Company and Shares

By-Deepali Sahoo
Symbiosis Law School, Noida
Introduction- General meaning of Company

• In common parlance the word company is normally used for those who associated
for economic purposes to carry on a business for earning profit.

• A company can be also defined as a legal entity that people form which allows
them, usually as shareholders, to buy and sell goods and services in pursuit of
profit.

• When somebody or a group of person incorporate a company, they creates a

separate legal entity to carry on a specific business.
Nature and Features of a Company

• Separate Legal entity

• Limited Liability
• Perpetual Succession
• Separate Property
• Transferability of Shares
• Common Seal
• Separation of ownership and control
• Artificial legal person
• Delegated Management
• Capacity to sue and being sued
Theories of Corporate Personality

• The Fiction Theory

• The Realistic Theory
• The Symbolist Theory
• The Concession Theory
• The Organism Theory
• The Kelson’s Theory
The Companies Act -2013 (essential amendments)

• Woman Director
• Number of members for Private Company
• One person company
• Limit on maximum partners
• Class action
• Corporate Social Responsibility
• Simplified Mergers
• Cross border Mergers
• Appointment of Statutory auditors
Cont..

• Resident Director
• Age limit for Managing Director or whole time director
• Number of Directorships
• Minimum number of directors
• Independent Directors
• Notice of board meeting
• Directors Identification Number
• Key Managerial Personnel
• Attendance in board meetings
Cont..

• Prohibition on performing non-audit services

• Establishment of The National Financial Regulatory Authority
• Financial Statements
• E-Governance
• National Company Law Tribunal
Kinds of Company

• On the basis of Liability

Company limited by guarantee
Company limited by shares
Unlimited Company
• On the basis of number of Members
Private Company
Public Company
One person Company
Small Company
Cont..
• On the Basis of Control
Holding Company
Subsidiary Company
Associate Company
• On the basis of manner of access to Capital
Listed Company
Un-listed Company
Cont..
• Other forms of Companies
Banking Company
Statutory Company
Foreign Company
Government Company
Multinational Company
Defunct Company
Chartered Company
Producer Company
Formation of Company

• Promotion of a Company
Promoters- Meaning, rights ,duties and liabilities
• Incorporation of a Company
Memorandum of Association- Clauses
Articles of Association-Contents of Articles
• Capital Subscription- A public company can raise the required funds from
the public by means of issue of shares and debentures. For doing the same
it has to issue a prospectus which is an invitation to the public to subscribe
to the capital of the and undergo various other formalities.
• Floating of the company
Prospectus:
• It is an invitation issued to the public as an offer for
purchase/subscribe shares or debentures of the company. In other
words ,it can be also defined any advertisement offering shares or
debentures of the company for sale to the public is a prospectus.
• A company secures capital by the issue of prospectus inviting deposits
or offering shares and debentures to the public.
• In other words, after the company is incorporated, promoters raises the
finances. The public is invited to purchase shares and debentures of
the company through an advertisement.
Cont..
• A document containing detailed information about the company and
an invitation to the public subscribing to the share capital and
debentures is issued. This document is called as prospectus.
• Prospectus to be issued to the public-
Government Stock and other Securities Investment Co. Ltd vs. Christopher
1956 IWLR 237
Nash vs. Lynde 1929 AC 158
England Natural Gas and Petroleum Co. Ltd 1911 1 Ch 573
Cont..
• Prospectus must disclose true nature of Company- Every person wants to invest his money in some
sound undertaking. A prospectus contains the terms and conditions of the issue, along with the
specific feature of the security, the purpose for which the issue is made, the company’s track record
, the risk inherent in the project for which the capital is being raised.
• Deemed Prospectus: Document containing offer of securities for sale .
• Abridged Prospectus: means a memorandum containing such salient features of a prospectus as
may be specified by the SEBI making regulations in this behalf.
• The main objective of Prospectus are:
To bring to the notice of public that a new company has been formed.
To preserve an authentic record of the terms of allotment on which the public have been invited to
buy its shares or debentures
To provide security that the directors of the company accept responsibility of the statement in the
prospectus.
Content of Prospectus:

• Every prospectus issued by or on behalf of a public company is to be dated and

signed. It contains the following information namely:
a) Names and addresses of the registered office of the company, company
secretary, chief financial officer, auditors, legal advisors, bankers, trustees etc.
b) Dates of the opening and closing of the issue and declaration about the issue of
allotment letters and refunds within the prescribed time.
c) A statement by the board of Directors about the separate bank account where the
amount received out.
d) Details about underwriting of the issue.
e) Consent of the directors,auditors,bankers to the issue, expert's opinion etc.
f) Procedure and time schedule for allotment and issue of securities.
g) Capital structure of the company
h) Main objects of public offer
i) Main objects and present business of the company and its location,
schedule of implementation of the project.
j) Minimum subscription amount payable by way of premium ,issue of
shares etc.
k) Details of directors including their appointments and remuneration.
l) Disclosures about sources of promoters contribution
• Shelf Prospectus: means a prospectus in respect of which the securities
or class of securities included therein are issued for subscription in one
or more issues over a certain period without the issue of a further
prospectus.
• Red Herring Prospectus: means a prospectus which does not include
complete particulars of the quantum or price of the securities included
therein.
Criminal Liability for Misstatements in Prospectus –Section 34

• Where a prospectus, issued, circulated or distributed includes any statement which

is untrue or misleading in form or context in which it is included or where any
inclusion or omission of any matter is likely to mislead, every person who
authorizes the issue of such prospectus shall be liable for punishment for fraud
under section 447 of the Companies Act, 2013.
• Defense for Criminal Liability:
a) Such statement or omission was immaterial.
b) He had reasonable grounds to believe and did up to the time of issue of the
prospectus believe, that the statement was true.
c) The inclusion or omission was necessary.
Civil Liability for Misstatements in Prospectus Section 35
• Section 35 provides for payment of 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 in the prospectus.
• Defenses for Civil Liability: No person shall be liable for civil
liability if he proves that having consented to become a director of the
company, he withdrew his consent before the issue of the prospectus,
and that it was issued without his authority or consent. That the
prospectus was issued without his knowledge or consent , and that on
becoming aware of its issue, he forthwith gave a reasonable public
notice that it was issued without his knowledge or content.
• The Golden rule as to framing Prospectus: Mc connel vs Wright 1903
• Prospectus issued with intent to defraud the applicants: Derry vs. Peek 1889
14 AG 337.
• Punishment for fraudulently inducing persons to invest money: Section 36
• Action by affected Persons: Section 37
• Punishment for Personation for Acquisition etc of securities : Section 38
• Securities to be dealt with in Stock Exchanges : Section 40
• Penal Provisions
• Punishment for Fraud : Section 447