Indian Companies Act1956

7/29/2019 Indian Companies Act1956

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Social & Legal Issues

Indian Companies Act

1956


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Characteristics of a Company

1. Incorporated Association

2. Artificial legal Person

3. Separate legal Entity

4. Perpetual Succession

5. Limited Liability

6. Transferable Shares

7. Common Seal

8. Separate Property

9. Capacity to Sue and Being Sued


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Kinds Of Companies

A) On the basis ofmode of Incorporation:

Chartered Companies Statutory Companies

Registered Companies

B) On the basis ofLiability of Members

Limited by Shares

Limited by Guarantee

Unlimited

C) On the basis on the number of members Private

Public

D) Others: Govt. Companies, Foreign company, Holding andsubsidiary company


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Distinction between private and Public

Company

Can start only after receiving the

certificate to commence business

from registrar of companies

Commence business

immediately after getting the

certificate of incorporation

Must have at least 3Numbers of Directors must beat least 2

Prospectus is issuedProspectus can not be issued

Freely transferableRight to transfer share is

restricted

No restrictionMax. number of members

should not exceed 50

Minimum number of members toform a company is 7

Minimum number of membersto form a company is 2

Public CompanyPvt. Company


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Distinction between private and Public Company

Must do soNeed not hold statutory meeting or

file a statutory report

Can accept deposits from publicCan not accepts deposits from

public

Rs 5 LakhCan be registered with a paid up

capital of Rs. 1 lakh

Not more than 11% of net profit.(

not mere than 5% to a sgl.Director)

Managerial Remuneration No

restriction

At least 2/3rdof Directors must

retire by rotation

Directors are required to retire by

rotation

Not more than 12 without the

approval of the central govt.

Number of Directors can be

increased to any number

NecessaryDirectors consent to work as a

Director with Registrar is not

necessary


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Formation and Incorporation of a Company

Promotion

Registration/Incorporation

Flotation/Raising of Capital

Commencement of Business


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Promotion

Promotion refers to the entire process through which a company is brought

into existence.

It starts with the conceptualization of the birth of the company with an

objective for which it is to be formed.

The persons who conceive the company and invest the initial funds, are

known as promoters.


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Registration/Incorporation of Company

The Registrar of the Companies is to allot a Corporate

Identity Number to each company registered on or afterNovember 1, 2000.After scrutiny of all the documents a

certificate of incorporation is issued


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Every private company and a company not limited by shares can

commence business immediately on receipt of certificate of

incorporation. But a public company limited by shares is debarredfrom commencing business on borrowing money without the

certificate of commencement of business

Where a company has issued Prospectus

The minimum subscription in cash has been raised Every director of the company has paid in cash his qualification

shares , a proportion payable on application and allotment on the

shares offered for public subscription.

No money is liable to be repaid to applicants for any shares or debentures

which have been offered for public subscription by reason for any failure toapply for, or to obtain permission for the shares of debentures to be dealt inany recognized stock exchange


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A statutory declaration duly verified by one of the directors or the

secretary in the prescribed form that the above conditions have

been complied with, is filed with the registrar Where the company has not issued prospectus it has to satisfy the

following conditions:

A statement in lieu of the prospectus if filed with the Registrar

Every director of the company has paid in cash his qualificationshares , a proportion payable on application and allotment on the shares.

A statutory declaration duly verified by one of the directors or the

secretary in the prescribed form that the above conditions have beencomplied with, is filed with the registrar.

When the company has compiled with the above conditions theRegistrar will issue a certificate to commence business.


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Memorandum of Association

Meaning and Importance

MOA of a company is its charter and defines the limitations of thepowers of the company

It is not unalterable

Content:

i) Name of the Company: with limited and private limited as thelast word(s) of the name

ii) Registered Office

iii) Objects of the company : main objects , Incidental and ancillary

objects, other objects not included in first two.


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Memorandum of Association

iv) Liability: A declaration is made that the liability of

the members is limited.

v) Capital-The amount of authorized share capital divided into shares if

fixed amount

vi) Association or Subscription: The initial members are

called subscribers, who sign the memorandum in thepresence of one witness


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Articles of Association

Article of Association of a company are its bye laws.It controls the internal management of the company

and defines the powers of its offices.


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Doctrine of Ultra -Vires

Ultra Vires means beyond the powers. Ashbury Railway Cairrage and Iron Company Ltd vs

Riche

Doctrine of Constructive Notice

The memorandum and articles when registered with theRegistrar becomes public document and accessible to all.

Therefore there is a presumption that any outsider

dealing with the company has read and understood thesedocuments.

Kotla Venkatswamy vs C Ramamurthy.


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Prospectus

Prospectus means any document described or

issued as a prospectus and includes any notice, circular,advertisement or other document inviting offers from the

public for the subscription and purchase of shares in, or

debentures of a body corporate.


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Prospectus

Deemed Prospectus- When a company allots shares or

debentures to the public through the medium of Issue Houses,

then the issue houses invite subscription from the public

through their own offer document. This is also called

prospectus by implication.

Statement in Lieu of Prospectus- Where a public companydoes not invite public to subscribe for its shares, but arranges

to get money from private sources>The promoters here need

not issue a prospectus but are required to draft prospectus

Red Herring Prospectus- is a prospectus ,which does nothave complete particulars on Price of securities offered and

quantum of securities offered. E.g.-Jet Airways, Suzlon


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Member/Shareholder

Subscriber to a

memorandum

No share are allotted to a subscriber

to the memorandum

4

Applies for

registration

A legal representative of a member3

Struck off from thelist

Person who owns a bearer sharewarrant is a shareholder

2

May not be ashareholder because

the company may not

have a share capital

Is a member1

MemberShareholderS.no


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Who can be a member

Minor

Insolvent

Partnership Firm

Foreigner Company

Trade Union or Society

President of India


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Modes of acquiring membership/Index of a member

Membership by subscription

Membership by application and registration

A company with more than fifty members shall keep an index

of members


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l l


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Qualifications of a director

No academic, professional or share qualification

Articles may provide for any qualifications Where share qualification is fixed by articles then the act

provides

a) Qualification shares must be taken within 2 months after

appointment

Nominal value of qualification shares must not exceed Rs.

5000 or one share where its value exceeds Rs. 5000

Share warrants will not count for this purpose


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S i l & L l I


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Powers of Board of Directors

The board of directors of a company shall be entitled toexercise all such powers and to do all such acts and things, asthe company is authorized to exercise and do.

The following powers are:

The power to make calls The power to issue debentures

The power to borrow money otherwise than on debentures

The power to invest funds The power to make loans

The power to buy back of shares



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Power to be exercised in the general meetings

Sale, lease or disposal of the undertaking

Showing any concession regarding payment of debts

Make investment of the amount of compensation received

Contribution to charitable

Borrowing monies exceeding the aggregate of the paid upcapital and free reserves of the company



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Duties /Limitations

Good faith

Reasonable care

Disclose interest

Participate in the communities

Attend board meetings

Actions malafide

Incompetent to act

Deadlock in the board



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Company meeting

General meeting

Requisites of valid meeting Notice of meting must be proper and adequate

Chairman of the meeting

Quorum

Voting

Agenda

Minutes



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Kinds of MeetingsMeetings

of a Company

Shareholders DirectorsCreditors/

Debenture holders

General Meetings Class meetings

Statutory Meetings Annual GeneralMeetings

Extra Ordinary

Meetings



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Statutory Meetings

Object When held

Not required to be held

Notice

Statutory report

In case of default



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Annual general meeting

Which company to hold

When to be heldGap between two AGM

First AGM

Subsequent AGM

Extension of time maximum 3 months

Business to be transacted

Notice 21 days

Default



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S c & L g Iss s

Board Meetings

When to hold:Atleast once in every three calendar months and

4 meetings every year

Notice: To be given to every director in writing. No form or

period of notice is laid down. Usually a weeks notice is

sufficient. The notice must state the date, time and place of

meetings. Quorum:1/3 of the total strength or two, whichever is higher.

Passing of resolution by circulation is permissible



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& g

Motion

A proposal under consideration by members in a meetingbefore it is voted upon

Rules

Should be positive in terms and should always be in writing

Within power, scope and relevant to business Comply with the provisions of the Act, memorandum and

articles

Duly proposed by any member in a meeting

Should not be withdrawn before consent



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g

Resolution

Any motion voted upon and agreed to in a meeting and entered

in minutes. A motion passed with or without amendment is

called resolution

Types of Resolution

Ordinary resolution: Simple majority of the members voting at

a general meeting.

Special resolution: Members present should not be less than

three times the votes cast against the resolution.

Resolutions requiring special notice: Resolution should begiven to the company not less than 14 clear days before the

meeting at which it is to be moved.



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g

Winding up of a Company

Company dissolved

Winding up a company is a process whereby its life is

ended and its property administered for the benefit of its

creditors and members. An administrator called

liquidator, is appointed and he takes control of the

company, collects its assets, pays its debts and finally

distributes any surplus among the members in

accordance with their rights



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Winding up of a Company

Winding up of a company differs from insolvency of an

individual in as much as a company cannot be made insolvent

under the insolvency law. Even a solvent company can be

wound up.



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Modes of winding up

Compulsory winding up under orders of the Nationalcompany law Tribunal NCLT

Voluntary Winding up The power of the court are transferred to the National

Company Law Tribunal by the company (Amendment)Act

2002. The central government is in the process of formation of

this Tribunal


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Grounds for winding up by the Tribunal (NCLT)

If the company has acted against the interests of sovereigntyand integrity of India, the security of the state, friendly

relations with foreign states public order, decency or morality.

If the Tribunal is of the opinion that the company should be

wound up as it had become sick and is unlikely to becomeviable in future



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Who may petition for winding up

The company

Any Creditor

Any Contributor

Any combination of creditor, contributory acting jointly orseparately

The registrar Any person authorized by the central government

The official liquidator

The central government and the state government

Workers of a company cannot prefer a winding up petitionagainst the company


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Indian Companies Act1956

Documents

Transcript of Indian Companies Act1956