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SUB: Regulation of
securities markets
TOPIC: Companies act

















Companies Act
What is a company…?
 A company is a voluntary association of
persons formed for the purpose of doing
business, having a distinct name and
limited liability.
 They can be incorporated under the
companies act.
 Corporations enacted under special
 Corporate sole.
 Any other body corporate notified by the
central government.
Features: A company is considered as a separate
legal entity from its members, which can
conduct business with all powers to
 Independent corporate entity. It is
independent of its members and

MOA contains the fundamental conditions upon which company can be incorporated. separate from its members. Limited liability (either by share or guarantee)  It can own property. MOA is prepared according to the provisions of companies act.  The company enjoys rights and liabilities which are not as that of the members of the company. MEMORANDUM OF ASSOCIATION (MOA) MOA is the First step in formation of the company. MOA is the Charter of the company. The property is vested with the company. MOA is printed & divided into . 1956. MOA Contains the objects of company's formation. MOA defines as well as confines the Powers of the company.  Perpetual succession: death of the members is not the death of the company until it is wound up. as it is a body corporate.  As it is a legal entity or a juristic person or artificial person it can sue and be sued.  The income of the members are different from the income of the company.

MOA defines relationship between the company & outsiders MOA is almost unalterable document because change is made with great difficulties. CONTENTS OF MOA:- . MOA is prepared by promoters & signed by at least 7 & 2 members in case of public & private company respectively. Most stable & semi-permanent document of the company. All companies prepare their own MOA.paragraphs numbered serially. Submitted to Registrar of Companies.DEFINATION: Sec (28) of companies act. 1956:"Memorandum means memorandum of Association of company. . hence can be inspected by any individual as & when necessary. as originally framed and as altered from time to time in pursuance of any previous company law or this Act" FEATURES OF MOA MOA states the nature & scope of business activities. MOA is a public document. Anything done beyond objects specified in MOA is ultra-vires & considered null & void.

The object clause 4. The subscription clause ARTICLES OF ASSOCIATION (AOA) AOA is the Second important document in the formation of a company. Filed with the Registrar at the time of registration of the company. AOA is signed by the subscribers of MOA. The company may adopt 'TABLE A' of the companies act. But a public may or may not prepare AOA.DEFINATION: Sec 2(2) of companies act. The name clause 2.1. Deals with rights of members of the company. 1956:- . The capital clause 6. . The liability clause 5. The domicile clause 3. A private company has to prepare AOA compulsorily.

Voting by members. Share capital. 7. General meetings. 5. Call on shares. Transfer. AOA deals with the rights of the company."Article means the articles of association of a company originally framed or as altered from time to time in pursuance of any previous company law or this act". . AOA allows flexibility to the persons who form the company.AOA are the rules & regulations made for internal management of by the company.AOA defines how the business should be carried on. Conversion of shares into stock. transmission of shares. 4. Share warrants. AOA is by Governed by MOA. 6. 2. CONTENTS OF AOA 1. FEATURES OF AOA AOA is subordinate to MOA. 3.

13. their appointment. 14. 1956 1. Managers. Company investments. remuneration. Common seal. etc. 18. 12. 15. Dividend & Reserves. 11. DISCUSS THE PROVISION RELATING TO SHELF PROPECTUS & INFORMATION MEMORANDUM UNDER COMPANIES ACT. Board meetings. Books of A/C's & Audit. their qualification shares. Every issuer is required to file a Prospectus with Registrar of Companies before making a . 10. remuneration. appointment. 17.8 Directors. Borrowing power of the company 16. MD's & secretary. 9. removal etc. Capitalisation of profits. Notices. Winding up.

within a period of validity of such shelf prospectus. 2013 has been enacted and Section 31 of the said Act has been notified. As per the said section. In FY 2011-12. 3. was allowed to file a shelf prospectus. company filing a shelf prospectus with the Registrar is not required to file prospectus afresh at every stage of offer of securities. any public financial institution. the concept of Shelf Prospectus was introduced in Companies Act. As per the said section. To enable frequent issuers to raise money. whose main object is financing. without undergoing the procedure for filing Prospectus for every issuance. it may be noted that recently Companies Act. The Shelf Prospectus shall be filed . 2. any class or classes of companies. 1956. may file a shelf prospectus with the Registrar of Companies. In this regard. while in FY 2012-13. 7 companies have filed Shelf Prospectus for their debt issuances. 5 companies have filed Shelf Prospectus. public sector bank or scheduled bank. Under Section 60A of the Companies Act.public issue. as SEBI may provide by regulations in this behalf.

It shall indicate a period of validity. Ministry of Corporate Affairs has already placed draft disclosure requirements for information memorandum for public .at stage of the first offer of securities. Where an information memorandum is filed. a company filing a shelf prospectus is required to file an information memorandum. no further prospectus is required to be filed. and such other changes as may be prescribed by Central Government in this regard. with the Registrar of Companies. which shall not exceed one year commencing from the date of opening of the first offer of securities under that prospectus. In respect of a second or subsequent offer of such securities issued during the period of validity of that prospectus. containing all material facts relating to new charges created. changes in the financial position of the company. However. every time an offer of securities is made under such memorandum together with the shelf prospectus shall be deemed to be a prospectus. prior to subsequent offer of securities under the shelf prospectus. 4.

as per the Section 31 of Companies Act. INFORMATION MEMORANDUM (1) A public company making an issue of securities may circulate information memorandum to the public prior to filing of a prospectus. SEBI may allow such classes of companies eligible to file a shelf prospectus.comments. by providing the same in its regulations. (3) The information memorandum and red-herring prospectus shall carry same obligations as are applicable in the case of a prospectus. . Thus. 2013. (2) A company inviting subscription by an information memorandum shall be bound to file a prospectus prior to the opening of the subscription lists and the offer as a red-herring prospectus. Securities and Exchange Board of India 5. The matter relating to allowing the frequent issuers to file Shelf Prospectus was taken before the Corporate Bonds & Securitization Advisory Committee. at least three days before the opening of the offer.

(3) and (4). without having individually intimated the prospective subscribers of the variation and without having offered an opportunity to such prospective subscribers to withdraw their application and cancel . Explanation . (6) In the event of the issuing company or the underwriters to the issue have invited or received advance subscription by way of cash or post-dated cheques or stock-invest. "red-herring prospectus" means a prospectus which does not have complete particulars on the price of the securities offered and the quantum of securities offered.For the purposes of sub-sections (2). the company or such underwriters or bankers to the issue shall not encash such subscription moneys or post-dated cheques or stock-invest before the date of opening of the issue. (5) Every variation as made and highlighted in accordance with sub-section (4) above shall be individually intimated to the persons invited to subscribe to the issue of securities.(4) Any variation between the information memorandum and the red-herring prospectus shall be highlighted as variations by the issuing company.

. Q. It relates to a company’s:  Issue of capital  Issue of prospectus  Allotment and other matter relating to the issue of shares and debentures.The act consists of 13 parts and 14 schedules.their post-dated cheques or stock-invest or return of subscription paid. Ans: . These section stipulates that misstatements in prospectus is subject to civil liability in terms of compensation to persons aggrieved. 1956 relating to the Issue of prospectus. Discuss the provision of the Companies Act. The important provision pertaining to Indian capital market/financial market are given below:It is relevant to capital market.

Prospectus:A prospectus means any document described or issued as prospectus and includes any notice.who subscribe to the issue in good faith and has sustained a loss. advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares or debentures of a body corporate. Thus. shares or B. it may be a circular or even a notice. It invites subscription to debentures or invites deposits. a prospectus is not merely an advertisement. A document shall be called a prospectus if it satisfies two things: A. circular. What constitutes Invitations to Public? Invitation to public includes:  Invitation to any howsoever selected of the public provided the . The aforesaid invitation is made to the public.

 Invitation calculated to be made available even to those who do not receive the same.invitation is made to all the members of public indiscriminately. Mis statements in prospectus  Untrue statements  Statement which create wrong impression  Statement which are misleading  Omission of facts Who are liable for mis-statements in prospectus? Every person who is Director of the company at the time of issue of prospectus  Promoters of the company  Any other person who has authorized the issue of the prospectus There are two types of consequences of misstatement in a prospectus Civil liability  Criminal liability .

if sued separately would have been liable to make the same payment unless the former person was and the latter person was not guilty of fraudulent misrepresentation. is the difference between the value which the shares would have had but for such statement or omission and the true value of the shares at the time of allotment. In applying the correct measure of damages to be awarded to compensate a person . It provides very clearly that where a prospectus invites persons to subscribe for shares in or debentures of a company liability accrues to pay compensation to every person who subscribes for any shares or debentures on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement included therein. Every person who. becomes liable to make any payment by virtue of such misrepresentation may recover contribution as in cases of contract from any other person who. The measure of damages for the loss suffered by reason of the untrue statement. omission etc.Civil liability The Act incorporates the provision relating to the civil liability for misstatement in prospectus.

It provides that where a prospectus includes any untrue statement. etc.who has been fraudulently induced to purchase shares. Criminal liability The Act incorporates the provision relating to the criminal liability for misstatement in prospectus. The offence is compoundable under Section 621A.000 or with both. every person who authorized the issue of prospectus shall be punishable with imprisonment for a term which may extend to 2 years or with fine which may extend to Rs 50. It has to be noted that under such cases.. once the prosecution establishes the falsity of statement in a prospectus signed by a director. It may be appropriate to use the subsequent market price of the shares after the fraud has come to light and the market has settled. the crucial criterion is the difference between the purchase price and their actual value. the onus is shifted to the defendant of proving either that the statement was immaterial or that he believed it to be true .

is one of the most important LAW in Indian Corporate Legislature. It has a far reaching effect on the Indian industry. It was enacted with the Objective of controlling and regulating every conceivable facet of the corporate sector. It was in-cooperated as a whole new spectrum of legislation that would .Q) What are the important provisions pertaining to the Indian capital markets under the companies act. 1956? Ans: Companies act 1956. The Company's Act 1956 was drafted retaining certain section of the earlier act.

It relates to company's: • Issue of capital. The act consists of 13 parts and fourteen schedules. These section stipulates that misstatements in prospectus 8s subject to civil liability in terms of compensation to persons aggrieved. . The important provision pertaining to Indian capital market/financial market are given below:PART 3:It is relevant to capital market.correspondence to independent India's socialistic ideals and policy. Section 55 and 58 deals with this matter. • Allotment and other matter relating to the issue of shares and debentures. • Issue of Prospectus.

Back of Shares:Section 77 of the companies' Act 1956 (amended) provides for the purchases of its own shares by a company. It is done to reward the shareholders. Buyback of shares is legal and common practice in USA. this section also deals with speculation in shares and debentures in secondary market. Buy .who subscribe to the issue in good faith and has sustained a loss. . There are sufficient numbers of provisions to enable the unscrupulous or officers of company evading any regulation and undertaking fraudulent activities. The price paid is usually higher than the market rate which is given as an incentive to shareholders. Section 63 relates to penalty for fraudulently including person to invest money. 1. Section 63 relates to the criminal liability for miss presentation in the prospectus. The company wants to bring down the paid up capital to reduce the dividend servicing the outflow.

financial accountant. statutory auditor . Insider trading:Insiders are those who have an access to the confidential information of the company. Prospectus:Prospectus serves as publicly for corporate enterprises to solicit public subscription of capital. The action caused wide fluctuations in the prices of the securities and undermining the trust of investors in capital market. regarding purchase and sale of security by any director. cost accountant. 3. advisor. section 307 and 308 require full disclosures by board of directors of the company. tax and management consultant.2. By virtue of the position occupied by them in the said company and thereby are in a position to manipulate the share prices to the own advantage with a view to make windfall profits. The provision of the act. solicitors and others who prove to be effective in controlling such trading. .cost auditor.

A regular prospectus contains: (a) Information about the capital structure.The companies Act 1956 contains elaborated details of these documents. financial information etc. Financial disclosure:The company's Act 1956 has a number of norms requiring information disclosure about company’s information on market which sound capital structure is built. there is no dearth (shortage) of market information but the quality of reliable . 4. The efficiency of market is greatly determined by the free flow of unbiased and reliable market information. (c) Company management and project risk perception. (d) Promoters contribution. (b) Terms of issue. Unfortunately. Separate prospectus should be drafted upon the issue. The prospectus usually contains information relating to the proposed offer about the company.

This form is also used for similar requests for payment of interest or debentures or other types of securities. number.information for the investors to make right and timely decisions. . PART 4:It relates to the share capital and debentures with regard to type. The shareholder fills the form & puts his signature authorizing the company to pay dividends direct to his banker. The shareholders who desire that their dividends be credited direct to their bank account have to make the request in prescribed form supplied by the company. Dividend Mandate. certificate of shares. the form when duly filled & send to the company is known as “DIVIDEND MANDATE”. capital etc.

their last known address & the amount of unpaid dividend to be paid to each person at least & place it on the website of the company. the company shall. shall prepare a statement containing the names. and also on any other website approved by the central government. The company shall within a period of 90 days of making any transfer of any amount to the UNPAID DIVIDEND ACCOUNT.Unpaid or Unclaimed dividends. shall transfer the total amount if dividends which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called as UNPAIS DIVIDEND ACCOUNT. . When a dividend has been declared by the company but has not been paid or claimed within 30 days from the date of declaration to any shareholder entitled to the payment of dividends. if any. within the period of seven days from the expiry of said period of 30 days.

the remaining amount) to the account at the rate of 12% interest per annum & the interest accruing on such amount shall ensure benefits of the members of the company. it shall pay from the date of default.e. if any. shall be transferred in the name of “Investor Education & Protection Fund” or any other such fund and the fund authority shall issue a receipt to the company as an evidence of transfer. Payment of Unpaid or Unclaimed dividends: No claim shall lie against the fund or the company in respect of individual amounts which are unclaimed or unpaid for a period of . Any money transferred to the unpaid dividend account of the company which remains unpaid or unclaimed for a period of 7 years from the date of transfer shall be transferred by the company along with the accrued interest. interest on the amount which has not been transferred (i. Also a detailed document about the fund has to be preserved by the company.If any default is made in transferring the total amount or any part thereof to the UNPAID DIVIDEND ACCOUNT of the company.

000 .100. Penalty: If the company fails to comply with any of the above explained requirements.000 & every officer of the company who is in default shall be punishable for the fine not less than Rs.000 to an extent of Rs.00.000. The fine may also increase if the situation continues for a long time then the fine charged to the COMPANY may range between Rs.Rs. the company and every officer of the company who is in default shall be punishable with a fine of years from the dates they just became due payment. Investor’s education and protection fund .5000 for every day during which the failure continues.500.25.500.

As per the Act.Investor Education and Protection Fund (IEPF) has been set-up under Section 205C of the Companies Act.. 1999. . the following amounts which have remained unclaimed and unpaid for a period of seven years from the date they became due for payment shall be credited to the IEPF:(a) Unpaid dividend accounts of the companies (b) The application moneys received and due for refund (c) Matured deposits (d) Matured debentures (e) Grants and donations by the Central Govt. 1956 by way of the Companies (Amendment) Act. companies or any other institutions (f) The interest or other income received out of the investments made from the Fund. State Govt..

The Fund has been established with a view to support the activities relating to investor education. awareness and protection. Following are the objectives/ activities of the Fund: A) Educating investors about market operations B) Equipping investors to analyze information to take informed decisions C) Making investors aware about market volatilities D) Empowering the investors by making them aware of their rights and responsibilities under various laws Major initiatives:The various initiatives for increasing the investors’ awareness and education undertaken in the year 2008-09. under the aegis of IEPF were as follows: 1) Series of advertisement on investor education were issued in national as well as .

were been invited to apply for financial assistance under IEPF schemes. especially those with a rural outreach. related issues were also invited to submit their proposals to the IEPF. NGOs/VOs involved in investor education and protection activities. which were keen to carry out the research on the subjects of investor education/protection. Through these advertisements. 3) Investor Education message was aired on All India Radio through Prasar Bharati to create awareness on the issues concerning investors and about the IEPF. organizations.regional language newspapers. efforts have been made to educate investors for investing in IPOs. Further.investorhelpline. market instruments. wherein besides the above said educative message. 4) An “Investor Helpline” www. Mutual Funds etc. 2)Media campaigns were launched in various project which had been launched under IEPF through Midas Touch Investors Association to provide a mechanism for redressal of grievances and to create investor awareness has been rendering .

effective service to the investors. The redressal rate has been around 46 percent. .