Company law

By Prof. Mayur Malviya

• Company law has been enacted to consolidate and amend law relating to companies and certain other associations. Objectives to be achieved: 1) To encourage investments 2) To ensure proper administration 3) To prevent malpractices 4) To allow for investigations
Prof. Mayur Malviya

Company [Sec.3]
• Sec.3(1)(i) “A company means a company formed and registered under this act or an existing company.” • “a voluntary incorporated association which is an artificial person, created by law with limited liability having a common seal and perpetual succession.”

Prof. Mayur Malviya


• An Incorporated Association • Artificial legal person • Separate legal entity • Perpetual existence • Common seal

• Common capital &limited liability • Transferable shares • Separate property • Capacity to sue & to be sued • Not a citizen
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Doctrine of Lifting the Corporate Veil
Judicial Interpretation
Protection of Revenue

Statutory Exceptions
No. of members below statutory minimum

Company as an agent of Shareholders Company formed by certain persons to avoid their own valid contractual obligation Company formed for some fraudulent purpose

Failure to refund application money

Misdescription of Company’s name

Fraudulent trading

Company formed is against public interest or Public policy Prof. Mayur Malviya

Holding and subsidiary

• Protection of Revenue. (Case Study – Jugilal vs Commissioner of Income Tax) • Prevention of Fraud or Improper conduct. (Case Study – Johns vs Lip man) • Company is a Sham. (Case Study – Gilford Motor Co Ltd vs Horne) • Determination of the character of the company. (Case Study – Daimler Co Ltd vs Continental Tyre & rubber Co.)
Prof. Mayur Malviya

Types of Company
On the basis of Incorporation • Chartered Companies • Statutory companies • Registered Companies On the basis of Liability - Limited by shares - Limited by guarantee - Unlimited Company
Prof. Mayur Malviya

• On the basis of Number of members: - Private Company - Public Company • On the basis of Control: - Holding Company - Subsidiary Company

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• On the basis of Ownership: - Government - Foreign • One Man Company

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Private Company
• Private Company [Sec.3(1)(iii)] is a Company which by its articles of association: Limits the no. of its members to 50, excluding employees who are members or ex-employees who were and continue to be members. Restricts the rights of transfer of shares, if any. Prohibits any invitation to the public to subscribe for any shares or debentures of the co.
Prof. Mayur Malviya

Public company
• According to Sec.3(1)(iv), A Public Company is one which is not a Private Company.

Prof. Mayur Malviya

Difference between Private Company & Public Company
Criteria 1. Minimum Capital 2. Number of members Private [Sec.3(1)(iii)] 1 Lakh Public [Sec.3(1)(iv) 5 Lakhs

Minimum is 2 maximum is Minimum is 7. No 50 restriction on maximum. Three letter is not Consent letters by directors is required the

3. Minimum numbers of Two directors 4. Mode of appointment of Consent directors required 5. Subscription for shares 6. Transferability of shares 7. Minimum quorum

No invitation to the public Members restricted transferring shares Two

Public may be invited to and can subscribe

in Members can transfer their shares freely Five Should not exceed 12% of the profits

8. Managerial remuneration No restriction
Prof. Mayur Malviya

9. Borrowing powers

10. Share warrant 11. Name 12. Statutory meeting

A private company can A public limited company borrow funds immediately can borrow loans only after obtaining certificate to after incorporation commence business No such right Can issue share warrant Name, must add the word Name must add the word ‘Private limited’ at the end ‘Limited’ at the end Not required

Must hold statutory meetings and file a statutory report by the registrar 13. Commencement of Soon after incorporation Only after obtaining certificate of commencement business of business Shares must be first offered Can be issued to outsiders 14. Further issue of Capital to the existing members.

Prof. Mayur Malviya

Conversion of Private into Public

Conversion of Private Company into a Public Company

By Default

By Operation of Law

By Choice

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Conversion of Public into Private
1) The co. in general meeting has to pass special resolution for altering the articles so as to include therein the necessary restrictions, limitations and prohibitions, and to delete any provision inconsitent with the restrictions 2) Word ‘Private’ should be added before limited. 3) The approval of the Central govt. to the alteration in the articles for converting a public company into a private company should be obtained. 4) Within one month of the date of the receipt of the approval, a printed copy of the altered articles must be filed with the registrar. 5) Within 30 days of the passing of the special resolution, a printed or typed written copy thereof should be filed with Prof. Mayur Malviya the registrar.

Formation of Companies

Stages in Formation Capital subscription/ Floatation


Registration/ Incorporation

Commencement of Business

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Promotion Stage
• • • • Discovery of business opportunity Conduct of preliminary investigation Assembling Financing

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Role of Promoter
• • • • • • • • Ideation Arranging resources Preparing preliminary documents Preliminary investigation Preliminary Contracts Naming the company Finance Appoint bankers, brokers, solicitors and underwriters • Obtaining license
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• Availability and approval of the name • Filing of documents MOA AOA Notice Agreements Return containing first director’s particulars List of directors Written consent Statutory declaration Undertaking of shares for qualification shares Payment of fee • Registration • Certificate of incorporation Prof. Mayur Malviya

Commencement of business
• • • • • • • Prospectus or Statement in lieu of prospectus Minimum subscription Qualification shares Return of allotment Declaration Statutory declaration Certificate of commencement of business
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Memorandum of association
• Sec.2(28). “Memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act.” • Establish the relationship between the company and the outside world

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Memorandum of association
• • • • • • • • • Significance Basis of incorporation Charter of company – objects Future structure Limits its activities Investments and risks Liabilities Authorisation Promoters
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• • • • • •

Name clause Objects clause Registered office Capital Liability association

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Doctrine of Ultra vires
• Beyond powers • An act is said to be ultra vires which though legal in itself,is not authorised by the objects clause in the Memorandum of Association. • Restricts misuse of corporate funds • All activities and transactions beyond the objects of the company shall be entirely void. • All actions against MOA • Directors will held personally resposible if any acts ultra vires
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Alteration of Memorandum
• • • • • Change of name Change of Registered office Alteration of objects Change in liability clause Capital clause

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Articles of association
• Regulations which govern the management of its internal affairs • Duties, rights,powers and authority of the management and the board of directors in their respective capacity • A public company will be deemed to have adopted Table A in Schedule I if the Companies act, if it does not file its own Articles of Association (Properly stamped, duly signed and attested.)
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• • • • • • • • • Share capital Lien on shares Calls on shares Procedure of allotment of shares Transfer of shares Share certificates issued Transmission, forfeiture and reissue Share warrants Alteration of capital Meetings and proceedings Voting rights Directors and capacities Manager Secretary Dividends and reserve Book keeping Accounts, audit and borrowing powers • Capitalisation • Winding up • • • • • • • •

Prof. Mayur Malviya

• Sec.2(36) ‘Document described or issued as prospectus and includes any notice, circular, advt., or other documents inviting offers from the public for the subscription or purchase of any shares or debentures of a body corporate’ 1) Invites subscription to shares, debentures or deposits 2) Aforesaid invitation is made to public.
Prof. Mayur Malviya

1) If the private company is changed into Public Company 2) If there is automatic or immediate collection of capital at the time of incorporation 3) If the company has not issued prospectus due to any reason 4) If the company has decided that it will not issue shares or debentures to public.
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• • • • • Offer Draft Red-Herring Abridged Shelf

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Objects Shares Body of Management Qualification shares Minimum subscription Application and allotment • Preliminary expense • • • • • • • Amount of premium • Vendors • Benefit paid or given to promoters • Auditors, Creditors, Underwriting Commission • Reserves and profits

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Statement in lieu of Prospectus: Section 70
Issued atleast 3 days before the allotment of shares or debentures, there has been delivered to Registrar for registration duly signed by each of the acting or proposed director in the following cases:

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By promoters By the court APPOINTMENT OF DIRECTORS By the central government By the third parties

By the company

By the board of directors

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General powers of company boards

General powers of the board • Company Act • AoA

Powers exercisable by the board at the board meeting
• to make calls on shares • to borrow money • to fill casual vacancy


• Malafides acts of directors • Deadlock in management

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• • • • • • Statutory duties Fiduciary duties Duty not to delegate Duty to take reasonable care Duty to take part in company meetings Duty to disclose interest

Prof. Mayur Malviya

Sec.2(46) of the Companies act, 1956 has defined: “Share means share in the shares capital of the company and includes stock, except where a distinction between stock and shares is expressed or implied.” • Interest • Liability • Right • Binding
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Types • Preference shares • Equity Shares • Sweat equity shares Listing of Shares [sec.73]

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Statutory Annual general Extraordinary Class • Quorum • Resolution
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Winding Up
Compulsory Voluntary Supervision under court Winding up and Dissolution

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Winding up the Company Act session!! Any Queries? Lets move ahead towards taxation Thank you……

Prof. Mayur Malviya

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