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INTRODUCTION

The word ‘Company’ is derived from the Latin word (Com - with or together, Panis - bread)
and is originally referred to an Association of Persons who took their meals together. Now-
a-days, business matters have become more complicated and cannot be discussed at one
time. Therefore, word Company has assumed greater importance as it denotes a Joint
Enterprise in which capital is contributed by large number of people.
In popular parlance, a Company denotes an association of like minded people formed for
the purpose of carrying on some business or undertaking. The Company may be brought
into existence for multifarious purposes.

In Smith V/s Anderson (1880) 15, CHD 247, it was observed that a ‘Company’ in broad
sense, means an association of person formed for some purpose.

A Company may be incorporated Company or Corporation or Unincorporated Company. An


incorporated company is single and legal (artificial) person whereas unincorporated
company, such as partnership is mere collection or aggregation of Individuals.

Incorporated Company owes its existence either to special Act of Parliament or to company
legislation. Unincorporated Company, which is governed by Partnership Act.
In legal sense, a Company is an association of both natural and artificial person
incorporated under existing law of the country. In the context of Company Act, 1956, “A
Company means a company formed and registered under the Companies Act, 1956 or under
previous laws relating to companies.

In short, company is intricate, centralized economic and administrative structure run by


professional managers who hire capital from investors. In general sense, the term
‘Company’ can be summarized as collection of many individuals united into one body under
a special denomination having perpetual succession under an artificial form and vested by
the policy of law with the capacity of acting in several respects as an Individual,
particularly of taking and granting property of contracting obligations and of suing and
being sued of enjoying privileges and immunities in common and exercising of political
rights, more or less extensive, according to the designs of the institution or the powers
upon it, either at time or its creation or at any subsequent period of its existence.

ADVANTAGES OF COMPANY FORM OF ORGANISATION.

1) Corporate Personality: A Company is a distinct legal or juristic person independent of


its members. Even a one man company (Saloman & Co.Ltd. case) is different legal
status apart from its shareholders. As given in Companies Act, from the date of
incorporation, the subscriber to the Memorandum of Association and other members
shall be body corporate, who are capable of exercising all the function of an
incorporated company and having perpetual succession & common seal.

2) Perpetual Succession: The company form of organization enjoys perpetual succession.


The term ‘Perpetual Succession’ indicates that the company will be same entity with
the same privileges and immunities irrespective of death, insolvency of individual
members. In short, the principle of perpetual succession connotes “Members may come
and members may go but the company can go on forever.”

3) Corporate Property: “A Company as a legal entity is capable of owing its funds and
other assets.” The property of the company is not the property of shareholders.
(Gramophone & Typewriting Co. v/s. Stanley). The company is real person in which all
the property is vested and by which it is controlled, managed and disposed of.
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4) Transferable Shares: “The Shares or other interest of any member in the company shall
be movable property, transferable in the manner provided by Articles of Company.”
This facilitate investment of fund in shares of company. The shareholder may sell their
shares at any time. Thus, it provides liquidity to the investor as shares could be sold in
the open market and in Stock Exchange. However, this advantage is not available to
private company.

5) Capacity to sue: As a juristic legal person, a company can sue in its name and be sued
by others. The Managing Director and other Director are not liable for dues against the
company except in the exceptional circumstances provided under Company Act, 1956.

6) Flexibility & Autonomy: The Company has autonomy and independence to form its own
policies and implement them subject to the general principle of law, equity & good
conscience and in accordance with provisions contained in the Company Act,
Memorandum and Articles of Association. This advantage promotes professional
management and enhance the efficiency. The Director & Manager of the company can
carry on the activity the business activities with freedom, authority and accountability
in accordance with the company law.

DISTINCTION BETWEEN – COMPANY & PARTNERSHIP FIRM

POINTS COMPANY PARTNERSHIP FIRM

1. Legal Status Separate legal status No separate legal status


distinct from person
comprising it.
2. Owner of Property of company is Partnership’s property is
Property owned by co. and share- the property of the
holder have no right over Individuals comprising it.
such property
3. Contract A member of the company can Partners of the firm can’t
contract company. contract his firm.
4. Liability Shareholder’s liability is limited Partners liability in the firm
either by guarantee or shares is unlimited.
except it is made unlimited by
making alteration in the MOA.
5. Transferability The shares of company can be In case of partnership, the
transferred except in case of Partner can’t transfer his share
private co. except with the consent of all
other partners.

DISTINCTION BETWEEN COMPANY & SOLE PROPRIETORSHIP

POINTS COMPANY PARTNERSHIP FIRM

1. Legal Status The company has separate legal The proprietor is not having
status apart from its member. any legal status.
2. Owner of Property of company is owned by Proprietor is owner of his
Property the company & shareholders has business.
no right over it.
3. Extend of The volume of operation of Generally, the volume of
Operation company is too large to be operation is too small as
managed by one person. compared to company.
4. Share Capital The company has its own capital. However, the proprietor of
business can’t issue share
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capital to public.
5. Liability Liability of member of company The liability of Proprietor is
is limited to the extent of unpaid unlimited. He is personally
value of shares purchased by him, liable for the debt incurred by
except it will be unlimited in him during business.
certain cases mentioned under Act.
6. Perpetual The company enjoys the perpetual The sole proprietor is succession
i.e. it continues even in not enjoying perpetual death,
insolvency of its members
succession

COMPANY MEETINGS

A Meeting may be generally defined as a gathering or assembly or getting together of


number of persons for transacting any lawful business. There must be at least two persons
to constitute a meeting. Therefore, one shareholder usually cannot constitute a company
meeting even if he holds proxies for other shareholders.

Meeting may be of various kinds like Board Meeting, Class Meeting, Annual General
Meeting, Extra Ordinary General Meeting, Statutory Meeting etc. There must be at least
two persons to constitute a meeting (Sharp v/s Dawes) (7876). In some exceptional
circumstances, even one person may constitute a meeting. Therefore, one shareholder
can’t constitute a company meeting even if he holds proxies for other shareholders. It is to
be noted that every gathering or assembly does not constitute a meeting. A company
meeting must be convened and held in perfect compliance with the various provisions of
the Company Act.

BOARD MEETING

The affairs of the company are managed by the Directors. It is therefore, necessary that
the Directors should often meet to discuss various matters regarding the management and
administration of affairs of company in best of interest.

As per provisions contained in the Act, at least Four meetings of Board of Directors must be
held in the period of 12 months and a gap between the two meetings should not exceed 3
months. The notice of Board Meeting must be given to all the Directors of Board who are
time being in India and at his usual residential address. The Act does not provide for
minimum days of which notice of Board Meeting must be given. The meeting of Board of
Director may, therefore, be held at any place convenient to the Directors outside the
business hours and even on public holiday unless the articles provide otherwise.

The DCA has clarified that in connection with relevant section of Act, it would not raise any
objection if adjourned board meeting held on ‘Public Holiday’ for the convenience of the
directors although it can state that an original meeting should also normally be held only
on working day (Letter No.8111 (285) 63-PR dated 2.1.63)
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GENERAL MEETING

There are three types of General Meeting.

1. Statutory General Meeting


2. Annual General Meeting
3. Extra Ordinary General Meeting.

1. STATUTORY MEETING:

Every Public Company has to conduct the statutory meeting after one month but before
six months of the date of incorporation of the co. Notice of statutory meeting must be
set out that it is “Statutory Meeting”. Failure to conduct the meeting renders the
company liable to be wound U/s. 433(b). The Company Act has not specific provision as
to place of holding statutory meeting. Statutory meeting can adjourn from time to time
and at any adjourned meeting any resolution of which notice has been given in
accordance with the provisions be passed and adjourned meeting shall have the same
powers as original meeting.

2. ANNUAL GENERAL MEETING :

Annual General Meeting must be held at every company at its registered office or at
any place within the jurisdiction of the registered office each year. First AGM must be
held within a period of 18 months from incorporation of Company and a period of more
than 15 months must not be elapsed between two succeeding meetings. As per the
provisions of the Act, the subsequent AGM should be held on the earliest of following
dates.
a. 15 months from date of last AGM
b. The last day of Calendar Year
c. 6 months from the close of Financial Year.
The fact that company did not function is no excuse for not holding AGM (Madan Gopal
Dev V/s. State of West Bengal). In case of any difficulty in holding AGM (except first
AGM) the R.O.C. may for time being extend the time if specific reasons are shown.
However, the time will not exceed more than 3 months by R.O.C.. As per the provisions
of Act, the AGM must be held at earliest date of the three months period specified by
Act.

3. EXTRA ORDINARY GENERAL MEETING

Extra Ordinary General Meeting is the meeting which is conducted by the company to
transact any business of special nature, if the same can’t be postponed till the next
AGM. Extra Ordinary General Meeting is to be conducted either by board of directors of
the company or on the requisition in writing by the shareholders holding specified
percentage of share capital of company. EGM, if held at the requisition of members of
the company. It should be held within a period of 45 days from day of giving requisition.
The Act does not restrict holding of EGM as it has put certain restrictions on place of
holding AGM. Notice of EGM given by secretary without express sanction of Director is
invalid in case the EGM is requested by the Board of Director. (State of Wyoming
Syndicate (190S) 2 CH 43) In case of company having Share Capital such number of them
as hold at the date of deposit of the requisition, not less than 1/10th of paid up capital
of company. In case of company not having share capital, the number of them as hold
at the date of the deposit of the requisition not less than 1/10 th of total number of
member.

HOW TO CONDUCT BOARD MEETING / GENERAL MEETING:


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BOARD MEETING

Board Meeting must be conducted after giving notice of Board Meeting to all the director of
the company present in India. If there is a willful omission to give notice to one of the
director, Meeting of directors is invalid and resolutions passed are inoperative
(Darmeshwari Prasad Gupta V/s. UOI (1947).

If there is accidental omission to give notice to one director and meeting is conducted then
it is irregular. The Board Meeting of the company can be conducted at any place other than
Registered Office of the company. The Board Meeting can be held on any day.
The Secretary of the company has to take certain necessary steps for the purpose of
effective conduct of meeting before, at the time & after the meeting.

AGM & EGM

As far as the conduct of meeting is concerned, all the necessary provisions of act relating
to notice, agenda, proxies, quorum, minutes must be complied with. Also the chairman of
the meeting has to comply with the necessary provisions, before conducting any meeting.
Also one should keep in mind the provision as to Motion, Amendment, and Adjournment &
Postponement of the meeting while conducting the meeting. The chairman of the meeting
should ascertain sense of meeting so as to decide the method for passing proposed
resolution. Also the provisions of Table A (in case of Pvt. Co.) which are relevant in
connection to the conduct of meeting must be adhered to. Also the copy of the notice of
meeting and all copies of other important matter must be given to all the important
department like R.O.C., SEBI, Stock Exchange, CLB as per the requirement of the Act.

HOW TO FORMALISE RESOLUTION

Resolution can be defined as passing of motion in the meeting. Resolutions under present
Act are of three kinds in case of general meetings

a) Ordinary Resolution
b) Special Resolution
c) Resolution requiring special notice.

Every resolution must start with the word ‘Resolved that’. If particular provision of any
Act, rules, regulation has to be referred, then it must be written as pursuant to section no.
of Act, provision in AOA/ rules, regulation. Resolution must also state whether it is
special/ordinary resolution at its top. If there is an extension to the Resolution then, it
must be by word ‘Resolved further that’. The resolution must be written in logical
sequence. In case of resolution of forming committee, then it must also state the
composition of committee, extent of powers to be administered by the committee, the
purpose of forming the committee.

In case of Board Meeting’s resolution, in some cases such as power to borrow money from
financial institution etc., power to make loan etc. The resolution shall also state the extent
of borrowing limit. The resolution must be written with clarity & brevity and also referring
to all the relevant aspect pertaining to the matter in connection with resolution is
proposed to be passed.

In case of resolution passed in General Meeting, then in such case, it must also be
accompanied with the explanatory statement as required under the Act. The explanatory
statements state the reason & explain the circumstance which has forced the company to
pass proposed resolution. Every resolution passed in general meeting should explain the
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interest of director in proposed resolution. Every resolution must be at it top has to be with
Preamble stating in brief the purpose & matter to be passed by the resolution.

MINUTES OF BOARD MEETING

The Company Act requires every company to maintain separate book for minutes of Board
Meeting. In preparation of board meeting’s minute one must comply with certain statutory
requirements as mentioned below.

1. To mention day date time and place of the meeting as given in the notice to the
meeting.
2. To give name of directors present in meeting.
3. To give name of directors absent & requested for grant of leave of absence by
Board.
4. To give name of directors voting against & in favour against various resolutions.
5. To specifically mention the fact of unanimity of director as contemplated U/S.316 ,
372A, 386 of Act.
6. To incorporate the resolution for appointments of officers made at the board
meeting.
7. To read notice given by director, if any, with regard to directorship in other
companies.
8.
In case of Board Meeting, minutes of meeting must be signed by chairman of next meeting.

MINUTES OF ANNUAL GENERAL MEETING

The minutes of AGM are required to be maintained at the registered office of the company.
The minutes are record of business transacted at a meeting. In order to maintain the
authenticity of minutes of meetings, the company has to maintain fair & correct summary
of the meeting i.e. business transacted therein.

The minute book must have their pages consequently numbered and the minute must be
recorded within a period of 30 days. In case of general meeting, the chairman of same
meeting must sign the minutes of the meeting within a period of 30 days. In case of death
of chairman, by director authorized to sign by board.

MINUTES OF EXTRA ORDINARY GENERAL MEETING

The minutes of EGM must be maintained in the separate book and all the provision as
applicable to minutes of AGM is also applicable to the minutes of EGM. As per the
provisions of Act, in regard to minutes of the proceeding of any meeting have to be kept in
accordance with provisions of section 193, they are unless the contrary is proved,
presumed to be correct and show presumptive evidence that the meeting was duly called
and held in particular, all appointments of director or liquidators made at meeting shall be
deemed to be valid. In general, minutes of all meetings of board, general meeting &
meetings of committees of BOD & EGM must be maintained at registered office of
company. Every member of the company has right to inspect all these records except the
minutes of the Board meeting, free of cost during business hours at Registered office of
company. Further, every member has right to take copy of minutes of any meeting. If
inspection of any copy requested for is refused, then it will be punishable with a fine which
may extend to Rs.500/-.

AGENDA/ NOTICE OF BOARD MEETING


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As per the provisions of the Act, every notice of the Board Meeting shall specify the place
and hours of the meeting and shall contain statement of business to be transacted therein.
As per the provisions contained in the Act, Notice of Board Meeting must be given to each
of the director present in India and having address in India. Any business to be transacted
at the board meeting shall be informed in advance to the members of Board present in
India.

In case of certain resolutions like, a resolution to be passed U/s.316/386, it must be


stipulated that notice of the resolution to be passed therein is required to be given to
director in India. In such cases, it would be incumberent on the company to circulate
agenda along with copy of proposed resolution in regard to every item of business to be
transacted therein. The good practice is that the agenda containing business to be
transacted is circulated preferably along with the notice at least a week before the date of
meeting.

The agenda should contain notes on items to be discussed and should be circulated in
advance so that the director will come fully prepared. Agenda in relation to certain items
like approval of capital project, matters calling major policy decision etc. requires good
drafting skill.

Agenda of Board Meeting should be conveniently grouped and divided so that minimum
time and energy of directors are consumed on less important items. Routine items to be
placed at the beginning. As far as the notice of AGM is concerned, it must be given to every
shareholder of the company at least 21 clear days before the date of meeting. The days of
notice should exclude all the holiday, the date of serving the notice & date of meeting. In
case of notice given by giving it in newspaper having appropriate circulation in area of
Registered Office of the company and it is deemed to be served on the date of giving
notice in newspaper. However, the company can’t take this excuse i.e. it has given notice
of meeting in newspaper in case of members whose address is with the company.

The notice of the annual general meeting must be circulated along with copy of the
Balance Sheet, Profit & Loss A/c., and Auditor Report & Statement of brief report of
company’s progress to each member of the company. The notice of AGM must contained
date, place, time, of meeting and also requirement as to proxies, quorum of the meeting.
Agenda of the AGM must be divided into two types i.e. the requiring ordinary & special
resolution. The notice must be circulated along with proposed resolutions & explanatory
statement which is required to be annexed to the resolution passed therein.

AGENDA OF EXTRA ORDINARY GENERAL MEETING

The agenda of EGM contains all the items which requires special resolution i.e. all the
items must be of special nature. The notice of EGM must be given at least 21 clear days
before the meeting if not; the consent of 95 % of shareholders must be taken in Form
No.22A.

If EGM is called at the requisition of members then notice must state that it has been
called at requisition of members. The matter decided at the EGM called by requisition of
members can’t be questioned at next meeting. Further, all the provisions as to quorum,
minutes are equally applicable to EGM.

EXPLANATORY STATEMENT

Every meeting i.e. AGM or EGM must be with the explanatory statement. The explanatory
statement is to be annexed to the notice of meeting along with draft of proposed
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resolution. The explanatory statement state the reason behind passing such resolution or
taking such decision. Every explanatory statement must contain the restrictions subject to
which powers in respect of matter to be passed by resolution. For e.g. In case of extra
ordinary general meeting conduct for giving specific power to board of director. It must
state extend to which this power is to be exercised by them.

Explanatory statement must contain the statement as to whether any member of board of
company has interested or any other person related with company has interested in the
matter to be approved by the passing resolution.

QULIFICATION SHARES

As per the Companies Act, 1956 there is no requirement which compels the director of any
company to hold qualification shares, hence, a person may be a director in a company
without being its members unless the Articles provides otherwise. In case Article of
Association of company provides for holding of qualification shares then as per provisions in
the Act

1. Each director must hold the qualification shares within a period of two months from
the date of his appointment.
2. The nominal value of share shall not exceed Rs.5000 or nominal value of one share
where it exceed Rs.5000.

A director who accepts his qualification shares as a secret gift from promoters of company
is guilty of gross breach of trust & liable to give up the shares (Boston Deep Fishing Co. V/s.
Ansell, 1888).

If director fails to obtain qualification shares within a period of 2 months then, he is liable
to vacate his office as laid down under the Act and such director is punishable with a fine
which may extend Rs.5000/- every day, if he acts as a director after the expiry of said
period of 2 months without holding qualification shares.

However, act done by the director during his period i.e. before he fails to hold
qualification shares within stipulated time from date of his appointment will be valid.
(International Cable Co. ex. p. official liquidator (1892).

SIGNING OF MINUTES OF BOARD MEETING & ANNUAL GENERAL MEETING

As far as signing of minutes of board meeting is concerned, it must be signed by the


chairman of next meeting. In case of AGM, it must be signed by the chairman of the same
meeting. In case of board meeting, the minutes of board meeting may be signed by
chairman of same or succeeding meeting.

In case of annual general meeting, by chairman of same meeting within the aforesaid
period of 30 days and in case of his inability or death during said period, then by any
director duly authorized by board of director for the said purpose.

The minutes of annual general meeting must be signed by director within a period of 30
days. However, there is no such period prescribed for Board Meeting.

SHAREHOLDER

Shareholder is the holder of shares of the company. He is a person who has subscribed to
the share capital of the company. Shareholder may not be the member of the company
until his name is duly entered in the Register of members maintained by the company.
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Shareholder has been protected under Companies Act, 1956 by empowering him by giving
various rights under the Act. The SEBI has also protected shareholders from fraud or
mismanagement by inserting various guidelines. Shareholder may or may not be member of
the company but member is always the shareholder of the company.

DIRECTOR

Supreme Authority in the control of company and its affairs resides in person known as
‘Board of Director’. As per the provisions in Act, only individual can be appointed as a
Director of the company. (Oriental Metal Pressing Ltd. V/s. Bhaskar Kashinath Thakoor)
Sec.2 (13) defines a director as including any person occupying position of director by
whatever name called.

The definition given under the Act is purely based on function. The collective body in whom
the authority is vested and through whom company acts is known as “Board of Director” or
“Board”. Supreme Court in Ram Avtar Jalan V/s. Coal Product (P)Ltd. (1970) 40
comp.cas.714 held that a question arises as to whether a person is in law a director of
company, minute books and return sent to Registrar of Company are important director of
company.

The director of the company can be of various types like Non-executive Director, Executive
Director, Independent Director, Deemed Director, Inside/Outside Director, Professional
Director, Nominee Director, Special Director etc.

Minimum & Maximum Directors

Section 252 of the Act says that every private limited company should have at least two
directors and every public limited company should have at least three directors. The
maximum number of directors can be twelve. If the company wants to increase its number
of directors beyond twelve it has to get the permission of the Central Government.

APPOINTMENT OF DIRECTOR

Director of the company can be appointed by

a) by Board
b) by Government
c) by Shareholders of Company
d) by Subscriber to Memorandum of Association
e) by Third parties if Article provide
f) by Small Shareholder if Articles of Association provides.

First director of the company assumes the office from incorporation of the company. In
absence of any provisions in Articles of Association of Company, subscriber of the company
is deemed to be first Director of company.
1. Additional Director
2. Director in Casual Vacancy
3. Alternate Director

By Government: The Central Government can appoint any person as a director in the
company for a period of 3 yrs. (at a time). The director appointed by central government is
not liable to retire by rotation and they do not require to hold any qualification shares.
They have same rights & liabilities as that of ordinary Director of Company. Central
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Government may appoint such director in case of oppression/ mismanagement of affairs of


company.

By Financial Institution as Nominee Director: The financial institutions give loan to the
companies. To see whether the funds given by the Company are properly utilized the
Financial institute appoints a director which is refereed as Nominee Director.

Eform Form 32 is required to be filed by the Company for appointment, resignation and
change in designation of the directors.

Qualification of Directors

Share Qualification [section 270]

The articles of a company may provide that a certain number of shares (called qualification
shares) will have to be held by each director. Within two months of appointment of a
director, he must obtain the required number of shares. The value of qualification shares
cannot exceed Rs.5000/-. Besides the holding of qualification shares, shareholders may,
however, insist on some other qualification, at their discretion and judgment.

Disqualification of Directors

Section 274 lays down the minimum eligibility requirements. A person is not capable of
being appointed a director in the following cases:
(a) Where he is of unsound mind, provided that the fact has been certified by a court of
Competent jurisdiction and the finding is in force.
(b) Where he is an undischarged insolvent.
(C) Where he has applied to be adjudicated as an insolvent.
(d) Where he has not paid for six months any call on his shares.
(e) Where he has been disqualified under section 203 of the Act for the purpose of
preventing fraudulent persons from managing companies.

REMOVAL OF DIRECTOR

Company Act, 1956 has provided for retirement of Director. The director of company can
be removed by following party.
1. Company Law Board
2. By Members of Company in General Meeting
3. By Central Government.

1. Company Law Board : Where an appointment has been made by the members of the
Company U/s.397,398 of the Act for oppression/ mismanagement of company and CLB
finds that relief ought to be granted, it may order to terminate or set aside any
agreement of the company as it fills just & equitable.
2. Central Government: Chapter IV A of the Company Act contains provisions regarding
power of Central Government to remove managerial personnel on recommendation of
CLB.

3. Circumstances under which company may remove director.

1. That any person concerned in the conduct and management of company has been
guilty of fraud.
2. The business of the company is not or has not been conducted and management by
such person in accordance with sound business.
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RESGINATION OF DIRECTOR

There is no provision in the companies Act as to whether, and by what procedure, a


director can resign. The company has to inform the Registrar in Form No. 32 of the
resignation of the director and attach his resignation letter to the form. In view of this it is
necessary to get a written resignation letter from him.

POWERS OF DIRECTOR

General powers are declares that “subject to the provisions of the Act, the Board of
directors of a company shall be entitled to exercise all such powers and to do all such acts
and things as the company is authorized to exercise and do.”
There are however two important restrictions upon the powers of the Board of Directors:-
1. The Board is not allowed to approve of matters which are required to be done by
the shareholders in General Meeting as per the Act, and Memorandum and the
Articles.
2. In the exercise of their powers, the directors cannot exceed the provisions of the
Act, Memorandum and Articles and any other rules or regulations decided by the
company in general meeting.

The shareholders may exercise the powers if they feel that the Board of Directors has to
acted in the best interests of the company or the Board is not competent to act or if there
is a deadlock among the directors.

AUDITOR

Audit means examination of accounting records undertaken with a view to establishing the
correctness or otherwise of the transactions reflected therein. The main object of the
audit is to ensure that the statement of accounts of the relevant financial year truly and
fairly reflect the state of affairs of the company. Auditor of the company can be of two
types
1. Internal Auditor
2. Statutory Auditor.
Statutory Auditor required to be appointed compulsorily for conducting statutory audit as
prescribed by the Act. The person to be appointed as ‘Auditor’ of the company must be
Chartered Accountant as prescribed by the Act. Before appointing any person or firm as
Chartered Accountant, the certificate stating that he has complied with requirement of
Sec.224 (1B) of Act shall be obtained.

APPOINTMENT OF AUDITOR

According to the Act, every company must maintain a record of the financial transactions
carried out by it during the year. These records are known as Accounts. The shareholders,
who are the owners of the company, do not take part in its day to day working. It is the job
of the Auditor, who is well-versed in Accounts to go through the Accounts and report to
them as to whether the accounting records kept by the management truly and fairly reflect
the state of affairs of the company.

The Auditors who are appointed by the shareholders at the Annual General Meeting are
known as Statutory Auditors. They are independent of the management. The statutory
Auditors must be Chartered Accountants as prescribed by the Act. They must be individual/
Firm of individuals. Before appointing any person or firm as Chartered Accountant, the
certificate stating that he has complied with requirement of Sec. 224 (1B) of Act shall be
obtained. He cannot be an auditor in more than twenty companies of which not more than
10 companies each of which has a paid up capital of 25 lacs or more. He should not be a
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full-time employee in any organization. If firm is appointed as an auditor, the limit of


twenty companies is applicable to each partner.

Depending on the nature of the industry and volume of transactions, the management has
to appoint an Internal Auditor. He may be an employees or an outsider (a firm of
Chartered Accountants).

APPOINTMENT OF FIRST AUDITOR OF COMPANY

First Auditor of the company has to be appointed by the Board of Directors within one
month from date of registration of Company and his appointment is valid until first annual
general meeting.

SUBSEQUENT APPOINTMENT OF AUDITOR

Every company must appoint an auditor or auditors at each annual general meeting to hold
office from conclusion of this AGM to next AGM and must give intimation to such auditor
within 7 days. Every auditor appointed as such shall inform the Registrar in writing in Form
No.23B that he has accepted the appointment or refused.

As specified by Act, the person can be appointed as an auditor of 20 companies out of


which not more than 10 companies each of which has a paid up capital of 25 lacks or more.
If firm is appointed as an auditor, the limit of 20 is per partner.

Eform 23B is required to be filed by the auditor for appointment of director.

REMOVAL / CEASING OF AUDITOR

1. Death
2. By way of Resignation – in between two AGMs or if he expresses his wish not to be re-
appointed at the AGM.
3. Removal – Permission of the Central Government is needed for removing an Auditor. A
Special Notice has to be given 14 days before the AGM at which the resolution for his
removal is to be placed. He can make a representation and the same can be read out at
the AGM.

PROCEDURE FOR FORMATION OF PRIVATE COMPANY

A) Application for availability of name of company :

The person forming the company (promoters) should decide at least 3 suitable names in the
order of preference to afford flexibility to Registrar of Company to ascertain the
availability. The name of the company should end with word ‘Public Ltd.’ in case of public
limited and with word ‘Private Limited’ in case of private company. In case of Sec.25 of
the Company Act, 1956, by obtaining license from the Regional Director, the requirement
as to addition of the word ‘Limited’ or ‘Private Limited’ to the name can be disposed with.
A company can’t register which is undesirable or which is identical with or nearly
resembled the name of existing company. A company is not allowed to use a name which is
prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950.

Application for obtaining name shall be made in Form No.1A to the Registrar of Companies
of the state in which Registered Office of company is to be situated. The name given by the
ROC is available for company for 60 days. Before making application in Form1A the
proposed directors should obtain the Director Identification Number and Digital signature.
13 Nilesh A Pradhan & Co.

B) Preparation of Memorandum of Association & Articles of Association

Memorandum of Association defines area of the company within which company can act
and it state the object for which company has been formed, the business that it would
undertake, the liability, the capital which it shall be allowed to raise, the nature of
liability of its members, the name of state where the registered office of the company shall
be located etc. Articles of Association contain the rules & regulations relating to the
internal management of company.

C) Vetting of MOA & AOA, printing, stamping, signing of same.

The draft of Memorandum of Association & Articles of Association shall be prepared and
typed before printing the MOA & AOA. The promoters of the company can approach ROC for
the purpose of some changes for vetting of MOA & AOA. No fee is required to be paid to
ROC. After vetting the MOA & AOA must be printed. The MOA & AOA is required to be
stamped as required under the Stamp Act of respective state. Every MOA & AOA should be
signed by subscriber of MOA who should give his address, description and occupation. AOA
shall be separately signed by each subscriber mentioning the number of shares subscribed
by each of them. An agent may sign the Memorandum of Association on behalf of
subscribers, if he is authorized by a power of authority in this behalf (Dept. Circular
8/15/58-PR dated 13.09.58)

D) Power of Attorney

In order to fulfill the various formalities that are required for incorporation of a company,
the promoter may appoint an attorney empowering him to carry out the instruction/
requirements stipulated by ROC. The execution must be done on Non-Judicial Stamp Paper
of prescribed value. (The prescribed value is Rs.100/-)

E) Additional Documents required

1. Form 32: Where the company by its AOA appoints any person(s) who have to act as
Director, Manager or Secretary, it may filed particular in Duplicate. Form No.32 can
also be filed within a period of 30 days of Registration of company or appointment of
First Director.
2. Form No.18: The Company can file Form 18 along with MOA & AOA. Where location of
company is not finalized, it can be filled within a period of 30 days of Registration of
company.
3. Form No.1:Form 1 is the declaration given by the promoter that all the formalities are
dully completed as per provisions of the Companies Act.

F) Uploading of eforms 1, 18 & 32 and Payment of Registration fees

After approval of the MOA, AOA and other incorporation documents, the promoters have to
upload the eform 1, 18 & 32 electronically. After uploading of the same the challan is
generated and is required to be paid at the specified branches authorised by the Ministry of
Corporate Affairs.

G) Certificate of Incorporation

If all the documents of the company are filled & ROC is satisfied that all the requirements
of Act & Rules are complied by the company, then the ROC will certify under his hand that
company is incorporated and can commence its business.
14 Nilesh A Pradhan & Co.

PROCEDURE OF FORMATION OF PUBLIC COMPANY

Procedure for formation of Public company is same in all respect as that of the private
company only the additional document required to be filled in case of formation of public
company.

A public company on the other hand must obtain a certificate to commence business – a
trading certificate from the Registrar before it can commence business or exercise its
borrowing powers. In order to obtain certificate company has to comply with provisions of
Sec.149 of the Act. If company has to issue prospectus, provisions of Sec.149 (1) applies &
if not, Sec.149 (2) applies.

As per provisions of company if company issues prospectus then it shall not commence the
business, unless following points are complied with:
a) Shares up to amount of minimum subscription have been allotted.
b) every director has paid to the company on each of share he has taken or contracted to
be taken for which, he is liable to pay in cash, the same proportion payable or
applicable and allotment on the shares offered to public subscription.
c) No money is or may become, repayable to the applicant for shares in or debentures of
company for failure to apply for or to obtain permission to deal the shares or
debentures of any recognized Exchange.

It has filed with the Registrar, a Statutory Declaration of compliance of clause (a) (b) and
(c) in Form 19 signed by one of director or the secretary or where the company has not
appointed a Secretary a company in whole time practice.
Sec.149 (2) of the Act, if company having share capital does not issue prospectus, it cannot
commence its business unless:
a. It has filed with Registrar of Company a Statement in Lieu of Prospectus.
b. Every director of the company has to pay in cash for each of shares taken by him.
c. It has filed with R.O.C. a Form No.20 signed by one of the directors or the secretary.
The company has to comply with this condition, then R.O.C. will issue a certificate to
commence the business.

If the company borrows money or commence business before obtaining certificate to


commence business, then it has to pay a fine which may extend to Rs.50,000/-. If company
does not commence business within a period of one year of incorporation, then it will
wound up U/s.433(c) of company.

“DIVIDEND” under The Companies Act, 1956.

Concept

The definition of the term “Dividend “as given under section 2(14) Companies Act, 1956 is
an inclusive defination as the same connotes that dividend includes any interim dividend.

In the general sense, Dividend can be defined to mean the share received by a shareholder
from the company’s profits (distributable Profits), which are legally available for
distribution amongst the members. It can be termed as return on the amount invested by
the stakeholders in their company. Dividend is one of the factor which induces any investor
to make his/ her investment decision.
15 Nilesh A Pradhan & Co.

Every company has implied power to apply its profits in order to distribute the same
amongst its members in the form of Dividend. Dividend can be interim or final. Dividend
declared by the shareholders at an Annual General meeting of the company is called final
dividend. Dividend declared at any time during the year by Board of directors is called
interim dividend. Both interim and final dividend when declared are payable within 30
days of its declaration. Dividend is a down the line payment i.e. it has to be paid after
making provision for other statutory expenses such as provision for taxation, provision for
depreciation, proposed Preference dividend, interest on debentures, etc.

WHO CAN DECLARE

As per section 173(1)(ii) of the Companies Act, 1956, declaration of dividend by the
directors of the company is one of the ordinary business to be transacted at an Annual
General Meeting of the Company. Section 217(1)(c) of the Companies Act, 1956 makes it
mandatory on the Board of directors of the Company to state in their report to the
shareholders, the amount, if any, they recommend by way of dividend. Thus, it can be
inferred from the abovementioned provisions that dividend has to be approved by the
shareholders in an Annual General Meeting of the Company.

Regulation 85 of Table A of Schedule 1 to the Companies Act, 1956 vests power in a


General Meeting to declare dividend. However, shareholders can’t recommend the dividend
at a percentage exceeding the percentage recommended by Board of Directors of the
Company.

TO WHOM PAID

Section 206(1) of the Companies Act, 1956 state that a company shall pay no dividend in
respect of any share therein except –
(a) to the registered holder of such share or to his order or to his bankers; or
(b) in case of a share warrant issued in pursuance of Section 114 of the Companies Act,
1956 to the bearer of such warrant or to his bankers.

The company usually closes the register of members under Section 154 of the Companies
Act, 1956 or fixes a record date, of which notice should be given by publication of
advertisement in two newspapers- one in English and one in the language of the region in
which the Registered Office of the company is situated. The purpose of fixing a record date
or closing the Register of members is to enable the members to lodge the transfer forms
duly completed before such a date. Dividend is paid to the person whose name appears on
the record date or the last or the first day of closure of register of members. So, dividend
is payable to a person even though he has transferred his shares to any other person prior
to date of closure of Register of Members and registration of transfer has not been
effected. Thus to remove such inconveniences the Companies (Amendment) Act, 1988 has
introduced Section 206A which states that:

Where any instrument of transfer of shares has been delivered to any company for
registration and the company has not registered the transfer of such shares, it shall: -

(a) transfer the dividend in relation to shares as mentioned above to the “Unpaid
Dividend Account” as specified in Section 205A(1) unless the company is
authorized by registered holder of such share in writing to pay such dividend to
the transferee.

(b) Keep in abeyance in relation to such shares any offer of rights shares under and
any issue of fully paid bonus shares in pursuance of Section 205(3) of the
Companies Act, 1956.
16 Nilesh A Pradhan & Co.

Thus, as per this provision where a transfer of shares, which has not been registered, but
the transfer documents have been lodged with the company, then the dividend relating to
such shares is to be transferred to a special account called as “Unpaid Dividend Account”
Any offer of right shares made under Section 81(1)(a) of the Companies Act, 1956 (deals
with issue of rights shares) or issue of fully paid bonus shares in relation to those shares has
to be kept pending.

WHEN PAYABLE

As per Section 207(1) of the Act, dividend has to be paid within 30 days from the date of
declaration. Posting of warrants within 30 days shall be deemed to be payment of dividend.
If there is failure to comply with above provision then, every director, shall be punishable
with a simple imprisonment for a term which may extend to three years and shall also be
liable to a fine of one thousand rupees for every day during which such default continues
and the company shall be liable to pay simple interest at the rate of eighteen percent per
annum during the period of the default.

The provision as to the payment of dividend within a period of 30 days from the date of
declaration as specified above shall not apply in the following circumstances

 where dividend could not be paid due to operation of law

 Where shareholder has given directions as to payment and those directions could
not be complied with.

 Where there is a dispute regarding the right to receive the dividend.

 Where dividend has been lawfully adjusted against any sum due to the company
from the shareholder.

 Where default was not due to fault of the company.

PREFERENCE DIVIDEND

Preference shares are entitled to dividend at a fixed rate. Thy have priority in case of
payment of dividend before equity shares. Where preference shares are non-cumulative
they are entitled to priority only in respect of the amount of dividend due to them in the
current year. Where they are cumulative, they are entitled to priority for the total
accumulation in the year in which the company is proposing to pay dividend. Preference
shareholders may obtain an injunction to restrain the payment of a proposed interim
dividend in excess of that authorized by the articles or of any ordinary dividends, which
would prejudice their rights.

SOURCES FOR PAYMENT

Dividend can be paid only out of profits. Under Section 205(1) of the dividend can be paid
by a company:
(a) Out of the profits of the company for that year after providing depreciation under
Section 205(2) and/ or
(b) Out of profits of the company for the previous financial year or years arrived at after
providing depreciation under Section 205(2) and remaining undistributed.
(c) Out of moneys provided by the Central or State Government for the payment of
dividend pursuant to a guarantee given by that Government.
17 Nilesh A Pradhan & Co.

Section 205(2) of the Companies Act, 1956 gives detailed directions for calculating the
depreciation chargeable for finding out the amount of profits available for distribution of
dividend.

INTERIM DIVIDEND

The Board of Directors can declare interim dividend. According to the newly inserted
Section 205(1A), the Board of Directors may declare interim dividend and the amount of
interim dividend shall be deposited in a separate bank account within five days from the
date of declaration of such dividend.

As per Section 205(1B), the amount of dividend including interim dividend so deposited
under sub-section (1A) shall be used for payment of interim dividend.
Section 205(1C) states that provisions contained in Section 205,205A, 206,206A and 207 also
apply to interim dividend.

So, the directors should satisfy themselves that the company has enough profits available
for distribution before declaring any interim dividend. In case of wrong declaration they
would be held personally responsible. So, it would be advisable to prepare Proforma
Accounts of the company up to latest date possible. Provision for all working expenses
should be made including depreciation on all assets should be made and should be placed
in the meeting of Board of Directors at which the question of declaration of interim
dividend is to be transacted.

TRANSFER TO RESERVES

Under Sub-section (2A) of Section 205 no dividend can be declared by a company for any
financial year except after transfer to reserve of the company of such percentage of its
profits for that year, not exceeding 10% as may be prescribed. The Central Government has
promulgated Companies (Transfer of Profits to Reserves) Rules, 1975 prescribing the
percentages of profits to be transferred to reserves before declaring dividend.

Rule 2 of the above said rules lays down the following percentages,

PROPOSED DIVIDEND % TO BE TRANSFERRED

1. Exceeds 10% but does not exceed 12.5% Not less than 2.5% of current Profits.
of the paid-up capital.
2. Exeeds 12.5% but does not exceed 15% of Not less than 5 % of current Profits
the paid-up capital.
3. Exceeds 15 % but does not exceed 20% of Not less than 7.5 % of rent Profits
the paid-up capital.
4.Exceeds 20% of the paid-up capital Not less than 10% of current Profits

A current profit means profit after tax and statutory transfer to Development Rebate
Reserve.

According to Rule 3 of the rules, The Company can transfer at a percentage higher than 10
% of its profits to its reserves for any financial year so that,

(i) where dividend is declared


18 Nilesh A Pradhan & Co.

(a) a minimum distribution sufficient for maintaining dividends at a rate


equal to the average of the rates at which dividends declared by it over 3 yrs
immediately preceding the financial year is ensured or,
(b) where bonus shares have been issued in the financial year in which
dividend is declared or in 3 years immediately preceding the financial year,
a minimum distribution sufficient for maintaining dividends at an amount
equal to average amount of dividend declared over the 3 yrs immediately
preceding the financial year is ensured.
Provided, where net profits after tax is lower by 20% or more than average net
profits after tax of the two financial years immediately preceding the above
sub-rule doesn’t apply.

(ii) where dividend is declared:


The amount proposed to be transferred to its reserves from the current profits shall be
lower than the average amount of dividends to the shareholders declared by it over the 3
yrs immediately preceding the financial year.

According to Rule 4, if company fails to comply with a any provision of the rules, the
company and every officer of the company in default, shall be punishable with a fine which
may extend to five hundred rupees and if contravention is continuing, a further fine up to
fifty rupees for every day during which the contravention continues.

DIVIDENDS IN CASE OF ABSENCE OR INADEQUACY OF PROFITS.

In case profits of the company are insufficient or inadequate the company can declare out
of accumulated profits of the company earned by it in the previous years and transferred
by it to the reserves. As per Section 205A(3), where, due to inadequacy or absence of
profits in any year, any company proposes to declare dividend out of accumulated profits
earned by the company and transferred by it to reserves, such declaration of dividend shall
not be made except in accordance with the rules as may be made in this behalf and where
such declaration is not according to the rules, such declaration can not be made except
with the previous approval of Central Government.

The Central Government has promulgated the Companies (Declaration of Dividend out of
Reserves) Rules, 1975 for the purpose.

According to Rule 2 of the said rules, Dividend can be declared out of the accumulated
profits earned by it in previous year and transferred by it to reserves, subject to the
following conditions;

i) Rate of dividend shall not exceed average of return of dividends


declared by it in the 5 years immediately preceding that year or 10% of its paid-up
capital whichever is less.
ii) Amount drawn from accumulated profits earned in previous years and
transferred to the reserves shall not exceed amount equal to one-tenth of the sum
of paid-up capital and reserves and amount drawn shall be first utilised for setting-
off losses incurred in that financial year.
iii) Balance of reserves after such drawl shall not fall below 15 % of its
paid-up capital.

UNPAID DIVIDEND ACCOUNT

As per Section 205A(1), if a dividend declared by the company, has not been paid or
claimed within thirty days of declaration, the same shall, within seven days thereafter have
19 Nilesh A Pradhan & Co.

to be transferred to a special account to be opened by the company in that behalf in any


scheduled bank to be called “Unpaid Dividend Account of …… Co. Ltd? Co. (Pvt.) Ltd.

Under Section 205A(4), If default is made in complying with the above sub-section the
company shall pay, from the date of such default, interest on so much of the amount as has
not been transferred to the said account, at the rate of twelve percent per annum and
interest accruing on such amount shall be for the benefit of members of the company in
proportion to the amount remaining unpaid to them.

As per Section 205A(5), any money transferred to the unpaid dividend account remains
unpaid or unclaimed for a period of seven years from the date it first became due for
payment, the amount so remaining unpaid/ unclaimed should be transferred to the Fund
established u/s 205C(1).

Under Section 205A(8), if the company fails to comply with any of the requirements of this
section, the company, and every officer of the company who is in default, shall be
punishable with fine which may extend to five thousand Rupees for every day during which
the failure continues.

INVESTOR EDUCATION AND PROTECTION FUND

Section 205C(1) provides for the establishment of the Investor Education and protection
Fund by the Central Government.
Sub-section (2) of Section 205C states the amounts that are to be credited to the Fund.
They are:
(a) amounts in the unpaid dividend accounts of companies;
(b) the application moneys received by companies for allotment of any securities and
due for refund.
(c) Matured deposits with companies
(d) Matured debentures with companies.
(e) The interest accrued on the amounts referred to in (a) to (d).
(f) Grants and donations given to the Fund by Central and State Governments,
companies or any other institutions.
(g) The interest or other income received out of investments made from the Fund.

Provided that no such amounts shall form a part of the Fund unless such amounts remain
unpaid or unclaimed for a period of seven years.
This Fund shall be utilised for promotion of investors’ awareness and protection of interests
of investors in accordance with such rules as may be prescribed. The Central Government
shall specify the authority or Committee to administer the Fund, and maintain separate
accounts in relation to the Fund.

PAYMENT OF INTEREST OUT OF CAPITAL IN CERTAIN CASES

It has been made clear by the foregoing provisions that companies can pay dividend only
out of profits for the current year. But in certain cases, a company has been allowed to pay
interest out of capital. Section 208 talks about the same.
According to Sub-section (1):

Where any shares in a company are issued for the purpose of raising money to defray the
expenses of the construction of any work or building or the provision of any plant, which
cannot be made profitable for a lengthy period, the company may-
20 Nilesh A Pradhan & Co.

(a) pay interest on so much of that share capital as is for the time being paid up, for
the period and subject to the conditions

(b) Charge the sum so paid by way of interest, to capital as a part of the cost of
construction of the work or building, or the provision of plant.
No such payment shall be made unless it is authorized by the articles or by special
resolution. No such payment shall be made without the previous sanction of the Central
Government. The rate of interest shall in no case exceed 4 % or such other rate as may be
prescribed by Central Government. The payment of interest shall not operate as reduction
in amount paid up on the shares in respect of which it is paid.

LATEST CHANGES BROGHT ABOUT IN THE COMPANIES ACT, 1956

1) The Companies (Amendment) Act, 2000 introduced sub-sections 1A, 1B, 1C to Section
205. The discussion as to the relevant provisions as mentioned above has already been
made in this notes. As per the earlier provision of the companies Act, 1956 in regards
with the declaration of interim dividend was not creating any liability and could be
rescinded at any time before actual payment. This was so even if cash was deposited
in a separate account. Now, the position has changed. Both interim and final
dividends are treated on the same footing and both become a debt on declaration
thereof and cannot be rescinded.
2) The Companies (Amendment) Act, 2000 made changes to Section 205A(1) by which
dividends once declared are payable within 30 days. Earlier they ere payable within
42 days.
3) The Companies (Amendment) Act, 1999 substituted the old S.205A (7) by a new
S.205A(7) which says that the company shall be entitled to a receipt from the
authority or Committee referred to in 205C (4) for any money transferred by it to the
Fund and such receipt shall be an effectual discharge in respect thereof.
4) S 205A(8) levies a penalty of five thousand rupees for every day of non-compliance of
S 205A.Prior to the coming into force of the Companies (Amendment) Act, 2000 it was
five hundred rupees.

BRIEF ILLUSTRATION OF VARIOUS SECTIONS RELATING TO DIVIDENDS

SECTION NO. ILLUSTRATION


205(1) Dividend to be paid out of profits only, except in certain cases
mentioned in Section 208 where it can be paid out of capital.
205(1A), (1B), Interim Dividend; to be deposited in separate bank account, etc
(1C)
205(2) Calculation of depreciation for calculating profits for the purpose of
Section 205(1).
205(2A) Transfer to Reserves on declaration of dividend

205(2B) No dividend declaration in case of non- compliance of provisions of


Section 80A
205A(1) Unpaid dividend to be transferred to special dividend account
205A(3) Declaration of dividend out of reserves
205A(5) Amount in unpaid dividend account to be transferred to Investor
education and Protection Fund after 7 years
205B Payment of unpaid or unclaimed dividend
205C Establishment of Investor Education and Protection Fund.
206 Dividend not to be made except to the registered shareholders
206A Right to dividend, right shares and bonus shares to be held in abeyance
21 Nilesh A Pradhan & Co.

pending registration of transfer


207 Penalty for failure to pay dividends within 30 days
208 Payment of interest out of capital
22 Nilesh A Pradhan & Co.

MANAGERIAL REMUNERATION
Under the Companies Act, 1956.

Remuneration is that benefit or incentive given to a person for providing some services.
Thus, any remuneration paid to managerial personnel in an organization is called
managerial remuneration. It is the consideration or the cost that an organization pays to its
management for the specialized service it provides to the organization. As per explanation
to Section 198 of the Companies Act, 1956, remuneration shall include:
(a) any expenditure incurred by the company in providing any rent-free
accommodation or any other benefit or amenity in respect of accommodation free
of charge
(b) any expenditure incurred by the company in providing any other benefit
or amenity free of charge or at concessional rate to any of the persons aforesaid.
(c) Any expenditure incurred by the company in respect of any obligation or
service which but for such expenditure by the company, would have been incurred
by the managerial personnel.
(d) Any expenditure incurred by the company to effect any insurance on the
life of, or to any pension, annuity or gratuity for, any of the managerial personnel
or their spouse or child.

A company form of organization appoints various managerial personnel such as managing


director, manager, whole-time director, secretary, other directors, etc. Corporate reality
is different from theories and practices of Company Law. We know that the provisions of
Company Law make it clear that the shareholders of a company are the real owners of the
organization. But in reality, the management and directors are able to use the funds of the
company for their own personal benefits in the form of high managerial remuneration costs
at the cost of the shareholders. The shareholders cannot do much to prevent the
management to enrich itself through higher remuneration. Hence, over the period of time
the Company Law has created safeguards to protect the interests of its stakeholders. The
Act prescribes an overall limit on the total amount of remuneration which the management
can pay itself. The Companies Act also has laid down limits for remuneration for various
other managerial personnel. These limits are prescribed as a percentage of net profits that
the company earns. Thus, such a provision acts as a control as well as an incentive to the
management.

These provisions and other related matters have been explained in brief in these notes.

OVERALL MAXIMUM REMUNERATION

According to Section 198(1) of the Companies Act, 1956, the total managerial remuneration
payable by a public company or a private company which is a subsidiary of a public
company, to its directors and its manager in respect of any financial year shall not exceed
eleven per cent of the net profits of that company for that financial year.

The net profits of the company for the matter of computing overall managerial
remuneration shall be calculated in the manner laid down in Sections 349 and 350 of the
Companies Act, 1956. (Explained in detail later)

Remuneration of directors shall not be deducted from gross profits for the purpose of
managerial remuneration. As per sub-section (2), the percentage prescribed in the sub-
section (1), shall be exclusive of the amount payable to a director under section 309(2) of
the Companies Act, 1956. i.e. fees payable to directors for attending meetings of the Board
or Committee thereof.
As per Section 198(3) of the Companies Act, 1956, a company may pay a monthly
remuneration to its managing or whole-time director in accordance with provisions of
23 Nilesh A Pradhan & Co.

Section 309 or to its manager in accordance with the provisions of Section 387. The
payment by way of remuneration on monthly, quarterly or yearly basis to any other
director would require approval of Central Government and payment by way of commission
would require a special resolution. (Section 309 deals with remuneration to directors and
section 387 deals with remuneration to managers, both these Sections have been dealt with
in detail in the later part of these notes)

MANAGERIAL REMUNERATION IN CASE OF ABSENCE OR INADEQUCY OF PROFITS

As per Section 198(4) of the Companies Act, 1956, notwithstanding anything contained in
sub-sections (1) to (3), but subject to the provisions of section 269, read with Schedule XIII,
if, in any, financial year, a company has no profits or its profits are inadequate, the
company shall not pay to its directors, including any managing or whole-time director or
manager, by way of remuneration any sum, except with the previous approval of the
Central Government. (Section 269 relates to appointment of managing, whole-time
directors and Schedule XIII is explained later.)

The section requires previous approval of the Central Government for payment of
remuneration in case of company has not earned any profits or its profits are inadequate.
The profits of the company can be known only at the end of the financial year only after
accounts are audited. The company may seek previous approval of the Central Government
without waiting for the financial year to end; otherwise payment made to the managerial
personnel will not be in accordance with the law. Approval will not be required where
payment is within limits specified in Schedule XIII.

REMUNERATION OF DIRECTORS

1) Determination of remuneration:
As per Section 309(1) of the Companies Act, the remuneration payable to the directors of
the company, including any managing or whole-time director, shall be determined in
accordance with and subject to the provisions of Section 198 of the Companies, Act, 1956,
and this section, either by the articles of the company, or by a resolution or, if the articles
so require, by a special resolution, passed by a company in general meeting. Such
remuneration payable to any such director determined as aforesaid shall be inclusive of the
remuneration payable to such director for services rendered by him in any other capacity:

Provided that any remuneration for services rendered by any such director in any other
capacity shall not be so included if-
(a) the services rendered are of a professional nature, and
(b) In the opinion of the Central Government, the director possesses the requisite
qualifications for the practice of the profession.

The purpose of this section is to control the cost of management and therefore only
managerial remuneration and not remuneration paid for any other purpose can be
considered. So remuneration received by the director in any other capacity is included if
services are of professional nature and the director possesses such qualifications as are
necessary. It may be noted that the remuneration of directors can only be determined only
by the articles of the company or a resolution of a general body or a special resolution if
the articles so require. In any case the determination of remuneration should be in
accordance with Section 198 of the Companies Act, 1956, i.e. overall remuneration should
fall within the limit of 11% of net profits of the company.

As per Section 309(2) of the Companies Act, 1956, a director may receive a fee for each
meeting of the Board, o Committee thereof, attended by him. Thus, sitting fees, travelling
24 Nilesh A Pradhan & Co.

allowances, etc. are payable to a director who was present at the meeting of the Board
with a view to participate in the proceedings.

2) Mode and amount of payment:


As per Section 309(3) of the Companies Act, 1956, a director who is either in whole-time
employment of the company or a managing director may be paid remuneration either by
way of monthly payment or at a specified percentage of the net profits of the company or
partly by one and partly by the other:

Provided that except with the approval of the Central Government such remuneration shall
not exceed
i) Five percent of the net profits for one such director, and
ii) Ten percent of the net profits for all of them together, if there are more
than one such director.

As per Schedule XIII, there is no restriction on the quantum of remuneration as long as the
remuneration paid during any financial year is within 5% or 10% of net profits, as the case
may be. Even if the remuneration exceeds these limits, no Central Government approval is
required if the remuneration is satisfying the conditions laid down in
Schedule XIII.

Section 309(5) of the Companies Act, 1956 states that the net profits referred to in sub-
sections (3) shall be computed in the manner referred to in Section 198 of the Companies,
1956.

3) Case of excess payment of remuneration:


Section 309(5A) of the Companies Act, 1956, states that if any director draws or receives,
directly or indirectly, by way of remuneration any such sums in excess of the limits
prescribed by this section or without the prior sanction of the Central Government, where
it is required, he shall, refund such sums to the company and until such sum is refunded,
hold it in trust for the company.

Section 309(5B) of the Companies Act, 1956, states that the company shall not waive the
recovery of any sum refundable to it under sub-section (5A) unless permitted by the
Central Government.

Any payment by way of remuneration in excess of the limit prescribed by the section or
without approval of the Government where approval is required to be held by the recipient
in trust for the company and he shall refund it to the company. The recovery of such sum
cannot be waived unless permitted by the Central Government.

The provisions of this Act are not applicable to a private company which is not a subsidiary
of a public Company. [Section 309(9)]. As per Section 388 of the Companies Act, 1956
Section 309 also applies to a manager.

INCREASE IN REMUNERATION

As per Section 310, in case of a public company, or a private company which is a subsidiary
of a public company, any provision relating to the remuneration of any director including a
managing or whole-time director, which has the effect of increasing, whether directly or
indirectly, the amount thereof, whether that provision be contained in Company’s articles
or Memorandum, or in an agreement entered into by it, or in any resolution passed by the
company in a general meeting or by its Board meeting, shall not have effect
(a) In cases where Schedule XIII is applicable, unless such increase is in accordance with
the conditions specified in that Schedule
25 Nilesh A Pradhan & Co.

(c) In any other case, unless it is approved by the Central Government and the
amendment shall become void if, and in so far as, it is disapproved by that
Government. Provided that approval shall not be required where any provision or any
amendment thereof that increases the amount of such remuneration only by way of a
fee for each meeting of the Board or Committee and the amount of such fee after
such increase does not increase does not exceed the sum as may be prescribed. The
prescribed sitting fees are Rs.20000/- per board meeting.

The increase in remuneration of directors does not require Central Government’s approval,
in cases where it is in accordance with statutory guidelines specified in Schedule XIII. This
section does not apply to banking companies and Government companies. As per Section
388 this section also applies to a manager.

As per Section 311 of the Companies Act, 1956, in case of a public company or a private
company which is a subsidiary of a public company, if the terms of re-appointment or
appointment of a managing or a whole-time director, made after the commencement of
this Act, have the effect of increasing, whether directly or indirectly, the remuneration
which the managing or whole-time director or the previous managing or whole-time
director, as the case may be, was receiving immediately before such reappointment or
appointment shall not have affect :
(a) in case where Schedule XIII is applicable, unless such increase is in
accordance with the conditions specified in that Schedule, and
(b) in any other case, unless it is approved by the Central Government.

It may be noted that this section only deals with cases of appointment or re-appointment
of managing and whole-time directors only. This section is also applicable to a manager.
The approval is not necessary in cases where the increase is in accordance with Schedule
XIII. But in any other case, if the original remuneration had been fixed at a particular
percentage or figure, an increase of it even within the limits allowed by section 309 is not
permitted without the sanction of Central Government.

REMUNERATION OF MANAGER

As per Section 387 of the Companies Act, 1956, the manager of a company may, subject to
the provisions of Section 198, receive remuneration rather be way of a monthly payment,
or by way of specified percentage of the net profits of the company calculated in the
manner laid down in Sections 349 and 350, or partly by the other;

Provided that except with the approval of the Central Government such remuneration shall
not exceed in the aggregate five per cent of the net profits.

This section does not affect a private company which is a subsidiary of a public company,
banking company and a Government Company. The appointment or reappointment of
manager, and the fixation and increase of his remuneration is done mutatis mutandis in the
same manner as for the managing or whole-time director of a company.

PROHIBITION OF TAX-FREE PAYMENTS

As per Section 200 of the Companies Act, 1956, no company shall pay to any officer of the
company, whether in his capacity as such or otherwise, remuneration free of any tax, or
calculated with reference to, or varying with any tax payable by him.
26 Nilesh A Pradhan & Co.

DETERMINATION OF NET PROFITS FOR CALCULATING MANAGERIAL REMUNERATION

Section 349 of the Companies Act, 1956, states the method for computing net profits.
According to sub-section (1), in computing the net profits of a company in any financial
year-
(a) credit shall be given for the sums specified in sub-section (2), and
credit shall not be given for those specified in sub-section (3); and
(b) the sums specified in sub-section (4) shall be deducted, and those
specified in sub-section (5) shall not be deducted.

Sub-section (2) contains the following items:


 bounties and subsidies received from any Government, or any public authority
constituted or authorized in this behalf, unless and except in so far as the Central
Government otherwise directs.
Sub-section (3) contains the following items:
(a) profits, by way of premium, on shares or debentures of the company, which are
issued or sold by the company.
(b) Profits on sales by the company or forfeited shares.
(c) Capital profits including those on sale of undertaking(s) of the company or any part
thereof.
(d) Profits from sale of immoveable property or fixed assets comprised in the
undertaking(s), unless the business of the company consists, whether wholly or partly
of buying and selling any such property or assets:

Provided that where the amount for which any fixed assets is sold exceeds
the written-down value thereof referred to in Section 350, credit shall be given for so much
of the excess as is not higher than the difference between the original cost of that fixed
asset and its written down-value.

Sub-section (4) contains the following items:


(a) All the usual working charges.
(b) Directors’ remuneration.
(c) Bonus or commission paid or payable to the staff, or to any engineer, technician
or person employed or engaged, whether on a whole-time or on a part-time basis.
(d) Any tax in the nature of tax on excess or abnormal profits.
(e) Any tax on business profits imposed for special reasons or in special
circumstances
(f) Interest on debentures issued by the company.
(g) Interest on mortgages executed and on loans and advances secured by charge
on its fixed or floating assets.
(h) Interest on unsecured loans and advances.
(i) Expenses on repairs, whether immovable or movable property, provided the repairs
are not of capital nature.
(j) Outgoings, inclusive of donations made u/s 293(1)(e).
(k) Depreciation as per Section 350 of the Companies Act, 1956.
(l) Excess of expenditure over income
(M) Any compensation or damages to be paid in virtue of any legal liability, including a
liability arising from a breach of contract.
(n) Any sum by way of insurance against the risk of meeting any liability such as is
referred to in clause
(o) Debts considered bad and written off or adjusted during the year of account.
(p) Amount paid as cess under Section 441A. [Brought about by Companies (Amendment)
Act, 2002]

Sub-section (5) of the Act contains the following items:


27 Nilesh A Pradhan & Co.

(a) Income-tax and super-tax payable by the company under the Income tax Act, 1922,
(b) Any compensation, damages or payments made voluntarily
(c) capital loss including loss on sale of the undertaking(s) of the company or part thereof
not including any excess referred to in the proviso to Section 350 of the written- down
value of any asset which is sold, discarded, demolished or destroyed, over its sale
proceeds or scrap value.

As per Section 350 of the Companies Act, 1956, of the amount of depreciation to be
deducted in pursuance of clause (k) of sub-section (4) of Section 349 shall be the amount of
depreciation on assets as shown in the books of the company at the end of the financial
year,

Provided that if any asset is sold, discarded, demolished or destroyed before depreciation
of such asset has been provided for in full, the excess, if any, of the written-down value of
such asset over its sale-proceeds or as the case may be, its scrap value, shall be written off
in the financial year in which the asset is sold, discarded, demolished or destroyed.

SCHEDULE XIII
It is open to a public company, or a private company which is a subsidiary of a public
company, to appoint its managerial personnel and fix their remuneration without Central
Government’s approval, so long as the same is in accordance with the conditions laid down
in Schedule XIII. Part II of Schedule XIII gives a detailed account about the amount of
remuneration that a company can pay its managing or Wholetime Directors under various
situations. Section I of the Part II of Schedule XIII talks the maximum remuneration payable
by a company having profits. Section II of Part II of Schedule XIII talks about remuneration
payable by companies having no profits or inadequate profits. This Section has clauses (A),
(B), (C) a which fixes the maximum managerial remuneration payable under various ceiling
limits. The maximum remuneration increases with the increase in effective capital of the
company. For the purpose of Section II of this part, “effective capital’ means the aggregate
of the paid-up share capital (excluding any share application money or advances against
shares, amount in share premium account, reserves and surpluses (Excluding revaluation
reserves); long-term loans, and deposits repayable after one year (excluding working
capital loans, overdrafts, bank guarantee, etc and other short-term arrangements) as
reduced by aggregate of any investments, accumulated losses and preliminary expenses not
written off. Clause (D) lays maximum remuneration for companies in Special Economic
zones as notified by the Department of Commerce from time to time.

AMALGAMATION, MERGER, TAKEOVER

1. AMALGAMATION
Amalgamation is the blending of two or more companies into single company or under-
taking, the shareholders of each such company becoming substantially the shareholders in
the new company which is to carry on the blended undertaking. To achieve this objective,
either a new company may be formed or take over the business of the existing companies
or the business of one or more existing companies be taken over by one of the existing
company/ companies.

2. MERGER
Merger means two or more companies merges together and form a new company. The
shareholders of both the company are shareholders of new company i.e. Resulting
company.
28 Nilesh A Pradhan & Co.

3. TAKEOVER
Takeover means taking over direct or indirect control over the assets of the another
company. The control is taken over through the number of shares of the company to be
acquired. As per the Companies Act, 1956 the scheme or contract involving the transfer of
shares or any class of shares in the company (i.e. transferor company) to another company
(transferee company) has, within 4 months after maturity of the shares that company
approved by shareholders holding 9/10 of value of shares whose transfer is involved.

It is provided ceiling as prescribed by Sec.224 (13) is not to private company by Company


(Amendment) Act, 2000. While calculating specified limit branch audits of Indian
companies and audit of Indian business account of Foreign companies to be excluded.

WINDING UP
Winding up of the company is the process whereby its life is ended and its property
administered for the benefit of it’s shareholders, creditors & members. An administrator
called as Liquidator is approved and he takes control of company collects the asset, pays
its debt & finally distributes and he takes control of company in accordance with the rights.
In other words, winding up is applying the assets of company in discharge of its liability and
returning surplus to those entitled to it, subject to cost of doing so. The statutory process
by which this is achieved is called ‘Liquidation’. Winding up can be by court, compulsory
winding up or creditor/ Member’s voluntary wind up.

STRIKING OFF
Striking of means the process by which the name of the company is removed from the
records of the Registrar of company if some circumstances exist.

If paid up capital of Public/ Private Company is less than Rs.5 lacks/ 1 lacks as the case
may be. The Registrar of company has to follow prescribed procedure as laid under the Act
before striking of the name of any company.

ILLEGAL ASSOCIATION
Sec.11 of the Companies Act, 1956 provides that not more than 10 persons can combine
together for carrying on a banking business or more than 20 persons for carrying on any
other kind of business or more than 20 persons for carrying on any other kind of business,
the object of which is acquisition of gain, unless, the association is registered under the
Companies Act or any other Indian Law. An association formed in contravention of Sec. 11
of Companies Act,1956. The sole test to determine an illegal association under this section
is whether it carries on business for the purpose of gain. If that is so, association carries
with number of members exceeding statutory limit convert itself into illegal association
unless is registered under the Act.

This provision does not apply to Joint Hindu Family business but where two or more such
joint families form partnership, they will come within the mischief to this section but in
computing number of persons, the minor members of such family will be excluded. In
Pannagi V/s. Senagi (1934), four firms entered into a partnership and aggregate of
members exceeded 20, it will be illegal Association and could not maintain a suit. The
association does not registered merely, because the persons forming it choose to affix the
word ‘Company’ after firm’s name.

In case of Babulal V/s. Laxmi Bharat Trading Company AIR 1960 Raj 14 (D.B), an
unregistered association consisting of 115 members was alleged to be formed at the
instance of Government to help it in distribution of gain among public. It will established
from evidence that an element of acquisition of gain was present in its formation, it was
therefore, held that it was an illegal association and hit by Sec.11 of Act.
29 Nilesh A Pradhan & Co.

LETTER OF AUTHORITY

We, Mr. _______________ , Mr. ________________ AND Mr. ____________ Promoters of


the Company __________________ having Registered Office at
----------------------------------------------------------------------------- hereby authorise, Mr.
___________, Mr. __________ and Mr. __________of ____________, firm of Practicing
Company Secretaries having their office at
_______________________________________________ who have signed below, to appear
on behalf of us before the Registrar Of Companies, Maharashtra, Mumbai, to carry out
the necessary amendments to Memorandum and Articles of Association and any other
documents in connection with the incorporation of proposed Company and to submit, any
paper, document so required by the Registrar in this connection and to collect the
Certificate of Incorporation.
All their acts and omissions are acceptable to us

Mr. _____________________ Signature

Mr. _____________________ Signature

Mr. _____________________ Signature

Date: -
Place: - Mumbai

For,
Company Secretaries,

Mr. _____________ Signature_______________________

Mr. _____________ Signature_______________________

Mr. _____________ Signature_______________________


30 Nilesh A Pradhan & Co.

DRAFT RESOLUTIONS:

APPOINTMENT OF DIRECTOR:

The Chairman informed the Board that Mr./ (Mrs.) _____________ has expressed her/ (his)
willingness to act as Director in the Company and she/ (he) has given her/ (his) consent
letter to the company. The Board discussed the matter and passed the following resolution,

“RESOLVED THAT, Mr./ (Mrs.) _____________, be and is hereby appointed as an Additional


Director of the Company.

RESOLVED FURTHER THAT, Mr. _______________, Director of the Company be and is


hereby authorized to complete all the necessary formalities in this respect and to file Form
No. 32 with the Registrar of Companies.”

RESIGNATION OF DIRECTOR:

The Chairman informed the Board that ------------------ has shown unwillingness to be
continued as the Director of the company due to certain unavoidable reasons. The matter
was then discussed in detail. The Board then passed the following resolution unanimously

“RESOLVED THAT the resignation tendered by ------------------ be and is hereby accepted


with immediate effect”

DRAFT OF FIRST BOARD MEETING

A meeting of Board of Directors of ------------------ was held on ------------------------ at


--------------- when the following Directors were present.

1. --------------------
2. --------------------
3. --------------------
took the chair and there being requisite quorum the proceedings of the meeting
commenced.

The original Certificate of Incorporation issued by Registrar of Companies,


Maharashtra under reference ------------- dated ------------------- was placed before
the Board and the Board passed the following resolution unanimously.

"RESOLVED THAT Certificate of Incorporation of ----------------- dated --------------- be


kept at the Registered Office of the Company."

III. The Chairman stated that following persons have subscribed to the Memorandum of
Association of the Company for ------------- shares of Rs.------------- each.

Sr. No. Name of the Subscriber Number of Share(s)


1 ------------------ ---------
2 -------------- -------------
3 ------------------- -----------
4 ----------------- ---------
TOTAL -------
The Board took the note of the same and then authorised the issue of share
certificates to the subscribers of Memorandum of Association of the Company.
31 Nilesh A Pradhan & Co.

IV. The Chairman placed before the Board Form No.18 regarding situation of the
Registered Office of the Company filed with the Registrar of Companies,
Maharashtra. The Board after a brief discussion passed the following resolution
unanimously.
"RESOLVED THAT the notice of situation of Registered Office at
-------------------------filed by the Promoters with the Registrar of Companies,
Maharashtra be and is hereby confirmed and recorded."

V. The Board was informed that ------------------, -----------------and Ms. Nayna Bhayani
are the first Directors of the Company under clause 14 of Articles of Association.
They will be acting as Directors from the date of incorporation of the Company and
are not liable to retire and will hold the office till they resign. The Board
considered their appointment and passed the following resolution unanimously.
"RESOLVED THAT ---------------, --------- and ------------ whose names appear as the
first Directors of the Company as mentioned in under Article ------------- of the
Articles of Association be appointed as first Directors of the Company from the date
of incorporation and shall constitute the first Board of Directors of the Company
who shall hold office of Director at their description and shall be not liable to retire
by rotation. "

VI. The Board considered details of preliminary expenses incurred by the Promoters of
the Company in regard to incorporation of the Company which requires to be
ratified and adopted by the Board. After a brief discussion the following resolution
was passed unanimously.
"RESOLVED THAT the preliminary expenses as per the details placed before the
Board be and is hereby approved and adopted as the preliminary expenses of the
Company.”

VI. The Chairman appraised the Board that the first Auditors of the Company have to be
appointed who will hold office from the date of incorporation till the conclusion of
the Company's first Annual General Meeting. The Chairman further informed that
-------------------, Chartered Accountants, have kindly consented to act as first
Auditors of the Company and the Board may consider their appointment. The Board
while appointing ------------------, Chartered Accountants, as first Auditors passed the
following resolution unanimously.

“RESOLVED THAT --------------, Chartered Accountants be and are hereby appointed


as the Company's first Auditors to hold office from the date of incorporation till the
conclusion of the Company's first Annual General Meeting at a remuneration to be
decided by the Board at the end of the accounting year after taking into
consideration the volume of work involved."

VII. The Chairman placed before the Board the impression of common seal of the
Company for approval. The Board while approving the common seal passed the
following resolution unanimously.
"RESOLVED THAT the common seal as per the impression affixed below and
produced at this Board Meeting be and is hereby approved and adopted as the
Company's common seal.
RESOLVED FURTHER THAT the common seal be kept in the safe custody of the
Company."
(Impression of common seal to be affixed)

VIII. The Chairman suggested that it would be in the interest of the Company that the
Directors should consider and waive receipt of fees for attending the Board
32 Nilesh A Pradhan & Co.

Meetings. The Board discussed the matter and passed the following Resolution
unanimously.

"RESOLVED THAT no fees be paid to the Directors for attending any Board or
Committee Meetings unless otherwise resolved by the Board."

X. The Chairman suggested that the first financial year of the Company shall be from
the date of incorporation i.e. ----------------- till ----------------- (both days inclusive),
and the second and subsequent ‘Financial Years’ of the Company be the period from
------------ -------------- of the following year. The Board after a brief discussion
approved the same.

XI. The Chairman stated that it is proposed to give authority to sign and file Income Tax
Returns of the Company. The Board after brief discussion passed the following
resolution unanimously.

“RESOLVED THAT -----------------. failing which -------------. failing which -------------


be and are hereby authorised to sign and file Income Tax Returns of the Company
with various Income Tax Authorities.

RESOLVED FURTHER THAT --------------. and --------------- be and are hereby severally
authorised to sign and file any affidavit, petition or application on behalf of the
Company with Income Tax Authorities and to appoint any person to represent the
Company various Income Tax Authorities.”

XII. The Chairman stated that managing working capital requirements of the Company is
very crucial area. And unsecured loans and inter company loans play a major role in
managing working capital requirement of the Company. It was proposed to give
authority to take unsecured and inter company loans and to decide the terms and
conditions thereon. It was also proposed to give authority for making investments
for and on behalf of the Company. The Board after brief discussion passed the
following resolution unanimously.

“RESOLVED THAT --------------- and ----------------- be and are hereby severally


authorised take unsecured and inter company loans on behalf of the Company and
to decide the terms conditions thereon.

RESOLVED FURTHER THAT ------------------- and ------------------------ be and are


hereby severally authorised to make investments for and on behalf of the Company
in shares/ stocks/ bonds/ debentures/ fixed deposits etc. and to decide the terms
and conditions thereon.”

XIII. The notices received from Directors of the Company under Section 299 of the
Companies Act, 1956 were read before the Board and the same were noted.

XIV. The Chairman stated that it is proposed to open a Current Account of the Company
with ------------------- The Board after brief discussion passed the following resolution
unanimously.

“RESOLVED THAT a Current Account of the Company be opened with


-------------------------- and the said Bank be and is hereby authorised to honour
cheques, Bill of Exchange and Promissory Notes drawn, accepted, endorsed or made
on behalf of the Company by ------------------and Mr. -------------------- the Directors
of the Company and to act on any instruction so given, relating to the account
33 Nilesh A Pradhan & Co.

whether the same be overdrawn or not, or relating to the transaction of the


Company.

There being no other business, the meeting terminated with a vote of thanks to the chair.

CHAIRMAN
34 Nilesh A Pradhan & Co.

PERFORMANCE APPRAISAL:

A meeting of Board of Directors of -------------------------- was held on


-------------------- at -------------------- at the Registered Office of the company at
-------------------------------------------------when the following Directors were present.

1. Mr. ------------------
2. Mr. -------------
3. Mr. -------------

Mr. ------------------------ took the chair and there being requisite quorum the proceedings of
the meeting commenced.

I. The minutes of the previous meeting, which had already been circulated were taken
as read and on confirmation thereof by the Directors was signed by the Chairman.

II. The Board reviewed the performance of the Company and expressed satisfaction on
the same.

There being no other business the meeting ended with vote of thanks to the Chair

CHAIRMAN
35 Nilesh A Pradhan & Co.

PRE – AGM:

A meeting of Board of Directors of ----------------------, was held on


---------day, ----------------at -------A.M./P.M. at --------------------------(ADDRESS) when the
following Directors were present.

Mr. ------
Mr.-----
Mr.------

---------------- took the chair and there being requisite quorum the proceedings of the
meeting commenced.

I. Leave of absence was granted to ---------------

II. The minutes of the previous board meeting on which had already been
circulated were taken as read and on confirmation thereof by the Directors were
signed by the Chairman.

III. The Chairman stated that members of the Company at the Annual
General Meeting held on --------------------- had passed a resolution appointing
M/s---------------------., Chartered Accountants as Auditors of the Company to hold
office from the conclusion of ---------- Annual General Meeting of the Company till
the conclusion of --------Annual General Meeting on a remuneration to be decided by
the Board of Directors after taking into consideration the volume of work involved.
It is now proposed to fix the remuneration of the Auditors at Rs.--------/- for the
financial year ended 31.3.200-. After a brief discussion the Board passed the
following resolution unanimously.

"RESOLVED THAT the remuneration of the Auditors, M/s. ----------., Chartered


Accountants be and is hereby fixed at Rs.-------/- for the financial year ended
31.3.200-.”

IV. The Chairman placed before the Board a draft Balance Sheet as at
31.3.200- and a draft Profit and Loss Account for the year ended 31.3.200- together
with Schedules and notes attached thereto. The Chairman stated that total income
of the Company was Rs---------/- (previous year Rs.-----/-) and the Company earned
a profit of Rs.------/- (previous year loss of Rs-----/-) for the financial year ended
31.03.200-. The Chairman stated that the Company has given donations of Rs.-----/-
during the year under review. The Board scrutinised the Balance Sheet and Profit
and Loss Account, Schedules and Notes thereon and while approving the same
passed the following resolution unanimously.

"RESOLVED THAT” -

1. Donation of Rs.--------/- made by the Company and as mentioned in profit and loss
account of the Company for the year ended 31.03.200- be and is hereby approved and
adopted by the Board.

2. the Profit and Loss Account for the financial year ended 31.3.200- and the Balance
Sheet as on that date together with Schedules and Notes attached thereto as per
draft placed before the Board be and is hereby approved and adopted by the Board.
36 Nilesh A Pradhan & Co.

3. --------- & ---------, Directors of the Company be and are hereby authorized to sign the
Balance Sheet, Profit and Loss Account, Schedules and Notes attached thereto for
and on behalf of the Board."

V. The Chairman stated that M/s. --------------., Chartered Accountants,


Auditors of the Company, retire at the forthcoming --------- Annual General Meeting
of the Company and being eligible, have offered themselves for reappointment. The
Board of Directors while approving the reappointment of the Auditors M/s.
-----------. on remuneration to be decided by the Board of Directors after taking into
account the volume of work involved recommended the same for the approval of
the Members. After a brief discussion the Board passed the following resolution
unanimously.

“RESOLVED THAT subject to the approval of Members, consent of the Board be and
is hereby accorded for reappointment M/s. ----------., Chartered Accountants, as
Auditors of the Company to hold office from the conclusion of --------- Annual
General Meeting till the conclusion of --------- Annual General Meeting of the
Company on a remuneration to be decided by the Board of Directors after taking
into consideration the volume of work involved.”

VI. The Chairman stated that the company is required to have to get Tax
Audit done under the Income Tax Act, 1961. The Chairman then proposed to appoint
M/s. --------. Chartered Accountants as the Tax Auditors of the company. The Board
then after a brief discussion passed the following resolution unanimously.

“RESOLVED THAT M/s. -------------., Chartered Accountants be and are hereby


appointed as Tax Auditor for the financial year ended 31.3.200-.”

There being no other business, the meeting terminated with a vote of thanks to the
chair.

CHAIRMAN
37 Nilesh A Pradhan & Co.

SECTION 299:

A meeting of Board of Directors of -------------------------- was held on


-------------------- at -------------------- at the Registered Office of the company at
-------------------------------------------------when the following Directors were present.

Mr. ------------------
Mr. -------------
Mr. -------------

Mr. ------------------------ took the chair and there being requisite quorum the proceedings of
the meeting commenced.

I. The minutes of the previous meeting, which had already been circulated were taken
as read and on confirmation thereof by the Directors was signed by the Chairman.

II. The notices received from Directors of the Company under Section 299 of the
Companies Act, 1956 for the financial year ___________were read before the Board
and the same were noted.

There being no other business the meeting ended with vote of thanks to the Chair

CHAIRMAN
38 Nilesh A Pradhan & Co.

DRAFT AGM :

Minutes of the --------------- Annual General Meeting of the --------------------- held on


----------- the ----------------- at ----------- p.m. at the Registered Office at --------------------
when following members were present:

1. Mr.---------------
2. Mr. --------------
3. Mr. ---------------

-------------------- took the chair and there being requisite quorum the proceedings of the
meeting commenced.

The Chairman stated that no proxies are received. He further requested


------------------------ to read out Auditors Report and accordingly ------------------- read out
the report. ----------------- further stated that Register of Directors Shareholding is open for
inspection of members at the Annual General Meeting.

I. The Chairman placed before the Board a draft Balance Sheet as at 31.3.---------
and a draft Profit and Loss Account for the year ended 31.3.------------ along with the
schedules and notes thereon. The Chairman stated that out of operating income of
Rs.-------------/- (previous year Rs.---------------/-) the Company has earned a profit of
Rs.-------------/-(previous year Rs.-----------/-) during the financial year --------------. The
members while approving the Balance Sheet, Profit and Loss Account , Directors Report
and Auditors Report, passed the following resolution unanimously.

“RESOLVED THAT audited Balance Sheet and Profit & Loss Account along with schedules
and notes attached thereto for the year ended ----------- together with Directors Report
and Auditors Report be and is hereby approved and adopted.”

II. The Chairman stated that it is proposed to appoint ------------------------


Chartered Accountant as Auditors of the Company to hold office from the conclusion of
-------Annual General Meeting till the conclusion of the ------------ Annual General
Meeting. The Members then passed following resolution unanimously.

“RESOLVED THAT -----------------, Chartered Accountants, be and is hereby appointed as


auditors of the company to hold office from the conclusion of -------- Annual General
Meeting of the company till the conclusion of ---------- Annual General Meeting of the
company on a remuneration to be decided by the Board of Directors after taking into
consideration the volume of work involved.”

The Meeting then terminated with vote of thanks to the Chair.

CHAIRMAN

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