section 2(20) - wordpress.com...section 2(20) of the companies act, ì í ï defines the term...
TRANSCRIPT
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1 Company and Corporate Veil
Section 2(20) of the Companies Act 2013 defines the term lsquocompanyrsquo ldquoCompany
means a company incorporated under this Act or under any previous company
lawrdquo
Solomon Vs Solomon amp Co Ltd
Solomon was a leather merchant who converted his business into a Limited
Company as Solomon and Co Limited The company so formed consisted on
Solomon his wife and five of his children as members The company purchased the
business of Solomon for issuing shares and debentures
The company in less than one year ran into difficulties and liquidation proceedings
commenced The assets of the company were not even sufficient to discharge the
debentures (held entirely by Solomon himself) And nothing was left for unsecured
creditors The liquidator on behalf of unsecured creditors alleged that the company
was a sham and mere alias or agent for Salomon
The court ruled in Solomonrsquos favour
Lifting of the ldquoCorporate Veilrdquo
The following are the cases where company law disregards the principle of corporate
personality or the principle that the company is a legal entity distinct and separate from
its shareholders or members
Daimler Co Ltd Vs Continental Tyre and Rubber Co Ltd A company was formed
in England for the purpose of selling tyres made by a German company The
German company held almost the entire share capital All the directors were
German residents
2 | P a g e
During the first world war this company lodged legal proceeding against another
English company to recover its debt
It was held that the concept of separate legal entity shall be ignored and the
persons in ultimate control of the company shall be considered Since the
persons controlling the company were enemies the suit was not maintainable
The Workmen Employed in Associated Rubber Industries Limited Bhavnagar vs
The Associated Rubber Industries Ltd As per bonus act bonus shall be paid on
the profits earned A company was earning huge profits The incorporated a
subsidiary company and transferred some valuable investments to it The
subsidiary company did not do any business and has no assets except the
investments transferred to it
Held that the only motive for incorporating the subsidiary company is to avoid
payment of bonus and therefore the concept of separate legal entity shall not
apply
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3 | P a g e
2 Classes of Companies
1 On the basis of liability
a) Company limited by shares
It implies that for meeting the debts of the company the shareholder may be called
upon to contribute only to the extent of the amount which remains unpaid on his
shareholdings His separate property cannot be used to meet the companyrsquos debt
(b) Company limited by guarantee
Thus the liability of the member of a guarantee company is limited upto a stipulated
sum mentioned in the memorandum Members cannot be called upon to contribute
beyond that stipulated sum
The point of distinction between these two types of companies is that in the case of
Guarantee Company the members may be called upon to discharge their liability only
after commencement of the winding up and only subject to certain conditions but in the
latter case they may be called upon to do so at any time either during the companyrsquos
life-time or during its winding up
(c) Unlimited company Companies Act 2013 defines such unlimited company as a
company not having any limit on the liability of its members
2 On the basis of members
(a) One person company The Companies Act 2013 introduces a new class of
companies which can be incorporated by a single person Section 2(62) of the
Companies Act 2013 defines one person company (OPC) as a company which has only
one person as a member One person company has been introduced to encourage
entrepreneurship
(b) Private Company [Section 2(68)] Means a company having a minimum paid-up
4 | P a g e
share capital of one lakh rupees or such higher paid-up share capital as may be
prescribed and which by its articlesmdash (i) restricts the right to transfer its shares (ii) limits the number of its members to two hundred(except in case of One Person
Company)
(iii) prohibits any invitation to the public to subscribe for any securities of the company
(c) Public company [Section 2(71)] The Companies Act 2013 defines public company
as a company which- bull is not a private company bull has a minimum paid up share capital of 5 lakh rupees or such higher paid up capital
as may be prescribed Seven or more members are required to form the company
3 On the basis of control
(a) Holding and subsidiary companies A Subsidiary is a company in which the holding
company-
- Controls the composition of board of directors
- Controls more than one half of total share capital (b) Associate company In relation to another company means a company in which that
other company has a control of at least 20 of total share capital
4 On the basis of access to capital
(a) Listed company It is a company which has any of its securities listed on any
recognised stock exchange
(b) Unlisted company means company other than listed company
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5 | P a g e
5 Other companies (a) Government company rdquo means any company in which not less than fifty- one per
cent of the paid-up share capital is held by- (i) the Central Government or (ii) by any State Government or Governments or (iii) partly by the Central Government and partly by one or more State Governments And the section includes a company which is a subsidiary company of such a
Government company
(b) Foreign Company means any company or body corporate incorporated outside
India whichmdash
(i) has a place of business in India whether by itself or through an agent physically
or through electronic mode and
( ii) conducts any business activity in India in any other manner
(c) Formation of companies with charitable objects etc Section 8 of the Companies Act 2013 deals with the formation of companies which are
formed to promote the charitable objects of commerce art science sports education
research social welfare religion charity protection of environment etc Such company
intends to apply its profit in promoting its objects and prohibiting the payment of any
dividend to its members
(d) Dormant company Where a company is formed and registered under this Act and
has no significant accounting transaction such a company or an inactive company may
make an application to the Registrar in such manner as may be prescribed for obtaining
the status of a dormant company
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6 | P a g e
(e) Public financial institutions By virtue of Section 2(72) of the Companies Act
2013 the following institutions are to be regarded as public financial institutions (i) the Life Insurance Corporation of India established under the Life Insurance
Corporation Act 1956 (ii) the Infrastructure Development Finance Company Limited (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act 2002
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7 | P a g e
3 Incorporation of a Company
Promotion and Promoter
Promotion The term lsquoPromotionrsquo means all those steps that are required to bring a company
into existence and continues until BOD take the charge of the company
Promoter
lsquoPromoterrsquo means a person who generates the idea of incorporating the company and takes all
the effective steps to incorporate it
Position of Promoter A Promoter is neither an agent nor a trustee of the company since the
company has not yet come into existence However his position is similar to that of an agent
and trustee
Duties of Promoter A promoter should not make any secret profit from the company Law
does not prohibit making profits but it prohibits secret profits So when a promoter makes any
profit from any transaction it must be disclosed to the BOD
Remedies available to company against the promoter When a promoter makes a secret profit
and afterwards the company comes to know about the fact the company will have the
following remediesoptions
Rescission The Company may rescind the contract However rescission must be made
in reasonable time
Recover Secret Profit The Company may recover the secret profit made by the
promoters
Suit The company may sue the promoters in the court of law
Promoter remuneration or reimbursement
(a) The Promoters shall have no right to ndash
Receive any remuneration from the company or
Recover the expenses properly incurred by them for the incorporation of the company
Unless the company after incorporation has contracted the same
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
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27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
2 | P a g e
During the first world war this company lodged legal proceeding against another
English company to recover its debt
It was held that the concept of separate legal entity shall be ignored and the
persons in ultimate control of the company shall be considered Since the
persons controlling the company were enemies the suit was not maintainable
The Workmen Employed in Associated Rubber Industries Limited Bhavnagar vs
The Associated Rubber Industries Ltd As per bonus act bonus shall be paid on
the profits earned A company was earning huge profits The incorporated a
subsidiary company and transferred some valuable investments to it The
subsidiary company did not do any business and has no assets except the
investments transferred to it
Held that the only motive for incorporating the subsidiary company is to avoid
payment of bonus and therefore the concept of separate legal entity shall not
apply
Like us - wwwfacebookcomdestinationcaorg
3 | P a g e
2 Classes of Companies
1 On the basis of liability
a) Company limited by shares
It implies that for meeting the debts of the company the shareholder may be called
upon to contribute only to the extent of the amount which remains unpaid on his
shareholdings His separate property cannot be used to meet the companyrsquos debt
(b) Company limited by guarantee
Thus the liability of the member of a guarantee company is limited upto a stipulated
sum mentioned in the memorandum Members cannot be called upon to contribute
beyond that stipulated sum
The point of distinction between these two types of companies is that in the case of
Guarantee Company the members may be called upon to discharge their liability only
after commencement of the winding up and only subject to certain conditions but in the
latter case they may be called upon to do so at any time either during the companyrsquos
life-time or during its winding up
(c) Unlimited company Companies Act 2013 defines such unlimited company as a
company not having any limit on the liability of its members
2 On the basis of members
(a) One person company The Companies Act 2013 introduces a new class of
companies which can be incorporated by a single person Section 2(62) of the
Companies Act 2013 defines one person company (OPC) as a company which has only
one person as a member One person company has been introduced to encourage
entrepreneurship
(b) Private Company [Section 2(68)] Means a company having a minimum paid-up
4 | P a g e
share capital of one lakh rupees or such higher paid-up share capital as may be
prescribed and which by its articlesmdash (i) restricts the right to transfer its shares (ii) limits the number of its members to two hundred(except in case of One Person
Company)
(iii) prohibits any invitation to the public to subscribe for any securities of the company
(c) Public company [Section 2(71)] The Companies Act 2013 defines public company
as a company which- bull is not a private company bull has a minimum paid up share capital of 5 lakh rupees or such higher paid up capital
as may be prescribed Seven or more members are required to form the company
3 On the basis of control
(a) Holding and subsidiary companies A Subsidiary is a company in which the holding
company-
- Controls the composition of board of directors
- Controls more than one half of total share capital (b) Associate company In relation to another company means a company in which that
other company has a control of at least 20 of total share capital
4 On the basis of access to capital
(a) Listed company It is a company which has any of its securities listed on any
recognised stock exchange
(b) Unlisted company means company other than listed company
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5 | P a g e
5 Other companies (a) Government company rdquo means any company in which not less than fifty- one per
cent of the paid-up share capital is held by- (i) the Central Government or (ii) by any State Government or Governments or (iii) partly by the Central Government and partly by one or more State Governments And the section includes a company which is a subsidiary company of such a
Government company
(b) Foreign Company means any company or body corporate incorporated outside
India whichmdash
(i) has a place of business in India whether by itself or through an agent physically
or through electronic mode and
( ii) conducts any business activity in India in any other manner
(c) Formation of companies with charitable objects etc Section 8 of the Companies Act 2013 deals with the formation of companies which are
formed to promote the charitable objects of commerce art science sports education
research social welfare religion charity protection of environment etc Such company
intends to apply its profit in promoting its objects and prohibiting the payment of any
dividend to its members
(d) Dormant company Where a company is formed and registered under this Act and
has no significant accounting transaction such a company or an inactive company may
make an application to the Registrar in such manner as may be prescribed for obtaining
the status of a dormant company
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6 | P a g e
(e) Public financial institutions By virtue of Section 2(72) of the Companies Act
2013 the following institutions are to be regarded as public financial institutions (i) the Life Insurance Corporation of India established under the Life Insurance
Corporation Act 1956 (ii) the Infrastructure Development Finance Company Limited (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act 2002
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7 | P a g e
3 Incorporation of a Company
Promotion and Promoter
Promotion The term lsquoPromotionrsquo means all those steps that are required to bring a company
into existence and continues until BOD take the charge of the company
Promoter
lsquoPromoterrsquo means a person who generates the idea of incorporating the company and takes all
the effective steps to incorporate it
Position of Promoter A Promoter is neither an agent nor a trustee of the company since the
company has not yet come into existence However his position is similar to that of an agent
and trustee
Duties of Promoter A promoter should not make any secret profit from the company Law
does not prohibit making profits but it prohibits secret profits So when a promoter makes any
profit from any transaction it must be disclosed to the BOD
Remedies available to company against the promoter When a promoter makes a secret profit
and afterwards the company comes to know about the fact the company will have the
following remediesoptions
Rescission The Company may rescind the contract However rescission must be made
in reasonable time
Recover Secret Profit The Company may recover the secret profit made by the
promoters
Suit The company may sue the promoters in the court of law
Promoter remuneration or reimbursement
(a) The Promoters shall have no right to ndash
Receive any remuneration from the company or
Recover the expenses properly incurred by them for the incorporation of the company
Unless the company after incorporation has contracted the same
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
3 | P a g e
2 Classes of Companies
1 On the basis of liability
a) Company limited by shares
It implies that for meeting the debts of the company the shareholder may be called
upon to contribute only to the extent of the amount which remains unpaid on his
shareholdings His separate property cannot be used to meet the companyrsquos debt
(b) Company limited by guarantee
Thus the liability of the member of a guarantee company is limited upto a stipulated
sum mentioned in the memorandum Members cannot be called upon to contribute
beyond that stipulated sum
The point of distinction between these two types of companies is that in the case of
Guarantee Company the members may be called upon to discharge their liability only
after commencement of the winding up and only subject to certain conditions but in the
latter case they may be called upon to do so at any time either during the companyrsquos
life-time or during its winding up
(c) Unlimited company Companies Act 2013 defines such unlimited company as a
company not having any limit on the liability of its members
2 On the basis of members
(a) One person company The Companies Act 2013 introduces a new class of
companies which can be incorporated by a single person Section 2(62) of the
Companies Act 2013 defines one person company (OPC) as a company which has only
one person as a member One person company has been introduced to encourage
entrepreneurship
(b) Private Company [Section 2(68)] Means a company having a minimum paid-up
4 | P a g e
share capital of one lakh rupees or such higher paid-up share capital as may be
prescribed and which by its articlesmdash (i) restricts the right to transfer its shares (ii) limits the number of its members to two hundred(except in case of One Person
Company)
(iii) prohibits any invitation to the public to subscribe for any securities of the company
(c) Public company [Section 2(71)] The Companies Act 2013 defines public company
as a company which- bull is not a private company bull has a minimum paid up share capital of 5 lakh rupees or such higher paid up capital
as may be prescribed Seven or more members are required to form the company
3 On the basis of control
(a) Holding and subsidiary companies A Subsidiary is a company in which the holding
company-
- Controls the composition of board of directors
- Controls more than one half of total share capital (b) Associate company In relation to another company means a company in which that
other company has a control of at least 20 of total share capital
4 On the basis of access to capital
(a) Listed company It is a company which has any of its securities listed on any
recognised stock exchange
(b) Unlisted company means company other than listed company
Like us - wwwfacebookcomdestinationcaorg
5 | P a g e
5 Other companies (a) Government company rdquo means any company in which not less than fifty- one per
cent of the paid-up share capital is held by- (i) the Central Government or (ii) by any State Government or Governments or (iii) partly by the Central Government and partly by one or more State Governments And the section includes a company which is a subsidiary company of such a
Government company
(b) Foreign Company means any company or body corporate incorporated outside
India whichmdash
(i) has a place of business in India whether by itself or through an agent physically
or through electronic mode and
( ii) conducts any business activity in India in any other manner
(c) Formation of companies with charitable objects etc Section 8 of the Companies Act 2013 deals with the formation of companies which are
formed to promote the charitable objects of commerce art science sports education
research social welfare religion charity protection of environment etc Such company
intends to apply its profit in promoting its objects and prohibiting the payment of any
dividend to its members
(d) Dormant company Where a company is formed and registered under this Act and
has no significant accounting transaction such a company or an inactive company may
make an application to the Registrar in such manner as may be prescribed for obtaining
the status of a dormant company
Like us - wwwfacebookcomdestinationcaorg
6 | P a g e
(e) Public financial institutions By virtue of Section 2(72) of the Companies Act
2013 the following institutions are to be regarded as public financial institutions (i) the Life Insurance Corporation of India established under the Life Insurance
Corporation Act 1956 (ii) the Infrastructure Development Finance Company Limited (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act 2002
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Join Us - wwwfaceboocomgroupsdestinationca
7 | P a g e
3 Incorporation of a Company
Promotion and Promoter
Promotion The term lsquoPromotionrsquo means all those steps that are required to bring a company
into existence and continues until BOD take the charge of the company
Promoter
lsquoPromoterrsquo means a person who generates the idea of incorporating the company and takes all
the effective steps to incorporate it
Position of Promoter A Promoter is neither an agent nor a trustee of the company since the
company has not yet come into existence However his position is similar to that of an agent
and trustee
Duties of Promoter A promoter should not make any secret profit from the company Law
does not prohibit making profits but it prohibits secret profits So when a promoter makes any
profit from any transaction it must be disclosed to the BOD
Remedies available to company against the promoter When a promoter makes a secret profit
and afterwards the company comes to know about the fact the company will have the
following remediesoptions
Rescission The Company may rescind the contract However rescission must be made
in reasonable time
Recover Secret Profit The Company may recover the secret profit made by the
promoters
Suit The company may sue the promoters in the court of law
Promoter remuneration or reimbursement
(a) The Promoters shall have no right to ndash
Receive any remuneration from the company or
Recover the expenses properly incurred by them for the incorporation of the company
Unless the company after incorporation has contracted the same
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
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23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
4 | P a g e
share capital of one lakh rupees or such higher paid-up share capital as may be
prescribed and which by its articlesmdash (i) restricts the right to transfer its shares (ii) limits the number of its members to two hundred(except in case of One Person
Company)
(iii) prohibits any invitation to the public to subscribe for any securities of the company
(c) Public company [Section 2(71)] The Companies Act 2013 defines public company
as a company which- bull is not a private company bull has a minimum paid up share capital of 5 lakh rupees or such higher paid up capital
as may be prescribed Seven or more members are required to form the company
3 On the basis of control
(a) Holding and subsidiary companies A Subsidiary is a company in which the holding
company-
- Controls the composition of board of directors
- Controls more than one half of total share capital (b) Associate company In relation to another company means a company in which that
other company has a control of at least 20 of total share capital
4 On the basis of access to capital
(a) Listed company It is a company which has any of its securities listed on any
recognised stock exchange
(b) Unlisted company means company other than listed company
Like us - wwwfacebookcomdestinationcaorg
5 | P a g e
5 Other companies (a) Government company rdquo means any company in which not less than fifty- one per
cent of the paid-up share capital is held by- (i) the Central Government or (ii) by any State Government or Governments or (iii) partly by the Central Government and partly by one or more State Governments And the section includes a company which is a subsidiary company of such a
Government company
(b) Foreign Company means any company or body corporate incorporated outside
India whichmdash
(i) has a place of business in India whether by itself or through an agent physically
or through electronic mode and
( ii) conducts any business activity in India in any other manner
(c) Formation of companies with charitable objects etc Section 8 of the Companies Act 2013 deals with the formation of companies which are
formed to promote the charitable objects of commerce art science sports education
research social welfare religion charity protection of environment etc Such company
intends to apply its profit in promoting its objects and prohibiting the payment of any
dividend to its members
(d) Dormant company Where a company is formed and registered under this Act and
has no significant accounting transaction such a company or an inactive company may
make an application to the Registrar in such manner as may be prescribed for obtaining
the status of a dormant company
Like us - wwwfacebookcomdestinationcaorg
6 | P a g e
(e) Public financial institutions By virtue of Section 2(72) of the Companies Act
2013 the following institutions are to be regarded as public financial institutions (i) the Life Insurance Corporation of India established under the Life Insurance
Corporation Act 1956 (ii) the Infrastructure Development Finance Company Limited (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act 2002
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Join Us - wwwfaceboocomgroupsdestinationca
7 | P a g e
3 Incorporation of a Company
Promotion and Promoter
Promotion The term lsquoPromotionrsquo means all those steps that are required to bring a company
into existence and continues until BOD take the charge of the company
Promoter
lsquoPromoterrsquo means a person who generates the idea of incorporating the company and takes all
the effective steps to incorporate it
Position of Promoter A Promoter is neither an agent nor a trustee of the company since the
company has not yet come into existence However his position is similar to that of an agent
and trustee
Duties of Promoter A promoter should not make any secret profit from the company Law
does not prohibit making profits but it prohibits secret profits So when a promoter makes any
profit from any transaction it must be disclosed to the BOD
Remedies available to company against the promoter When a promoter makes a secret profit
and afterwards the company comes to know about the fact the company will have the
following remediesoptions
Rescission The Company may rescind the contract However rescission must be made
in reasonable time
Recover Secret Profit The Company may recover the secret profit made by the
promoters
Suit The company may sue the promoters in the court of law
Promoter remuneration or reimbursement
(a) The Promoters shall have no right to ndash
Receive any remuneration from the company or
Recover the expenses properly incurred by them for the incorporation of the company
Unless the company after incorporation has contracted the same
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
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23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
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27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
5 | P a g e
5 Other companies (a) Government company rdquo means any company in which not less than fifty- one per
cent of the paid-up share capital is held by- (i) the Central Government or (ii) by any State Government or Governments or (iii) partly by the Central Government and partly by one or more State Governments And the section includes a company which is a subsidiary company of such a
Government company
(b) Foreign Company means any company or body corporate incorporated outside
India whichmdash
(i) has a place of business in India whether by itself or through an agent physically
or through electronic mode and
( ii) conducts any business activity in India in any other manner
(c) Formation of companies with charitable objects etc Section 8 of the Companies Act 2013 deals with the formation of companies which are
formed to promote the charitable objects of commerce art science sports education
research social welfare religion charity protection of environment etc Such company
intends to apply its profit in promoting its objects and prohibiting the payment of any
dividend to its members
(d) Dormant company Where a company is formed and registered under this Act and
has no significant accounting transaction such a company or an inactive company may
make an application to the Registrar in such manner as may be prescribed for obtaining
the status of a dormant company
Like us - wwwfacebookcomdestinationcaorg
6 | P a g e
(e) Public financial institutions By virtue of Section 2(72) of the Companies Act
2013 the following institutions are to be regarded as public financial institutions (i) the Life Insurance Corporation of India established under the Life Insurance
Corporation Act 1956 (ii) the Infrastructure Development Finance Company Limited (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act 2002
Like us - wwwfacebookcomdestinationcaorg
Join Us - wwwfaceboocomgroupsdestinationca
7 | P a g e
3 Incorporation of a Company
Promotion and Promoter
Promotion The term lsquoPromotionrsquo means all those steps that are required to bring a company
into existence and continues until BOD take the charge of the company
Promoter
lsquoPromoterrsquo means a person who generates the idea of incorporating the company and takes all
the effective steps to incorporate it
Position of Promoter A Promoter is neither an agent nor a trustee of the company since the
company has not yet come into existence However his position is similar to that of an agent
and trustee
Duties of Promoter A promoter should not make any secret profit from the company Law
does not prohibit making profits but it prohibits secret profits So when a promoter makes any
profit from any transaction it must be disclosed to the BOD
Remedies available to company against the promoter When a promoter makes a secret profit
and afterwards the company comes to know about the fact the company will have the
following remediesoptions
Rescission The Company may rescind the contract However rescission must be made
in reasonable time
Recover Secret Profit The Company may recover the secret profit made by the
promoters
Suit The company may sue the promoters in the court of law
Promoter remuneration or reimbursement
(a) The Promoters shall have no right to ndash
Receive any remuneration from the company or
Recover the expenses properly incurred by them for the incorporation of the company
Unless the company after incorporation has contracted the same
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
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27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
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29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
6 | P a g e
(e) Public financial institutions By virtue of Section 2(72) of the Companies Act
2013 the following institutions are to be regarded as public financial institutions (i) the Life Insurance Corporation of India established under the Life Insurance
Corporation Act 1956 (ii) the Infrastructure Development Finance Company Limited (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act 2002
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Join Us - wwwfaceboocomgroupsdestinationca
7 | P a g e
3 Incorporation of a Company
Promotion and Promoter
Promotion The term lsquoPromotionrsquo means all those steps that are required to bring a company
into existence and continues until BOD take the charge of the company
Promoter
lsquoPromoterrsquo means a person who generates the idea of incorporating the company and takes all
the effective steps to incorporate it
Position of Promoter A Promoter is neither an agent nor a trustee of the company since the
company has not yet come into existence However his position is similar to that of an agent
and trustee
Duties of Promoter A promoter should not make any secret profit from the company Law
does not prohibit making profits but it prohibits secret profits So when a promoter makes any
profit from any transaction it must be disclosed to the BOD
Remedies available to company against the promoter When a promoter makes a secret profit
and afterwards the company comes to know about the fact the company will have the
following remediesoptions
Rescission The Company may rescind the contract However rescission must be made
in reasonable time
Recover Secret Profit The Company may recover the secret profit made by the
promoters
Suit The company may sue the promoters in the court of law
Promoter remuneration or reimbursement
(a) The Promoters shall have no right to ndash
Receive any remuneration from the company or
Recover the expenses properly incurred by them for the incorporation of the company
Unless the company after incorporation has contracted the same
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
7 | P a g e
3 Incorporation of a Company
Promotion and Promoter
Promotion The term lsquoPromotionrsquo means all those steps that are required to bring a company
into existence and continues until BOD take the charge of the company
Promoter
lsquoPromoterrsquo means a person who generates the idea of incorporating the company and takes all
the effective steps to incorporate it
Position of Promoter A Promoter is neither an agent nor a trustee of the company since the
company has not yet come into existence However his position is similar to that of an agent
and trustee
Duties of Promoter A promoter should not make any secret profit from the company Law
does not prohibit making profits but it prohibits secret profits So when a promoter makes any
profit from any transaction it must be disclosed to the BOD
Remedies available to company against the promoter When a promoter makes a secret profit
and afterwards the company comes to know about the fact the company will have the
following remediesoptions
Rescission The Company may rescind the contract However rescission must be made
in reasonable time
Recover Secret Profit The Company may recover the secret profit made by the
promoters
Suit The company may sue the promoters in the court of law
Promoter remuneration or reimbursement
(a) The Promoters shall have no right to ndash
Receive any remuneration from the company or
Recover the expenses properly incurred by them for the incorporation of the company
Unless the company after incorporation has contracted the same
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
Join Us - wwwfaceboocomgroupsdestinationca
17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
8 | P a g e
(b) Even if the AOA provides that the company shall pay remuneration to the promoters or
reimburse expenses incurred by them such a provision is not binding on the company
Mode of payment of remuneration The Company may pay remuneration to the promoters in
any of the following ways
Issue of Shares at discount
Right to subscribe for companyrsquos shares in future at fixed price
Purchase of property of promoters at higher price
Paying any lump sum remuneration
Procedure for Incorporation of Company
In order to incorporate a company there must be association of persons with a common
lawful object desirous of forming a company
Subscription The memorandum and articles must be subscribed by at least 7 persons in
case of a public company and at least two persons in case of a private company and 1
person in case of a One-Person company
Availability of name An application in Form-1A shall be made to the ROC for ascertaining
the availability of proposed name and if the name is available
Documents required to be filed with the registrar After obtaining the approval of name
the following documents shall be filed with the registrar
a Memorandum of association
b Articles of Association
c Form No1 (Statutory declaration that all requirements of company registration are
met)
d If a Managing Director Whole time director or manager is proposed to be
appointed the agreement entered into by the company with such person
e Form 18 Address of registered office of the company
f Form 32 Particulars of Directors manager and secretary
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
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23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
9 | P a g e
The ROC shall verify the documents submitted and shall issue a Certificate of Incorporation
(COI)
Mode of formation of One-Person Company
The memorandum of OPC shall indicate the name of the other person who shall in
the event of the subscriberrsquos death or his incapacity to contract become the
member of the company
The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be filed with Registrar of
companies at the time of incorporation
Only a natural person who is an Indian citizen and resident in India (person who has
stayed in India for a period of not less than 182 days during the immediately
preceding one calendar year )- shall be eligible to incorporate a OPC
shall be a nominee for the sole member of a OPC
No person shall be eligible to incorporate more than one OPC or become nominee in
more than one such company
No minor shall become member or nominee of the OPC or can hold share with
beneficial interest
Such Company cannot be incorporated or converted into a company under section 8 of
the Act
Practice Manual Questions
What is the meaning of ldquoCertificate of Incorporationrdquo under the provisions of the
Companies Act 2013
Registrar shall on the basis of documents and information filed for the formation of a
company shall register the said documents and information and issue a Certificate of
Incorporation
On and from the date of incorporation mentioned in the certificate of incorporation the
Registrar shall allot to the company a Corporate Identification Number(CIN)
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
Join Us - wwwfaceboocomgroupsdestinationca
17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
10 | P a g e
The company becomes a legal entity from the date mentioned in the certificate of
incorporation and continues to be so till it is wound up
State the conditions which are applicable for the purpose of commencement of
business by a public company under the Companies Act 2013
A declaration is filed by a director in such form and verified in such manner as may
be prescribed with the Registrar that every subscriber to the Memorandum has paid
the amount in respect of the paid up value of shares agreed to be taken by him and
that the paid up capital of the company is not less than ` 5 Lakhs in case of a public
company and ` 1 Lakh in case of a private company as on the date of the
declaration and
The company has filed with the Registrar a verification of its Registered Office
Though six out of seven signatures to the Memorandum of Association of a
company were forged the company was registered and the Certificate of
Incorporation was issued Can the registration of the company be challenged
subsequently on the ground of forged signatures
Or The Memorandum of Association of a company was signed by two adult members
and by a guardian of the other five minor members the guardian signing
separately for each minor member The Registrar registered the company and
issued under his hand a Certificate of Incorporation Is the certificate valid
The facts in the above case are similar to that of the case law
Moosa Vs Ibrahim
In the above case the Memorandum of Association was signed by two adults and one
guardian representing five other minor members The ROC has issued the Certificate of
Incorporation
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
Join Us - wwwfaceboocomgroupsdestinationca
17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
11 | P a g e
4 Memorandum and Articles
Memorandum definition by Palmer Memorandum contains the objects for which
the company is formed and therefore identifies the possible scope of its operations
beyond which its actions cannot go
Requirements of a MOA The memorandum shall-
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber to memorandum
d) Include the name of at least one witness who shall attest the signature of
the subscribers
Name Clause of Memorandum
No Company shall be registered by a name which in the opinion of CG is
undesirable
A name is deemed to be undesirable if it is identical with or too nearly
resembles-
a) The name by which company in existence has been previously registered or
b) A registered trademark or
c) A trademark which is subject of an application for registration
Case Law Ewing who traded under the name Buttercup Diary Company sued to
restrain(stop) a newly registered company called Buttercup Margarine Company Ltd
which is dealing in the same dairy business from using the name on the grounds that
the general public might reasonably believe that there was a link between the two
businesses
HELD Ewing was successful
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
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27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
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29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
12 | P a g e
Guidelines regarding name
The name should not be such as will deceive or mislead the public
The name should not be prohibited under the Emblems and Names Act 1950
The name should not be similar to the name of a famous person
The name should not contain the word lsquoco-operativersquo
The name or surname of a person can be used in the name of the company only
if such person is a promoter or director of the company
Alteration in Name Clause of Memorandum [May 2012 and 4 times before]
Change of Name
The company shall pass a Special Resolution in the General Meeting
The company shall obtain the approval of the CG (ROC)
The approval of CG for change of name is not required to add the word lsquoPrivatersquo
when a Public Company has converted into a Private company and to remove
the word lsquoPrivatersquo when a Private company is converted into a public company
Effects of alteration of name
The ROC shall issue a fresh COI
The MOA shall be altered
The rights and obligations of the company shall not be affected by the change of
name (existing legal proceedings if any shall continue)
Question lsquoKrishna Dairy Limitedrsquo is an existing company Later on a new company with
name lsquoKrishna Dairy Products Limitedrsquo is formed What are the remedies available to
lsquoKrishna Dairy Limitedrsquo [Similar question asked in Nov 2002 May 2003 Nov 2005]
Answer
1 The new company name too nearly resembles to the existing company
2 lsquoKrishna Dairy Limitedrsquo shall make an application to the CG seeking a direction from
CG to lsquoKrishna Dairy Products Limitedrsquo to rectify its name
3 lsquoKrishna Dairy Products Limitedrsquo shall rectify the name within 3 months from of
receipt of the direction of the CG
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
13 | P a g e
Situation Clause of MOA
Importance of Registered Office of the company [May 2007 Nov 2011 Nov 2013]
Books of Account along with relevant vouchers shall be kept at the
registered office
Minutes book of Meetings shall be kept at Registered Office
Register of Members Register of Debenture holders shall be maintained
here
The jurisdiction of the court shall be decided based on the registered
office of the company
Meetings of the company are generally held at the Registered Office
Shifting of Registered Office from State to another [Nov 2013 Nov 2011 + 5 times]
An application for alteration shall be made to the CG
Notice shall be served on the ROC who shall have right to state his objections and
suggestions
CG shall consider the rights and interests of members and creditors
Filing Requirements The order of the CG and the altered MOA shall be filed with
the register of each state within 3 months from the date of CG order
The ROC of the new state shall give a certificate of registration of alteration (just
like an acknowledgement) of registered office within one month
ReOrient Paper Mills Ltd A company made an application for shifting its registered
office from Orissa to west Bengal The reason sought by the company is that it will have
less tax burden due to the change of state The change was refused by the ROC on the
ground that lsquoLess tax burdenrsquo is not an appropriate groundreason for shifting registered
office
Minerva Mills Ltd Vs Govt of Maharashtra The Govt cannot refuse the shifting of
registered office merely on the ground that the change will result in loss of revenue to a
state The question of loss of revenue is to be considered form the point of view of total
revenue of Republic of India but not for a particular state
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
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27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
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29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
14 | P a g e
Changing Registered Office within local limits of the city
The company shall pass a Board Resolution
The company shall give notice to ROC (in form18) within 30 days
Change outside local limits but within the same state
The company shall pass a SR
The company shall give notice to ROC (in form18) within 30 days
Alteration of Objects Clause of MOA
The company shall pass a Special Resolution for approving the change
A copy of SR and altered MOA shall be filed with the ROC within 1 month
The ROC shall register the alteration within 1 month and issue a certificate of
registration of alteration
The alteration shall not be effective until it is duly registered by the ROC
Specified Purposes for alteration of objects clause [May 2004 Nov 2006 May 2008]
A company can change its objects clause only if the change will enable the company-
(a) to carry on its business more economically or more efficiently
(b) to attain its main purpose by new or improved means
(c) to enlarge or change the local area of its operations
(d) to carry on some business which under existing circumstances may
conveniently or advantageously be combined with the business of the company
(e) to restrict or abandon any of the objects specified in the memorandum
(f) to sell or dispose of the whole or any part of the undertaking or of any of the
undertakings of the company or
(g) to amalgamate with any other company or body of persons
Alteration of Objects ndash related Case Law
A company formed with the object of generation of electricity was allowed to carry on
lsquocold storagersquo business [ReAmbala Electric Supply Co Ltd]
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
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23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
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27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
15 | P a g e
Alteration of Liability Clause of the MOA
General Rules of Liability Clause The liability of an member cannot be increased --
By requiring to subscribe for additional shares
By requiring to pay more than what he has guaranteed
Or in any manner whatsoever
[ If the member agrees for that increase in writing the company can require the
member to pay such additional amount]
Alteration of Capital Clause of the MOA
Alteration of capital clause will include-
Increase in the Share Capital by issuing new shares
Consolidate and divide share capital into shares of larger amount
Sub-divide shares into shares of smaller amount (explained below)
Cancel shares which not have been taken by any person [diminishing the share
capital]
The Share Capital of Company consists of 100000 shares of Rs 10 each Under
consolidation the company will consolidate (combine) the entire share capital and
divide it into Rs100 share each Now the number of shares will come down to
10000 but the total share capital amount will remain the same
The Share Capital of Company consists of 10000 shares of Rs 50 each Here the
company will sub-divide the entire share capital Rs25 share each Now the number
of shares will come down to _______ and the resulting share capital is _________
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
Join Us - wwwfaceboocomgroupsdestinationca
17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
16 | P a g e
Requirements for alteration of Share Capital
The alteration should be allowed by AOA
Pass an OR
Notice to ROC within 30 days
Articles of Association
AmendmentAlteration in AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
The AOA shall bemdash
a) Be printed
b) Be divided into paragraphs numbered consecutively
c) Be signed by each subscriber
d) Include the name of at least one witness who shall attest the signature of
the subscribers
RestrictionsLimitations for Amendment of AOA [May 2014 ] Write any 5 in exam
The AOA is subordinate to MOA In case of any contradictions MOA shall prevail
over AOA
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17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
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22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
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23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
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27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
17 | P a g e
a) The alteration must not exceed the powers given by the Memorandum of Association
of the company or conflict with the provisions thereof
b) It must not be inconsistent with any provisions of Companies Act or any other
statute
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole
e) It should not be a fraud on minority or inflict a hardship on minority without any
corresponding benefits to the company as a whole
f) The alternation must not be inconsistent with an order of the court Any subsequent
alteration thereof inconsistent with such an order can be made by the company only
with the leave of the court
g) The alteration cannot have retrospective effect It can operate only from the date of
amendment
Practice Manual Questions
The Articles of a Public Company clearly stated that Mr A will be the solicitor of
the company The company in its general meeting of the shareholders resolved
unanimously to appoint B in place of A as the solicitor of the company by
altering the articles of association Examine whether the company can do so
State the reasons clearly
Procedure for alteration of AOA
A Special Resolution shall be passed for the alteration
CG approval is required if the alteration is being made while converting a Public
Co into a Private company
The company will be required to file within fifteen days the altered Articles with the
Registrar along with necessary documents such as the copy of the special resolution
etc and in such manner as may be prescribed
On receipt of all documents the Registrar shall register the same
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
18 | P a g e
In the present case the company has altered the Articles by a unanimous resolution of the
members passed at a general meeting
Hence the alteration is valid
The Directors of a company registered and incorporated in the name ldquoMars
Textile India Ltdrdquo desire to change the name of the company entitled ldquoNational
Textiles and Industries Ltdrdquo Advise as to what procedure is required to be
followed under the Companies Act 2013
Procedure for change of Name
In the first instance Mars Textile India Ltd should ascertain from the Registrar of
Companies whether the proposed name viz National Textiles and Industries Ltd is available
or not
For this purpose the company should file the prescribed Form No1A with the Registrar
along with the necessary fees
In case the name is available the company has to pass a special resolution approving the
change of name to National Textiles and Industries Ltd
Thereafter the approval of the Central Government should be obtained
The change of name shall be complete and effective only on the issue of a fresh certificate
of incorporation by the Registrar
Change of registered office from the jurisdiction of one Registrar to the other
Registrar within the same State
A change of registered office from the jurisdiction of one registrar to another does not
involve an alteration to the Memorandum of a company as the location clause in the
Memorandum merely states the name of the state
However A Special Resolution shall be passed for such change
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
19 | P a g e
5 Prospectus Prospectus Companies Act 2013 defines prospectus as any document described as
issued as prospectus and includes red herring prospectus or shelf prospectus or any
notice circular advertisement or other document inviting offers from the public for
subscription or purchase of any securities
Issue of SharesSecurities by Public Company
A public company may issue securities in the following manner
a) to public through prospectus (herein referred to as public offer) or
b) through private placement or
c) through a rights issue or a bonus issue and
d) in case of a listed company or a company which intends to get its securities listed
(unlisted companies) with the provisions of the Securities and Exchange Board of
India Act 1992 and the rules and regulations made there under
Issue of Share by Private Company
a) by way of rights issue or bonus issue or
b) through private placement
Power of SEBI to regulate issue and transfer of Securities
a) Where the provisions relate to- (i) issue and transfer of securities and (ii) non-
payment of dividend by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India be administered by
SEBI
b) in any other case be administered by the Central Government
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
20 | P a g e
Offer or Invitation to public
Offer or invitation to public includes invitation to any section of public members or
debenture holders of the company clients of the person issuing the prospectus or in any
other manner
[Where the invitation is issued to domestic concern (means close relatives and friends
not exceeding 50) it is not treated as a public offer]
When prospectus is not required to be issued
When invitation is made to existing members
For Shares being traded on a stock exchange
Where the securities are issued by a Private Company
Where no offer is made to public
Legal Rules as to Prospectus [Also asked as lsquoRequirements of Prospectus]
Registration A Prospectus shall be registered with the registrar before it is issued to the
public
Signing It shall be signed by every director and proposed director
Rattan Singh Vs Moga Transport Co
Rattan Singh is the director of the company and offered shares to his kith and kin Held
that this is not an offer to public and but is distributed among close circles
Pramatha Nath Sanya Vs Kali Kumar Dutt
An advertisement was issued in a newspaper stating that some shares were still
available for subscription Held the advertisement is ____________________
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
21 | P a g e
Time limit for issue of Prospectus The prospectus shall be issued within 90 days from
the date of registration with ROC
Effective date The date of issue of prospectus is the date on which it first appears as an
advertisement on a newspaper
Expert Statement lsquoExpertrsquo includes an engineer a valuer a Chartered Accountant
Company Secretary or Cost Accountant or any other person who has the power or
authority to issue a certificate in pursuance of any law
The expert must have given his consent for the prospectus
The expert must not have withdrawn his consent before the delivery of
prospectus to registrar
The Prospectus must disclose the fact that the expert has given his consent
The Expert is not and was never interested in the promotion and formation or
management of the company
Advertisement of Prospectus
Where an advertisement of prospectus is published in any manner it should include the
following particulars
The objects of the company
The liability of members
The amount of share capital
Names of Subscribers to MOA
Capital Structure of the company
Types of Prospectus
Abridged Deemed Shelf Red Herring
Join Us - wwwfaceboocomgroupsdestinationca
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
22 | P a g e
Abridged Prospectus
lsquoAbridged Prospectusrsquo contains the salient features of a prospectus No application
forms for shares shall be issued without attaching the Abridged Prospectus
When abridged prospectus is not required
Where securities are not offered to public
Where applications are issued for an underwriting agreement
Shelf Prospectus and Information Memorandum
Shelf prospectus means a prospectus in respect of which the securities or
class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
The Shelf Prospectus shall indicate a period not exceeding 1 year as the
period of validity of such prospectus
The period of 1 year shall commence from the date of opening of the
first order of securities under the shelf prospectus
With respect to second or any subsequent offer of such securities issued
during the period of validity of shelf prospectus no further prospectus
shall be issued
Information Memorandum
Prior to the issue of second or subsequent offer of securities under the shelf
prospectus the company shall be required to file an information memorandum
with the Registrar
The information memorandum shall be filed with the registrar within such time
as may be prescribed
The information memorandum shall contain all material facts relating to new
charges created changes in the financial position of the company
Mail- destinationca2013gmailcom
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
23 | P a g e
Red Herring Prospectus
The expression red herring prospectus means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein
Company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus
A company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and
the offer
Any variation between the red herring prospectus and a prospectus shall
be highlighted as variations in the prospectus
Upon the closing of the offer of securities the prospectus stating therein
the total capital raised whether by way of debt or share capital and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board
Contents of a Prospectus
General information like Name and address of registered office of the company
the date of opening and closing of the issue etc
Capital structure of the company
History of the company its subsidiaries managers MD
Pending litigations against the company
The high and low prices of shares in last 3 years
Statutory information like amount of minimum subscription underwriting
commission particulars of previous issues etc
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
24 | P a g e
Remedies against the company for mis-statement in prospectus
An investor has the right to rescind the contract on the basis of any false or untrue
statement in the prospectus
Conditions for rescission
There must be false representation of fact
The fact should be material
The investor must have relied on prospectus (The false representation must have
induced the investor to purchase shares)
The investor rescinds the contract in a reasonable time
When the right of rescission is lost
Lapse of reasonable time
Investor has adopted the contract (with full knowledge of the mis-statement)
Start of liquidation
Remedies against Promoters Directors and Experts [5 Marks Imp]
[also asked in exam as lsquoWhat is the Civil Liability for mis-statement in prospectus]
This provision will apply when a person has subscribed for companyrsquos shares and has
suffered any loss or damage due to misleading prospectus
Who are liable for mis-statement
The company
Every person who is a director of the company at the time of issue of prospectus
Every person who has authorized himself to be named and is named in the
prospectus as a director of the company
Every person who has agreed to become a director of the company either
immediately or later some time
Every person who is a promoter of the company
Mail- destinationca2013gmailcom
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
25 | P a g e
Every person who has authorized the issue of the prospectus
Every person who is an expert
However any of the above persons (mentioned in the list) is not liable if he proves-
a) The prospectus was issued without his knowledge or consent and has given a
public notice regarding the same
b) That the director has withdrawn his consent before the issue of prospectus
Punishment for fraud
If a person makes any statement or promise which is false misleading or deliberately hides any fact
such person shall be liable for punishment for fraud
Fraud involves public interest
Any other case
Minimum imprisonment 3 years 6 months
Maximum imprisonment 10 years 10 years
Minimum fine Amount involved in the fraud
Amount involved in the fraud
MaxFine 3 times the amount involved in the fraud
3 times the amount involved in the fraud
Statement in lieu of prospectus
Statement in lieu of prospectus shall be filed with ROC at least 3 days before the
allotment of shares if-
a) The company does not issue prospectus or
b) The company issues a prospectus but does not proceed to allot the shares to the
public
It must be signed by every director or proposed director
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
26 | P a g e
If the statement in lieu of prospectus is not filed with the ROC in time the allotment is
voidable at the option of the investor
Non-applicability
Private Company
Company having no share capital
Subsequent allotment of shares by public company
Mail- destinationca2013gmailcom
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
27 | P a g e
6 Share Capital amp Membership
Allotment of Shares
Allotment of shares is the acceptance by the company of the offer to buy shares in
response to an issue of shares
Prohibition on allotment of securities No allotment of any securities of a company
offered to the public for subscription shall be made unless the amount stated in the
prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received
Minimum amount payable on security The amount payable on application on every
security shall not be less than five per cent of the nominal amount of the share
Minimum amount to be received within 30 days If the stated minimum amount has
not been subscribed and the sum payable on application is not received within a period
of thirty days from the date of issue of shares the amount received shall be refunded
to the shareholders
Filing of return of allotment A Return of allotment shall be filed with ROC
Procedure for Private placement of shares
Issue of private placement offer letter A company may make private placement
through issue of a private placement offer letter
Offer invitation to number of persons The offer of securities or invitation to
subscribe shares shall be made maximum to 50 persons (Excluding Institutional
buyers)
Payment of amount All monies payable towards subscription of securities under
this section shall be paid through cheque or demand draft or other banking
channels but not by cash
Time for allotment of securities A company making an private offer shall allot its
securities within 60 days from the date of receipt of the applications
Mail- destinationca2013gmailcom
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
28 | P a g e
Default in allotment of securities Where the company is not able to allot the
securities within stated period it shall repay the application money to the
subscribers within 15 days
Filing with the registrar Whenever a company makes any allotment of securities
it shall file with the Registrar a return of allotment
A public limited company which went in for Public issue of shares had
applied for listing of shares in three recognised Stock Exchanges and
out of it only two had given permission for listing Can the company
proceed for allotment of shares
Every company making a public offer shall before making such offer make an
application to one or more recognised stock exchange or exchanges and obtain
permission to trade its shares in such stock exchange or exchanges
A prospectus shall also state the name or names of the stock exchange in which the
shares shall be dealt with
From the above it is clear that not only has the company to apply for listing of the
securities at a recognized stock exchange but also obtain permission thereof before
making the public offer
Hence the company has violated the provisions of Companies Act and therefore
liable to pay prescribed fine
When is an Allotment of Shares treated as an irregular allotment State
the effects of an irregular allotment
The Companies Act 2013 does not separately provide for the term ldquoIrregular Allotmentrdquo
of securities Hence one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements
Mail- destinationca2013gmailcom
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
29 | P a g e
Types of Shares
(a) Preference Shares A Preference share holder will have preferential right in
dividend and also preferential right in the capital of the company in the event of
its winding up
(b) Equity Shares Shares other than preference shares are called equity shares
Equity shares do not enjoy fixed dividend
Classification of Share Capital
Authorized Capital Nominal Capital
Issued Capital
Subscribed Capital
Called up capital
Paid up capital
Redemption of Preference shares
The term of redeemable preference shares shall not exceed 20 years
Conditions for redemption
No authorization is required in articles to redeem preference shares
The preference shares must be fully paid up
Redemption can be made out of profit or fresh issue of shares
If any premium is being paid on redemption the profits of the company or
securities premium account shall be utilized
Creation of an account named CRR (Capital Redemption Reserve) is mandatory if
redemption is made out of profits An amount equal to the nominal amount of
preference shares shall be transferred to CRR
The CRR shall be utilized only for the purpose of issuing fully paid bonus shares
A notice shall be given to ROC within 30 days from the date of redemption
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
30 | P a g e
Reduction of Share Capital
Under lsquoReduction of share capitalrsquo the company reduces the liability on any of
its shares in respect of share capital not paid-up
Reduction of share capital can also be done through lsquoCancellationrsquo
Procedure for reduction of share capital
AOA shall have a provision regarding reduction of share capital
A Special Resolution shall be passed by company
A court approval is required Court shall take the consent from creditors
The court may direct the company to add words lsquoand reducedrsquo at the end of the
companyrsquos name
The SR and courtrsquos order shall be registered with ROC
Issue of Sweat Equity Shares
A Special Resolution shall be passed at the GM specifying the number of shares
current market price consideration if any and details of directors and employees
to whom they are being issued
At the date of issue at least 1 year must have been elapsed since the company
has commenced its business
Khan Construction Pvt Ltd has issued 10000 shares of Rs10 each The company can
reduce the nominal capital of each share to Rs5 Then the members need not pay
the remaining Rs5- that is due on their shares
Cancellation of share capital example It is less frequently used method In this method
say for example company has share capital of 100000 fully paid up The company also has
accumulated loss of Rs50000 The company can write off the loss against share capital
and thereby reducing the nominal value per share to Rs5 (100000 ndash 50000)10000
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
31 | P a g e
Issue of Shares at premium
No provision is required in AOA for issuing shares at premium Companies Act does not
prescribe any restriction The securities premium collected shall be transferred to
separate account called lsquoSecurities Premium Accountrsquo
Utilization of Securities Premium Account
Issuing fully paid bonus shares
Wirting off the preliminary expenses of the company
Writing off commission paid on issue of shares or debentures of the company
Writing off the discount allowed on issue of shares or debentures
Providing for premium payable on the redemption of any redeemable
preference shares or debentures of the company
For buy back of shares
Issue of shares at discount
According to section 53 a company shall not issue shares at a discount except in the
case of an issue of sweat equity shares
Any share issued by a company at a discounted price shall be void
Where a company contravenes the provisions of this section the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees
Every officer who is in default shall be punishable with imprisonment for a term which
may extend to six months or with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees or with both
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
32 | P a g e
Issue of Bonus shares
AOA shall authorize the bonus issue
Bonus shares shall be issued from
Undistributed profits available for dividend
Securities Premium account
Capital Redemption Reserve
An OR shall be passed in the meeting
Bonus shares shall be fully paid-up
Bonus shares can be issued to only existing share holders
Share Certificate
Issue of share certificate is mandatory for every company having share capital whether
public or private
A share certificate is issued under the common seal of the company and shall have the
details like Name of the Company Date of Issue of share certificate Name of the
member Number of shares held Amount paid-up It shall be signed by 2 directors and a
secretary
Time limit for delivery of share certificate
3 months from the date of allotment
2 months from the date of receipt of transfer deed
Issue of duplicate share certificate
A duplicate share certificate shall be issued if it is proven that it is lost or destroyed
A prior Board approval shall be obtained
A company may charge fee but not more than Rs2-
The words lsquoDuplicatersquo shall be stamped on it
The company shall maintain a register of such duplicate certificates issued
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
33 | P a g e
Membership in a Company
How to become a member in a company [Modes of acquiring membership]
By Subscribing to Memorandum The people who have subscribed to shares in
MOA will by default become members in a company and no special allotment is
required
By allotment of shares Where company makes share allotment the applicant of
shares becomes share holder He becomes a Member only when the name is
entered in the Register of Members
By transmission A person entitled to shares of a member as a consequence of
transmission when he gives a notice of transmission to the company and
company enters his name in register of Members
Other common modes are by Transfer by beneficial ownership
Capacity to become a Member
Minor Where a company allots shares to a minor the consequences are
After attaining majority the minor does not become automatically become a member
unless he accepts the membership
The minor shall not be
liable to pay any calls
remaining unpaid on
shares held by him
The guardian shall
not be compelled to
pay amount due on
shares
The minor shall
repudiate the
contract and shall
get the money back
The company shall
repudiate the
contract and pay
back the money
A minor can hold fully paid-up shares There is no legal bar on minor becoming a
member of a company provided minor acquires the shares by way of transfer and
the shares are fully paid-up and no further obligations are attached to the shares
[SLBagree VS Britannia Industries Ltd]
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
34 | P a g e
Condition for the issue of equity shares with differential rights
No company limited by shares shall issue equity shares with differential rights as to dividend voting or otherwise unless it complies with the following conditions namely the articles of association of the company authorizes the issue of shares with
differential rights
the issue of shares is authorized by an ordinary resolution passed at a general
meeting of the shareholders
the shares with differential rights shall not exceed 26 percent of the total post-
issue paid up equity share capital
the company having consistent track record of distributable profits for the last
three years
the company has not defaulted in filing financial statements and annual returns
for three financial years immediately preceding the financial year in which it is
decided to issue such shares
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
35 | P a g e
9 Meetings amp proceedings
Every company (other than a One Person Company) must hold in each year a general meeting in addition to any other meetings as its annual general meeting (AGM) First Annual General Meeting In case of the first annual general meeting it shall be
held within a period of nine months from the date of closing of the first financial year of
the company
Provided further that if a company holds its first annual general meeting as aforesaid it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation Holding of subsequent AGM
AGM is to be held in each calendar year
AGM is to be held within 15 months of last AGM
AGM is to be held within 6 months of close of financial year
ROC has power to give a 3 month extentsion
Date time and place of AGM Every annual general meeting shall be called during business hours that is between 9 am and 6 pm on any day that is not a National Holiday
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
36 | P a g e
Calling of extraordinary general meeting The Board may whenever it deems fit call an extraordinary general meeting of the
company
(2) Board on requisition of members The Board shall at the requisition made bymdash
(a) in the case of a company having a share capital such number of members who
hold atleast 10 paid-up capital or voting power in the company (b) in the case of a company not having a share capital such number of members
who have atleast 10 voting power
-can call an extraordinary general meeting of the company
Time period for calling the meeting The Board is required to proceed to call a meeting
within 21 days from the date of receipt of requisition to convene a meeting which
should be held within 45 days of such deposit of the requisition with the company
Requisitionists to call the meeting on the failure of the Board If the Board fails to call
the EGM in the time period provided then the requisitionists may call an EGM
themselves within 3 months from the date of requisition
Requisites of a Valid General Meeting
The meeting must be called by a proper authority
Proper notice must be served in a prescribed manner
Proper quorum must be present in the general meeting
Proper chairman must preside the meeting
The business must be validly transacted
Proper minutes of meeting must be prepared
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
37 | P a g e
Proper Authority to call meeting
BOD has power to call for a GM
An individual director or secretary has no power to call a GM
Length of Notice for calling GM
A GM can be called by giving at least 21 clear days notice in writing excluding the
date of issue of notice
Where a notice is sent through post it shall be deemed that the shareholder has
received the notice 2 days after the posting
Therefore notice must be dispatched 24 days before the date of meeting
For any shorter notice the unanimous approval (100) of members shall be
obtained in writing for a AGM For any other General Meeting 95 approval
shall be obtained
Date of dispatch of
notice
Date of GM
No of clear days
Valid notice or not
01-10-2014 20-09-2014 16 Invalid
01-09-2014 25-09-2014 21 Valid
07-05-2014 21 Valid
15-02-2014 21 Valid
The notice shall state the Place Day and Hour of the meeting and the agenda
Notice shall be served to every member legal representatives of deceased
member official assignees of insolvent member Auditor
The consent of members in case of shorter notice can be obtained in writing wither
before or during or after the meeting
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
38 | P a g e
Ordinary Business to be transacted at GM
At an AGM following businesses shall be ordinary businesses
Consideration of financial statements Boardrsquos Report Auditorrsquos Report
Declaration of Dividend
Retirement and appointment of new directors
Retirement of Auditors and appoint of new auditors
Special Business to be transacted at GM
All business except the ordinary business shall be deemed special business Where a
special business is to be transacted a general meeting an explanatory statement
containing the facts relating to such special business shall be attached to Notice for
general meeting
Quorum for General Meeting
Quorum means the minimum number of members who must be present in order to
constitute a valid meeting
Quorum for a private company is 2 members personally present
In case of a Public Company
Number of Members in the company as on the date of Meeting
Required quorum
Upto 1000 5 members personally present
More than 1000 but upto 5000 15 members personally present
Exceeds 5000 30 members personally present
Quorum is the minimum number prescribed by the statute Therefore Articles of a
company can prescribe for a higher quorum
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
39 | P a g e
Lack of quorum
The meeting shall adjourn to such day time and place as may be determined by
the Board
If BOD havenrsquot decided the meeting shall adjourn to same day time and place
next week
Chairman of GM
The members personally present at the meeting shall elect one of themselves to
be the chairman on show of hands
If demanded the Chairman shall also be elected by Poll
A Chairman shall have a casting vote which is a second vote which he can
exercise in case of equality of votes
Proxy
A member of a company can appoint a person as his proxy to attend and vote in
the meeting instead of himself
The notice of meeting shall contain a statement that a member is entitled to
appoint a proxy
A proxy form shall be in writing and signed by the Member
Yes
Norsquos
A proxy can vote on a Poll A proxy cannot vote on a show of hands
A Proxy can demand a poll A proxy has no right to speak at the meeting
---- A proxy is not counted for the purpose of quorum
Quorum needs to be present only at the commencement of meeting That means the
quorum requirement is not necessary for passing each and every resolution
Chairman will have voting rights just like the normal share holder Casting vote will
come into scene only during OR because the problem of equality of votes does not
arise for SR
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
40 | P a g e
Any member can inspect proxies deposited with the company from 24 hrs before
commencement of meeting until conclusion of meeting
Inspection can be made only if 3 days notice is given to the company
Representative If the President of India Governor of a State or a Company is a
member then a representative can be appointed The Representative shall have same
powers as that of a Member
Manner of Voting in a GM
Voting by Poll
A poll may be ordered by the chairman suo moto which means on his own motion
Also the chairman shall order a poll if a demand is made by ndash
Public Company having share capital
Private company having share capital
Any other Company
+If both Member and Proxy attend the meeting whose vote will be counted
-The proxy gets cancelled automatically and Memberrsquos vote will be considered
May 2006 Whether Quorum is present where 4 proxies 3 representatives are
present and articles require quorum of 7 members
Answer Representatives will be treated as members personally present
Preference shareholders do not have voting right and cannot be counted for
quorum Proxies cannot be included in quorum
The quorum is not present in this case since only 3 members are personally
present but required quorum is 7
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
41 | P a g e
Any Member or proxy holding 110th of total voting
power or Paid up capital of
Rs50000 or more
1 Member or proxy if number of members present in the meeting is less than 7
2 members or proxy if the number is more than 7
Any Member or proxy holding 110th of total voting power
Restrictions on voting rights of members
Calls on shares has been unpaid
The company has exercised any right of lien on shares
Ordinary Resolution
In OR the votes cast in favour of the resolution are required to exceed the votes cast
against the resolution [In simple terms number of YESrsquos should be more than NOrsquos]
Special Resolution
In a SR The votes cast in favour of the resolution are required to be not less than 3
times the votes cast against the resolution
If the Poll is demanded for adjournment of meeting or Appointment of new chairman
the poll shall be taken forthwithimmediately
In any other case the poll shall be taken at such time as directed by the chairman but
within 48 hrs
To restrict voting rights there should be an express provision in the Articles
The company cannot restrict the voting rights except in the above two cases
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
42 | P a g e
Minutes
Minutes shall contain a summary of the proceedings of a meeting
Minutes shall be prepared within 30 days from the date of conclusion of GM
Chairman of the same meeting shall sign the Minutes book In case the chairman
is unable (dead or out of country) to sign a director authorized by BOD shall sign
the Minutes
Chairman may not include certain matters in the Minutes book if he is of the
opinion that
It is defamatory of any person or
It is irrelevant or immaterial or
It is detrimental to the interests of the company
Passing of Resolution by Postal Ballot
ldquoPostal ballotrdquo means voting through post Company can send the documents for postal
ballot either through Registered Post or e-mail
Voting though Postal Ballot mandatory in certain cases 5 Marks Imp
Alteration in the objects clause of MOA
Buy-back of shares
Issue of shares with differential voting rights
Change in place of registered office outside local limits
Conversion of Public Company to Private Company
Annual General Meeting
Holding of First AGM
AGM to be held within 18 months of incorporation In such case there is no need
to hold AGM in the year of incorporation or following year
AGM is to be held within 9 months of close of financial year
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
43 | P a g e
Time Place and Day of AGM
AGM shall be held during business hours
AGM shall be held on a day that is not public holiday
AGM shall be held at the registered office of the company or some other place
within the same city
Cases in which AGM can be held on a public holiday
The date of general meeting is declared a public holiday after the notice is given
to shareholders
Where an AGM is adjourned for lack of quorum such meeting shall be held at
same day next week even though it is a public holiday
A Section 25 company can hold its meeting on a public holiday
Where a company has fixed dates for all its subsequent meetings and the day
happens to be a public holiday still AGM can be held
The AGM including the adjournment if any shall be completed within the
statutory time limit specified above In other words an AGM cannot be
adjourned to that date that falls beyond the statutory time limit
[Bejoy Kumar Karnani Vs Assistant ROC]
What if AGM is held beyond the due date specified in the Act
An AGM held beyond the due date is not void and all the resolutions passed at such
AGM are valid The only effect is that it involves penalty
Hungerford Investment and Trust Ltd Vs Turner Morrison and Co Ltd
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
44 | P a g e
Voting through electronic means
Every listed company or a company having not less than one thousand shareholders
shall provide to its members facility to exercise their right to vote at general meetings by
electronic means
A member may exercise his right to vote at any general meeting by electronic means
and company may pass any resolution
(i) the notices of the meeting shall be sent to all the members auditors of the
company or directors either -
(a) by registered post or speed post or
(b) through electronic means like registered e-mail id
(c) through courier service
(ii) the notice of the meeting shall clearly mention that the business may be transacted
through electronic voting system and the company is providing facility for voting by
electronic means
(iii) the e-voting shall remain open for not less than one day and not more than three
days
(iv) such voting period shall be completed three days prior to the date of the general
meeting
(v) the Board of directors shall appoint one scrutinizer who may be chartered
Accountant in practice Cost Accountant in practice or Company Secretary in
practice or an advocate but not in employment of the company and who in the
opinion of the Board can scrutinize the e-voting process in a fair and transparent
manner
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
45 | P a g e
8 Misc Topics
Acceptance of Deposits from members
The company shall Issue a circular to its members including therein a statement
showing the financial position of the company the credit rating obtained the total
number of depositors and the amount due towards deposits
A copy of the circular along with such statement shall be filed with the Registrar before
it is issued to the shareholders
A sum not less than fifteen per cent of the amount of its deposits maturing during a
financial year and the financial year next following shall be kept in a scheduled bank in a
separate bank account
Acceptance of deposits from public by certain companies A public company having
such net worth of not less than one hundred crore rupees or turnover of not less than
five hundred crore rupees may accept deposits from persons other than its members
Exceptions (following categories of amount may not be considered as deposits)
Any amount received from the Central Government or a state Government or
foreign governments
any amount received as a loan or facility from any banking company
any amount received by a company from any other company
any amount received from an employee of the company
any amount received in the course of or for the purposes of the business of the
company
any non-interest bearing amount received or held in trust
Global Depository Receipts
Section 41 of the Companies Act 2013 is a newly added provision according to which
company may issue global depository receipts
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
46 | P a g e
A company may issue depository receipts provided it follows the provision of FEMA
Rules and Regulations
The company shall take prior approval of its shareholders by passing a Special
Resolution at the General Meeting
The company shall appoint a merchant banker or a practising chartered accountant or a
practising cost accountant or a practising company secretary to oversee all the
compliances relating to issue of the Global depository receipts
The proceeds of issues of depository receipts shall either be remitted to a bank account
in India or deposited in an Indian bank operating abroad
Restrictions on giving of loans by company for purchase of its shares
A fundamental principle of Company Law was that a Company cannot buy its own
shares No public company shall give any financial assistance (by mean of a loan
guarantee etc) for purchase of any shares in the company
Exception
The giving of loans by a company to persons in the employment of the company other
than its directors or key managerial personnel for an amount not exceeding their salary
or wages for a period of six months with a view to enabling them to purchase shares
Calls on Shares
A lsquocallrsquo may be defined as a demand made by a company on its shareholders to pay the
whole or a part of the balance remaining unpaid on each share
The Board of Directors alone is empowered to make a call The power cannot be
delegated to a director or any other person
A call on the shares falling under the same class must be made on a uniform basis
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
47 | P a g e
Payment of calls in advance A company may if so authorised by the articles accept
from any member the whole or a part of the amount remaining unpaid of any shares by
him although no part of that amount has been called up
The shareholder is entitled to claim interest on the amount of the call to the extent payable according to articles of association If there are no profits it must be paid out of capital because shareholder becomes the creditor of the company in respect of this amount The amount received in advance of calls is not refundable In the event of winding up the shareholder ranks after the creditors but must be paid his amount with interest if any before the other shareholders are paid off
Forfeiture and Surrender of Shares
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as
premiums due in respect of shares Such a power can be exercised only if the articles
expressly so provide
Forfeiture of shares for any other reason other than non-payment of calls is valid
provided it is allowed by AOA [Naresh Chandra Sanyal Vs Culcutta Stock Exchange Ltd]
Although surrender and forfeiture have almost the same effect yet they differ from
each other Surrender is effected with the assent of the shareholder whereas forfeiture
is against the will of the shareholder
Debentures
Issue of debentures with an option to convert A company may issue debentures with
an option to convert such debentures into shares Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special
resolution passed at a general meeting
No company can issue any debentures carrying voting rights
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
48 | P a g e
Creation of debenture redemption reserve (DRR) account
The Act requires companies to create debenture redemption reserve (DRR) equivalent to
at least fifty per cent of the amount raised through the debenture issue
every company required to create Debenture Redemption Reserve shall on or before
the 30th day of April in each year invest or deposit as the case may be a sum which
shall not be less than fifteen percent of the amount of its debentures maturing during
the year ending on the 31st day of March of the next year in any one or more of the
following methods namely-
in deposits with any scheduled bank
in securities of the Central Government or of any State Government
In Govt bonds
the amount invested or deposited as above shall not be used for any purpose other than
for redemption of debentures maturing during the year referred above
A debenture trustee shall be appointed by the company
The debenture trustee shall take steps to protect the interests of the debenture- holders
and redress their grievances
Distinction between debenture and share
(i) Shares are a part of the capital of a company whereas debentures constitute a loan (ii) The shareholders are the owners of the company whereas debenture holders are creditors (iii) Shareholders generally enjoy voting right whereas debenture holders do not have any voting right (iv) Interest on debenture is payable even if there are no profits But dividends can be paid to shareholders only out of the profits of the company (vi) The rate of interest is fixed in the case of debentures whereas on equity shares the dividend may vary from year to year
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
49 | P a g e
Registration of a Charge
According to the Companies Act 2013 ldquochargerdquo has been defined as a lien created on
the property or assets of a company
Registration by the registrar The Registrar may on an application by the
company in 30 days allow such registration to be made after payment of such
fee as may be prescribed
Date of notice of charge Where any charge on any property or assets of a
company are registered with ROC any person acquiring such property assets
shall be deemed to have notice of the charge from the date of such registration
Register of charges to be kept by Registrar the Registrar shall in respect of
every company keep a register containing particulars of the charges registered
under him
Companyrsquos register of charges every company shall keep at its registered office
a register of charges Entries in the register shall be authenticated by a director or
the secretary of the company or any other person authorised by the Board for
the purpose
Inspection of the register of charges The register of charges shall be open for
inspection during business hours for any member or creditor of the company or
any person on payment of certain fee
Underwriting of Shares
Explain clearly the meaning of the term lsquoUnderwritingrsquo and lsquoUnderwriting
Commissionrsquo In what way does the Companies Act 2013 regulate payment of
such Commission Explain
(Or)
In what way does the Companies Act 2013 regulate the payment of
lsquounderwriting commissionrsquo Explain the provisions of the Act state the
conditions to be complied with before payment of such commission can be
made to underwriters of the company
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA
50 | P a g e
lsquoUnderwritingrsquo is a contract entered into between the company and certain parties
(called underwriters) whereby the underwriters guarantee to purchase or get investors
to purchase the whole or an agreed portion of the securities that are not applied for by
the public for subscription In consideration of this guarantee the company pays a
commission to the underwriters as a percentage of the value of the shares offered
The consideration payable to the underwriters for underwriting the issue of
shares or debentures of a company is called underwriting commission
the payment of such commission shall be authorized in the companyrsquos articles of
association
the rate of commission paid or agreed to be paid shall not exceed 5 in case of
shares and 25 in case of debentures The rates of commission given above are
maximum rates The company is free to negotiate lower rates with underwriters
the prospectus of the company shall disclose the name of the underwriters the
rate and amount of the commission payable to the underwriter etc
Pluto limited held shares in Jupiter limited Later on Pluto ltd became a subsidiary of
Jupiter ltd Decide whether it is necessary for Pluto ltd to surrender the shares of
Jupiter Ltd
A Subsidiary company cannot hold shares in its holding company and any allotment of
shares by the holding company to its subsidiary is invalid However in the following
cases the subsidiary can hold shares in its holding company
i Where the subsidiary is acting as a legal representative of a deceased member of
the holding company
ii Where the shares are being held as a trustee
iii Where the Subsidiary company is holding shares in the Holding company even
before it has become the subsidiary
In the given case the third exception applies and Pluto ltd is holding shares in Jupiter
ltd before it has become a subsidiary So there is no need of surrendering of shares
Destination-CA
- untitled1 Destination-CA