Presentation Company Act

7/29/2019 Presentation Company Act

1/68

THE COMPANIES ACT 1956


2/68

WHAT IS COMPANY

It is an association of persons for some

common objects. In common parlance the

word company is normally reserved for

thoswe associated for economic purposes.


3/68

DEFINITION OF COMPANY

The Companies Act1956 does not define

company. In terms of its features

Section 3 (1)(i) lays down that A

company means a company formed and

registered under Companies Act


4/68

DEFINITION OF COMPANY BY

LORD JUSTICE LINDLEY

A company is an association of many personswho contribute money worth to common stockand employed in some tradeiich the charter ofor business and who share the profit and lossarising therefrom

As per Chief Justice Marshall, A corporation isan artificial being, invisible, intangible existingonly in contemplation of law, it possess the onlyproperties which the charter of its creationconfers upon it either expressly or an incidentalto its existence


5/68

Professor Haney defines company

A company is an artificial person created

by law, having separate entity with a

perpetual succession and common seal


6/68

CHARACTERISTIC

FEATURES/NATURE OF A

COMPANY 1. Incorporated Association - minimumnumber required in a public company - 7

Private company - two u/s. 12

2. Legal entity distinct from its members

Soloman vs Soloman & Co.Ltd. (1895)

Lee vs Lees Air Farming Ltd(1960) Gramophone & Type writer Ltd vs Stanley

1908


7/68

3. Artificial Person - It has to depend

upon natural persons.

4. Limited Liability - Members are liableto contribute to limited extent.

5. Separate Property - Share holders are

not part owners of undertaking - Bacha F,Guzdar vs Commissioner of Income Tax.

Transferability of shares - Shares,

debentures shall be movable propertytransferable in the manner provided in

Article of Association.


8/68

7.Perpetual Succession - It continues

even if all its human members are dead

King is dead, long live the king.

8. Common seal - It does not have mind

or limbs of human being. It can be held

bound by only those documents whichbears its signature, common seal is

signature of company.

9. Company to sue - and to be sued.


9/68

KINDS OF COMPANY

Companies may be classified on following

basis:

I. CLASSIFICATION ON BASIS OF

INCORPORATION -

(1) Statutory Co. created by special Act

of the legislature

(2) Registered Company


10/68

II. ON BASIS BASIS OF LIABILITY;

1 Company with limited liability

(a) Company limited by shares(b) Company limited by guarante

2 Company with unlimited liability Sec 12(2)

3 Classification on the basis of number ofmembers:

i.Private company - minimum paid upcapital 1 lakh. Maximum 50 members

ii.Public company - Min. paid upcapital 5

lakhs.


11/68

4. Classification on basis of control

1. Holding company

2. Subsidiary company

5. Government company - 51 per cent ofpaidup share held by central or any stategovernment.

6. Association not for profit 7. Foreign company Sec.591 - company

incorporated abroad but having place ofbusiness in India

8. Producer company 9. Public financial Institutional Sec 4 A

- UTI,LIC,IFCI etc.


12/68

SPECIAL PRIVILEGES AND EXEMPTION

AVAILABLE TO PRIVATE COMPANIES:

1. A minimum of two persons may form Co.2. Allot shares without issuing prospectus

3. In the event of further issue of capital,

need not be first offered to the existingshareholders

4. A certificate of commencement of

business is not necessary5. Need not hold statutory meeting

6. A demand for poll u/s 179 may be made

by only one member


13/68

7. Need not have more than two directors

8. Directors are not required to file their

consent in writing9. A life director appointed by a private

company on or before 1st April 1952

cannot be removed by the co. in generalmeeting

10.Need not keep index of members S. 151

11. Quorum for general meeting of S.H. istwo persons

12. Financial assistance S. 77(2) & (3)


14/68

13. Share capital and voting rights S. 85 89.

14. Right of appeal to company law board (now

Tribunal) against rejection of transfer of sharesS. 111(13)

15. Provisions as to General Meeting S.170

shorter notice than 21 days is permissible

16. Managerial remuneration S.198 rxempted.

17. Appointment of firms or body corporate

S.204 the restriction of not exceeding 5 years

period is not applicable


15/68

18. Restriction on disclosure of profit and loss

S.220 not to be made open.

19. Rotational retirement of directors S. 255 notapplicable.

20. Notice for election as director S. 257 not

applicable

21. Filing casual vacancies S. 262 do not apply

22. Filing of consent of directors

S. 264 not applicable

23. Appointment of managing or whole timedirectors S. 268-69 no approval of central

government is required.


16/68

24. Qualification shares S. 270-273 not

applicable

25. Special disqualification for appointmentas directors S. 274 a private co. may by

its AOA provide special disqualifications

for appointment of directors26. Restrictions on number of directorships

S 275-79 (15 in case of Pub. Co.)

27. Restriction of powers of directors S. 29328. Loan to directors S. 295 no restriction


17/68

29. Interested directors S..300 not apply

30. Determination of net profits for remuneration S.

349-5031. Loans to other companies S 372 A

restriction not applicable to Prvt. Co.

32. inter-corporate investments S. 372A

33. Power to prenent changes in Board of

Directors S. 409 not applicable

34. Paid-up capita S. 3 : A private company can be

registered with a paid-up capital of Rs.1 lakhwhereas a public co. is required to have a

minimum paid-up capital of Rs. 5 lakh.


18/68

COVERSION OF A PRIVATE COMPANY

INTO A PUBLIC COMPANY:

1. Conversion by default; S. 432. Conversion by operation of law; S. 43A ;

Deemed public company; certain

managements incorporated theircompanies as private companies but

employed substantial public funds.S. 43A

introduced certain criteria according towhich such private companies were

treated as deemed public companies.

3. Conversion by choice.


19/68

CONVERSION BY CHOICE; S. 44.

The following steps are necessary for this purpose:

1. Special resolution deleting from its articlesthe requirement of s. 3(1)(iii)

2. Increase in membership S. 12

3. Increase in number of directors S. 2524. Raising of paid-up capita to the minimum

prescribed for public companies

5. Within 30 days from the passing of the special

resolution, a prospectus or a statement in lieuof prospectus in the prescribed form must be

filed with the registrar S. 44(1)(b)


20/68

DISTINCTION BET. PUB.&

PRVT.Company

Sl. No. Details Private Public

1. Min.capital 1 lakh 5 lakhs

2. Min.No.of

members

2 7

3 Max.No.of

Members

50 No

restriction

4. No.of

directors

2 3

5 Restriction

on a tt.

consent Not

re uired


21/68

6. Ragerialest

n. Oninvita.subs.

shares

Prohibits

genl.invita.

Genl.

Pub.subs.

7. Transferability of share Restricted Free

8. Special

privilege

Privilege

enjoyed

No such

privilege

9. Quorum 2 5

10 Remunerati

on mangl

No restn. 11% profit


22/68

FORMATION OF COMPANY

Any 7 or more persons (2 or more in case

of prvt. Co. may form a company.

DOCUMENTS TO BE FILED WITH

REGISTRAR:

The MOA and AOA - agreement, if any,

reg. apptt. Of MD or whole time Director

A list of Directors - agreed to become

Declaration about co. law compliance

CERTIFICALE OF


23/68

CERTIFICALE OF

INCORPORATION

After filing requisite documents and

Registrar being satisfied,he retains and

registers MOA & AOA and Certificate of

incorporation is issued.

EFFECT OF REGISTRATION:

1. The company becomes distinct entity

2. The com. acquires,perpetu.succession

3. The co. property not shareholdrs.prop.


24/68

PROMOTERS

The role of promoters is to decide name of

co., nominate Directors, MOA &AOAfinalisation, registration of company.

Fiduciary relations

Not to make any profit To give benefit of nego.to company

To make full disclosures

Not to make unfair use of position CO.NOT BOUND BY

PRE.INCORPN.CONTRACT


25/68

Memo.of Assn.(MOA)

MOA contains fundamental conditions

upon which alone the co. has beenincorporated.

FORM AND CONTENTS

The name clause Sec.13(1)(a)

The regd. Office clause Sec.13(1)(b)

Doctrine of ultra virus

Liability clause

Capital clause - Subscrip. clause


26/68

ALTERATION OF MOA Sec.16

1. change of name can take place bypassing special resolution at a genl.meet.with

approval of centl.govt.

2. change of regd. Office Spl.

Reso.confirmation of R.Dir.copy to ROCo.

3. Alteration of object clause

4. Alteration of liability clause 5. Alteration of capital clause authorise cap.


27/68

ARTI. OF ASSN.(AOA) BYE

LAWS OF COMPANY

Contents:

1.share capital

2.lien on share

3.calls on share

4.transfer of share

5.transmission of shares

6.forfeiture of shares

7.surrender of shares


28/68

8.conversion of shares into stock

9.share warrants

10.alteration of capital

11.general meetings & proceedings

12.voting rights of members, by poll,proxy

13.directors,their apptt.remu.quali.BOD

14.dividends and reserves

15.accounts and audit 16.borrowing powers

17.winding - up.


29/68

Companies which must have AOA Sec 26

A. Unlimited company

B. Co. limited by guarantee C. Prvt. co,. by shares

ADOPTION OF TABLE A

There are 3 alternative forms

Pub.Co.may adopt:

1. It may adopt Table A in full

2. It may set out its own AOA

3. Own AOA and part of Table A.


30/68

LIMITATION TO ALTER AOA 1.must not be inconsistent with the Act

2.must not conflict with the MOA

3.must not sanction illegal thing

4.must be for the benefit of co.

5.must not increase liability of members 6.alteration by special resolution

7.approval of central government

8.breach of contract 9.must not result into expulsn. Of members

10. No power of Tribunal to amend AOA

11.alteration may be with retros.effect


31/68

DOCTRINE OF CONSTRUCTIVENOTICE

S. 610 provides that the MOA and AOA

when regd. become public document They can be inspected on payment of fee.

Any person who contemplate entering into

contract with the co. has the means ofascertaining and presumed to know the

powersof the company.

This is known as doctrince of constructivenotice.


32/68

DOCTRICE OF INDOOR MANAGEMENT

Normally, those dealing with the co. can

assume that if the Directors or otherofficers are entering into those

transactions, they would have obtained the

ncecessary sanctions.This is known as doctrine of indoor

management. This doctrine was laid down

in the case of ROYAL BRITISH BANK VSTURQUARD (1856) 6 E.


33/68

IN FOLLOWING CASES IMCAN NOT

BE CLAIMED BY AN OUTSIDER:

1.when outsider has knowledge about

irregularity

2.no knowledge of AOA 3.forgery

4.negligence

5.when question is in regard to existenceof agency

Where pre-condition is required.


34/68

PROSPECTUS Sec. 2(36)

A public co. Ltd. by shares generally issues

shares to public for which it has to issueprospectus.

After Certificate of Incorporation is obtained, theaffairs of the co. are taken over by the first

Directors. The Board attends to the following: Appointment of Bankers,Auditors, Secretary etc

Entering into u/writing contract,brokerage etc.

Listing of shares on Stock Exchange Drafting Prospectus for the purpose of issue to

public.


35/68

Definition of prospectus u/s 2(36): Any

document described or issued as a pros-

pectus and includes any notice,circular,advertisement or other document inviting

deposits from public for subscription or

purchase of shares in, or debentures of, abody corporate. Prospectus should be in

writing and is an invitation to public.


36/68

SHARES:

Meaning - the capital of co. is divided into a

number of indivisible units of a fixed amount.These units are known as shares.

A share is not a sum of money but is the

interest of the share holder in the company. A share is regarded as goods u/s 2(7) Sales of

Goods act 1930.

A share is not a negotiable instrument Share represents property and share

certificate is an evidence of title of member to

such property


37/68

SHARE VS STOCK;

Share represents a unit into which capital of

Co is divided. If share capital is 500000.00divided into 50000 units of rupees 10/-each

unit shall be called share of company.

The term stock may be defined as theaggregate of fully paid up shares of a

member merged into one fund of equal

value. It is set of shares put together in abundle. Stock is expressed in terms of

money and not as so many shares.

TYPES OF SHARES


38/68

TYPES OF SHARES:

A company can issue two types of shares

viz. (1) Preference share and (2) Equityshare.

Preference shares Sec. 85(1) have two

characteristics: (a) they have a preferential rights to be

paid dividend during life time of company.

(b)preferential rights to the return of capitalwhen the company goes into liquidation.


39/68

2.Equity shares Sec 85(2) are those whichare not preference shares.

Sweat equity shares Sec79-A means equityshares issued at a discount or forconsideration other than cash for providingknow-how.

KINDS OF PREFERENCE SHARES:

1.cumulative pref. shares - dividend goeson accumulating till it is fully paid

2.non-cumulative pref. share - 3.participating pref.share - fixed dividend as

well as share in surplus profit.


40/68

4.non-participating pref, shares toconvert into equity shares within certain

period. 5.convertible pref. shares to convert into

equity shares within certain period

6.non-convertible preference shares

7.redeemable pref. shares Sec.80 ifAOA permits it can be redeemed

SHARE WARRANT Sec. 114 and 115

Docu. Issued by pub.co.bearer is entitledto shares specified therein.


41/68

DISTINCTION BET. SHARE WARRANT

AND SHARE CERTIFICATE

1. All companies are required to issue SC.Share warrant can be issued by pub. Co.

2. Approval of CGovt. For issue of SW by

pub.co. As per law, every co. has to issueSC.

3.SW. can be issued only with respect to

fully paidup shares. SC is to be issuedeven where shares are partly paid up.


42/68

4.the holder of SC is member of co. Holder of

SW is not member unless AOA authorises.

5.SW is by mercantile usage a negotiable

instrument. SC is not.

6.SW can be transferred mere delivery but not in

case of SC.

7.No stamp duty is payable on transfer of SW.Stamp duty is payable in case of transfer of SC

8.where a Director is required to hold some

qualification shares, SW does not constitute

such qualifications


43/68

9.SC is prima facie title to the shares. SW

is the share security itself.

10.the holder of SC can present petitionfor winding up. The holder of SW cannot

do so.

11.Dividend is paid to holder of SC byissue of SW. Dividend due on SW is

advertised in new papers.


44/68

BUY BACK SECURITIES: Sec. 77 A and AA permits

a company to purchase its own shares .or other

specified securities

RULES REGARDING DIVIDEND:

1.Resolution at annual general meeting

2.Payment of dividend in proportion to paid up capital

3. Dividend to be paid only out of profits

4.Unpaid dividend to be transferred to special

dividend account

5.Payment of unpaid dividend entitled to get 6.Dividend to be paid registered share holders

SHARE CAPITAL: means the capital


45/68

SHARE CAPITAL: means the capitalraised by a company by the issue ofshares.

The capital may mean AUTHORISED,

ISSUED, AND SUBSCRIBED OR PAID

UP OR RESERVE CAPITAL1.Authorised or nominal capital This is the

nominal value of shares which a co. is

authorised to issue. This is the maximumcapital which the co. will have during itslife time unless it is increased.


46/68

2.Issued or subscribed capital: Issued capital

is nominal value of shares which are offered

to public for subscription 3.Called up capital- This is that part of issued

capital which have been called up on shares

4.Paid up capital Which have been paid upby the share holders.

5.Un called capital This is the remainder of

the issued capital which has not been called. 6.Reserve capital This is that part of

uncalled capital of a company which can be

called only in the events of its winding up.

BORROWING POWERS:


47/68

BORROWING POWERS:

A company needs money to finance its

activities from time to time. A part of this

requirement is met by the issue of shares:

for the rest , the company has to resort to

borrowing.

When company has express powers toborrow, it can borrow subject to the limits

set by MOA and AOA.

DEBENTURES: Sec 2(12) means toinclude debentures, stock, bonds, and

any other security of company.


48/68

KINDS OF DEBENTURE:

1. Bearer debenture or u/regd. Debenture

2.Regd. debenture payable regd.holder

3.Secured debenture

4.Un secured or naked debenture

5.Redeemable debenture-after certain pd.

6.Irredeemable or perpetual debenture

7.Convertible debenture pref. or equity 8.Non convertible debenture duly paid

as and when matured.

COMANY MANAGEMENT


49/68

COMANY MANAGEMENT:

A co. in the eyes of law is an artificial person. It has

no physical existence. It has neither soul or body of

its own.

It can act through Directors. The Directors are the

brain of a company.

Sec. 2(13) Director includes any person occupyingthe position of Director by whatever name called.

NO. OF DIRECTORS: Every pub.co. shall have at

least 3 directors. However a Pub. Co.having(a) paid

up capital of 5 crore or more;(b) one thousand or

more small shareholders shall have atleast one

Director elected by such small shareholders.

APPOINTMENT OF DIRECTORS


50/68

APPOINTMENT OF DIRECTORS

1.First Director Sec 254

2.Appointment of Directors by Co.-Directors must be appointed by

shareholders in Gen. Meeting

3.Appointment by Directors Sec. 260,262 4.Appointment of Directors by third party

5.Appointment by proportional

representation 6.Appointment of Directors by C.Govt.

POSITION OF DIRECTRS:


51/68

POSITION OF DIRECTRS:

1.Director as agent

2.Director as employer

3.Director as officer

4.Director as trustee of company

RESTRICTION ON APPTT. OF DIRECTOR: Aperson shall not be apptted.Director of a Co. bythe AOA,unless before registration of AOA orpublication of prospectus or his agent authorised

In writing has (a) signed and filed with registrarconsent in writing (b) signed the MOA for hisqualification shares.

NUMBER OF DIRECTORSHIP: No person to be


52/68

NUMBER OF DIRECTORSHIP: No person to beDirector for more than 20 companies.

DISQUALIFICATION OF DIRECTORS:Sec 274: ADirector must be (a) an individual competent to contract

(b) hold qualification shares, if reqd. by AOA.

The following persons are disqualified :

a.person of unsound mind

b.undischarged insolvent

c.person who has applied to be adjudjudicated as aninsolvent and his case is pending

d.convicted person

e.whose calls in r/o shares held in arrears -6months

f.disqualified by anorder of Tribunal.


53/68


54/68

WHO CAN APPLY FOR WINDING UP


55/68

WHO CAN APPLY FOR WINDING UP

1. Petition by co. if passed spl,resolution

2. Creditors petition 3. Registrars petition

4. Central Govt.petition

PROCEDURE FOR WINDING UP

As soon as a winding up order is passed,

the official liquidator attached to the High

Court or District Court becomes the

liquidator of company.

1 fi f ll f ff i b


56/68

1. first of all statement of affairs to be

submitted by co. to liquidator Sec.454

2 Report by official liquidator Sec. 455preliminary report regarding capital details,

assets and liabilities to be submitted to

court. 3. Custody of co. property - by liquidator

Sec.456

POWERS OF LIQUIDATOR Sec. 457


57/68

With the sanction of court:

1. Institute and defend suits against co.

2. Carry on business if necessary forbeneficial winding up

3. To sell movable or immovable property

4. To raise money on co. security of co. 5. To do things necessary for winding up.

WITHOUT SANCTION OF COURT:

To execute deeds,inspect records, proveco.claim in insolvency, to draw,acceptnegotiable instruments,appoint agent forbusiness which he cannot do himself.

O G


58/68

VOLUNTARY WINDING UP:

1.Members winding up: A liquidator is

appointed and his remuneration fixed inAGM.

Fact to be notified to registrar when affairsare completely wound up he calls the finalmeeting and lays before it final accountwithin a week, the Accounts are filed withregistrar.

If the report shows that the affairs were notconducted in a manner prejudicial to publicinterest then the company is dissolved.

2. CREDITORS WINDING UP:


59/68

Liquidator in addition to member callscreditors meeting. The creditors may

appoint a committee of inspectionconsisting 5 members of creditors and 5members of company. Rest procedure issame as in case of members winding up.

3. VOLUNTARY WINDINGUP UNDERSUPERVISION: When co. has passed a

resolution for voluntary winding up, thecourt may make an order that winding upshall proceed subject to its supervision.


60/68

The advantages of voluntary winding up

under supervision are: The court may appoint an additional

liquidator and remove liquidator according

exigencies.

The court get the same power as it has in

the case kof winding up by court.

Any creditor, contributory or person mayapply to the court for determining any

question connected with the winding up

Sec.522 to 526

CONTRIBUTORIES Sec. 428


61/68

To realise the uncalled residueof co. capital the

liquidator has to call upon shareholders, who ar

then called CONTRIBUTORIES to pay unpaidbalance.

LIST A IS DRAWN FROM THE CO. REGISTE

OF MEMBERS:

LIABILITY OF PAST MEMBERS: A past membe

is no liable to contribute inrespect of any debt or

lability of co. contracted after he ceased to be amember.

PAYMENT OF LIABILITIES Sec 528


62/68

Another important duty of liquidator is to pay off

the companies liabilities.

But where the company in liquidation isinsolvent, insolvency rules will apply and lnly

such claims shall be provable against the

company as are provable against insolvent

person.

According to law of insolvency demands in the

nature of unliquidated damage arising other than

by reason of a contract or breach of trust anddebts and liabilities which are incapable of being

fairly estimated are not provable in insolvency.

Under section 529 by the amendment of


63/68

Under section 529 by the amendment of

1985, workers claims have been equated

with those of secured creditors byproviding that the security of every creditor

shall be subject to pari passu charge in

favour of workmen.

Sec. 529 - A has also been added to the

Act. It says that workders dues as

equated with those of secured creditors

shall be paid in priority to all other debts.If the assets are not sufficietnt to meet

them they shall abate in equal proportion.


64/68


65/68


66/68

LIFTING THE CORPORATE VEIL:


67/68

LIC Vs. Escorts ltd. (1986) 59 cc 548 SC,

Held,while it is firmly established ever

since in Soloman vs Soloman and Co

1879 that a company is an independent

and legal personality distinct from

individuals who are its members, it has

since been held that the corporate veil

may be lifted.

CORPORATE VEIL MAY BE LIFTED IN FOLLOWING TWOHEADS;


68/68

1. Under statutory provisions

2. Under judicial interpretation

Examples of statutory provisions misrptn. In prospectus.Sec 62,63.failure to return application money Sec.69 within 8 days with15% interest etc.

Examples of judicial interpretation for Protection of revenue

Prevention of fraud

Determination of enemy character of a company

Formation of subsidiary to act as agent Where co. acts as an agent of shareholders

In cases of economic offences

Where co. is used to avoid welfare legislation

Where co. is used for illegal purposes

Where co. is a mere sham or cloack Fraudulent scheme of an arrangement.

Presentation Company Act

Documents

Transcript of Presentation Company Act