Prospectus(51) Section 23-42
ii. Meaning & Definition S 2(70)
iii. Objects: Notice-invite record -declaration
iv. What constitutes inviting offers from public-Re.
South of England -Nash v Lynde
v. Provisions with respects to prospectus under co act.
Section 23-42
iv. Kinds of prospectus: a. Shelf S 31-over certain
period without issue of further prospectus even after similar to prospectus. Sing by directors, Liability of
initial offer-not issue all time by only classes of co
prescribed by SEBI not> 1 year. PAS -2 within 1
month-require to file information memorandum if
changes
b. Red Herring S. 32: No particulars of price or
quantum of security offered-3 D prior opening
subscription list/offer-To file with ROC/SEBI before
opening subscription & issue of prospectus-same
obligation Non intimation of variations will amount
to misstatement.
c. Deemed S. 25 Co to ABC and ABC to Public
(Indirect) within 6 months it is not de facto
prospectus but law considers it to be prospectus.
ABC=“Issue house”. CO allots or agrees to allot
with a view to offer for sale to public all or any
securities. Such offer for sale is made by any
document.
d. Abridge S 2(1),33: Memorandum containing
features of prospectus. S. 33->No form of
application for purchase of any security unless
accompanied by a abridge prospectus -Exception-
Bona fide invitation, not to public, to existing
member, uniform offer
vii. Contents of prospectus Section 26 viii. Penalty for
non compliance S 26(9)
For company Rs. 50000 to 3 lakh- Every person
knowingly party to such prospectus, 3 year
Membership in a company(61)
ii. Definition of Member S 2(55)-subscriber to MOA-
agree in writing-holder of shares-Agreement to
became member & entry in register of members
iii. Relationship of member & shareholder
iv. Who may become a member-legal capacity to
enter in contract-sui juris except co itself
a. CO as a member of another co S. 8-if autho by
MOA- U/s 19 no subsidiary co of holding co can
member
b. Partnership as a member: It is not a legal person &
hence can’t except S 8 company
c. Foreigners as member-Subject to FEMA
d. Minor as member. Not competent to contract-but
signed by lawful guardian for fully paid share-not liable directors-Dividend-Surplus at winding up-Right to file
during winding up-Palaniappa Mudaliar v official
liquidator
e. Insolvent as member.-Yes as long as on register can U/s 100 to call EOM by holding !< 1/10th of paid up
vote but lose beneficial interest in share-dividend to
receiver
f. Co with Charitable object S, 8-Non profit Co, if
authorised by MOA to invest into share
v. Modes of becoming a member: By subscribing to
MOA, agreeing in writing, holding share recorded as
beneficiary in register of Depository under Depository
Act
imprisonment or fine !< 50000 <=3 lakh
ix. Variations in terms of contract or objects in
prospectus S 27: No except approval in General
meeting by way of special resolution.
x. Statement in lieu of prospectus:Public co file with
ROC if decide not to approach public. File 3 days
before the allotment of shares. Contains information
misstatement
xi. Misstatement in prospectus:
What constitutes misstatement? R v. Kylsant -
Shiromani Sugar Mills v Debi Prasad
Liability of misstatement in prospectus- Every
person who authorised liable for inclusion or
omissions of any matter- Criminal- S 34 liable u/s
447 !< 6 M to 10 Y, fine amt =fraud, or 3 times,
Civil S. 35, -Compensation-Civil liability can be
avoided U/s 35(2) if consented to became director
of the co. He withdrew before issue or issued
without authority or consent or without knowledge
or on knowing he gave public notice.
Punishment for fraudulently inducing person to
invest money S. 36,- as per S 447
Action by affected person S 37: Action may be U/s
34 or 35 or 36y by any affected person or group of
persons
Other Remedies for misstatement & omission in the
prospectus-Damage-Rescission of contract: Damage
for deceit or rescission of contract with claim of
damage u/s 75 of Contract Act.
entered as beneficial owner in records of depository-
Depository Act-if share in demat form name does not
appear in register.
vi. Register of members S. 88-Mandarory-
vii. Number of members-Public ltd 7-200, Pvt 2-no
restriction, one person -1-1 maximum
viii. Rights of members:
a. Individual rights- This is contractual rights& can’t
be taken away except written consent. Copies
BS/PL/Audit report/Notice-Inspect Debenture trust
deed/Register & instrument of charges/to be
Heard/Copies & register of contract/Directors-
Attend meeting Personally or Proxy-Appoint
suit & nomination.
b. Collective rights: To group of members of Co-
capital -majority/minority- Application of
mismanagement made by - if having share capital -
>1/10th of issue capital or !< 100 members- if no
share capital not less than 1/5 of total member apply
to NCLT
ix. Liability of members
a. In unlimited liability co-full
b. In a com limited by gua-bound by as per liability
a. By subscribing to MOA (Deemed agreement):
Official liquidator v Suleman bhai kachhi b. By
agreeing in writing to become a member1. by allotment
By transfer By Transmission S. 56 No instrument of
transfer necessary.
c. By holding shares of co & whose name is
Share Capital(70) CO(Share Capital & Debenture) Rules 2014
ii. Meaning and kinds of share capital: Every co limited placed before co which directly affects the rights
by share must have share capital. In Re. SNDP Yogam
a. Nominal or Authorised S. 2(8) – Authorised By
MOA fix amount..
b. Issued S. 2(50): Part of authorised capital
c. Subscribed S. 2(86): Subscribed by members
Issued = Subscribed + Unsubscribed
d. Called up S. 2(15) e. Paid up S. 2(64): Paid up =
Called up –Calls in arrears.
f .Reserve Capital – Uncalled capital can’t call during
existence of co but only during winding up. Additional
security for Creditors
g. Preference & Equity S. 43 (1 & 2)
i. Preference: Right to vote only on resolution
Shares(76) CO(Share Capital & Debenture) Rules 2014
Meaning & definition of shares S. 2(84) Shares
Capital + Stock except where distinction is
expressed or implied. In Commissioner of IT v
Standard Vacuum oil- Bucha F Guzdar V
Commissioner of IT- No distinctive numbers as
holder of beneficiary interest in records of
Depository u/s 45.
Nature of Shares S. 44- Vishwanathan v East India
Distilleries Interest measured by sum of money
Right to participate in profit. It’s a bundle of
rights/liabilities. Movable property
Kinds of Shares: a. Preference S.55,(1)
payment of dividend/repayment
1. Participating & non participating 2. Cum. & non
cum.-Foster v Coles 3. Redeemable and
irredeemable(no Co ltd by share shall after 2013 issue
shares with irredeemable) not > 12 Y infra sector 20
Years
b. Equity shares: With voting rights and with
differential rights as to voting & dividend or otherwise
in accordance with the rules.
Issue of Shares: a. Public offer. By a Public Company authorise-Notice to defaulters-Bonafied & for
may invite. IPO/FPO
B. Private placement S. 42(2): No public- selected
group of persons throug offer letter in PAS-4<= 200
person
c. Offer for sale: Allots or agrees to allot at a price to Surrender of Shares- Can’t accept as involve
financial institution or an “Issue house” for sale to
public.
d. Issue of preference share S. 55: by passing special
resolution in GM.No subsisting default in the
redemption of share or dividend. No redemption
period > 20 years & infra 30 Year
e. Issue of share at premium S. 52 > par value.
Premium decided by BOD. Premium transfer to
separate “Share premium A/c.Utilization as defined
in S.52. It’s not profit
f. Issue of Sweat Equity S. 54: U/s S 2(88) Issued to
directors & employees @discount or for
clause of MOA
c. In a co limited by shares-unpaid/balance amount.
d. Liability in case of incorporation of co by
misrepresentation S 7(7)-Unlimited
x. Cession of
membership-transfer/forfeited/dies/lien/redeem/purch
ase by MEMBER OR CO/winding up etc
attached to his preference shares and resolution of
winding up of co or repayment or reduction of equity
or preference Share capital ii. Equity Difference
iii. Publication of authorised, subscribed & paid up
capital S. 60
iv. Further issue of capital S. 2(62)
v. Alteration of capital S. 61: Notice in Form SH-7
within 30 days with ROC NCLT approval must
vi. Reduction of capital S. 66 Can’t purchase own
share Unpaid/Cancel NCLT approval vii. Power of
co to purchase own shares S. 67,68
register Form SH3-Not > than 15% of existing paid
up equity share capital in a year.
Prohibition of issue of share @ discount S. 53: No
except Sweat equity share u/s 54.
g. Rights/Further issue of share S.62: Unsubscribed
capital to existing holders in proportion to paid up
share capital on their share at the time of further
issue.
h. Issue of bonus shares S.63: If articles provide -by
fully paid shares-Recommended by BOD-no
default in payment of interest/Principal/
Statutory due of employee/partly paid up are made
fully paid up.For Convert profit to capital. From
free reserve/security premium A/c/Capital
Redemption reserve
i. Employee’s stock option S. 2(37) Further issue to
employees u/s S 62(1b) special resolution
Allotment of Shares- In application forms supplied by
co & by proper authority. Sri Gopal Jalan v Calcutta
Stock exchange.
Forfeiture of shares: Penalty for violation. AOA
benefit of co. Share became property of co. Ceases
to be member-Past member to pay call if
liquidation within 1 year-Can be cancel or reissued
to another person
reduction in capital-Re Catiglione’s Willtrusts
Hunter v Mackenzie
Transmission of SharesS.56,(2):Death/Insolvent
/operation of law/liquidation within1month
Share certificate and Share warrant:
a. Share certificate – Entry in register S 46(1) b.
Share warrant: It’s Negotiable by public ltd.
Against fully paid up.Prior approval of CG must &
authorised by AOA. Holder can take share
certificate only if he surrenders share W
a. Meaning of Dividend S. 2(35) Interim/final
/pref share Punishment- S.127 all directors pay in
consideration other than cash. Conditions: Share 30 D Jail 2 Y/1000 PD 18% No offence law
must of class already issued - 1 year since
commenced business -Authorised by special
resolution-Lock in period 3 Y-Maintain
Debentures(92) Rule 18 of Companies (Share capital & Deb.) rules 2014
ii. Debentures S. 71: Provisions to issue. 2. Bearer: It’s NI like share warrants.
iii. Meaning and Definition S, 2(30):Includes vi. Debenture stock: 1 aggregate loan fund or
debenture stock/bonds or any other instrument composite stock. It is borrowed capital
evidencing a debt consisting chare on company’s consolidated into one mass for ease. Secured by
assets or not trust deed. It is fully paid up.
iv. Characteristics of Debentures: Ack of debt-under vii. Issue of debentures: Power with Directors. Can’t
seal of co-in series-charge on undertaking of co or borrow > than authorised. Power can’t be
assets-holder is creditor-no voting rights at meeting delegated by BOD.
of co a. issue of convertible S. 71(1): With option into
v. Kinds of Debentures: share wholly or partially at the time of redemption.
a. On the basis of convertibility Has to be approved by special resolution at GM.
Non or partially or fully convertible. Approval of b. No debenture shall carry voting rights S. 71(2): No
special resolution must at GM CO can issue carrying voting rights
b. On the basis of security c. issue of secured S. 71(3): 10Y infra 30Y appoint
1. Secured. S, 71(3) issued as per terms of CG. 2. debenture trustee. Execute trust deed not later
Unsecured: No right to proceeds against property of than 60D after allotment.
CO. Only promise to pay d. Creation of deb. redemption reserve account S.
c. on the basis of Redeemability 71(4): Separate Accout-DRRA out of profit of co
1. Redeemable: @ fix date/on demand for dividend. No utilization except redemption.
/after notice/Can reissued or cancelled 2. e. Appointment of Debenture trustee S. 71(5)
Irredeemable: No fix time/Can’t demand payment f. Register of Debenture holders S.88(1)MGT-2
when co going concern & no default D. On the basis g. Payment of interest on and redemption of
of Registration debentures. 3 Y fine 2 lakh extn 5 lakh
1. Registered S,56:On Name/Transferable
Charge(98)
Definition S., 2(16) a. Fix b. floating. Smith v Bridgend County.
Type of charges Crystallization of floating charge & effect
Promoter (24)
ii. Who is a promoter/definition of promoter?-Preliminary 1. Right to receive the legitimate preliminary expenses
Idea of doing business-Amt of capital-nature of business- 2. Right of identity
TWYEROSS V GRANT- vii. Duties of promoter. 1. To disclose secret profit 2. To
iii. Characteristics of a promoter: S. 2(69) promoter disclose all the material facts.3. The promoter must make a
means a person who named in prospectus or identified in good to the co what he has obtained as a trustee 4. Duty to
annual return-may be individual/firm/association/CO- disclose private arrangements
originate idea of formation of co-membership not 5. Duty of promoter against the future allottees.
necessary in proposed co. viii. Liabilities of promoters.1. Personal liability 2.
iv. Importance of promoter: Backbone of CO Liability to account in profit 3. Liability for misstatement in
v. Legal position of promoter: Agent/trustee/ prospectus 4. Liability at the time of winding up
representative/No contract between CO & him but
fiduciary relation Libney v Wingpool iron ore.
vi. Rights of promoter