Notes Compiled by Samidha Hegde,

Bcom LLB, RCL(2018-23)

Company Law

1. Short note on One Person Company

The Companies Act, 2013 introduced a revolutionary concept, and since then, the idea has
changed the way several companies do business. The concept is that of One Person Company
(OPC), and it was recommended in 2005, by a committee headed by Dr JJ Irani. The idea of
OPCs was genuinely groundbreaking because it helped provide investors with an excellent
opportunity to take power into their own hands and gave them several benefits. It gave young
entrepreneurs benefits that an ordinary Private Limited company could avail, while, at the same
time, providing them with added tax and HR benefits.

Here’s a look at everything you need to know about One Person Companies and why they are so
useful.

Concept of One Person Company

As per Section 2(62) of the Companies Act, 2013, a One Person Company is defined as any
company with just one member. Section 3 of the Act, also clarifies that an OPC will be
considered a Private Company when it comes to legal matters. Hence, all rules which must be
held in place for a Private company is also valid for an OPC. The only exception to this rule is
that an OPC can be made only by a “Natural Indian” who lives in India can form an OPC. Also,
another law states that one particular individual cannot create more than 5 OPCs in his or her
name.

Formation and Features of the company

An OPC is created the same way as a private limited company, with the only difference being
that it has only one member and is prohibited from inviting members from the public to be a part
of it.

Features of an OPC are as follows:

Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

An OPC may be formed as either of the two:

1. Limited by Guarantee
2. Limited by Shares

o should have the power to restrict share transfers. It will also not be allowed
to invite people to subscribe to it.
o An OPC must have a legally registered name, under which it operates and
the term; One Person Company must be mentioned wherever the name of
the company is used.
o An OPC member must nominate another with consent and have this
nominee’s name filed to the Registrar of Companies.
o This nominee will run the OPC if the founding member dies or meets with
some exceptional circumstances. The member may change the name of the
nominee, as and when he or she desires by approaching the Registrar of
Companies. If the member dies, while in power, then all the shares and
liabilities that the OPC has accumulated, automatically pass onto the
nominee.

An OPC enjoys several privileges and immunities which Private companies are not eligible
to receive.

Benefits of an OPC

 Limited Liability – Liability is treated differently in an OPC as it is a separate entity,

and so shareholder’s liability is limited to the payment of subscription money. Hence,
the member’s personal assets are not at risk.
 Smooth Succession- As the name of the nominee is made during the creation of the
OPC, succession laws are simple. In the event of the death of a member, all the shares
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

and investments of the OPC are handed down to the nominee.  There is no need for
any lengthy procedure or submission of will as is the case with sole proprietorships.
 Easier Compliances – A One Person Company has more relaxed and less binding
compliance regulations. This dramatically reduces paperwork associated with running
the company and hence, reduces the load on the HR department.
 Helps in organising the unorganised proprietorship by giving it the same legal status
of a private limited company. This provides better banking facilities to such
companies. It also helps such companies have better status and recognition with
respect to other companies.

2. Describe the general principles and statutory restrictions for allotment of shares.
You know that a public limited company invites subscriptions from the public and for this
purpose a prospectus is issued. In response to this invitation, the prospective investors offer to
buy shares by submitting the prescribed application form. If the application is accepted by the
company, it proceeds to allot him the shares. With the issue of the letter of allotment, the offer
stands accepted thereby giving rise to a legally binding contract between the company and the
shareholder. Thus, an allotment is the acceptance by the company of the offer to purchase shares.

Principles of Allotment of Shares

1. Allotment of shares by proper authority

An allotment should be made by a resolution of the Board of directors. The Allotment is the
primary duty of the directors and this duty cannot be delegated except in accordance with the
provisions of the articles. However, it was observed in the case of Pasurala Sanyai Vs
Guntur Cotton & Jute & Paper Mills Co  that if the AOA so provides, an allotment
by CS & treasurers was held to be regular, being a proper delegation .

2. Within the reasonable time

Allotment is basically made within a reasonable or specified period of time otherwise the
application shall lapse. Reasonable time should remain a question of fact in each case. The
specified time frame of six months between application and allotment has been held to be not
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

reasonable.  If the reasonable time expires Section 6 of the Contract act applies and the
application must be deemed to be revoked.

3. Must be communicated

It is primary that there must be communication of the allotment to the applicant. Posting of a
properly addressed and stamped letter of allotment is considered as a sufficient communication
even if the letter were to be delayed or lost.

4. Absolute and unconditional

Absolute and Unconditional: Allotment must be absolute and follow the terms and
conditions of the application, if any . In the case of Ramanbhai Vs Ghasiram , a
person applied for 400 shares on the condition that he would be appointed cashier of
a new branch of a company, the Bombay HC held that he was not bound by any
allotment unless he was so appointed.

Shri Gopal Jalan and company v. Calcutta Stock Exchange Association Limited, in this case, it
was held that appropriation of shares to a particular person by any company is allotment of
shares. allotment of shares also includes acceptance which leads to a contract between the
company and the shareholder whereas the application for shares is an offer.

There are certain restrictions on Allotment of shares as per the Companies Act [1] –

 Minimum subscription and application money (S-39) – The first essential

requirement for a valid allotment is that of minimum subscription. The amount of
minimum subscription has to be declared in the prospectus at the time when shares are
offered to the public. Shares cannot be allotted unless at least so many amounts have
been subscribed and the application money, which must not be less than 5% (SEBI
may decide the various percentage of the nominal value of the share), has been
received in by cheque or other instruments. It has been established by various cases
that it is a criterion to valid allotment that the entire application money should be paid
to and received by the company by cheque or other instruments. If the shares
allotments are made without application money being paid it is invalid. 
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

If the minimum subscription has not been received within thirty days of the issue of
the prospectus, or any such period as specified by SEBI, the amount has to be returned
within such time and manner as prescribed[S-39(3)]. Application money can be
appropriated towards allotment or it has to be returned or refunded.

1. Return of allotment [S.39 (4)] – When a company having a share capital,

makes any allotment of securities, it has to file a return of allotment with
the registrar as mentioned in Sec 39(4).
2. Penalty for default [S. 39 (5)] – In case of default, the company and its officer who is
in default are liable to a penalty for each default of Rs 1000 for each day during which
the default continues or Rs 1,00,000 whichever is less.

 Shares to be dealt in on stock exchange [S.40] – Every company aiming to offer

shares or debentures to the public by the issue of the prospectus has to make an
application before the issue, to any one or more of the accepted stock exchanges for
permission for the shares or debentures to be dealt with at the exchange. The need is
not merely to apply but also to obtain permission. In the prospectus, the name or
names of the stock exchanges to which the application is made must be stated. 

Application money to be deposited in a scheduled bank

This requirement is precedent for listing that the application money is deposited in a separate
bank account which will be used only for adjustment against allotment of shares if the shares
have the permission to be dealt with in the specified manner in the prospectus. Hence the money
will be used for the repayment to applicants within the time specified by SEBI if the company
has not been able to allot shares for any other reasons. [S. 40 (3)]. The object of the section is
that it will help shareholders to find a ready market so that they can convert their investment into
cash whenever they like. In the Supreme Court case Union of India v. Allied International
Products Ltd, this objective of the section was explained.

 Over-subscribed prospectus- Where the permission of stock exchange being granted

and the allotment being valid the prospectus gets oversubscribed, the oversubscribed
portion of the money received has to be returned to the applicants within the same

CONCLUSION

Allotment of Securities refers to the issue of new shares by a company to the first or
existing investors. The general population for the most part gets befuddled between
the issue of shares and Allotment of shares. Issuance of shares is the contribution of
shares to the investors while Allotment of shares is the technique for circulation of
shares in the company. Allotment or acknowledgment choice is taken by the
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

company itself. So, Allotment of shares is the most fundamental system in the
company, which is primarily utilised for growing the Business by offering shares to
the general population.

3. Duties of Directors

1. Fiduciary duties- as fiduciaries the directors must-

(a) Exercise their powers honestly and bona fide for the benefit of the company as a
whole; and
(b) Not place themselves in a position in which there is a conflict between their duties
to the company and their personal interests. They must not make any secret profit
out of their position. If they do so they have to account for it to the company.

In Cook v Deeks (1916), the company had 4 directors (also members) in their company, due to
disagreement between them, 3 of the directors formed a new company to carry out a contract that
they had negotiated on behalf of the company. The 3 directors then tried to ratify the wrong by
voting at a general meeting by a special majority (3/4). It was held that the directors had
breached their fiduciary duty and abused their power of majority.

2. Duties of care, skill and diligence- directors should carry out their duties with
reasonable care and exercise such degree of skill and diligence as is reasonably expected
of persons of their knowledge and status. He is not bound to bring any special
qualifications to his office.

Standard of Care- the standard of care, skill and diligence depends upon the nature of
the Company’s business and circumstances of the case. There are various standards of
care depending upon-
a. The type and nature of work
b. Division of powers between directors and other officers
c. General usages and customs in that type of business; and
d. Whether directors work gratuitously or remuneratively

In the case of Re D Jan of London [1993] B.C.C, the director was acting in honesty and signed
the form given to him, but nevertheless he was in breach of his duty of care to his company. The
question that how much care and skill the director must show was dealt by Hoffman J in the
case of the Norman v Theodore Goddard [1991] BCLC 1028; he said that the amount of care
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

which a director must show in executing his duties is the care that may reasonably be expected
from a person carrying out those obligations.

3. Duty to disclose interest- where a director is directly interested in the transaction of the
company, he is required to disclose his interest to the board. An interested director is
neither to vote on the matter of his interest nor his presence shall count for the purpose of
the quorum.

4. Duty to attend board meetings- the Act itself states that the office of a director is
automatically vacated if he fails to attend three consecutive meetings of the board or all
meetings for a period of three months, whichever is longer. Moreover, a director’s
habitual absence may become evidence of negligence.

5. Duty not to delegate- a director should not delegate his functions to another person. But
delegation of functions may be made to the extent to which it is authorized by the Act or
by the constitution of the company.

Conclusion-
Companies, by their very nature, incapable of acting on its own despite having a separate legal
entity. This is where comes the role of directors who are akin to the company’s guardians. In
acting in such a capacity they are expected to work in the best interest of the company and its
shareholders and not in their personal interest- contra naturam suam.

A director is relied upon to play out his obligations as a sensibly persevering individual having
the information, ability and experience both of an individual completing that director’s capacity
also, and of that individual himself. An executive, along these lines, assume different jobs in the
organization, let it be of a specialist, a representative (when designated on the rolls of the
organization), an officer and additionally a trustee of the Organization. Thereby wide
interpretation needs to be given so as to include each and every dimension of this duty.

In Case of winding up of the company, on an application made by the official liquidator,

the court may make a promoter liable for misfeasance or breach of trust. Further where
fraud has been alleged by the liquidator against a promoter, the court may order for his
public examination

4. Define Prospectus. Explain the contents of it.

INTRODUCTION:
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

        In Company Law, prospectus plays a significant role, where it contains all the material
information (General, Financial & Statutory) of the company i.e., prices and shares detail of the
specific company, which helps the public who wishes to buy a share in that specific company. As
the prospectus is a legally mandated document it must be registered under Register of
companies.

DEFINITION OF PROSPECTUS: (Companies Act, 2013)

   As per dictionary definition Prospectus means – “A Prospectus is an offer document or
information booklet issued by a public company used for inviting offers from the general public
for subscribing of shares”.
According to the Companies Act 2013: – Prospectus is defined under section 2(70) so as to mean
any document described or issued as a prospectus and includes a red herring prospectus referred
to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement
or other document inviting offers from the public for the subscription or purchase of any
securities of a body corporate.
In the case of Rattan Singh v. Managing Director, Mega Transport co. Ltd. , it was decided by
the court that an offered received by selective persons from a private company does not
constitute as an invitation to buy shares to the public.
One important proposition here is, every public company must either issue a prospectus or file a
statement in lieu of prospectus, whereas the private company it is not mandatory for issuing of
the prospectus. But If a private company converted into the public company then it must issue
the prospectus.
ISSUE OF PROSPECTUS: (Companies Act, 2013)
The issue of the prospectus is defined under section 26 of Companies Act, 2013:
If a company does not issue prospectus before 90 days from the date from which a copy was
delivered before the registrar, then it is considered to be invalid.
If a prospectus was issued in contravention under section 26 of Companies Act, 2013 then the
company can be punished with a fine of 50,000/- which may exceed up to 3,00,000/-.

CONTENTS OF PROSPECTUS: (Companies Act, 2013)

1. Registered company office address.

2. Company secretary, auditors, bankers, Chief Financial Officers, underwriters, etc., their
respective names and address.
3. Opening and closing dates of the issue.
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Bcom LLB, RCL(2018-23)

4. Allotment letters and refunds declaration within the prescribed time.

5. A statement by the board of directors about the separate bank account where all monies
received out of shares issued are to be transferred.
6.  Details about underwriting of the issue.
7. Directors, auditors, bankers Consent to the issue, expert’s opinion if any.
8. The authority for the issue and the details of the resolution passed thereof.
9. Procedure and time schedule for allotment and issue of securities.
10. The Capital structure of the company with a comprehensive outlook.
11. Main objects and location of the present business of the company.
12. Public offer and terms of the present issue and its objective.
13. Minimum subscription, amount payable by way of premium, issue of shares otherwise
than on cash.
14. Appointment and remuneration details of the director
15. Sources of promoter’s contribution.
Golden Rule of disclosure: Golden Legacy
New Burnswick Canadian Railway Company v. Muggerdge 

In this case it was held that- Nothing in the prospectus should be stated as a fact which is not one
or nothing of such value should be omitted, the presence of which might affect the nature or
quality of the privileges and advantages which a prospectus holds out as inducement to take
shares. This was called as the golden rule of disclosure in this case and as golden legacy
in Henderson v. Lacon

5. Define Prospectus. What are the remedies available for misrepresentation in the
prospectus? Explain
Prospectus-
In general parlance prospectus refers to an information booklet or offer document on the basis of
which an investor invests in the securities of an issuer company. It has been defined under
section 2(70) so as to mean any document described or issued as a prospectus and includes a red
herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any
notice, circular, advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of a body corporate.

MISSTATEMENT IN A PROSPECTUS
The prospectus is trusted on by the members of the general public for subscribing or purchasing
the securities and other instruments from the corporation and any misstatement by the prospectus
can lead to punishment. Misstatement in a prospectus occurs when a untrue or misleading
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Bcom LLB, RCL(2018-23)

statement is included and issued in the prospectus. Any deletion and inclusion of any matter
which misleads the public is also a misstatement under Section 34 of this Act. For instance, and
statement which gives the incorrect location of the company’s office is misstatement in the
prospectus or any statement offering shares misleads the public is a misstatement in a prospectus.

MISSLEADING REPRESENTATION INCLUDES

1. Any untrue statement

2. Statements implicating wrong impression
3. Mis-leading statements
4. Not disclosing true facts
5. Omission of data

Remedies for Mis-statement and Omission in a Prospect: 

The remedies available to a person who has Subscribed for shares on the faith of a misleading

prospectus, may be grouped into two categories

1. Remedies against the company.

2. Remedies against the directors, promoters and experts.

Remedies against the company

There are two remedies available against company:

1. Revocation of the Contract- The person who purchased the securities can cancel the
contract. The money will be refunded to him, which he paid to the company.
2. Damages for Fraud- Any such person induced by such statement or omission is also
entitled to sue the company for damages. For this, he has to first rescind his contract and
give up or surrender his shares to the company, as an allottee of the shares cannot claim
damages and also, side by side, retain his shares. 

The liability of the directors, promoters, etc. for a misleading prospectus can be studied under the

following heads:

1. Civil liability
2. Criminal liability

Civil liability: Where a person has subscribed for securities of a company acting on any

statement included, or the inclusion or omission of any matter, in the prospectus which is
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Bcom LLB, RCL(2018-23)

misleading and has sustained any loss or damage as a consequence thereof, the company and

every person who

 Is a director of the company at the time of the issue of the prospectus.
 Has authorised himself to be named and is named in the prospectus as a director of the
company, or has agreed to become such director, either immediately or after an interval of
time.
 Is a promoter of the company;
 Has authorised the issue of the prospectus; and
 Is an expert referred to in Section 26(5) of the Companies Act, 2013 shall be liable to pay
compensation to every person who has sustained such loss or damage. [Section 35 (1)1]

Criminal liability (Section 34): Criminal liability involves a fine or a term of imprisonment or

both on the guilty party. Section 34 states that where a prospectus includes an untrue

statement, every person who authorizes the issue of such prospectus be liable” under Section 447

of Companies Act, unless he proves either

 That the statement or omission was immaterial, or
 That he had reasonable grounds to believe it to be true.

As per Section 447, any person who is found to be guilty of fraud, shall be punishable with

imprisonment for a term ranging from six months to ten years and shall also be liable to fine

which shall not be less than the amount involved in the fraud, but which may extend to three

times the amount involved in the fraud. Where the fraud in question involves public interest, the

term of imprisonment shall not be less than three years.

CASE LAWS

New Brunswick Canada Railway V. Muggeridge

In this case, Justice Kindersley laid down the ‘golden rule’ for framing of a prospectus of a
company.  In this case it was laid that, those who issue a prospectus withstand to the public great
advantages which will accrue to the persons who will take shares in the proposed undertaking.
On the faith of the details given in the prospectus, the people are invited to take shares.
Everything should be accurate and at its best knowledge in the prospectus. Nothing should be
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Bcom LLB, RCL(2018-23)

stated in the prospectus which is not true in nature or is non- existing. In simpler words, the true
nature of the company’s venture must be disclosed in the prospectus.

Rex v. Kylsant (1932)

The prospectus stated that dividends of 5 to 8 per cent had been regularly paid over a long
period. The truth was that the company had been incurring substantial losses during the seven
years preceding the date of the Prospectus and dividends had been paid out of the realized capital
profit. Held, the prospectus was false and misleading. The statement though true in itself was
rendered false in the context in which it was stated.

Thus, the persons issuing the prospectus must not include in the prospectus all the relevant
particulars specified in Parts I & II of Schedule II of the Act, which are required to be stated
compulsorily but should also voluntarily disclose any other information within their knowledge
with might in any way affect the decision of the prospective investor to invest in the company.

CONCLUSION
A prospectus plays a crucial role for any customer who aims to buy shares, debentures or other
instruments from the company. The issuance of prospectus must be under the provisions of the
Companies Act 2013. The public relies on the statements issued by the company and takes the
major investment decisions so it should be true and correct in nature, any misleading prospectus
shouldn’t be published and therefore the person answerable for its issuance must be punished
under the given provisions.

6. State the powers and duties of directors in the company.

A company in the eyes of the law is an artificial person. It has no physical existence. It has
neither soul nor a body of its own. As such, it cannot act in its own person.
The directors are the brain of a company. They occupy a pivotal position in the structure of the
company. They are in fact the mainspring of the company.
Definition Section 2(34)of companies act 2013, “director” means a director appointed to the
Board of a company ‘Director’ includes any person occupying the position of director, by
whatever name called. The important factor to determine whether a person is or not a director is
to refer to the nature of the office and its duties. Thus a director may be defined as a person
having control over the direction, conduct, management or superintendence of the affairs of the
company.
Only individuals can be directors-no body corporate, association or firm can be appointed
director of a company. Only an individual can be so appointed.
Powers of directors
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

General powers

Section 149 of the Companies Act, 2013 empowers the directors with the general power vested
in the Board. The Board of directors is entitled to exercise all the powers and do all required
actions which a company is authorised to exercise. But, such action is subject to certain
restrictions.

The powers of directors are co-extensive with the powers of the company itself. The director
once appointed, they have almost total power over the operations of the company.

There are two limitations on the exercise of the power of directors which are as follows.

1. The board of directors are not competent to do the acts which the shareholders are
required to do in general meetings.
2. The powers of directors are to be exercised in accordance with the memorandum and
articles.

Restrictions on powers under the statutory provision

The Companies Act 2013 also lays the manner in which the powers of the company is to be
exercised. There certain powers which can be exercised only when a resolution has been passed
at the Board’s meetings. Those powers are-

1. To make calls.
2. To borrow money.
3. To issue funds of the company.
4. To grant loans or give guarantees.
5. To approve financial statements.
6. To diversify the business of the company.
7. To apply for amalgamation, merger or reconstruction.
8. To take over a company or to acquire a controlling interest in another company.

The shareholders in a general meeting may impose restrictions on the exercise of these powers.
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Bcom LLB, RCL(2018-23)

Powers to be exercised with general meeting approval

Section 180 of the Companies Act 2013 states certain powers which can be exercised by the
Board only when it is approved in the general meeting:

1. To sale, lease or otherwise dispose of the whole or any part of the company’s
undertakings.
2. To invest otherwise in trust securities.
3. To borrow money for the purpose of the company
4. To give time or refrain the director from repayment of any debt.

When the director has breached the restrictions imposed under the sections, the title of lessee or
purchaser is affected unless he has acted in good faith along with due care and diligence. This
section does not apply to the companies whose ordinary business involves the selling of property
or to put a property on lease.

Power to constitute an Audit committee

The board of directors are empowered under section 177 to constitute an audit committee. It
needs to be constituted of at least three directors, including independent directors. In the
committee, the independent directors need to be in the majority. The chairperson and members of
the audit committee should be persons with the ability to read and understand the financial
statements.

The audit committee is required to act in accordance with the terms of reference specified by the
Board in writing.

Power to constitute Nomination and Remuneration Committees and Stakeholders

Relationship Committee

The Board of directors can constitute the Nomination and Remuneration Committee and

Stakeholders Relationship Committee under section 178. The Nomination and Remuneration
Committee should be consisting of three or more non-executive directors out of which one half
are required to be independent directors.
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Bcom LLB, RCL(2018-23)

The Board can also constitute the Stakeholders Relationship Committee, where the board of
directors consist of more than one thousand shareholders, debenture holders or any other security
holders. The grievances of the shareholders are required to be considered and resolved by this
committee.

Power to make a contribution to charitable or other funds

The Board of directors of the company is empowered under section 181 to contribute to the bona
fide charitable and other funds. When the aggregate amount of contribution, in any case, exceeds
the 5% of the average net profit of the company for the immediately preceding financial years,
then the prior permission of the company in a general meeting is required.

Power to make a political contribution

Under section 182 of the Companies Act 2013, the companies can make a political contribution.
The company making a political contribution should be other than a government company or a
company which has been in existence for less than three years.

Also, the amount of contribution should not exceed 7.5% of the company’s net profit in the three
immediately preceding financial years. The contribution needs to be sanctioned by a resolution
passed by the Board of Directors.

Power to contribute to National Defence Fund

The Board of Directors is empowered to make contributions to the National Defence Fund or any
other fund approved by the Central Government for the purpose of National defence
under section 183 of the Companies Act 2013. The amount of contribution can be the amount as
may be thought fit. This total amount of contribution made should be disclosed in the profit and
loss account during the financial year which it relates to.

Conclusion
The directors of a company are like its brain. They have a major contribution to a company’s
growth and development and their position is very important for the company. They are given
certain powers under the Companies Act 2013 so that they can contribute their best to the
company. Along with powers, certain restrictions are also imposed on its exercise to avoid any
misuse of such powers.

7. Explain the different types of share capital.

Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

Introduction-

Meaning of Share Capital-

The words ‘Capital’ and ‘Share Capital’ is synonymous. The term capital usually means a
particular amount of money with which business is started. ‘Share Capital’ means the capital
raised by a company by issue of shares. The MOA of a company contains capital clause which
provides for the amount of capital divided into different shares, with which the company is to be
registered.

What are the Different Types of Share Capital?

Following are the different types of Share Capital –

1. Authorized  Share Capital

Authorized Share Capital is the total Capital that a company accepts from its investors by issuing
shares which are mentioned in the official document of the company. It is also called as
Registered Capital or Nominal Capital because with this Capital a company is registered.

According to Section 2(8) of the Companies Act, 2013, the limit of Authorised Capital is given
under the Capital Clause in the Memorandum of Association. The company has the discretion to
take the required steps necessary to increase the limit of authorised capital with the purpose of
issuing more shares, but the company is not allowed to issue shares that are exceeding the limit
of authorised capital in any case.

Authorized Share = Issued Share + Unissued Share.

2. Issued Share Capital

Issued Share Capital is the part of Authorized Share Capital issued to the public for subscription.
And this Act of issuing Share is called Issuance, allocation or allotment. In a simple way, you
can say that Issued Share Capital is the subset of the Authorized Share Capital. After the
allotment of shares, a subscriber becomes the shareholder.

Issued Capital = Subscribed + Unsubscribed Capital

3. Subscribed Capital

Subscribed Capital is the part of issued Capital which has been taken off by the public. It is not
mandatory that the issued Capital is fully subscribed to by the public. It is that part of the issued
Capital for which the application has been received by the company. Let’s understand this with
an example – If a company offers 16000 shares of Rs. One hundred each and the public applies
only for 12000 shares, then the issued Capital would be Rs 16 lakh, and Subscribed Capital
Notes Compiled by Samidha Hegde,
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would be Rs 12 lakh. Issued Share is equal to the sum total of share outstanding and treasury
shares.

NOTE: Once the Share has been issued and purchased by investors, these shares are called
Shares Outstanding. This issuing of shares gives the shareholders ownership in the
corporation. The Unsubscribed Share Capital can be called as the Treasury Shares.
4. Called-Up Capital

Called up Capital is the part of the Subscribed Capital, which includes the amount paid by the
shareholder. The company does not receive the entire amount of Capital at once. It calls upon the
part of subscribed Capital when needed in installments. The remaining part of the Subscribed
Capital is called Uncalled Capital.

5. Paid-Up Capital

The part of Called-up Capital which is paid by the shareholder is called Paid-up Capital. It is not
mandatory that the amount called by the company is paid by the shareholder. The shareholder
may pay half the amount of the called up Capital, which is called as Reserved Capital.  As the
name reserve means to keep some amount in the treasury of the company. This is quite useful in
case of winding- up of the company.

The Companies Amendment Act 2015, has amended that minimum requirement of the paid up
capital is not required in the Company. That signifies that at present the formation of the
Company can be done with even Rs.1000 as the company’s paid up capital. The paid up capital
shall always be less than or it can be equal to the authorised share capital at any point of time and
the Company is not allowed to issue shares beyond the company’s authorised share capital.

8. Forfeiture of Shares

What is forfeiture of shares?

Forfeiture of shares is a process where the company forfeits the shares of a member or
shareholder who fails to pay the call on shares or instalments of the issue price of his shares
within a certain period of time after they fall due. In other words, when the shareholder fails to
pay the full amount of share which he agreed to pay in instalments the company can cancel his
shares.

Legal Framework
Notes Compiled by Samidha Hegde,
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When the shares are issued by the company, generally the shareholders are not asked to pay the
whole amount of share at once. It happens in instalments. The company makes these calls on
shares when it requires further capital.

The company may call up the unpaid money from the shareholders when it is needed from time
to time. The board of directors are required to pass a resolution for making a call on shares. The
articles of the company should contain the provisions regarding this call on shares and if nothing
is mentioned in the articles then Regulations 13-18 of table F of Schedule I of Companies Act,
2013, will apply.

Those provisions provide that

1. the amount called must be not more than one-fourth of the face value of share;
2. the dates of two consecutive calls must differ by at least a month;
3. a minimum of fourteen days’ notice must be given to members;
4. the notice has to mention the time, place and amount of the call on shares.

Generally, the company will give 14 days’ notice to the shareholder and after 14 days if the
shareholder is not willing to pay the money due, the company will forfeit the shares of that
shareholder.  

Procedure for forfeiture of shares

Forfeiture of shares is a serious step since it involves in depriving a person of his property as a
penalty of some act or omission. Accordingly, shares of members cannot be forfeited unless the
articles of the company confer such power on the directors. The forfeiture of a share should
happen only for the non-payment of the call on shares by the members and in accordance with
articles of the company. But forfeiture can also be made for any other reasons which are
specified in the articles of the company. Companies normally have their own rules and
regulations regarding the forfeiture of shares and in case if those provisions are not present then
the Regulations 28-34 of Table F of Schedule 1 of Companies Act, 2013 will apply.

The following is the procedure:

 In accordance with articles

Forfeiture of shares must be in accordance with the provisions contained in the articles of the
company to be treated as valid forfeiture. The power of forfeiture of shares must be
exercised bona fide and in the interest of the company. Thus, where the articles of the company
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

authorize the directors to forfeit the shares of a shareholder, who commences an action against
the company or the directors, by making a payment of the full amount of his shares, was held
that such a clause was invalid as it was against the rights of a shareholder [Hope v. International
Finance Society (1876) 4 Ch. D. 598]

 Proper notice

A proper notice under the authority of board must be served on the defaulting shareholder. The
notice should mention that the shareholder has to pay the amount on a day specified which would
not be earlier than fourteen days from the date of notice served. This is provided under
Regulation 29 of Table F. the notice should also mention that in the event of non-payment, the
shares will be liable to be forfeited.

The objective of sending the notice is to give the defaulting shareholder an opportunity to pay the
call money, interest and any other expenses and hence notice should disclose enough information
with particulars to the shareholder.

“A proper notice is a condition precedent to the forfeiture of shares and even the slightest defect
in the notice will invalidate the forfeiture”. [Public Passenger Services Ltd. v. M.A. Khader
[1996]]

A notice sent for forfeiture by registered post was returned unserved, the forfeiture will be held
invalid” [Promiela Bansali v. Wearwell Cycle Co. Ltd. [1978] 48 Comp. Cas. 202 (Delhi).]

A notice sent to the holder of a partly paid share after his death is not a proper notice. Notice in
this kind of situations is to be sent to the legal heir [George Mathai Noorani v. Federal Bank
Ltd. [2007] 76 SCL 528 (CLB).]

 Resolution for forfeiture

If the defaulting shareholder does not pay the amount within the specified period mentioned in
the notice properly served to him, the directors of the company may pass a resolution forfeiting
the shares under regulation 30 of Table F. in the absence of such resolution the forfeiture shall be
invalid unless the notice of forfeiture incorporates the resolution of forfeiture as well. For
example, the notice may state that in the event of default the shares shall be deemed to have been
forfeited.    

Effects of forfeiture

Cessation of membership
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

A person whose shares have been forfeited ceases to be a member in respect of forfeited shares.
This is provided under regulation 32(1) of Table F of schedule 1 of Companies Act, 2013.

Cessation of liability

The liability of a person whose shares have been forfeited comes to an end when the company
receives the payment in full of all such money in respect of shares forfeited. This is provided in
Regulation 32(2) of Table F.

However, notwithstanding the forfeiture of shares, shareholder remains liable to pay to the
company all money which, at the date of forfeiture, were payable by him to the company in
respect of forfeited shares. Thus, the liability of unpaid calls remains even after the forfeiture of
shares.

Liability as past member

The liability of a former shareholder remains as a liability of a past member to pay calls if
liquidation of the company takes place within one year of the forfeiture.

Forfeited shares become company’s property

The forfeited shares become the property of the company on forfeiture. Accordingly, these may
be re-issued or otherwise disposed of on such terms an in such manner which the board of
directors thinks fit. This provided under Regulation 31(1) of Table F.

In the same Regulation clause (2) provides that at any point of time before a sale or disposal of
forfeited shares the board may cancel the forfeiture of shares in terms as they think fit.

9. Dividends

One of the main objects of commercial enterprises is to earn profits which are distributed
among shareholders by way of ‘dividend’. In commercial usage dividend is the share of
the company profits distributed among the members.

Dividend as per Companies Act 2013: Dividend defined under Section 2(35) of the companies
act, 2013 includes any interim dividend:
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

 Dividends are sum of money to be paid to the members of the company out of the profits
made by the Company.
 It is a share of profits of the company.
 It may be noted that dividend is paid to shareholders in proportion to the amount paid-up
on the share held by them.
 Preference shareholders re always paid the dividend in preference to the equity
shareholders.
 All Companies subject to the provisions of the Companies Act, 2013, except companies
registered under Section 8 (i.e., non-profit companies), can declare dividend.

Types of Dividend

Interim dividend

Section 2(35) of the Companies Act 2013, mentions the definition as ‘including interim
dividend’. Interim dividend, as mentioned in the definition refers to those dividends which are
declared between two annual general meetings. It is also essential for the companies to make a
substantial amount of profit in order to declare interim dividends.

For example, declaration of an interim dividend of Rs. 0.005 per share on Feb 20th, but since
interim dividends are paid out before the end of the fiscal year, the financial statements that
accompany interim dividends are unaudited.

Final dividends:

Dividend is said to be a final dividend if it is declared at the annual general meeting of the
company. Final dividend once declared becomes a debt enforceable against the company.

Source of dividend
Sec 123 of Companies Act 2013

No dividend shall be declared or paid by a company for any financial year except—

 Profits of the company for the year for which the dividend is to be paid.
 Undistributed profits of the previous financial year,
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

 Moneys provided by the Central Government or a State Government for the payment of
Dividend as per Companies Act 2013 in pursuance of a guarantee given by the concerned
Government.

Provisions related to Declaration of Dividend At Annual General Meeting:

 Dividend is to be declared by the company at its Annual General meeting on such rate as
may be recommended by board, and it has no power to declare dividend exceeding the
amount recommended by the board.
 On declaration, dividend becomes a debt payable by the company to the registered
shareholders, who are entitled to sue the company for the non-payment of the dividend.
 A company cannot pass a resolution for the declaration of dividend, without passing a
resolution for the adoption of accounts. Hence, a company shall adopt its books of
accounts first and then only, entitled to declare the dividend.

Dividend shall be paid in cash by cheque, warrant or electronically.

Unpaid dividend to be transferred to special dividend account (Sec 124 of the Companies
Act, 2013)

Where a dividend has been declared by a company but has not been paid to or claimed by any
shareholder within a period of 30 days from the date of declaration, the company shall within 7
days from the date of expiry of 30 days, transfer the unpaid or unclaimed dividend to a special
account with any scheduled bank to be called “unpaid dividend account of…company
limited/company private limited”

If any amount remains unpaid or unclaimed for 7 years from the date of such transfer, it should
be transferred to “Investor Education and Protection Fund” (Sec 125 of Companies Act, 2013
)

Penalty for defaulting directors (Sec 127 of the Companies Act, 2013) Every director
who is knowingly a party to a default is punishable with a simple imprisonment up to 3
years and liable to a fine of Rs 1000 for every day during which the default continues and
the company shall be liable to pay interest @ 18% p.a during the period of default.

10. Call on Shares

A ‘call’ may be defined as a demand made by a company on its shareholders to pay the whole or
a part of the balance, remaining unpaid on each share at any time during the continuance of a
company.
Following requirements are to be noted for call on shares-
Notes Compiled by Samidha Hegde,
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1. Time for making the call- The call can be made at any time during the
lifetime of the company or during the course of winding up. During the
lifetime the call should be made by the board of directors and during the
course of winding up the call should be made by the liquidator.
2. Obligatory- Each shareholder is obliged to pay the amount of call as and
when the call is made. But this liability arises only when the call is made
and not before.
3. Debt due- As soon as the call is made, the call amount shall become a debt
due from the shareholders to the company.
4. Consequences of default- If the shareholder fails to pay the call amount,
the company can enforce the payment of amount together with interest or
forfeit the shares.
5. Calls and Other Payments- A call is different from other payments made
by a shareholder. The amount paid on application and allotment are not
calls. Similarly if a company requires the shareholders to pay the entire
amount either on application or on allotment, it is not a call under this Act.

16. The following points should be

noted, in this context, so that the
reader can understand
17. what a call really means.
18. The following points should be
noted, in this context, so that the
reader can understand
19. what a call really means.
Provisions Relating to calls
1. Resolution of the Board- The Board of Directors alone is empowered to make a call.
The power cannot be delegated to a director or to a committee of directors or to any
other officer of the company (Section 179 of the Companies Act, 2013).
2. Calls should be Bona fide- The power to make call is generally in nature of a trust and
so it can be bona fide and for the benefit of the company. It should not be made for
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

private ends. It means the directors or liquidators can make the call only when there is a
bona fide need for funds.
3. Uniformity- Sec 49 provides that the calls should be made on a uniform basis on all the
shares falling under the same class. If a call is made only on some shareholders of the
same class but not others or a greater amount is demanded from some shareholders and
lesser amount from others of the same class, the call is not valid.
4. Provisions of the Articles- The calls should be made strictly in accordance with the
provisions of the articles. If this not done, the call will be invalid.

11. Government Company

Section 2(45) defines a “Government Company” as any company in which not less than fifty-one
per cent of the paid-up share capital is held by the Central Government, or by any State
Government or Governments, or partly by the Central Government and partly by one or more
State Governments, and includes a company which is a subsidiary company of such a
Government company.
Notwithstanding all the pervasive control of the Government, the Government company is
neither a Government department nor a Government establishment. [Hindustan Steel Works
Construction Co. Ltd. v. State of Kerala (1998) 2 CLJ 383].
Some of the examples of government companies are Steel Authority of India Limited, Bharat
Heavy Electricals Limited, Coal India Limited, State Trading Corporation of India, etc.

Features of a government company

 A Government company is a separate legal entity.

 The appointment of the employees of a government company is governed by a
memorandum of association and article of association.
 The audit of a government company is generally done by an agency that is appointed
by the central government. Comptroller and auditor general of India is the agency.
 Government companies manage to get their fund from private shareholding and
Government shareholding and also from the capital market.

Since employees of Government companies are not Government servants, they have no legal
right to claim that the Government should pay their salary or that the additional expenditure
incurred on account of revision of their pay scales should be met by the Government. It is the
responsibility of the company to pay them the salaries [A.K. Bindal v. Union of India (2003)
114 Com Cases 590 (SC)].
When the Government engages itself in trading ventures, particularly as Government companies
under the company law, it does not do so as a State, but it does so in essence as a company. A
Government company is not a department of the Government.
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

12. Who is a Director? How is he appointed? What are their liabilities?

There are several types of directors in companies and there are several types of companies
and then there are certain mandatory rules for companies to appoint certain kind of directors
in certain companies.
As per Sec2(34) of Companies Act, 2013 ‘director’ means director appointed to the board of
a company.
‘Director’ includes any person occupying the position of a director, by whatever name called.
The important factor to determine whether a person is a director or not is to refer to the
nature of the office and its duties. Thus a director may be defined as a person having control
over the direction, control, management or superintendence of the affairs of the company.
Only individuals can be directors, no body corporate, association or firm can be appointed
director of a company. Only an individual can be so appointed.
As per Section 153 of the Act, every individual intending to be appointed as director of a
company shall make an application electronically in Form DIR-3 for allotment of Director
Identification Number to the Central Government along with the prescribed fees. Further,
DINs to the proposed first Directors in respect of new companies would be mandatorily
required to be applied for in SPICe forms (subject to a ceiling of 3 new DINs) only.

How are directors appointed?

Generally for a private company, typically the promoters (i.e. the founders who are signatories to
the articles of association) of the company become the first directors of the company.

Although the articles of association should ideally mention names of the first directors of the
company, if that is not done, the subscribers to the memorandum (that is, the initial shareholders
who incorporate the company) shall be considered as the directors. In all other cases, the
directors can be appointed by the company through a resolution passed in the general meeting.
However, before such appointment can be made, the members must be informed by either email
or through postal communication at least seven days before the meeting about the candidature of
the person as a new director.

Special requirements for public companies

The new Companies Act has imposed additional requirements with respect to appointment of
independent directors and women directors on public companies (whether they are listed or not).
All listed companies are required to appoint special categories of directors like independent
directors, small shareholders (minority) directors and woman directors in the Board. Some of
these requirements even apply to unlisted public companies, if certain share capital, debt or
turnover thresholds are exceeded.
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

Term of appointment of directors

Generally, a director is appointed in the Annual General Meeting (AGM), and can hold the post
till the next AGM. However, the articles of the company can provide for appointment of
permanent directors in the articles of the company. In case of a public company or its
subsidiaries, only one-third of the directors can be appointed as permanent directors, rest of the
directors must retire by rotation at the AGM of the company.

An independent director can be appointed for a period of consecutive five years. Such directors
can be re-appointed after passing a special resolution by the Board for a period of another 5
years. After two consecutive terms, an independent director can be re-appointed only after a gap
of three years (provided that the person was not appointed or associated with the company during
these three years).

Personal Liability of Directors

The liability of shareholders in a company, unlike that of a sole proprietorship or partnership
firm, is limited. The liability of the company is generally not transferred onto the directors.
However, directors can be held personally liable for their acts under the Companies Act 2013, if
there is a breach of fiduciary duty or instance of fraud.

Breach in Fiduciary Duty

A director must comply with certain fiduciary duties, and any lapse on this part will make the
directors personally liable in an action for tort. Some of these cases include fraud, breach of trust,
fraudulent misrepresentation etc.

Issue of Prospectus with Intent to Defraud

If a director issues a prospectus with intent to defraud the applicants or other persons for any
purpose, he/she will be personally held liable, without any limitation of liability, for the damages
incurred by any person who has subscribed to the securities on the basis of such prospectus.

Acceptance of Deposits with the Intent to Defraud

If a company fails to repay the deposit or interest within the stipulated time, and it is established
that the deposits were accepted for a fraudulent purpose, the concerned officer who was
responsible for the acceptance of such deposit will be held personally accountable, without any
limitation of liability, for all or any of the losses/damages incurred by the depositors.

Undue Advantage by Directors on Account of Fraud

An inspector may report on the occurrence of any fraudulent activity in a company. If any
director, key managerial personnel, other officer of the company or any other person belonging
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

to the company utilize this scenario in an inappropriate manner, whether in the form of asset
property, cash or any other manner, the Central Government may file an application before
the National Company Law Tribunal seeking appropriate orders with regard to discharge of
such asset, property or cash, and holding the concerned director, key managerial personnel,
officer or other person personally liable, without any limitation of liability.

Liability for Fraudulent Conduct of Business

While dissolving a company, if it is evident that any business of the entity has been pursued
with intent to defraud the creditors of the company or any other persons, the National Company
Law Tribunal, on the application of the Official Liquidator/Company
Liquidator/Creditor/Contributor of the company, is entitled to declare that any person who is/has
been a director, manager or officer of the company, or has been a part of it with the complete
awareness of the events, shall be personally held liable, without any limitation of liability, for all
or any of the debts or other liabilities of the company as directed by the Tribunal.

Proficiency of Directors
As per the latest amendments to the Comp any’s rule (2014), [Rule-8, sub-rule(5), Clause(iii)],
the director of a company has to undergo online proficiency self-assessment test every year. This
test will be conducted by the Ministry of Corporate Affairs.

“(iiia) a statement regarding opinion of the Board with regard to integrity, expertise and
experience (including the proficiency) of the independent directors appointed during the year”

13. Short note on AGM

 As per Section 96 of the Companies Act, 2013, Every company other than a One Person
Company shall in each year hold in addition to any other meetings, a general meeting as
its annual general meeting
 There should not be a gap of more than 15 months between two Annual General
Meetings.
 The first annual general meeting of the Company should be held within a period of nine
months from the date of closing of the first financial year of the company and in any
other case, within a period of six months, from the date of closing of the financial year.
 Provided also that the Registrar may, for any special reason, extend the time within which
any annual general meeting, other than the first annual general meeting, shall be held, by
a period not exceeding three months.
Time and Place of AGM –
 Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

Every annual general meeting shall be called during business hours, that is, between 9 a.m. and 6
p.m. on any day that is not a National Holiday and shall be held either at the registered office of
the company.
The company must give a clear 21 days’ notice to its members for calling the AGM.

QUORUM OF AGM –
In the case of a private company, the quorum for AGM is:
 Two members present at the meeting.
In the case of a public company, the quorum for AGM is:
 Five members present at the meeting if the number of members is within one thousand.
 Fifteen members present at the meeting if the number of members is more than one
thousand but within five thousand.
 Thirty members present at the meeting if the number of members is more than five
thousand.

Minutes of AGM has to be prepared by every company compulsorily. The minutes of the AGM

means the written record of the proceedings of the meeting in sequence and the resolutions
passed in the AGM.

Consequences and Penalty for Default in Holding an AGM –

In case company fails to hold an AGM within the stipulated time or extension obtained by it, the
Tribunal may itself or on an application made by any director or member order an AGM to be
conducted as per its directions.
If the company further defaults in holding a meeting in accordance with the directions of the
Tribunal, the company and every officer of the company who commit the default shall be
punishable with a fine of up to Rs 1 lakh. In case of continuing default, a fine of Rs 5,000 per
day is levied for each day during which the default continues.

14. State the kinds of meeting in a Company. What is the procedure to call a meeting of the
Company?
Meeting is not defined under any provisions of Companies Act of 2013, but taking
references from common business and market parlance and also from some of the decided
case laws like Sharp vs. Dawes, as decided in 1971, and through citations of various
renowned authors, we can gather that a ‘Company Meeting’ is basically coming together of
at least two persons to either transact any ordinary or special business for lawful purposes.
Therefore they are broadly classifies as follows:
1. Shareholders Meeting:
a. Annual General Meeting – This is defined u/s 96 of CA’13, wherein every company,
whether public or private, except One Person Company, is required to convene first AGM within
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

9 months from the end of first Financial Year to decide the overall progress of the company as
well as to plan future courses of action.
Time Gap: Gap between two meetings not more than 15 months, and after conducting first
AGM, the subsequent AGMs need to be conducted within 6 months from the end of Financial
Year, and The time prescribed for the first annual general meeting cannot be extended, however,
the time period for subsequent annual general meetings may be extended to a maximum of three
months with the leave of the Registrar of companies if
Place: Such meeting is called at Registered Office of the Company or any other such place in the
city where such Reg. Office is situated.
Time Hours: Between 9.00 am – 6:00 pm., and not on any public holiday as so declared by
Central or State Government.
Quorum: In case of Public Company–
5 if members are less than 1000
15 if between 1000-5000
30 if more than 5000 members
In case of Private Company, then only 2 that are present will be the quorum.
The business transacted at the annual general meeting is called the ordinary business (this is the
reason a general meeting is also referred to as an ordinary meeting). Items of ordinary business
constitutes consideration of financial statements, Board reports and auditor’s report, declaring
dividends, appointment of directors and appointment and salary fixation of the auditors of the
company.
Power of NCLT: May call or direct to conduct such meeting u/s 97 of CA’13, when an
application is filed by a member if meeting not conducted in due time.
Punishment on default: u/s 99 – For Company and every such defaulting Officer – Rs. 1 Lakh,
and if default continues then Rs. 1000 per day.

Extraordinary General Meeting: Certain matters are so much important that they require an
immediate attention of the members, and that’s where the Board has been granted to call for such
EGM u/s 100 of CA’13. The matter of urgent importance for instance can be unforeseen costs
incurred or change in association of the company. The matters are the ones which are not
discussed in statutory or general meetings.
It can be called through the following ways:
By Board, on suo-moto basis, and the same can be held at any parts of the country.
By requisition of eligible members, wherein the company if having Share Capital, then members
holding at least 1/10th of such Share Capital, and if not having Share Capital, then members
holding at least 10% of the total voting powers in that company can request to call for such
meeting. Such notice has to be well written and specify the nature of business, and duly signed
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

by all the members or any one authorized person acting on behalf of all. And Board need to call
meeting within 21 days of getting such request or maximum of 45 days, by giving such notice to
such members prior to 3 days of conducting such meeting.
By Requisionist (provided if Board fails to do so), if Board failing to conduct meeting within 45
days, then the members can call for meeting within 3 months of from the original request made
to Board at first instance, and here the members have all the rights to have their name on the
main list of members and Board can’t deny this, and also need to accept such changes that might
have occurred between 21st to 45th day of date of notice provided to Board at first instance.
By Tribunal u/s 98, whereby it can conduct meeting on its own or on any request received by the
member of such company.
Place: At Reg. Office or any such place in the city where such Reg. Office is situated
Notice: To all the members in writing or through an electronic mode of at least 21 Clear Days
before convening such meeting, and one important thing here is that if meeting is called up by
the requisionists, then there’s no formality of attesting explanatory statement to it
c. Class Meeting: Such meeting is convened by a particular class of shareholders only and only
if they think that their rights are being altered or if they want to vary their attached rights, as
mentioned u/s 48 of CA’13, and u/s 232 also, if under Mergers and Amalgamation scheme,
meetings of particular shareholders and creditors can be convened if their rights/privileges are
being varied to their interests in such company.

Directors Meeting:
a. Board of Directors Meeting: As per Sec. 173 of CA’13, every company needs to convene
first board meeting within 30 days of its incorporation, and then minimum four meetings in each
calendar year, with time gap of not more than 120 days( at present it is 180 days because of
COVID-19) between two board meetings
In case of OPC, Dormant Company, Small Company, Sec. 8 Company or any private
company( Start-Up), then required to hold two board meetings in each half of calendar year
with time gap of at least 90 days.
In case of Specified IFSC Private & Public Company, then to hold first board meeting within
60 days of incorporation and then hold one meeting in each half of calendar year.
Meeting can be attended by directors either in person, or through audio-visual mode or through
video conferencing, subject to the nature of meeting being discussed and after complying with
necessary formalities as specified in Sec.173 r/w such rules.
Here notice of at least 7 days is necessary to be given to directors at their registered address with
company and also to be provided through e-means, if not possible hand delivery or post delivery,
and there is one exception wherein a shorter notice can be called off for transacting a very urgent
matter provided one independent director is present at such meeting.
Quorum: 1/3rd of total directors or two directors, whichever is higher
In case of OPC, 1/4th of total strength or 8 members, whichever is higher
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

Matters that can’t be dealt here: E.g. Approving Prospectus/ Boards Report/ Annual Financial
Statements, scheme of Merger, Amalgamation, Demerger, etc
3. Other Meetings:
Creditors Meeting (Sec. 230) / Debenture Holders Meeting with the Board of Directors
Audit Committee Meeting (Sec. 177)
Nomination and Remuneration Committee Meeting (Sec. 178)
Any other committee meetings with the respective Board of Directors of the Company, as and
here specified under Companies Act of 2013.

Procedure of meetings

All the meetings held in companies have to follow certain well defined rules and procedure for
their efficacious functioning. There may be certain variations but general procedure is same.
There are some steps that have to be mandatorily followed:

 Issuance of notification– The board of directors and all the concerned members have
to be informed beforehand about the meeting to ensure their presence. It can be a long
term or short notice depending on the situation.
 Contents of notice– The notice has to specify place, date , time, description about the
matter of importance to be discussed and some brief about business. It has to be duly
signed by the convener with the date of issuance.
 Quorum[xix] – The person responsible for notifying the meeting has to ensure that
the meeting has been pre notified to appropriate quorum which has to be present in the
meeting as specified in the Act. The quorum has to be maintained throughout the
meeting. [xx]
 Chairman[xxi] – Every meeting has to be compulsorily presided by a chairperson.
Generally, the chairman of the Board of Directors is the Chairman of the meeting.
[xxii] He is responsible to initiate the discussion of motions in the meeting and
conclude the same. It’s his responsibility to ensure smooth functioning of the meeting.
The chairman can also be selected by voting through hands.
 Resolutions– These are the decisions taken in every meeting. When these are put to
consideration and voting there are certain procedures and rules to be followed. These
are provided in various sections[xxiii].
 Voting – There might be matters on which there is no general consensus and voting
has to be done. After detailed discussion, the chairperson may call the matters (if
undecided) for voting. There have been specified requirements for voting in different
meetings in the companies Act, 2013[xxiv].  The process of voting is supervised by
the chairman.
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)

 Adjournment and Minutes – After careful consideration and discussion, the meeting
is concluded which is called as adjournment and subsequently dissolution where
members disperse. These deliberations have to be documented in an official document
of the company providing gist of every meeting which are called minutes of meeting. 
Every important detail of the meeting has to be included as said in companies’ act
2013. [xxv]
 Report[xxvi] – companies are required to prepare report of the meeting as in case of
AGM detailing the conduct of the meeting. The copy of the same has to be filed with
the registrar.

Conclusion 

A company is an enormous institution where every matter has to be decided by the members of
the company using careful consideration and prudence. The companies Act thereof specifies
various provisions for meetings to be held so that decisions are taken place after vigilant
deliberation. These provisions ensure smooth functioning of the companies and facilitate their
effective working.

15. Characteristics of Debentures.

A debenture typically carries the following features:

1. Debentures are nothing but documents. In other words, they possess documentary value.

2. These documents are evidence of debt. This shows that the company owes a debt to the
debenture-holder.

3. The interest on debentures is always payable at a fixed rate. Further, the company has to pay
interest regardless of whether it makes profits or not.

4. The company may either repay the debt or even convert the debenture into shares or other

debentures.

5. Debentures may or may not carry a charge on the company’s assets.

6. Finally, debentures are generally transferable. Debenture-holders can sell them on stock

exchanges at any price.
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)
Notes Compiled by Samidha Hegde,
Bcom LLB, RCL(2018-23)