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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
enactments.
 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
contract.
 Independent corporate entity. It is
independent of its members and
shareholders.

 Limited liability (either by share or
guarantee)
 It can own property, separate from its
members. The property is vested with the
company, as it is a body corporate.
 The income of the members are different
from the income 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 legal entity or a juristic person or
artificial person it can sue and be sued.
 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. MOA contains the fundamental conditions
upon which company can be incorporated. MOA Contains the
objects of company's formation. MOA defines as well as confines
the Powers of the company. MOA is prepared according to the
provisions of companies act, 1956. MOA is printed & divided into

All companies prepare their own MOA. 1956:"Memorandum means memorandum of Association of company. Most stable & semi-permanent document of the company.MOA defines relationship between the company & outsiders MOA is almost unalterable document because change is made with great difficulties. Anything done beyond objects specified in MOA is ultra-vires & considered null & void.paragraphs numbered serially. MOA is prepared by promoters & signed by at least 7 & 2 members in case of public & private company respectively.DEFINATION: Sec (28) of companies act. . CONTENTS OF MOA:- . 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. Submitted to Registrar of Companies.

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

AOA is by Governed by MOA. Conversion of shares into stock. transmission of shares. 5. Transfer."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 defines how the business should be carried on. General meetings. 2. FEATURES OF AOA AOA is subordinate to MOA. Voting by members. 6. 4. AOA deals with the rights of the company. Share capital. Share warrants.AOA are the rules & regulations made for internal management of by the company. 3. . AOA allows flexibility to the persons who form the company. 7. CONTENTS OF AOA 1. Call on shares.

15. 10. remuneration. 13. DISCUSS THE PROVISION RELATING TO SHELF PROPECTUS & INFORMATION MEMORANDUM UNDER COMPANIES ACT. Common seal. MD's & secretary. appointment. Borrowing power of the company 16. Dividend & Reserves. their appointment.8 Directors. Winding up. 12. 14. Company investments. 18. Every issuer is required to file a Prospectus with Registrar of Companies before making a . removal etc. 17. 1956 1. Books of A/C's & Audit. their qualification shares. Capitalisation of profits. Managers. Notices. etc. remuneration. Board meetings. 9. 11.

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

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

INFORMATION MEMORANDUM (1) A public company making an issue of securities may circulate information memorandum to the public prior to filing of a prospectus. by providing the same in its regulations. as per the Section 31 of Companies Act. Thus. at least three days before the opening of the offer. 2013. SEBI may allow such classes of companies eligible to file a shelf prospectus. .comments. (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. (3) The information memorandum and red-herring prospectus shall carry same obligations as are applicable in the case of a 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.

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 .(4) Any variation between the information memorandum and the red-herring prospectus shall be highlighted as variations by the issuing company. 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. "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. (3) and (4). (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.For the purposes of sub-sections (2). 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.

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

It invites subscription to debentures or invites deposits. a prospectus is not merely an advertisement. 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. 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. A document shall be called a prospectus if it satisfies two things: A. shares or B. it may be a circular or even a notice. Prospectus:A prospectus means any document described or issued as prospectus and includes any notice. Thus.who subscribe to the issue in good faith and has sustained a loss.

 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 .

becomes liable to make any payment by virtue of such misrepresentation may recover contribution as in cases of contract from any other person who.Civil liability The Act incorporates the provision relating to the civil liability for misstatement in prospectus. 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. 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. 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. omission etc. The measure of damages for the loss suffered by reason of the untrue statement. In applying the correct measure of damages to be awarded to compensate a person .

000 or with both. etc. Criminal liability The Act incorporates the provision relating to the criminal liability for misstatement in prospectus.who has been fraudulently induced to purchase shares. It provides that where a prospectus includes any untrue statement. the crucial criterion is the difference between the purchase price and their actual value. 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. The offence is compoundable under Section 621A. 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 onus is shifted to the defendant of proving either that the statement was immaterial or that he believed it to be true ..

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

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

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

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

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

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

if any. 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. shall prepare a statement containing the names. 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. the company shall. 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. within the period of seven days from the expiry of said period of 30 days. 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.

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 . Also a detailed document about the fund has to be preserved by the company. interest on the amount which has not been transferred (i. 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. 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. if any. it shall pay from the date of default.If any default is made in transferring the total amount or any part thereof to the UNPAID DIVIDEND ACCOUNT of the company.e. 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.

the company and every officer of the company who is in default shall be punishable with a fine of Rs.seven years from the dates they just became due payment. Investor’s education and protection fund .000 .25.5000 for every day during which the failure continues.500.500.000.00.Rs. Penalty: If the company fails to comply with any of the above explained requirements.000 to an extent of Rs.100. The fine may also increase if the situation continues for a long time then the fine charged to the COMPANY may range between Rs.000 & every officer of the company who is in default shall be punishable for the fine not less than Rs.

State Govt.. 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. . As per the Act. companies or any other institutions (f) The interest or other income received out of the investments made from the Fund. 1999..Investor Education and Protection Fund (IEPF) has been set-up under Section 205C of the Companies Act. 1956 by way of the Companies (Amendment) Act.

under the aegis of IEPF were as follows: 1) Series of advertisement on investor education were issued in national as well as . 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.The Fund has been established with a view to support the activities relating to investor education. awareness and protection.

wherein besides the above said educative message. which were keen to carry out the research on the subjects of investor education/protection. market instruments.regional language newspapers. 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. were been invited to apply for financial assistance under IEPF schemes. 4) An “Investor Helpline” www. organizations.in 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 .investorhelpline. 2)Media campaigns were launched in various newspapers. efforts have been made to educate investors for investing in IPOs. Mutual Funds etc. Through these advertisements. related issues were also invited to submit their proposals to the IEPF. Further. NGOs/VOs involved in investor education and protection activities. especially those with a rural outreach.

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