a company law

8/2/2019 A Company Law

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Amity Business SchoolMBA M&S/ HR, Semester 2Legal Aspects of Business

Ms. Shinu Vig


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Amity Business School

The Companies Act, 1956

The Act defines the word Company as a companyformed and registered under the Act.


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Characteristics of a Company:

1. Independent corporate existence.

(Salomon v. Salomon and Co. Ltd.)

2. Perpetual succession.3. Common Seal

4. Limited liability.

5. Transferability of shares.

6. Separate property

7. Power to sue and to be sued.


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Classification of Companies:

The two basic types of companies which may be

registered under the Act are: Private Companies

Public Companies


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Private Companies [Sec 3(1)(iii)]:

Private company is a company which has a minimumpaid-up capital of one lakh rupees and by its articles:i. Restricts the rights of its members to transfer shares.ii. Limits the number of its members to fifty

iii. Prohibits any invitation to the public to subscribe to itsshares and debenturesiv. Prohibits any invitation or acceptance of deposits from

persons other than its members, directors or theirrelatives.

A private company can be formed by merely twomembers.


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Public Companies [Sec 3(1)(iv)]:

A Public company is a company which:i. Is not a private companyii. Has a minimum paid up capital of Rs.5 lakh

iii. Is a private company which is a subsidiary of apublic companyA public company shall have atleast 7 membersbut there is no restriction with regard to themaximum number of persons.

Listed Public Company: It means a publiccompany which has any of its securities listed ona recognised stock exchange.


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MCA 21 Project:

MCA21 project is designed to fully automate all processesrelated to the proactive enforcement and compliance ofthe legal requirements under the Companies Act, 1956.

MCA portal is the single point of contact for all MCArelated services, which can be easily accessed over theInternet by all users.

The re-engineered electronic forms, also called e-Forms,are capable of helping people in the process of filing theinformation electronically. These e-forms are required tobe signed digitally through Digital Signature Certificates(DSC).


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Formation of a Company:

The process of formation of a company may be dividedinto three parts:

1. Promotion

2. Incorporation/ Registration3. Floatation

Promotion: It is the process of conceiving an idea and

developing it into a project to be accomplished by theincorporation and floatation of a company. The personswho take the necessary steps to accomplish theseobjectives are called promoters.


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Steps involved in incorporation

i. Acquire DIN and DSC

ii. Ascertaining availability of name by filing e-form 1A

iii. Preparation of Memorandum of Association (MOA) andArticles of Association (AOA).

iv. Other documents to be filed with the ROC: e-form 18 Notice of the situation of the registered

office of the company.

e-form 32 Particulars of the directors, manager or

secretary. e-form 1 - Statutory declaration

v. Payment of Registration fees

vi. Certificate of Incorporation


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Floatation:

After a company has received its certificate ofincorporation, it is ready for floatation i.e. it can go aheadwith raising capital sufficient to commence business.

In case of private companies capital is obtained fromfriends and relatives by private arrangement.

In case of public companies capital can be raised ineither of the following two ways-

i.By issuing Prospectus- If public is to be invited tosubscribe to its capital.

ii.By issuing Statement in lieu of prospectus- If capital isto be arranged privately.


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Certificate of Commencement of Business:

A private company can commence business immediatelyafter the certificate of incorporation has been obtained.

In case of Public companies it is necessary to obtain acertificate of commencement of business. Thiscertificate can be obtained only after floatation of thecompany.


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Memorandum of Association (MOA):

It is the charter of the company. It tells the objects of the company andthe utmost possible scope of its operations beyond which its actionscannot go. If anything is done beyond this scope, that will be ultravires(beyond powers of) the company and so void.

It enables the shareholders, creditors and all those who deal with thecompany to know what its powers are and what are its range ofactivities.

MOA must be subscribed by atleast 7 persons in case of a publiccompany and by atleast 2 persons in case of a private company, whoshall sign the memorandum in the presence of atleast one witness.


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Contents of Memorandum of Association (MOA):

MOA is divided into following clauses:

i. Name Clause

ii. Registered Office Clauseiii. Objects Clause

iv. Liability Clause

v. Capital Clause

vi. Association or Subscription Clause


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Articles of Association (AOA):

They contain the regulations relating to the internalmanagement of the company. They define the duties,rights, powers and authority of the shareholders and thedirectors in their respective capacities and of thecompany.

They are subordinate to and are controlled bymemorandum. Articles cannot supersede the objects asset out in the memorandum of association.


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Contents of Articles of Association (AOA):

i. Share capital and its alteration

ii. Rights of shareholders

iii. Allotment of shares, calls and forfeiture of shares

iv. Transfer and transmission of sharesv. Exercise of borrowing powers; issue of debentures

vi. General meetings, notice, quorum, proxy, poll

vii. Number, appointment, duties of directors

viii. Dividends-interim and final

ix. Accounts and audit; keeping of books

x. Winding up


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Prospectus:

A prospectus means any document described or issued asprospectus and includes any notice, circular, advertisementor other document inviting deposits from the public orinviting offers from the public for the subscription or

purchase of any shares in or debentures of a bodycorporate.

The persons issuing the prospectus are bound to make

true disclosures and not to omit material facts. A falsestatement or omission of facts gives rise to civil as well ascriminal liability.


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Contents of a Prospectus:

1. General information

2. Capital structure of the company.

3. Terms of the present issue4. Particulars of the issue

5. Company management & project

6. Certain prescribed particulars

7. Outstanding litigations8. Management perception of risk factors


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Initial Public Offer (IPO):

When an unlisted company makes a fresh issue ofsecurities for the first time to the public it is called IPO. Thispaves the way for listing and trading of securities on StockExchanges.

Further Public Offer (FPO):

When an already listed company makes a fresh issue ofsecurities to the public it is called Further Public Offer.


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Rights Issue:

When an issue of securities is made by a company to itsshareholders existing as on a particular date fixed by thecompany (i.e. record date), it is called a rights issue. Therights are offered in a particular ratio to the number of

securities held as on the record date.

Bonus issue:

When a company makes an issue of securities to its

existing shareholders as on a record date, without anyconsideration from them, it is called a bonus issue. Theshares are issued out of the Companys free reserve or

share premium account in a particular ratio to the number

of securities held on a record date.


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Shares:A share means a share in the share capitalof the company.

The share capital of a company is dividedinto a number of indivisible units of specified

amount. Each of such unit is called ashare.


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Share Capital:

The term share capital is used in following different senses:

i. Nominal/ Authorised/ Registered Capital

ii. Issued Capitaliii. Subscribed Capital

iv. Called-up Capital

v. Paid-up capital


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Types of Shares:

Preference share

A preference share is one which carries:

i. A preferential right in respect of dividends at a fixed rate,and

ii. A preferential right in regard of repayment of capital onwinding up.

Equity shareEquity share means a share which is not a preferenceshare. The rate of dividend is not fixed.


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Shareholders:

Shareholder/ member is a person who holds the shares ofthe company and whose name appears on the registerofmembers of the company.

Rights of shareholders:

i. Right to receive notices of general meetings and to attendand vote at those meetings.

ii. Right to receive dividends when declared

iii. Right to transfer shares, subject to restrictions, if any.

iv. Right to inspect registers and records of the company.

v. Right to share in assets of company on its dissolution.


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Debentures:

A debenture means a document acknowledging a loanmade to the company and providing for the payment ofinterest on the sum borrowed until the debenture is

redeemed.

It provides for the repayment of principal and interest atspecified date/ or dates.

It generally creates a charge on the assets of the

company.


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Directors:

A Director is a member of a Board appointed to direct theaffairs of a company. Only an individual can be appointedas a director. Every public limited company shall haveatleast 3 directors and other companies shall have

atleast 2 directors.

Appointment of Directors: Directors may be appointed-

i. By provision in the Articles

ii. By shareholders in general meeting

iii. By the Board of Directors

iv. By Central Government

v. By third parties


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General Powers vested in the Board of Directors:

The Board of Directors is entitled to exercise all suchpowers and to do all such acts and things as the companyis authorised to exercise and to do.

In the exercise of its powers the Board is subjected to theprovisions of the Companies Act, the memorandum and thearticles and any regulations, not inconsistent with them,made by the company in general meeting.

Minimum No. of Directors:

Private Companies- 2 directors

Public Companies- 3 directors


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Kinds of Company Meetings:

I. Shareholders meetings:

i. Statutory meeting

ii. Annual General Meeting

iii. Extraordinary General MeetingII. Board meetings

III. Meetings of the Board Committees

IV. Meetings of debenture holders

V. Meetings of creditors for winding up.


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Statutory Meeting (Sec 165):

It is required to be held only by a public company.

It must be held within a period of not less than 1 monthand not more than 6 months from the date at which thecompany is entitled to commence business.

Atleast 21 days before the day of meeting, a notice of themeeting is to be sent to every member stating it to be aStatutory meeting.


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Extra-ordinary General Meeting (EGM) (Sec 169):

All general meetings other than AGMs are calledEGMs.

EGM is convened for transacting some special orurgent business that may arise in between twoAGMs.

All business transacted at such meetings are calledspecial business.

EGM can be called any time by giving a 21 daysnotice.


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Matters relating to General Meetings:

Notice: A notice of atleast 21 days must be given in writing to everymember.

Proxy: Every member of company entitled to attend and vote at ameeting has the right to appoint another person, whether a member or

not, to attend and vote for him. Such a person is called proxy. Theinstrument appointing a proxy shall be lodged with company atleast 48hrs before meeting.

Quorum:

Public companies- 5 members personally present.

Private companies- 2 members personally present.


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Board Meetings:

Must be held at least once in every 3 months.

At least 4 such meetings must be held in everycalendar year.

Quorum: One-third of the total strength of thedirectors or two directors, whichever is higher.

Chairman: The Chairman for the meetings of theBoard of Directors may either be named in theArticles or he may be elected by the directors.


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Modes of Winding Up:

A. Compulsory Winding up by the Court

B. Voluntary Winding up

- Members Voluntary Winding up- Creditors Voluntary Winding up

C. Voluntary Winding up under the supervision of theCourt

a company law

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