COMPANY LAW AND TAXATION

1. CSR

Ans :- The term corporate social responsibility (CSR) refers to practices and policies undertaken
by corporations intended to have a positive influence on the world. The key idea behind CSR is
for corporations to pursue other pro-social objectives, in addition to maximizing profits.
Examples of common CSR objectives include minimizing environmental externalities, promoting
volunteerism among company employees, and donating to charity.

The movement toward CSR has had an impact in several domains. For example, many
companies have taken steps to
* Eradicating extreme hunger and poverty
* Promotion of Education
* Promoting gender equality and empowering women
* Reducing child mortality and improving maternal health
* Ensuring environmental sustainability;

Applicability of CSR :-
On every Company including its holding or subsidiary having:
Net worth of Rs. 500 Crore or more,
OR
Turnover of Rs. 1000 crore or more,
OR
Net Profit of Rs. 5 crore or more

during any financial year shall constitute a Corporate Social Responsibility Committee of the
Board consisting of 3 or more directors, out of which at least one director shall be an
independent director.

However, if a company is not required to appoint an independent director, then it shall have in 2
or more directors in the Committee.

Functions :-
Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be
undertaken by the Company in areas or subject, specified in Schedule VII;

Recommend the amount of expenditure to be incurred on the activities; and

Monitor the CSR Policy of the company from time to time

Institute a transparent monitoring mechanism for implementation of the CSR projects or

programs or activities undertaken by the company.
Responsibility :-

* after considering the recommendations made by the CSR Committee, approve the CSR Policy
for the Company and disclose contents of such Policy in Board report.
* ensure that the activities as are included in CSR Policy of the company are undertaken by the
Company
* shall disclose the composition of the CSR Committee in Board Report
* ensure that the company spends, in every financial year, at least 2% of the average net profits
of the company made during the 3 immediately preceding financial years, in pursuance of its
CSR Policy.
* The CSR projects/programs/activities undertaken in India only shall amount to CSR
Expenditure.

Mandatory Expenditure :-

* Section 135(5) mandates 2 percent of the Average net profit during the three immediately
preceding financial years.
* For Financial Year 2014-15 Calculation: Average net profit of FY 2011-12,2012-13 & 2013-14
needed to be considered.
* Average Net Profit is calculated as per section 198 i.e. Calculation done for managerial
calculation.

Unspent Amount Treament :-

In case, if the company fails to spend the amt earmarked for CSR activities, the Board shall, in
its report, specify the reasons for not spending the amount, transfer such unspent amount to a
Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.

Any amount remaining unspent under sub-section (5), pursuant to any ongoing project fulfilling
such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate
Social Responsibility policy, shall be transferred by the company within a period of thirty days
from the end of the financial year to a specified account to be opened by the company in that
behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social
Responsibility Account,

and such amount shall be spent by the company towards CSR within a period of three financial
years from the date of transfer failing which, the company shall transfer the same to a fund
specified in Schedule VII, within a period of 30 days from the date of completion of the third
financial year.

Fines and Penalties for Non-Compliance

In case a company fails to comply with the provisions relating to CSR spending, transferring and
utilizing the unspent amount, the company will be punishable with a minimum fine of Rs 50,000
which may increase to Rs 25 lakh. Further, every officer of such company who defaults in the
compliance will be liable for a punishment which is imprisonment for a term which may extend to
three years or with a minimum fine of Rs 50,000 which may increase to Rs 5 lakh, or with both.

2. Winding up of the company

Ans:-
* Winding up refers to the process of liquidating the assets of a business that has ceased
operations.
* The sole purpose of a business that is winding up is to sell off assets, pay off creditors, and *
distribute any remaining assets to the owners.
* The two main types of winding up are compulsory winding up and voluntary winding up.
* Winding up a business is not the same as bankruptcy, although it is usually an end result of
bankruptcy.

Compulsory Winding Up :
A company can be legally forced to wind up by a court order. In such cases, the company is
ordered to appoint a liquidator to manage the sale of assets and distribution of the proceeds to
creditors.

The court order is often triggered by a suit brought by the company's creditors. They are often
the first to realize that a company is insolvent because their bills have remained unpaid. In other
cases, the winding-up is the final conclusion of a bankruptcy proceeding, which can involve
creditors trying to recoup money owed by the company.
In any case, a company may not have sufficient assets to satisfy all of its debtors entirely, and
the creditors will face an economic loss.

Voluntary Winding Up :
A company's shareholders or partners may trigger a voluntary winding up, usually by the
passage of a resolution. If the company is insolvent, the shareholders may trigger a winding-up
to avoid bankruptcy and, in some cases, personal liability for the company's debts.

Even if it is solvent, the shareholders may feel their objectives have been met, and it is time to
cease operations and distribute company assets.

In other cases, market situations may paint a bleak outlook for the business. If the stakeholders
decide the company will face insurmountable challenges, they may call for a resolution to wind
up the business. A subsidiary also may be wound up, usually because of its diminishing
prospects or its inadequate contribution to the parent company's bottom line or profit.
3. Amalgamation of companies

Ans :-
* Amalgamation is the combination of two or more companies into a brand new entity by
combining the assets and liabilities of both entities into one.
*This differs from a traditional merger in that neither of the two companies involved survives as
an entity.
*The transferor company is absorbed into the stronger, transferee company, leading to an entity
with a stronger customer base and more assets.
*Amalgamation can help increase cash resources, eliminate competition, and save companies
on taxes.
*But it can lead to a monopoly if too much competition is cut out, scale down the workforce, and
increase the new entity's debt load.

Procedure :
* The terms of amalgamation are finalized by the board of directors of each company. The plan
is prepared and submitted for approval.
* The new company officially becomes an entity and issues shares to shareholders of the
transferor company.
* The transferor company is liquidated, and all assets and liabilities are taken over by the
transferee company.

Types of Amalgamation :
One type of amalgamation—similar to a merger—pools both companies’ assets and liabilities,
and the shareholders’ interests together. All assets of the transferor company become that of
the transferee company.

The business of the transferor company is carried on after the amalgamation. No adjustments
are made to book values. Shareholders of the transferor company holding a minimum of 90%
face value of equity shares become shareholders of the transferee company.

The second type of amalgamation is similar to a purchase. One company is acquired by

another, and shareholders of the transferor company do not have a proportionate share in the
equity of the combined company. If the purchase consideration exceeds the net asset value
(NAV), the excess amount is recorded as goodwill. If not, it is recorded as capital reserves.

Objectives :
An amalgamation is similar to a merger in that it combines two firms, but here a brand new
entity is formed as a result. The objective is thus to establish a unique entity that rests on the
business combination in order to achieve greater competitiveness and economies of scale.
4. Documents to be submitted during registration of company
Ans: The formation of a company goes through a number of steps, starting from idea generation
to commencing of the business. This whole process can be broken down into 4 major phases or
steps, which we will be discussing in the lines below.

The major steps in formation of a company are as follows:

Promotion stage
Registration stage
Incorporation stage
Commencement of Business stage

* Promotion Stage: Promotion is the first step in the formation of a company. In this phase, the
idea of starting a business is converted into reality with the help of promoters of the business
idea.

In this stage the ideas are executed. The promotion stage consists of the following steps:

Identify the business opportunity and decide on the type of business that needs to be done.
Perform a feasibility study and determine the economic, technical and legal aspect of executing
the business.
Interest shown by promoters towards the business idea and supply of capital and other
necessary procedures to start the business.

* Registration stage: Registration stage is the second part of the formation process. In this
stage, the company gets registered, which brings the company into existence.

A company is said to be in existence, if it is registered as per the Companies Act, 2013. In order
to get a company registered, some documents need to be provided to the Registrar of
Companies.

There are several steps involved in the registration phase, and are as follows:

* Memorandum of Association: A memorandum of association (MoA) must be signed by the

founders of the company. A minimum of 7 members are required in case of a public company
and 2 in case of a private company. The MoA must be properly registered and stamped.

* Article of Association: Article of Association (AoA) is also required to be signed and submitted.
All members who previously signed MoA, should also be signing the AoA.

The next step is preparing a list of directors which should be filed with the Registrar of
Companies.
* Directors of the company should provide a written consent agreeing to be directors, should be
filed with the Registrar of Companies (RoC).
*The notice of address of the office needs to be filed.

* A statutory declaration should be made by any advocate of either the High Court or Supreme
Court, or a person of the capacity of Director, Secretary or Managing Director. This declaration
shall be filed with the RoC.

* Certificate of Incorporation: Certificate of incorporation is issued when the registrar is satisfied

with the documents provided. This certificate validates the establishment of the company in the
records.

* Certificate of commencement of business: Certificate of commencement of business is

required for a public company to start doing business, while a private company can start
business once it has received the certificate of incorporation.

* Public companies receiving the certificate of incorporation can issue prospectus in order to
make the public subscribe to the share for raising capital. Once all the minimum number of
required shares have been subscribed, a letter should be sent to the registrar along with a bank
document stating the receiving of the money.

* The registrar will issue a certificate upon finding the provided documents satisfactory. This
certificate is known as certificate of commencement of business. The company can start
business activities from the date of issue of the certificate and the business shall be done as per
rules laid down in the MoA (Memorandum of Association).

5. Powers of Directors

Ans : A Director is the person appointed to the Board of a Company. Director is responsible for
management of the Company of which he is a director.

Who can be a Director?

*Managing a Business is not an easy task. Therefore there are eligibility criteria for a person to
become a Director.
* Only an Individual person can become a Director of the Company. A person other than
individual is not eligible to become a director.

Powers of Directors:
According to Companies Act 2013, the Board of Directors of a Company has the following
powers in the Company.

* Power to make calls in respect of money unpaid on shares

* Call meetings on suo moto basis.
* Issue shares, debentures, or any other instruments in respect of the Company.
* Borrow and invest funds for the Company
* Approve Financial Statements and Board Report
* Approve bonus to employees
* Declare dividend in the Company
* Power to grant loans or give guarantee in respect of loans
* Authorize buy back of securities
* Approve Amalgamation/Merger/ Takeover
* Diversify the business of the Company

6. Various types of directors

Ans : A Director is the person appointed to the Board of a Company. Director is responsible for
management of the Company of which he is a director.

Minimum and Maximum number of directors in a company:

* The law requires that every company must have at least 3 directors in the case of public
limited companies, minimum 2 directors in the case of private limited companies and a minimum
1 director in the case of one-person companies.
* A company can have a maximum of 15 directors. The company could appoint more directors
bypassing the special resolution in its general meeting.

Types of Directors
Residential Director
As per the law, every company needs to appoint a director who has been in India and stayed for
not less than 182 days in a previous calendar year.

Independent Director
Independent directors are non-executive directors of a company and help the company to
improve corporate credibility and enhance the governance standards. In other words, an
independent director is a non-executive director without a relationship with a company which
might influence the independence of his judgment.

The tenure of the Independent directors the hall up to 5 consecutive years; however, they shall
be entitled to reappointment by passing a special resolution with the disclosure in the Board’s
report. Following companies need to appoint at the least two independent directors:

Public Companies with Paid-up Capital of Rs.10 Crores or more,

Public Companies with Turnover of Rs.100 Crores or more,
Public Companies with total outstanding loans, deposits, and debenture of Rs.50 Crores or
more.
Small Shareholders Directors
A listed company, could upon the notice of a minimum of 1000 small shareholders or 10% of the
total number of the small shareholder, whichever is lower, shall have a director which would be
elected by small shareholders.

Women Director
A company, whether be it a private company or a public company, would be required to appoint
a minimum of one woman director in case it satisfies any of the following criteria:

The company is a listed company and its securities are listed on the stock exchange.
The paid-up capital of such a company is Rs.100 crore or more with a turnover of Rs.300 crores
or more.
Additional Director
A person could be appointed as an additional director and can occupy his post until the next
Annual General Meeting. In absence of the AGM, such term would conclude on the date on
which such AGM should have been held.

Alternate Director
Alternate director refers to personnel appointed by the Board, to fill in for a director who might
be absent from the country, for more than 3 months.

Nominee Directors
Nominee directors could be appointed by a specific class of shareholders, banks or lending
financial institutions, third parties through contracts, or by the Union Government in case of
oppression or mismanagement.

Executive Director
An executive director is the full-time working director of the company. They look after the affairs
of the company and have a higher responsibility towards the company. They need to be diligent
and careful in all their dealings.

Non-executive Director
A non-executive director is a non-working director and is not involved in the everyday working of
the company. They might participate in the planning or policy-making process and challenge the
executive directors to come up with decisions that are in the best interest of the company.

Managing Director
A managing director means a director entrusted with the substantial powers of management of
the company by virtue of the articles of a company, agreement with the company, resolution
passed in the company general meeting or by the board of directors.

8. Memorandum of association

Ans :
MEMORANDUM OF ASSOCIATION
The Memorandum of Association or MOA of a company defines the constitution and the scope
of powers of the company.

Types of MOA
Based on their form, there are five main types of memorandum of association and they are as
follows:

Table A - if shares end up limiting a company.

Table B - if a guarantee limits a company.

Table C - if a guarantee along with share capital limits a company.

Table D - if it is an unlimited company.

Table E - if it is an unlimited company and has a share capital.

Contents of MOA
The contents of the memorandum of the association consist of different clauses. Each clause
plays a vital role in the organisation. Let's see all the classes in a detailed manner as given
below,

Name Clause:- the name clause of moa specifies that the titles of all the private limited
companies should end with 'private limited'. On the other hand, the titles of all the government
companies should end with 'limited'.

The companies under section 8 of the act, may need not to follow these rules. These companies
can be identified by certain words like-

Association

Federation

Foundation

Confederation

Forum

Chamber

Council
Electoral trust.

Registered Office Clause- indicates the state of the registered office where the organisation is
located exactly. It is very important to specify the branch of the registered office where the
organisation got registered.

Object Clause: this segment of the memorandum of association explains the motto of the
organisation and its activities. After a few months if there is a change in activities and
operations, then the head of the institution needs to change the name of that organisation within
6 months. Otherwise, it will become an offence.

Capital Clause: it concentrates on the capital invested by two or more shareholders of one
company. We need to furnish the information regarding the amounts of share between the
shareholders and how they formulated their rules etc. in the memorandum of association.

Liability Clause: it is another important class of memorandum of association. Here we need to

explain the liability of the members either limited or unlimited in the firm.

If the company is limited by shares, it needs to specify the amounts held by the shareholders
and whether they are paid or unpaid. All these aspects need to be mentioned clearly in the
MOA.

If the company is restricted by guarantees, the Moa specifies that all contributors with a bonus
have equal rights. Even during the winding up of a company, both assets and liabilities which
include all the expenses while demolishing the firm need to be distributed equally.

Association Clause: It is the last but not least, class of the memorandum of association. Here
one should mention the exact idea and goal of the owner of the company.

Amendment of MOA
If any of the following changes take place, then it means that the memorandum of association
needs to be amended:

If an alteration takes place in the name of business.

If any changes happen in the office of registration.

If an alteration takes place in the object clause of the business.

If an alteration takes place in the authorised capital of the business.

If any kind of adjustments are made in the legal liabilities of the business members.

The procedures to be followed for making any types of amendments in the memorandum of
association have been mentioned in the 13th clause of The Companies Act, 2013.

9. Articles of association

Ans: Articles of association form a document that specifies the regulations for a company's
operations and defines the company's purpose. The document lays out how tasks are to be
accomplished within the organization, including the process for appointing directors and the
handling of financial records.

Objectives of the Articles of Association

Sec 5 of the Companies Act, 2103 states that the Articles of association:

Must include the regulations for the management of the company

Include matters that have been prescribed under the rules

They do not prevent a company from including additional matters in the AOA or from doing any
alterations as may be considered necessary for the functioning of the company affairs.

Contents of the Articles of Association

The AOA contains the rules and by-laws for the following;

Share capital:

Rights of various shareholders, share certificates, payment of a commission, etc.

Lien of shares

Calls on shares

The process for the transfer of shares

Transmission of shares

Forfeiture of shares
Surrender of shares

Process for conversion of shares to stocks

Share warrants

Alteration of capital: Increase, decrease, or rearrangement of capital

General meetings and proceedings

Voting rights of members

The appointment, remuneration, qualifications, powers of directors, etc.

Proceedings of the boards of directors’ meetings

Dividends and reserves

Accounts and Audits

Borrowing Powers of the company

Provisions relating to the winding up of the company

Forms of Articles of Association (AOA)

The forms for Articles of Association (AOA) in tables F, G, H, I, and J for different types of
companies have been mentioned under Schedule I of the Companies Act, 2013. AOA must be
in the respective form.

Table F- AOA of a company limited by shares

Table G- AOA of a company limited by guarantee and having a share capital

Table H- AOA of a company limited by guarantee and not having a share capital

Table I- AOA of an unlimited company and having a share capital

Table J- AOA of an unlimited company and not having a share capital

9. Prospectus
Ans : Prospectus - It means a formal document that a Public Company issues to invite offers
from public for subscribing its shares. It includes all the material information related to shares
that a Company offers to the public.

Contents of a Company Prospectus:

* Name of the Company
* Registered Address of Company
* Objects of the Company
* Purpose of the issue
* Nature of Business
* Capital structure of Company
* Name and address of Signatories and no of shares subscribed by them
* Qualification shares of the Directors
* Particulars of Debentures and redeemable preference shares
* Remuneration of Directors and Promoters
* Minimum Subscription for allotment
* Date of opening and closing of issue
* Details of Underwriter
* Underwriting Commission and Brokerage
* Name and address of Auditor, Company Secretary, Banker and Trustee of Company
* Particulars of material documents
* Expected rate of dividend and voting rights
* Requirements as to Issue of Prospectus of a Company

There are some requirements that company has to comply with before issuing it. Those are:-

* There should be disclosure of material matters.

* Moreover it must be dated.
* Company must file a duly signed copy of it to ROC for its registration.

Furthermore,
*Company shall file it with various agencies such as SEBI, Stock exchanges and other
agencies.
*SEBI examines the draft of Prospectus to ensure disclosures and compliances.

Types of Prospectus :
These are of different types. Some of them are:-

* Red Herring
* Shelf
* Abridged
* Deemed
* Red Herring Prospectus
It is the offer document which contains all the details about the offer of securities.
However it does not include quantum of issue and the price of securities.
Furthermore, it is not the final prospectus as Company can update it several times before the
final issue.
Issuer company needs to file it with Registrar at least 3 days prior to the opening of offer.
It is named in such a way because it contains a para in Red ink. That states that Company is
not attempting to sell the shares before approval of SEBI.

* Shelf Prospectus
Company can issue more than one issue from the single document which we call Shelf
Prospectus.
Furthermore, banks and financial institutions usually issue it.
In this case once the company files it with ROC, there is no need to file fresh prospectus at
every issue.
However it has the validity of up to one year.
In case there is any change in the issue, then company can file such change in Information
Memorandum.

* Abridged Prospectus
It means a memorandum containing salient features of a prospectus.
Furthermore it contains the information in brief which helps the investor to take investment
decision quickly.
In this case, Company needs to attach it along with every application form for purchase of
securities.

* Deemed Prospectus
It is a document which the company issues in case of offer for sale of securities to the public.
Moreover this document is an invitation to public to purchase the shares of company through an
intermediary such as Issuing House.