of the fo##o-ing acts is he#d as oppressive? a4 that themaority share ho#ders appointed a## directors b4 that the management is inefficient c 4 denying ashareho#der the right to inspect the registers maintained by the company d4 fai#re to comp#y -iththe forma#ities of giving notice for genera# meeting or refsa# to dec#are more than modrate rate ofdividend -here the profits of the company stify a higher rate e4 a person and -ho ths had noathority at a## srps the office of a director and managing director

'2 Which of the fo##o-ing acts of the directors is9are considered to be oppressive? a4 inefficientmanagement b4 denia# of access to boo0s of accons to shareho#ders c 4 refsa# to register thetransfer of shares according to the directions contained in a -i## d4 dra-ing of sa#ary by thedirectors -hen the company is ma0ing #osses e4 both a and b above.

'3 @n a reference made to it by the =ationa# Company La- 6ribna# abot the oppression ormismanagement of a company the centra# government is empo-ered to appoint any nmber of

directors as it thin0s fit for a period not e(ceeding . . . . . . . years at a time. a4 1 b4 2 c 4 3 d4 " e4$

'" Which of the fo##o-ing acts by the management of a company have been he#d to be oppressive? a4denia# of access to boo0s to the shareho#der b4 fai#re to comp#y -ith the forma#ities of givingnotice for a genera# meeting. c 4 diversion of bsiness opportnity d4 neg#igence and inefficiency inmanaging the affairs e4 increasing the voting rights of the shares he#d by the management

'$ Which of the fo##o-ing does not constitte a case of oppression ? a4 shareho#ders ho#ding 3,:shares of a company being denied access to boo0s of accont. b4 a maority shareho#der f#otingthe decision of the board and ma0ing it impossib#e for the company to fnction. c4 member of acompany being deprived of his9her right to vote. d4 consistent refsa# by a company to register atransfer in order to retain contro# e4 both b and d above.

'& /n case of a company not having a share capita# app#ication to the =CL6 against oppression sho#dbe signed by a4 not #ess than 1,, members b4 not #ess than 191, of tota# nmber of members c 4

not #ess than 19$ of tota# nmber of members d4 not #ess than 29$ of tota# nmber of members e4not #ess than 193 of tota# nmber of members

'' /n a contract of reconstrction9ama#gamation an offer made by the transferee company to ac;ireshares sho#d be approved a4 -ithin 2 months by ho#ders of not #ess than 191, in va#e of sharesof the transferor company b4 -ithin " months by ho#ders of not #ess than 19$ in va#e of shares ofthe transferor company c 4 -ithin " months by ho#ders of not #ess than *91, in va#e of shares ofthe transferor company d4 -ithin & months by ho#ders of not #ess than 191, in va#e of shares of thetransferor company e4 -ithin & months by ho#ders of not #ess than 19$ in va#e of shares of thetransferor company



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COMPANY LAW

') ! scheme of compromise -i## have to be approved by a4 creditors of the company b4 simp#emaority of persons -ho too0 par0 in the voting c 4 specia# reso#tion at the meeting convened topass the scheme d4 the =CL6 e4 the Centra# 8overnment.

'* Where an arrangement has been proposed for the prpose of reconstrction of a company thescheme sha## be approved by the ho#ders of a4 threeforths in va#e of the shares concerned b4ninetenths in va#e of the shares concerned c4 t-othirds in va#e of the shares concerned d4threeforths in va#e of the creditors concerned e4 threeforths in va#e of the shares concerned

and threeforths in va#e of the creditors concerned.

), Which of the fo##o-ing is a st and e;itab#e grond to -ind p a company by cort? a4 -herethere is a dead#oc0 in the management of a company b4 if the membership in a pb#ic companyfa##s be#o- the stattory minimm of seven members c4 if a company is nab#e to pay its debts d4if a company does not commence its bsiness -ithin a year of its incorporation e4 a## of the above.

)1 Which of the fo##o-ing is not a grond for -inding p of a company? a4 defa#t in ho#ding stattorymeeting by a pb#ic company #imited by shares b4 defa#t in ho#ding anna# genera# meeting c 4fai#re to commence bsiness -ithin a year of its incorporation d4 inabi#ity to pay debts e4redction of nmber of members be#o- stattory minimm.

)2 Which of the fo##o-ing payments are not a##o-ed to be paid as preferentia# payments in -inding pof a company? a4 5evenes ta(es cesses to the government b4 !monts payab#e to financia#instittions c 4 !ccred ho#iday remneration payab#e to emp#oyee d4 !ny compensation or #iabi#ity

nder the Wor0mens compensation act 1*23 e4


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COMPANY LAW

*1 Which of the fo##o-ing does not amont to frad#ent preference? a4 %ayment of debt by a debtor-ith an intention to benefit himse#f b4 /nvo#ntary transfer of property c 4 %ayment to a creditor inpreference to others and made -ithin & months before presentation of -inding p petition d4


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COMPANY LAW

1,& Which of the fo##o-ing is not a po-er of the arbitrator? a4 !dminister oath to parties and -itnessesb4 Ma0e the a-ard conditiona# c 4 +(tend time for ma0ing a-ard d4 Correct any mista0e or errorin the a-ard e4 !dminister to the parties necessary interrogatories

1,' /n -hich of the fo##o-ing cases reference to arbitration is va#id? a4 /n a contract bet-een !amirand 7a#man a #oca# chamber of commerce is to arbitrate in case of any dispte arising bet-eenthem. 6here are many #oca# chambers of commerce in the area b4 /n a contract -ith mi#itary firmsdepartment the District Commander concerned is to be the !rbitrator. c4 ! c#ase in an arbitration

agreement says in the matter of dispte the case sha## be referred to the 7perintending +ngineerof the circ#e d4 6he arbitration c#ase in a contract spea0s of disptes to be referred to arbitrationin accordance -ith the r#es of Mi##o-ners !ssociation Mmbai e4 !## of b c and d above.

1,) Disptes re#ating to . . . . . . . . . . . can be referred to arbitration a4 Matrimonia# matters b4 6imebarred c#aims c 4 6estamentary matters d4 Lnacy proceedings e4 Matters of crimina# natre

1,* Which of the fo##o-ing is not the po-ers of arbitrators? a4 6o ma0e the a-ard conditiona# b4 6ocorrect c#erica# mista0es c 4 6o correct errors in a-ard d4 6o remove the mpire e4 6o e(tendtime for ma0ing a-ard

PART-B

1 Distingish bet-een pb#ic sector and pb#ic #imited company.

2 >nder -hat circmstances can a pb#ic sector company be a pb#ic #imited company? 8ive an

e(amp#e

3 Ao- can a government company be made a pb#ic #imited company? 8ive an e(amp#e.

" What is perpeta# sccession?

$ What are the #iabi#ities of a partner in partnership firm?

& What is main obect in memorandm of association?

' What is indoor management?

) Ao- does a company commnicate -ith the otside -or#d?

* What is doctrine of #tra vires?

1, What is meant by #ifting the corporate vei#?

11 A and W the on#y t-o members of a private #imited company die in a road accident. /s the companydead?

12 What is the prpose of stattory meeting?

13 What is the prpose of the anna# genera# meeting?

1" ! promoter % of a company contracts -ith 7 to prchase of a property on beha#f of the proposedcompny. >pon incorporation the company refsed to by the property.!dvise 7

1$ !fter issance of certificate of incorporation it -as fond that a fe- of the signatories to thememorandm of association -ere forged. What is the position of the company?

1& What are the imp#ications of misstatementsin prospects?

1' ! prchased some shares from mar0et based on the prospects. 5ea#ising that prospectscontained misstatements fi#ed a case against the company. Wi## he scceed?

1) nder -hat circmstances a compny maybe -ond p?

23 What are the characteristics of a company?

2" What are the differences bet-een private #imited companies and pb#ic #imited companies?

2$ What is the #iabi#ity of a member in 8arantee companyand private #imited company and pb#ic#imited company

2& What are the privi#eges enoyedby private company over pb#ic #imited company?

)r. : ;oteeswaran :'9 I - 212 Hand out < 11=


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2' 7a#omon o-ned a## the shares of a shoe compny he started e(cepting si( o-ned by & of his fami#ymembers 1 share each . 6he company fai#ed and -as -ond p. 6he creditors sed that 7a#omonand the company -ere one and the same and so their nsecred #oans be sett#ed before dischrgingthe debentres he#d by 7a#omon. 6he cort reected. Why? What -as the princip#e ennciated?

2) Lee he#d a## bt one the shares of Lee !ir arming Coompany Ltd. Ae died -hi#e air spraying. Wifec#aimed compensation from the company. 6he cort a##o-ed the c#aim. Why?

2* What are the contents of a statry report?

3, /s it possib#e to convert pb#ic company into private company? Ao-?

PART-C

1 Who is a promoter? +(p#ain the concept ro#e po-er rights dties and #iabi#ities of %romoter of acompany

2 Memorandmof association is the charter of the company. Discss e(#aining its content

3 Discss the concept of #travires and the conse;ences on the company and its directors andagents.

" +(p#ain the prpose content and the ro#e of !rtic#es of !ssociation of a company.

$ What are the modes of -inding p of companies?

& +(p#ain the procedre for vo#ntary -inding p of a company.

' +(p#ain -inding p sbect to spervision of cort.

) Describe the procedre and docments re;ired for formation of companies nder the Companies!ct.

* +(p#ain the meaning prpose contents and importance of prospects.

1, What are the concepts ro#es dties and responsibi#ities of directors in a company?

11 +(p#ain the sorce and po-ers and #imitations of the

8 Company Law - Handout

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