Professional Documents
Culture Documents
Business Law
Business:- All those activities which are aimed at transfer of goods & services from the production
centre to consumption centre carried out by an entrepreneur by optimally utilizing resources at his
command i.e. money, man, material & machine with a view to maximize profit.
Law:- Rules & Regulations which has a force of authority, passed by legislative bodies.
LAWS
Contract Act
Agreement:- It is every promise or a set of promises forming consideration for each other. It is a
result of intention to create legally binding relationship.
Proposal:- When a person signifies to another his willingness to do or not to do something with a
view to obtain assent of that other person, the person is said to have made a proposal.
Acceptance:- When a person to whom offer is made signifies his assent there to he is said to have
accepted the offer/proposal.
Rules as to communication of offer & acceptance :-( better in PPSG Pg. no.27)
1. Offer:- Communication of offer is complete when it comes to the knowledge of the person to
whom it is made.
2. Acceptance:- Communication of acceptance is complete
o To against offeror – when communication of acceptance is put into transmission so
as to be beyond the control of acceptor
o As against acceptor – when it comes to the knowledge of offeror.
- a person has attained the age of majority incase where guardians have been appointed under
guardianship law.
Sound Mind:-
Every person is of sound mind (for the purpose of entering into contract) if at the time of making
contract he understands
Terms & conditions of the contract
Impact of terms & conditions on his personal interest
If he can understand this then he is said of sound mind.
Idiot Person:- Person whose mental capacity is permanently affected. Such person can never enter a
contract.
Schizophrenia Epetopsey:- Mental capacity is temporarily under an attack of a disease. Such a
person can contract during the period of normalcy
Lawful Consideration:-
Basis
Price
Something in return – Quid Pro Quo
Right, interest, benefit, or profit accruing to someone as against responsibility, detriment, sacrifice or
loss suffered or incurred by someone else.
Definition of Consideration:- When at the desire of promisor, promise or other person has done or
abstained, does or abstained, promises to do or abstained from doing something. Such an act or
abstinence is called consideration & contract without consideration is void.
Features of Coercion:-
1. Use of physical force
2. Violent in nature
3. Even a threat is enough
4. Offense may be committed or threatened is punishable under Indian Penal Code
5. Threat to commit suicide is punishable & it can result in coercion. E.g. Amiraju v/s
Shesamma
Consequences of Coercion:-
1. Consent is not free
2. Contract is voidable
Person who gave consent under coercion can avoid or cancel the contract
Undue Influence:- Consent is induced by undue influence when relationship subsisting between the
parties are such that one is in a position to dominate the will of another & uses that position to obtain
unfair advantage over the other.
Consequences of Coercion:-
1. Consent is not free
2. Contract is voidable
Misrepresentation:-
1. False statement by a person who believes it to be true
2. Breach of duty without intention to deceive, giving unfair advantage
3. Causing however innocently, party to make a mistake regarding subject matter of contract
e.g. Rex v/s Kylsant
Effects of Misrepresentation:-
1. Consent is not free
2. Contract is voidable
3. Person who gave consent can cancel the right of cancellation / rescission
Person must have depended
Cancellation must be within a reasonable time
Person should not have affound the contract or taken benefit of the contract
Fraud:- Means & includes any of the following with intention to deceive
1. False statement by a person who does not believe it to be true
2. Active concealment of facts
3. Promise without intention to perform
4. Anything fitted to deceive
5. Anything which law may declare to be fraudulent
Misrepresentation Fraud
Intention No intention to cheat There is intention to cheat
Knowledge of false statement Person making false statement Person making false statement
does not know statement is does know statement is false
false
Claim for damages No claim for damages available Claim for damages available
Mistake:- Error or erroneous state of affair. When a party intending to do one thing, by error, does
something else.
LAWS
Betting / Expenditure Agreement:- Promise to pay or money’s worth if an uncertain event turns
one way & if the event turns otherwise, person will receive instead of paying.
Contingent Contracts:- Contract to perform or not to perform if an uncertain future event collateral
to the contract does or does not happen.
Quasi Contracts:- Circumstances in which there is no offer, no acceptance or no formal contract but
law enforces duty. This duty is as good as contract (as if contract was signed)
Based on Principles of Equity & Justice
No one shall be permitted to be unjustly enriched at the expense of another
Discharge of Contract:- Contractual relationship comes to an end & nothing remains the same
1. By Performance
Actual
Attempted
2. By Agreement
Novation – New agreement is substituted in place of old
Alteration – Existing agreement is modified
Rescission – Right to cancel agreement
Remission – Accepting less than in agreement in final settlement
Merger – Right to receive & right to pay both come in the same hands
Waiver – Withdrawal of contractual terms
3. By Operation of Law
Death
Insolvency
Merger
4. By Impossibility of Performance
At the Time of Contract – Void
Subsequent
i. Permitted as excuse
Distribution of subject matter
Outbreak of war
Change of law
Change of state of affairs
ii. Not Excused – Difficult to perform
5. Breach of Contract
Actual Breach of Contract
Anticipatory Breach of Contract
Breach of Contract:- Contractual obligations not carried out in agreed manner.
Actual (On due date of Anticipatory (Before the actual due date intention not to perform is
performance) communicated)
The other party can The other party can wait till actual due date
treat this
communication as
breach of contract on
the date of receipt of
communication
We can perform on due If we fail it will be
date (alternative breach of contract on
arrangement) actual due date
Consequences of Breach of Contract:-
Company:-
Association of person
Registered under the companies act 1956
By contributing to capital which is
divided into shares
which are transferable
& with limited liability
having perpetual existence
common seal
& being an independent / artificial juridical person
can own, posses, dispose of property
can sue & be sued
All 7 points together is termed as Corporate Entity / Veil which acts as a curtain
Q. What do you understand by corporate veil & under what circumstances the corporate veil
can be pierced?
Incorporation of a Company
Promoter:- One who promotes the company. One who conceives the idea of setting up business in
the form of a company.
Name:-
Application for availability of name
Form No. I A
Payment fee of Rs. 500/-
Suggest the name by which he would like his company to be incorporated with 3 other
alternative names
Certificate of Incorporation
Issued by Registrar of Companies (ROC)
on satisfying that requirements of company law have been complied with
Conclusive evidence as regards
i. Registration of Company
ii. Compliance to Company Law
Birth certificate of Company – Corporate features become operative from this date
If the company is Private LTD Company then it can commence its business immediately on
incorporation
If company is Public LTD Company then it has to obtain additional certificate – Certificate
of Commencement of Business
Contents of MOA
Q. Discuss significance of object clause in MOA & Doctrine of ultra vires vis-à-vis the object
clause
1. Name Clause – Name of the Company is ____________________
2. Registered Office Clause – The registered office of the company is located in the state of
_____________________
3. Object Clause –
Main objectives the company will pursue on its incorporation
Objects ancillary to main objects
Other objects
* Need for Object Clause –
Positively Speaking – Object Clause specifies the areas of operations in which the company
will deploy its funds
Negatively Speaking – Company will not deploy its funds in the areas beyond what is stated
in the object clause
Comfort of investors / members
Creditors
Anything beyond the object clause is ultra vires
Ultra Vires contract is invalid
Company is not bound
Directors may incur personal liability
4. Liability Clause – e.g. Asbury Railway Carriage & Iron Company vs Riche. Liability of
members of the company is limited
5. Capital Clause – Specifies the maximum amount company is authorized to raise e.g.
Authorized Capital of the company is Rs. 50 crore divided in 5 crore equity shares of Rs .10
each
6. Subscription / Association Clause – Names, Addresses, Undertaking to the shares, Signature
duly witnessed
Contents of AOA
1. Procedure relating to
Share Capital
Issue of share certificate
Issue of duplicate share certificate
Transfer Shares
Transmission
Forfeiture of shares
2. Matters relating to
Meetings of the members
Types of meetings
Procedure at meetings
Issue of notice
Quorum requirement
Proxy
Voting
Resolution
3. Provisions relating to Directors
Meeting of Directors
Powers of Directors
Powers of Chairman / Managing Director
Borrowing Powers of the company
Accounts & Audit
Seal
4. Significance of AOA
Bye Laws / Rules governing internal company law requirement
Doctrine of Indoor Management
GDR – Global Depository Receipt – Shares not issued, only certificate issued in other than dollar,
listed on foreign exchanges
ADR – American Depository Receipt
FCCB – Foreign Currency Convertible Bonds
ECB – External Commercial Borrowing
- Detailed Project Report – Details of investment on land, building, plant & machinery,
furniture & fixtures, installation, contingency provision, margin for working capital
- Means of Finance – Capital 30 crores (Equity – 10 crores; IPO through prospectus &
Debt – 20 crores)
Draft Prospectus
Primary Responsibility – Merchant Banker companies Secretarial / Finance Department to provide
necessary output
Contents of Prospectus – Companies Act (Section 62)
It should also follow disclosure norm of SEBI – for investors to take informed decisions
Also keep in mind listing guidelines of the stock exchanges where the shares are prepared to
be traded in 2 parts
Part 1 (General Information)
Name
Registered office
Main objectives of the company
Authority for the issue
Terms of issue (no. of shares, Price – Fixed price or Market price to be discovered
through book building process). Payment to be made on application or allotment. Issue
Program – Issue Opens on, Issue Closes on, Earliest Closing
Lead Managers or Co-Managers
Bankers to the issue
Brokers to the issue
Registrars for the issue
Underwriters for the issue (optional)
All these agencies have to give their written consent to be enclosed & filed with prospectus
when it is filed with ROC
Part 2
Background of the Company & the management
Board of Directors – Names, Addresses, educational qualification & experience as well
as details of other directorship
Other group companies under the same management
Objectives of the issue
Details of the project – cost of project, means of finance, availability of raw material
Utilities
Marketing / Selling Arrangements
Schedule of implementation
Outstanding litigation
Stock exchange data
Risk factors affecting the business
Management perception in respect of risk factors
Audited financial performance for last 5 years
Authorized Capital:- Maximum amount the company is authorized to raise as per capital clause of
MOA
Issued Capital:- Number & amount of share capital issued to the public
Subscribed Capital (90%) & Paid Up Share Capital:- Shares subscribed by the investors (which
may not be less than 98% of issue amount)
Paid Up = Subscribed Capital less calls in arrears
Shares
Equity (3) Preference (1)
Those shares which are not preference shares Which can enjoy preferential rights
(risk capital) Dividend
No assurance as to return of investment Redemption
No certainty as to return on investment
Equity
Voting Rights Without Voting Rights (not more than 25% of
paid up share capital)
Equity shares with differential voting rights
Preferential Rights:-
1. Cumulative / Non Cumulative – Preference shares where the right to dividend is allowed to
be accumulated even if company has not declared dividend & the dividend will be payable in
the year when the company has adequate profit are called cumulative preference shares &
preference shares where dividend is not allowed to be accumulated are called non cumulative
preference shares.
2. Participative / Non Participative – Participative Preference shares are those which are
allowed to participate in share of profit after payment of dividend on equity from out of
surplus profit left. Non Participative Preference shares are not entitled to any participation in
surplus profit. They are entitled to agreed dividend
3. Convertible / Non Convertible – Convertible Preference shares are those which are converted
into equity. Non Convertible Preference Shares are those which are not converted into equity
4. Redeemable / Irredeemable – Redeemable Preference shares are those which will be
redeemed / repaid within max period of 10 years. Irredeemable Preference shares cannot be
issued
5. Cumulative Convertible Preference shares – Right to dividend is accumulated. Preference
shares are converted into equity
Shares issued at Shares issued at Shares issued at Par Buy Back Shares
Premium Discount
- shares issued at - Rs. 10 shares issued Shares issued at face Market price is related
value higher than at Rs .9 per share value price multiples of EPS
the face value - company when (Earnings / No. of
- share premium can issues shares at a shares)
be utilized for price less than the - company can buy
writing off face value back 25% of its
preliminary Not more than paid up capital
expenses 10% unless - buy back from
Bonus issue approved by accumulated
of shares central govt. profits
Expansion Approved by reserves
- Rs. 10 share issued members by proceeds of
at Rs. 120 (Share special previous issues
Capital – Rs.10 & resolution of shares
Share Premium Rs. Shares forfeited - there must be
110) are issued at provision in AOA
discount - buy back can be by
purchase of odd
lots
open market
purchases
reverse book
building
shares tendered
under buy back
must be
cancelled
within 7 days
Meetings of Members:-
Agenda
1. Chairman – the designated chairman to preside over the meeting. If there is no designated
chairman, the members to choose one of them as chairman of the meeting
2. Quorum – Minimum no. of members required to be present at the meeting
a. As per provisions in the article
b. If articles are silent, in case of Public ltd company 5 persons, in case of Pvt ltd
company 2 persons shall form quorum
c. Quorum must be present within half an hour from the scheduled time of
commencement of meeting
d. If quorum is not present within half an hour, meeting is adjourned to next week, same
time, same place
e. If at the adjourned meeting quorum is not present, persons present shall form the
quorum
3. Proxy – a member is entitled to attend the meeting or depute a person to attend on his behalf
by executing instrument of proxy
a. Proxy need not be a member
b. Proxy form should be lodged with the company 48 hours before the scheduled time
of commencement of meeting
c. Proxy may be open or with specific direction to vote or against the resolution
d. Proxy is cancelled if member attends the meeting
e. Proxy cannot speak, but vote at the meeting
4. Movement of Resolution
a. Resolution is proposed by 1 of the members
b. It is seconded by another member
c. Decision on the resolution – members can raise questions – chairman to answer
d. Report of auditor is read at the meeting
5. Chairman to ascertain the sense of the meeting (whether the resolution has been passed or
not)
a. Voice vote - Ordinary resolution requires simple majority
b. By show of hands - Special resolution requires 3/4th majority
c. By division
d. By ballot
e. By poll
6. Minutes – record of resolution passed is written in minute book to be signed by chairman of
the meeting
7. Special resolution are passed to be filed with ROC
Resolutions
Ordinary Special Resolution requiring special
notice
- Simple majority - Requires 3/4th majority - Removal of a Director
- Ordinary business of rule is - Amendment in MOA - Removal of an Auditor
passed by simple majority - Amendment in AOA
- Appointment of MD
- Remuneration of MD
- Appointment of sole selling
agent
- Can be done by postal
ballot for listed companies
Director – Director means a person who holds position of a Director by whatever name called
1. Agent of the Company – Director functions as an agent of the company acting on behalf of
the company
2. Trustees
a. of the members for the property owned by the company
b. must observe at most good faith (trust & confidence)
c. act in the benefit of the company & not for personal profit
3. Managing Organ – Through which the company operates / functions
4. Professional Employees – Director has to be an individual & not an incorporated body
Appointment of Directors No. of Directors – minimum in case of Public ltd company – 3 & Pvt.
Ltd Company – 2. Maximum no. as may be permissible in AOA
1. First Directors – Names in AOA. In case articles are silent all the subscribers to MOA / AOA
shall be deemed to be the first director. These directors shall held office till AGM
2. Subsequent Directors – by the members at AGM. 1/3rd of the directors can be non repairable
& 2/3rd of the directors will be liable to retirement. Of this 2/3 rd ,1/3rd will retire every year.
Retiring directors can offer themselves for re-appointment. Reappointment by members at
AGM
3. Directors appointed by Board of Directors
a. Appointment of additional director
i. BOD can appoint additional director (not exceeding the max. no. provision in
AOA) to take benefit of expertise as well as experience of any individual
ii. Such director will hold position till next AGM. At next AGM he may be re-
appointed
b. To fill up casual vacancies
i. On account if vacancy arises, BOD can appoint a director to fill up the
vacancies
ii. Death, resignation or Disqualification
iii. Such director to hold office till next AGM
c. Alternate directors - When the director leaves the state in which registered office of a
company is located
i. For a period more than 3 months
ii. Board may appoint alternate director to attend the Board meeting in absence
of original director
iii. The alternate director attends Board meetings in absence of original director
4. Appointment of directors by outsiders – There can be an agreement by the company with
a. Its lenders or
b. Creditors
Whereby its nominee of lenders / creditors may be appointed in the Board
c. Such directors are not liable to retirement
5. Power of Government / NCLT (National Company Law Tribunal) to appoint director on the
Board of the Company
a. Where there are complaints about mismanagement of the company &
b. Investigation have been carried out
c. Or complaints before NCLT about the affair of the company being conducted against
the interest of the members. NCLT / Government can appoint Director on the Board
of the Company
d. These directors are not liable to retirement
Qualifications – Qualifications if provided in AOA the director will have to take up qualification
shares within 2 months of appointment. For shares upto face value of Rs. 5000/-
Disqualifications – Person is disqualified
1. if he is of unsound mind
2. undischarged insolvent
3. he applies for declaring himself insolvent
4. he has been sentenced to imprisonment for a period not excluding 6 months, for offence
involving moral turpitude & a period of 5 years has not expired
5. he is director in a company
a. company has defaulted to file annual return & balance sheet for a consecutive period
of 3 years with ROC
b. Company defaults in payout of interest / principal of deposits from public
Max. no. of companies - a person can be director in max. 15 companies excluding Pvt, ltd
Companies
Removal of a Director
1. Removal by the member at AGM
a. By not reappointing retired Director
b. By appointing someone else in place of retiring director
c. By passing a resolution removing a director
2. Removal of Director by NCLT
Powers of a Director
1. General Power – General Powers to be exercised keeping in view
a. Provisions of companies act
b. AOA
c. Contract with the company
i. Directors have general power to do all those things which a company is
empowered to do
2. Powers which can be exercised at Board Meeting – there has to be board meetings (min. 4
meetings in a year, 1 every quarter)
a. Power to make calls on shares
b. Power to issue debentures
c. Power to borrow
d. Power to make investment
e. Power to make political donations – total Rs. 50000/- or 5% of net profit whichever is
higher
3. Powers which can be exercised with consent of members
a. To sell any undertaking (division) of the company
b. To borrow in excess of paid up capital & reserves
c. To amalgamate / merge other company / with other company
d. To appoint sole selling agent
e. To amend MOA / AOA
f. To fix remuneration of MD
Audit under the companies act is statutory audit. Every company under the companies act is required
to have its accounts audited by the auditor
Auditor
CA – member of ICAI having certificate of practice &
He is not in the full time employment
Not indebted to the company for amount exceeding Rs. 1000/-
Should not be related to Directors
Powers of Auditor
1. Power to have access to all documents – agreements / contracts / minutes
2. Power to visit / verify / check – properties / assets of the company at all locations (plant,
branch. HR)
3. Power to obtain information / explanation from the employees of the company
4. To report to the members
a. Whether the company has maintained the required books of a/c or registers
b. Whether the company has been complying with accounting standards
c. In case of variation point out the impact on P&L of the company
Certify That
1. P&L a/c gives true & fair view of profit & loss for the year
2. Balance sheet gives true & fair view of financial position of the company as on a particular
date
a. Auditors to qualify the report where there are irregularities
b. Directors to reply to qualifying remarks of auditors
NEGOTIABLE INSTRUMENTS ACT 1881
Transferable documents which are used for transfer of movable property. Negotiable instrument
means Promissory Note, bill of exchange & Cheque
Q. Define promissory note & differentiate it from bill of exchange & a cheque
Promissory Note
Instrument in writing
Not being a bank note or currency note
Signed by the maker
Containing an unconditional undertaking
Ta pay certain sum of money only
To a certain person on his order
25/11/2005
On demand I promise to pay Rupesh Pandey sum of Rs. 50000/- for
value received
To Rupesh Pandey Signed by maker / promissor
Bill of exchange
Instrument in writing
Signed by the maker
Containing an unconditional order
Directing a certain
To pay a certain sum of money only
To certain person or his order
25/11/2005
On demand pay Rupesh Pandey sum of Rs. 50000/- for value received
Meaning – When a cheque bears across in face two parallel transverse lines with or without the word
And company
& company
not negotiable
Cheque is said to be crossed
Significance – crossing is an instruction to the bank not to pay cash across the counter
Types of Crossing
General Crossing Special Crossing Restrictive Crossing
When the cheque bears across When the cheque bears across
its face two parallel lines with its face two parallel lines with
the name of a particular banker the words “a/c payee only” or
then the cheque is said to have “payees a/c only” cheque is said
been specially crossed to that to be restrictively crossed
bank Significance – Cheque cannot
Significance – Banker to whom be deposited in any other a/c of
the cheque is specially crossed payee
Is the only authorized banker to
collect the payment
Significance of cheques crossed with the words not negotiable – words not negotiable do not
prohibit the transferability of the amount of a cheque but it is a warning that the title of the person
receiving the cheque will not get better than that of the person from whom he gets it
Q. What do you understand by endorsement? Discuss various types of endorsements & effect
thereby by giving suitable examples?
Q. Define Holder in due course & discuss privileges of holder in due course
A B C D E F
Drawer Drawee Payee Endorsee1 Endorsee2 Endorsee3
Holder – A person in possession of Negotiable Instrument in his own name. entitles to receive the
amount