Company Act 1956 b

8/4/2019 Company Act 1956 b

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Share Capital

Prospectus

Director Meeting

Account & Audit

Winding up of Company


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Share capital

Definition (Sect.2(46))

Share means share in the share capital of the companyand include stock, except when a distinction between stock andshare is expressed or implied.

A Share is the interest of shareholder in the companymeasured by a sum of money for the purpose,of liability in thefirst place , and of interest is second , but also consisting ofaseries of convenants entered into by all the shareholder inter

se.


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Kinds of share:-

Before the company act, 1956 was passed a company could issue three types of share

;1) Equity share2) Preference share3) Deferred share

But under the company act ,1956 a company can issue only two type of sharenamely;

1) Equity share2) Preference share

Section 86 as amended by the companies act 2000, provide that the new issues ofshare capital of a company limited by shares shall be of two kinds namely

1)Equity share

This type of share can be further divided into,1 . With voting rights; or2 . With differential right as to dividend , voting or other wise

2)Preference share


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Preference Share :-

Characteristic of preference share:-

Preference share have two characteristic :

1) They have preferential rights to be paid dividend during the life time of company and

2) They have preferential right to the return of capital when the company goes into liquidation.

Types of preference share:-

1)Cumulative or non-cumulative:-

With regard to the payment of dividends, preference share may be cumulative or non-cumulative. Acumulative preference share confers a right on its holder to claim fixed dividend of the pastand the current year out of future profits.the fixed dividend keeps on accumulating until it isfully paid.

2)Participating or non-Participating :- Participating preference shares are those shares which areentitled to a fixed preferential dividend and , in addition carry a right to participate in thesurplus profits along with equity shareholder.


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2)Participating or non-Participating :- Participating preference shares are those shares which areentitled to a fixed preferential dividend and , in addition carry a right to participate in the surplusprofits along with equity shareholder.

3)Redeemable or irredeemable:-

Redeemable preference share are issued by a public limited company, to be redeemedeither at a fixed date or after a certain period of item during the life time of the company . Conditionfor issue of such shares are laid down in section 80 of the act.

4)Convertible or non-convertible :-

convertible preference shares are those which would be convertible into equity shares after a specifiedperiod.


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Ordinary or Equity shares :-All shares other than preference share will be ordinary shares . The holder of these shares are

entitled to dividend from the net profit of the company after the fixed dividend on preference

share has been paid up . If after paying the divident on preference share, no profit remain,equity shareholder will receive no dividend.

Kinds of equity shares :-section 86,as amended by the companies (amendment) Act 2000, empowers companies to issue

the following types of equity shares:

1) Equity shares with voting right :-

The holder of such equity shares will have the right to vote on every resolution placedbefore the company . His voting right on a poll will be a proportion to his share of the paid-upequity capital of the company.

[Sec.87(1)]

2) Equity shares with differential rights:-The holder of such equity shares have differential rights as to dividend ,voting or

otherwise in accordance with such rules and subject to such condition as may be prescribedby the central government.


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Buy-Back of shares by a company:-

Section 77(1)

The companies (amendment) act, 1999, vide section 77A, and

77B(effective from 31-10-1998)and as amended by the companies act2002 (effective from 23-10 2001) .

The relevant provisions are:

1) Sources to buy back

2) Condition for buy back.

3) Notice of the meeting .

4) Sources of buy-back.

5) Declaration of solvency.

6) Destruction of the securities.

7) Further issue of shares.8) Maintenance of register.

9) Filing a completion return.

10) Penalties.

11) Prohibition for buyback.


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PROSPECTUS:

Definition:[sec.2(36)]

Prospectus means any document issued as a prospectus& include any notice,circular,advertisement or otherdocument inviting deposits from the public /invitingoffers from the public for the subcription/purchase of

any shares in /debentures of a body corporate.


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CONTENTS OF THE PROSPECTUS:[SEC44(2)(a) &56]

Company name & address of its registered office.-Particulars about its capital structure-Information about directors,bankers,brokers,solicitors.-Object & prospectus of company.

-Location of factory,machinary & equipment,nature ofbusiness etc. of company.-Underwriting contracts, brokerage & commission &priliminary expenses incurred of the company.

-Directors & mgt. of company.-Borrowing powers, details of material contracts


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DATING OF PROSPECTUS:[SEC.55]

Prospectus shall be dated & date shall be taken as the date ofpublication of prospectus.

REGISTRATION OF PROSPECTUS:[SEC.60]

-Prospectus can be issued by or on behalf of a company onlywhen copy of thereof has been delivered to the Registrar for

registration .-The registration must be made on/before date of publication.-It must be signed by every person who is a director/proposeddirector of company.


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DOCUMENTS ATTACHED TO PROSPECTUS FOR

REGISTRATION:[SEC.57]

1.Experts Consent:2.Delivery For Registration

The registrar shall register the documents only after heis satisfied that all the rerquirements have been

complied.The prospectus shall be issued within 90 days of deliveryof the copy for registration.[sec.60(2)]


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OBJECTIVES OF REGISTRATION OF PROSPECTUS:

-To keep an authenticated record of items & conditionsof issue of shares/debentures.

-To pinpoint the responsibility of person issuing theprospectus for statements/debentures.

PENLTY FOR NON-REGISTRATION:

-If a prospectus is issued without a copy thereof beingdelivered to the Registrar for registration/without the

necessary document/consent of experts,the company& every person,who is knowingly a party to the issueof the prospectus ,shall be punishable with fine

which may extend to Rs.50,000.


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MIS-STATEMENT OF THE PROSPECTUS:[SEC.65]

-Mis-statement includes:-

1.Untrue statement2.Statement which produce wrong impression3.Statement which are misleading4.Statement which produced wrong impression.

5.omission of facts.

-Mis-leading prospectus:-The prospectus which contains mis-statement/mis-

leading statement

-Who is liable for mis-statement inprospectus:-[sec.62]


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LIABILITIES:- Civil & Criminal

CIVIL LIABILITES:-1.Compensation.2.Damages for Fraud.3.Recision of Contract.4.Penalty for issuing the prospectus without

delivering for registration.


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DEFENCE AGAINST CIVIL

LIABILITIES:[sec62(2)]

-Withdrawal of consent before issue.

-Issued without knowledge.-Withdrawal of consent after issue.-Reasonable belief.-statement by expert.


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CRIMINAL LIABILITY:-[Sec.63(1)&sec.68]

-Every person who authorises the issue of prospectus shall bepunishable for untrue statement with imprisonment for a termwhich may be extended to 2 years/with fine which may extendedto Rs.50,000/with both.

DEFENCE AGAINST CRIMINALLIABILITIES:-[sec.63(1)]On proving that:-The statement was immaterial.-He has reasonable ground to belief & did upto the time of issueof prospectus believe that the statement was true.


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DIRECTOR

Agenda:

1. Appointment

2. Qualification

3. Disqualification4. Remuneration

5. Retirement

6. Vacation of Office

7. Removal8. Resignation

9. Powers

10. Duties


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1. Appointment

First Director [Sec.254] -: By the Promoters of thecompany

Subsequent Appointment [Sec.255] -: By the members &subscribers to memorandum at AGM

Additional Director [Sec.260] -: By the Board of Directors Casual Vacancies [Sec.262] -: By the Board of Directors

Alternate Directors [Sec.313] -: By the Board ofDirectors

Appointment of Director [Sec.255] -: By Third Parties Appointment of Director [Sec.408] -: By Central

Government


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2. Qualification

The act prescribes no academic,professional or share qualifications

Articles may provide for any qualifications

Where share qualification is fixed byarticles then the Act provides: Qualification share must be taken within 2

months after appointment. Nominal value of qualification shares must

not exceed Rs.5000.


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3. Disqualification

According to Sec.274, in following cases directors get

disqualified if,1) He is found to be of an unsound mind2) He is an undischarged insolvent3) He has applied to be adjudicated as an insolvent and his application

is pending

4) He has been convicted by a court involving moral turpitude andsentenced to imprisonment for not less than 6 months

5) He has not paid any call in respect of shares of the company held byhim

6) He has been disqualified by an order of the court under sec.203 ofthis act

7) He is already a director of a public company whicha) has not filed the annual accounts and annual returns for any

continuous three financial yearsb) has failed to repay its deposits or interest thereon on due date


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4. Remuneration

If article permits remuneration, it becomes anauthority to pay remuneration to directors fromthe funds of the company

It is not restricted to pay out of profit

The amount of remuneration & mode ofpayment can be determined from the provisionsof Sec.198 and 309.

In a public company, remuneration given shallnot exceed 11% of the net profit of thatcompany in that particular year


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5. Retirement

In a Public company, two third of thedirectors are liable to retire by rotation inevery AGM.

Out of these one third of the directorsshall retire from office at every AGM.

However, the retiring directors are eligiblefor re-appointment unless the articlesprovide.


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6. Vacation of Office The office of a director shall become vacant if,

1) He fails to obtain qualification shares within 2 months of hisappointment

2) He absents himself from 3 consecutive meetings of the board ofdirectors

3)He is found to be of unsound mind

4) He applies to be adjudicated as an insolvent

5) He is adjudged an insolvent

6) He is convicted by a court involving moral turpitude and sentencedto imprisonment for not less than 6 months

7) He fails to pay any call in respect of shares of the company8) He accepts a loan from the company without the permission of the

central government

9) His period of appointment has expire


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7. Removal

A director of the company may be removedbefore the expiry of his term by

1) Shareholders

2) Central Government

3) Company Law Board


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8. Resignation

If the article permits -:

Director may resign at any time and hisresignation will take effect without any need for

its acceptance by board of directors

If the article not permits -:

In this case also director can resign at any time.No matter whether the company accepts it ornot


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9. Powers of Directors To control the work of offices of company like managing directors,

managers, secretary, etc.

To manage the affairs of the company

They have right to recommend the payment of dividend

They can transfer some of its powers to the MD

Powers which can be Exercised :

To make calls on shares and debentures

To issue shares and debentures

To invest funds of the company

To make loans To appoint secretary, manager, etc.

To fill up casual vacancy in the office of directors, auditors,etc

To appoint MD of the company


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10. Duties To decide the amount of minimum subscription

To see that all the money received from applicants for shares isdeposited in the bank

To prepare a statutory report

To send a copy of statutory report to every member of the

company To approve the Balance and Profit & Loss Account before they

are submitted to the Auditors for their reports

To pay dividends only out of divisible profit of the company

To manage affairs of company efficiently

To see that Board Meetings are held at least once in every 3months.


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Meetings

Meetings of Shareholders STATUTORY MEETING:- (sec 165)

Meaning:- The first meeting of the shareholders of a publicltd company is known as a statutory meeting.

Only Public ltd company has to hold this meeting.

This meeting must be conducted after a one month butbefore six months from the date on which the company

becomes entitled to commence business. Notice:- Notice & Statutory Report should be send every

member of the company at least 21 days before the date ofmeeting.


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Statutory Report:- Shall be certified as correct by at least2 directors & out of 1 shall be MD., copy of this must befiled with Registrar for registration (sec. 165(4)(5))

Purpose:- Acquaint shareholders of company progresssince incorporation.

Discussion matter:- Relating to formation of company &arising out of statutory report. (sec. 165(7))

Penalty of Default:- Default in complying with the above

provisions shall make every director or other officer of thecompany liable to a fine of upto five thousandrupees.(sec165(9))


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Annual General Meeting (sec 166-168)

Meaning:- By the law, Members of the company must meet

at least once in the year in what is called Annual GeneralMeeting

Every company has to hold this meeting.

1st AGM shall be held within eighteen months of itsincorporation.

Notice:- Notice should be given at least 21 days before themeeting.

Time & Place (166 (2)):- It must be held at the registeredoffice of the company or in the same city.

The notice is accompanied by a copy of directors report,auditors report & proxy form.


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Objects:-

1. Accounts, balance sheet and report of the Board ofDirectors.

2. Decision on declaration of dividend.3. Appointment of Directors and Auditor & their

remunerations.

Purpose:-Give full information to members of progress

made by the company during the year. Penalty for default:- If default is made in holding a

meeting of the company, every officer who is in defaultshall be punishable with a fine up to fifty thousand rupees.

(sec 168) Extension of time:- The registrar is empowered to

extend the time of AGM upto three months but whenspecial reasons exits.

(166(1))


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Extraordinary General Meeting

Meaning:- All the general meetings of a company other

than AGM and Statutory meeting are called EGM

This meetings are convened in emergencies or urgentbusiness.

Notice:- Notice & explanatory statement, should be givenat least 21 days before the meeting.

Shareholders also can call this meeting, 1/10th of the totalvoting power and request the Board of Directors to convenea meeting.

Time and Place:- Any time, any where.

This meetings usually called for such purposes as alterationof the memorandum and articles of company, increase ordecrease of share capital.


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Other factors of meetings:-

1. Meeting notice must in writing.

2. Copy of agenda is to be sent along with the notice.

3. Meeting is conducted by the chairman of the meeting.

4. Quorum= It means the minimum number of memberswho must attend the meeting for the meeting to be a validone. 5 member for public ltd co. and 2 members forprivate ltd co.

5. Motion:- Proposition for decision at a meeting is calledmotion.

it can be introduced by any member, it always in writing.

5. Resolution:- When a motion is passed by the meeting byvoting is called resolution.

6. Special Resolution:- It require 75% of votes.

7. Ordinary Resolution:- It require 50% of votes.


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Other Meetings:-

Directors Meeting:-

1. Meeting of Board of Directors:-

2. Meetings of committees of directors.

Meeting of Debenture holders

Meeting of Creditors

Meetings of creditors and contributories on the winding upof the company.

A t & A dit


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Accounts & Audits Accounts [Sec.209]

Every company has to maintain proper books of account atits registered office

All sums of money received and expended by the companyand the matters in respect of which expenditure takes place

Sales & purchases of goods

Asset & liabilities In case of production, processing, manufacturing activities,

such particulars relating to utilization of material & labor

Sec.541(2) Necessary to exhibit & explain the transaction and financial position

of business of the company

Preparation and Presentation of final statement of Account Sec.211 Schedule VI

Preparation of Balance Sheet and Profit & Loss Account of Company(True & Fair)


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Audit

Why Audit?? A Company carries on business with capital provided

by persons who are not in control of use of themoney supplied by them. They would, therefore like

to see that their investment are safe are being usedfor intended purpose The annual account of company present a true &

fair view of state of affairs of the company Outlines of Objective of an Audit

Detection of fraud Detection of technical errors Detection of errors of principle

A dit


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Auditor Appointment (Sec.226)

Chartered Accountant within the meaning of The CharteredAccountant s Act 1949

A practicing CA A certificate holder in an erstwhile Part B state which entitled him to

act as an auditor of company in the territories of that state.

Rights

Right of access to books & accounts(Sect 227(1)). Right to obtain Information or Explanation(Sect 227(1)).

Furnish all necessary information Right to inspect Branch Accounts(Sec228(2))

He/ she can refer though audit had done by somebody else.

Right to receive notices.(Sect.231)All notices of and other communications relating to any general

meeting of a Company. Right of attend general meeting(Sect.231) Right of Remuneration

As work is over


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According to the information provided to him he should interpret in the

manner so required.

Balance sheet and Profit & loss account gives a true and view of thecompanys affairs as at the end o financial year.

Whether he has obtained all the information & explanations required byhim for the purpose of his audit.

Proper books of Account & returns to be maintained.

Finally make Qualified Reports.

The first auditor appointed by the BOD may be removed by passingan ordinary resolution but get the nomination for that place within 14days.

Permission of Central Govt.

Retiring an auditor before the expiry of the term only an ordinaryresolution of which a special notice has been given to the effect thatthe retiring auditor shall not be reappoint is sufficient.


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It empower the Central Govt. to issue necessary

directions for conducting Cost Audit of companysengaged in production, processing, manufacturingmining activities.

Specified in the order of the Govt.

Conducted by Cost Accountant

(Cost & Works Accountant Act. 1959) C.A. if cost accountant not available & the Central Govt.

issues a notification to this effect.

Appointed By BOD with the approval of Central Govt.


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It empowers the Central Govt to appoint auditors for conductinga Special Audit where the Central Govt is of opinion.

That affairs of a company are not being managed in accordancewith sound business or prudent commercial practices

That company is being managed in a manner likely to cause

serious injury or damage to the interest of the trade, industry,business to which it pertains That financial position of a company. Special Auditor make report to members of the company &

same for Central Govt. Central Govt has to take decision on the Report if not then a

copy will circulate to members .

Special Audit (Sect. 233-A)


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WINDING UP

Definition of winding up-

By Professor Gower-winding up of

company represents the processwhereby its life is ended and itsproperty administrated for thebenefit of its creditors andmembers.


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Modes of winding up

There are three modes ofwinding up----

1>Compulsory winding up2>Voluntary winding up by the

members of3>Voluntary winding up under thesupervision of the court.


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1>Compulsory winding up

Compulsory winding up takes place when thecompany is directed to be wound up by theorder of the court.

A company may be wound up by the courtunder the following circumstances.

a>special resolution of the company.

if the company has ,by special resolutionresolved that company be wound up by thecourt.


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B>Default-

C> Non commencing or suspending

the company.D>Reduction of members.

E>Inability to pay the debts.


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Who can apply for winding up?

1> company-

2> Any contributory under (d) of section433

3> Registrar under (b) to (f) section 433

4> Government

5> Workers


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Official Liquidators.

APPOINTMENT.

:-the companies actprovide that in each High court thereshall be an officer known as the officialLiquidator appointed by the centralgovernment ,there may also be Deputy or

Assistant official Liquidators.

DUTIES OF THE LIQUIDTOR


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DUTIES OF THE LIQUIDTOR

To conduct proceeding in winding up thecompany.

To make the list of the creditors.

The liquidator must pay all the moneyreceived by him in to the public accountof India in Reserve Bank of India.

Liquidators shall keep proper books formaking entries or recording minutes ofthe proceeding at meeting.


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Committee of the inspection

The committee of inspection is a jointcommittee of creditors and contributorsconsisting of not more than 12 person

.The function of committee is to keep ageneral watch over the acts of liquidatorfor the protection of the interests of

creditors and ontributions.


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Contribution

Definition:-

The term contributory means every person liable tocontribute to the assets of company the event of itsbeing wound up.

The list of contributors is made up of two parts A & B The A list contain name of the person who Aare the

members of the company on the date of winding up

The B list contain the name of person who weremembers within a period of 1 yr previous to the date ofwinding up.


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Voluntary Winding Up

It means winding of the company by themembers themselves without interventionof the court

Sec. 484 of the act provides that companycan be wound up voluntarily under thefollowing circumstances: By an ordinary resolution of the members

passed in general meeting cases.

By special resolution pass by members


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Winding up of Unregistered Company

An unregistered company can be woundup under the Companies Act. Suchcompany can not be wound up voluntarily

or under the supervision of the court. If the foreign company carrying on

business in India, ceases to do so, it can

be wound up according to the procedureapplicable unregistered company.


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Company Act 1956 b

Documents

Transcript of Company Act 1956 b