Professional Documents
Culture Documents
Companies Act, 1956-Meaning and types of companies, Formation of a company, Memorandum and Articles of Association, Share Capital and Shareholders, Prospectus and Issue of Shares, Buy Back of Shares, Debentures, Company Meetings and Proceedings, Powers, Duties, Liabilities of Directors, and Winding up of Company.
FEATURES OF A COMPANY
1. Incorporated Association: Incorporated or Registered under the Companies Act. An unregistered association of more than 10 persons in the case of banking business and 20 in the case of any other business becomes an illegal association
Pvt
2
2 Rs 1 lakh Not required No permission reqd After certificate of incorporation
Public
7
5 Rs 5 lakh At least 2/3 rd must retire by rotation Permission for having more than 12 Certificate to commence business from registrar reqd Can Required
Issue of Prospectus Can not for Shares/debentures Statutory meeting Not reqd.
Pvt
Not reqd.
Public
Required
Restricted
Freely transferable
None
Govt., Foreign Co
Govt Co. 51% Paid-up share capital (S.617, 619-A) Foreign Co: Incorporated outside India, having a place of business in India (S. 592)
Formation of a company
Promotion (Raising Capital) Registration, and Floatation
Promotion
Means taking preliminary steps for registration and floatation of the co ( like hiring premises, secretary, looking for persons interested in purchasing shares of the proposed co.). Promoters are in a fiduciary relationship (relationship of trust and confidence)with the co. This relationship requires them to make full disclosure. They can make profits, but not a secret profit
Rs 5 crore Rs 1 crore
Rs 50 lakh
Rs 50 lakh Rs 5 lakh Rs 1 crore Rs 10 lakh
Industries, Udyog
Enterprises, products, business manufacturing
Memorandum of Association
Its the charter of the co.It contains main objects, and other objects which are incidental or ancillary to the main objects. It defines and confines the powers of a co. Specifies the name of the co, name of the state, amount of authorised share capital, divided into shares of fixed amount Signed by at least 7/2 persons (members, in the presence of an attesting witness, mentioning the no of shares taken by the member Printed and affixed with Seal, in numbered paragraphs Contains a declaration that the liability of members is limited
Articles of Association
These are bye laws or internal regulations of the co defining rights, duties etc. of share holders, directors, etc. Articles are subordinate to and controlled by the Memorandum Articles given in table A of sch I automatically apply, if the co does not register its own articles
Certificate of Incorporation
After the documents are filed, the fee paid, the Registrar, if satisfied, will enter the name of the co. on the register of companies, and issue a certificate of incorporation. However, a public co., having share capital needs a Certificate to Commence Business from the Registrar, which is issued only after floatation of the co.
Prospectus- Definition
Notice inviting deposits/offers from the public for subscription/ purchase of shares/debentures of a company. Invitation to existing members of a company to subscribe, by way of right, is not a prospectus.
Underwriting
Undertaking by a person (s)[Banks] that if the public fails to take up the issue, he or they will do so. Commission not more than 5% of issued price of shares and 2.5% of the price of debentures Rate of commission must be disclosed in the prospectus Names of underwriters and the opinion of directors that the resources of underwriters are sufficient to discharge their obligations must be disclosed in the prospectus
Stock
Fully paid up shares can be converted into stock by a resolution in a general meeting, if articles authorise such conversion. Stock certificates are issued on such conversion
Share Capital
Kinds of share capital (i) Authorised (ii) Issued (iii) Subscribed (iv) Called up (v) Paid up Share capital can be increased by ordinary resolution (S 94). For reduction , a Special Resolution is needed (S 100-105) Diminution of Capital: Reduction of issued capital. Can be affected by ordinary resolution.
Share
Share is interest of a shareholder in the co. to the right to: (i) Receive dividend (ii) Attend meetings (iii) Vote in the meetings (iv) Share in the surplus assets of the co., if any, on winding up. (v) Transfer the share subject to articles of association Liability to pay calls on shares until fully paid Share certificate is the evidence
Classes of shares
Preference Shares Equity shares Deferred or Founders shares( in the case of a private co.)
Preference Share
Preference Share: It is a share with following preferential rights to: (i) Dividend at a fixed rate, (ii) Repayment of capital on winding up Resolution of BOD is necessary, if the articles permit Must be redeemable not later than after 10 years from the date of issue Must be redeemed out of profits available for dividend
Rights Shares
A public ltd co after two years from incorporation, or one year from the date of allotment of first shares, whichever is earlier, must first offer the shares first to the existing holders of equity shares in proportion to their paid up capital. Right to renounce in whole or in part in favour of others who need not be a member, after 15 days notice to members. A co. need not offer rights shares if it so decides by special resolutio.
Preference Share-Types:
Participating or non participating Cumulative or non-cumulative Redeemable or irredeemable 2. EQUITY SHARES ( section 85) Shares which are not preference are equity shares. As per Companies ( Amendment Act ) 2000 Equity share capital has Voting rights, OR Is with differential rights regarding dividends , voting or in accordance with the specific guidelines provided. SHARE CAPITAL =EQUITY SHARE K +PREFERENTIAL SHARE K
SHARE WARRANT
Share Certificate is issued within three months of allotment on fully or partly paid up shares. Share warrant is issued only on following conditions: Fully paid up shares If the AOA permit On approval of the Central Government. Must have common seal of the Company. Share warrant can be transferred like a negotiable instrument
Company Meetings
Types of Meetings: STATUTORY MEETING ANNUAL GENERAL MEETING EXTRA ORDINARY GENERAL MEETING CLASS MEETING BOARD MEETING
Statutory Meeting
Once in life time Only for public ltd companies having share capital Held between 1 to 6 months of Commencement of Business 21 days notice Statutory Report of the BOD to be circulated and discussed
AGM (S 166-168)
Every co must hold, during business hours at the registered office or within that city. Not more than 15 months should elapse between two meetings First meeting can be held up to 18 months from the date of incorporation Business to be transacted (S 173) Consideration of annual accounts, balance sheet, report of BOD and auditors Declaration of dividend Appointment/ election in place of retiring directors Appointment of auditors and fixation of their remuneration
1.
2. 3. 4.
Board of Directors
Board of Directors manages the affairs of a company (S 291) Directors are persons who direct, conduct, manage and supervise a companys affairs Directors are agents of the company Directors appoint officers They recommend rate of dividends Directors are not employees but can hold a salaried employment in addition to directorship
Duties of Directors
1. (i) Statutory duties: To file return of allotment of shares with ROC, within 30 days (S. 75) (ii) Not to issue irredeemable preference shares or shares redeemable after 10 years (S. 80) (iii) To disclose personal or conflicting interest ( S 299,300) (iv) To attend board meetings ( vacates office if he does not attend 3 consecutive meetings or meetings for 3 months, whichever is longer, without permission) (v) To convene AGMs (vi) To place before AGMs financial accounts (vii) To make declaration of solvency (viii) To disclose receipts from transferee of co. property or shares.
General duites Duty of good faith Duty of care ( reasonable skill and diligence) Duty not to make secret profits To be responsible for (i) negligence, (ii) breach of duty, (iii) breach of trust, (iv) misfeasance ( dishonest or malafide act or misconduct) Duty not to delegate, except when authorised (Directors are agents. A delegate can not delegate further except in the ordinary course of business, in case of need or emergency, or when authorised.
Liabilities of Directors
1. 2. 3. 4. 5. Liability to company ( as agent- good faith, care, not to be negligent, not engage in breach of trust, malafides, misconduct, dishonesty, not to do ultra-vires acts ) Liability to third parties [ as agent; liability under the companies act ( prospectus, allotments, etc), liability for breach of warranty or authority, etc] Liability for breach of statutory duties ( preceding slide) Liability for acts of co-directors ( not an agent of co-directors- no liability) Criminal Liability [ fraudulent acts, issuing prospectus containing untrue statements (S 44, 63), violation of SEBI regulations, FEMA, Income Tax Act, other laws, granting loan to directors without approval of central govt. ( S 295), failure to produce books , furnish information to Inspector ( S 240)
MEMBERSHIP
A member is a :
Subscriber to the MOA Agreeing to become a member by getting name registered Holder of the equity share Capital of the Company. FOR A COMPANY LIMITED BY SHARES , MEMBERS WHOSE NAMES APPEAR IN REGISTER OF MEMBERS ARE ALSO CALLED SHAREHOLDERS.
Winding Up of a Company
Grounds: 1. Inability to pay debts 2. Failure/inability to commence business 3. Reduction in membership below 7/2 Modes of Winding Up: 1. Compulsory winding by Court 2. Voluntary winding up 3. Voluntary winding up under supervision of court.
Winding Up (contd.)
Who can Move: 1.Creditors 2.Members 3.Administrator 4.Liquidator
Compulsory Winding Up
1. 2. 3. Grounds: Special resolution Default in holding statutory meeting Failure to commence business within an year of incorporation 4. Reduction in Membership 5. Inability to pay debts 6. Grounds which the court considers just and equitable, eg. complete deadlock in management, no real business, fraudulent or illegal purpose, etc.