COMPANY LAW

Q1. Explain the concept of ‘Corporate Veil’ and discuss the circumstances in which it can be lifted.
 The Corporate Veil is a shield that protects the members from the action of the company.
 In simple terms, if a company violates any law or incurs any liability, then the members cannot be held liable. Thus,
shareholders enjoy protection from the acts of the company.
 The corporate veil can be lifted when a corporate entity is used in defence proceedings or as a shield to cover
wrongdoings in tax matters or for a commission of tax evasion.
 "Piercing the corporate veil" refers to a situation in which courts put aside limited liability and hold a corporation's
shareholders or directors personally liable for the corporation's actions or debts.
 The term “corporate veil” is a legal phrase that refers to a company being treated by the law as a separate entity to its
owners.
 The corporate veil enables companies to conduct business activities such as buying and selling property or assets,
taking legal action, acquiring debt and signing contracts.
 The corporate veil can be lifted when a corporate entity is used as a shield to cover wrongdoings in tax matters or for a
commission of tax evasion.
What is the purpose of the corporate veil ?
 Over the course of history, companies have had to balance two competing interests: encouraging business growth while
shielding individuals from undue possible damage arising from taking legitimate, calculated business risks.
 The corporate veil is in place to protect business owners by limiting the extent to which they can be held personally
liable for any debts or legal troubles encountered by the business.
 Company directors not held liable for business activities
 Because directors of a company have limited liability, it can be better to run your business as a company, rather than as
a sole trader.
 As a sole trader, you are responsible if the business goes into debt.
 Not so for company directors, who in most circumstances won’t be held financially responsible if the business goes belly
up. The key sin for company directors is to allow the company to keep trading while insolvent.
 Because company directors don’t have personal liability, they may be deterred from taking action to help a struggling
company recover.
 Instead, it’s often easier to place the company into administration than save it.
What does it mean to pierce the corporate veil?
 Piercing the corporate veil refers to a circumstance where an action pursued against a company leads to the owners,
members and shareholders being held personally liable.
 The corporate veil can be pierced by courts, or at least lifted for a peek at what’s underneath, if a company is deemed to
have been used as a cloak for fraud or a sham, or if directors knowingly and fraudulently breached their fiduciary duties.
Q. Discuss the circumstances in which corporate veil can be lifted ?
The corporate veil refers to the legal concept that a corporation is considered a separate legal entity from its owners,
shareholders, and directors. In certain circumstances, the courts may choose to lift the corporate veil and hold individuals
responsible for the actions of the corporation. Some of the circumstances where the corporate veil can be lifted in India are:

1. Fraud or Misrepresentation or Alter ego: The veil can be lifted if the incorporation of the company was done with the intention to
defraud creditors, tax authorities or any other person. If it can be established that the corporation is merely an alter ego or a
facade for the dominant shareholder or owner. In Mcdowell & Co. Ltd. vs. Commercial Tax Officer, 1986 AIR 649, 1985 SCR (3)
791, the Supreme Court of India lifted the corporate veil and held the principal shareholders of a company personally liable for
evading taxes by routing sales through a web of shell companies. It was held, Tax planning may be legitimate provided it is
within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the
belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay
the taxes honestly without resorting to subterfuges. Another example of tax evasion - The income tax department has sought to
prosecute Reliance Group Chairman Anil Ambani under the Black Money Act for allegedly evading Rs 420 crore in taxes on
undisclosed funds worth more than Rs 814 crore held in two Swiss bank accounts.
2. Piercing the veil of incorporation: The veil can be lifted if the corporation is used to carry on illegal or unethical activities. The
outcome of Salomon v. Salomon & Co. Ltd. 1897 was a landmark decision in UK company law that established the principle of
limited liability wherein the court held that a company is a separate legal entity from its shareholders, and that the shareholders
of a company are only liable for the debts of the company to the extent of their share capital.
3. National Security and Public Interest: The veil can be lifted if it is necessary in the interest of national security or public interest.
In M/S Motilal Padampat Sugar Mills Ltd. vs. State of U.P. 1979 AIR 621, 1979 SCR (2) 641, Government of UP announced to
give tax exemption from sales tax for three years to all new industrial units of the state. Based on this, plaintiff sought
confirmation from Director of Industries who reiterated the decision of UP govt. Further unequivocal assurance was given by
 Chief Secy of Govt., on behalf of UP Government, to plaintiff about the same. Plaintiff on this categorical assurance, borrowed
money from financial institutions, brought plant and machinery and set up a new plant in UP. However, State govt. went back
upon this assurance and instead now promised to give partial concession to which plaintiff consented and started production.
Once again, however, State govt. went back even on this promise denying any concession to be given. Plaintiff sued the
government on account of promissory estoppel. The Court explained that promissory estoppel could be used as a shield.
Promissory estoppel is a doctrine in contract law that stops a person from going back on a promise even if a legal contract does
not exist. However, to be applied as a sword, it must be applied with the doctrine of consideration. Consideration can be
anything of value (such as any goods, money, services, or promises of any of these), which each party gives as a quid pro quo
(a favour or advantage granted in return for something.) to support their side of the bargain. Mutual promises constitute
consideration for each other. Hence, rule of promissory estoppel can be evoked in present case to be of avail to plaintiff. This
case proved very helpful in society to prevent fraud and injustice.
4. Diversion of Funds: In transactions where a sale of property by a company in favour of the husbands/wives of the Directors has
alleged to be sham or collusive, the court has allowed for the piercing of the corporate veil. Hence, collusion amongst promoters
and diversion of funds of the company for personal uses are cases eligible for the piercing of the corporate veil to render justice.
Just days after the arrest of former MD and CEO of ICICI bank, Chanda Kochhar, and her husband, Deepak Kochhar, Videocon
Group Chairman Venugopal Dhoot was arrested by the Central Bureau of Investigation (CBI) on 26/12/2022 for his alleged
involvement in the ICICI loan fraud case.
The CBI has alleged that ICICI Bank had sanctioned credit facilities to the tune of Rs 3,250 crore to companies of the Videocon
Group promoted by Venugopal Dhoot in violation of the Banking Regulation Act, RBI guidelines, and credit policy of the bank.

Q. Distinguish between the following:

 A Private Limited Company and a Partnership firm
 Memorandum of Association and Articles of Association
 A Private Limited Company and a Public Limited Company
Q. Discuss various clauses of Memorandum of Association.
Q. Differentiate between Memorandum of Association and Articles of Association.
Definition of Partnership Firm
The kind of business organization in which, two or more persons agree to carry on the business, on behalf of the firm or partners
and to share profits & losses mutually. There are three major points in this definition, they are:
 Agreement – There must be an agreement between partners, irrespective of oral or written.
 Profit – The profit & loss of the business must be distributed among the partners, in the specified ratio.
 Mutual Agency – Each partner is an agent of the firm as well as of the other partners who carry on the business.
o The persons are known as partners in their individual capacity, while they are jointly referred to as the firm.
o The agreement in which the terms and conditions of the partnership are written is known as “Partnership
Deed.”
o However, in the absence of any partnership deed, Indian Partnership Act, 1932 is referred.
o The primary objective of the creation of the partnership is to carry on business.
o It must be noted that the partners are responsible for the acts of the firm, as there is no separate identity of the
firm itself. Therefore, the partners are held liable for the same.
o Moreover, the partners cannot transfer their shares without the consent of the other partners.

BASIS FOR
PARTNERSHIP FIRM COMPANY
COMPARISON

Meaning When two or more persons agree A company is an association of

to carry on a business and share persons who invest money towards a
the profits & losses mutually, it is common stock, for carrying on a
known as a Partnership firm. business and shares the profits &
losses of the business.

Governing Act Indian Partnership Act, 1932 Indian Companies Act, 2013

How it is created? Partnership firm is created by The company is created by

mutual agreement between the incorporation under the Companies
partners (Partnership Deed) Act.

Registration Voluntary Obligatory

Minimum number of Two Two in case of private company and

persons Seven in case of public company.
 BASIS FOR
PARTNERSHIP FIRM COMPANY
COMPARISON

Maximum number of 100 partners 200 in case of a private company and

persons a public company can have unlimited
number of members.

Audit Not Mandatory Mandatory

Management of the Partners themselves Directors

concern

Liability Unlimited Limited

Contractual capacity A partnership firm cannot enter into A company can sue and be sued in its
contracts in its own name own name.

Minimum capital No such requirement 1 lakh in case of private company and

5 lakhs in case of public company.

Use of word limited No such requirement. Must use the word 'limited' or 'private
limited' as the case may be.

Legal formalities in No Yes

dissolution / winding
up

Separate legal entity No Yes

Mutual agency Yes No

Q. Write short notes on companies as defined in the Company’s Act 2013.

The Companies Act 2013 is a comprehensive legislation that regulates the functioning of companies in India. Here are some key
points about companies as defined in the Act:
 Definition: "Company" is derived from the Latin word 'com', meaning 'together', and 'panis', meaning 'bread'("one who
eats bread with you"). A company is a legal entity formed by a group of individuals to engage in and operate a business
—commercial or industrial—enterprise. It refers to an organization, that sells goods or services in order to
make money. A company is defined as an artificial legal person created by law, having a separate legal entity with
perpetual succession, a common seal, and limited liability.
 Types of companies: The Act recognizes several types of companies, including public companies, private companies,
one person companies, and foreign companies. Each type of company has its own set of rules and regulations.
 Formation: A company can be formed by at least two people who subscribe to a memorandum of association and
articles of association. The process of incorporation involves several steps, such as obtaining a certificate of
incorporation from the Registrar of Companies.
 Management: The Act provides for the management of a company by a board of directors, which is responsible for
making decisions on behalf of the company. The Act also mandates the appointment of key managerial personnel, such
as the managing director and chief executive officer.
 Shareholders: Shareholders of a company have limited liability and are only liable for the amount of unpaid share
capital. The Act also recognizes the concept of minority shareholders, who have certain rights and protections.
 Corporate social responsibility: The Act requires companies to engage in corporate social responsibility activities, such
as contributing to social and environmental causes. Section 135 of the act states that every company having net worth
of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five
crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board
consisting of three or more directors, out of which at least one director shall be an independent director.
 Compliance: Companies are required to comply with various statutory requirements, such as filing annual returns,
maintaining proper books of accounts, and conducting audits.
Overall, the Companies Act 2013 provides a comprehensive framework for the functioning of companies in India, and seeks to
ensure transparency, accountability, and good corporate governance.
Section 2 of the act - Definitions
(6) associate company, in relation to another company, means a company in which that other company has a significant
influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, ―significant influence means control of at least twenty per cent. of total share
capital, or of business decisions under an agreement;
(21) ―company limited by guarantee means a company having the liability of its members limited by the memorandum to such
amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound
up;
(22) ―company limited by shares means a company having the liability of its members limited by the memorandum to the
amount, if any, unpaid on the shares respectively held by them;
(42) foreign company means any company or body corporate incorporated outside India which
(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
(45) Government company means 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;
(46) holding company, in relation to one or more other companies, means a company of which such companies are subsidiary
companies;
(62) One Person Company means a company which has only one person as a member
(68) private company means a company having a minimum paid-up share capital 1 *** as may be prescribed, and which by its
articles,
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more
persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:
(71) public company means a company which
(a) is not a private company;
(b) has a minimum paid-up share capital 1 *** as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public
company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;
(87) ―subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a
company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its
subsidiary companies:
(92) unlimited company means a company not having any limit on the liability of its members;
3. Formation of company.—
(1) A company may be formed for any lawful purpose by—
(a) seven or more persons, where the company to be formed is to be a public company;
(b) two or more persons, where the company to be formed is to be a private company; or
(c) one person, where the company to be formed is to be One Person Company that is to say, a private company, by
subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of
registration:

Q. Write short notes on classification of companies on the basis of members.

Q. Describe the different types of companies stated under the Companies Act, 2013.
Private Limited Company
 A private limited company is a company that is created and incorporated under the Companies Act, 2013, or any other
act being in force.
 It is a company that is not listed on a recognized stock exchange and whose shares are not traded publicly.
 It restricts the right to transfer shares. The liability of the company is limited to the number of shares held by them.
 There is a limit on the maximum number of members, i.e. the number of members cannot be more than
200, excluding current employees and ex-employees who were members of the company when they were employed
and continued to be members even after they left the company.
 Further, one should take note of the fact that joint holders of shares are treated as single members.
 Further, in a private company, any sort of invitation to the public to subscribe for shares is prohibited.
 At least two adults are required to act as the Directors of the Company.
 It can have a maximum of 15 Directors
 At least one director has to be an Indian Citizen and Resident, while the others can be foreign nationals.
 Two persons must act as a shareholder.
Documents Required for Incorporation of Private Limited Company
  Proposed Directors who are Indian Nationals need to submit a copy of PAN as their ID proof and passport or Driving
License or Voter ID or Adhar Card as their proof of address.
 They are also required to submit their bank statement or electricity/phone bill as their proof of residence.
 Proposed Directors who are Foreign Nationals need to submit a copy of their passport as their ID proof which can also
act as a proof of address. They are also required to submit a copy of their bank statement or electricity/phone bill as
their proof of residence.
 If the registered office is set up in a rented property, a rental agreement and no objection certificate by the landlord are
required.
 If a registered office is set up in an owned property, ownership property documents are needed.
 Utility bills of the business place
Public Limited Company
 A Public Limited Company or PLC is a joint-stock company that is created and incorporated under The Indian
Companies Act, 2013 or any other act being in force previously.
 It is listed on a recognized stock exchange to raise capital from the general public.
 It is a company with limited liability and is permitted to issue registered securities i.e. shares or debentures to the public,
by inviting them to subscribe for its shares through IPO and is traded openly on at least one stock exchange.
 The liability of the shareholders is limited to the extent of the amount contributed by them.
 Minimum number of 3 directors are required to form a public company. There is no restriction on the maximum number.
 Minimum 7 shareholders are required to form a public company.
 Digital Signature Certificate (DSC) of any one director is required, in case self-attested copies of identity proof and
address proof are submitted.
 Director Identification Number (DIN) is a must.
 An application containing the object clause of the company is to be made.
Documents Required for Incorporation of Public Limited Company
 Digital Signature Certificate (DSC) and Directors Identification Number (DIN) of all Directors
 Copies of identity proofs such as Adhar Card, Voter ID, PAN Card or passport of all directors
 Passport size photograph of all Directors.
 If the registered office is set up in a rented property, a rental agreement and no objection certificate by the landlord are
required.
 If a registered office is set up in an owned property, ownership property documents are needed.
 Utility bills of the business place
Points to be noted
 As per Section 185 of Companies (Amendment) Act, 2017, there is a complete ban on providing loans, guarantees, or
advances to the Directors or its holding company, or any partner of the Director or any firm wherein the Director or
relative is a partner.
 The maximum number of Directors that a company can appoint is 15. However, a company can appoint more than 15
Directors by passing a special resolution at the general meeting.
 While a private company needs to add the words ‘Private Limited (Pvt. Ltd.)” at the end of its name, as a suffix, a public
limited company needs to add the words ‘Limited’ at the end of its name.

One Person Company

A One Person Company (OPC) is a form of business structure that allows for a sole proprietorship, where the company has only
one owner who is also the director of the company. Section 2(62) of the act states a One Person Company means a company
which has only one person as a member. Some of the salient features of a One Person Company are:
1. Single Person Ownership: OPCs are designed for single person ownership, allowing the owner to be the sole decision-
maker and have complete control over the company.
2. Separate Legal Entity: Despite being owned by one person, an OPC is considered a separate legal entity from its owner and
can enter into contracts, sue or be sued in its own name.
3. Minimum Compliance Requirements: OPCs have fewer compliance requirements compared to other forms of business
organizations, making it easier for the owner to manage the company.
4. Limited Liability: The owner's personal assets are protected in case of any liability or financial loss to the company.
5. Easier Conversion: OPCs can be easily converted to a private limited company if the owner decides to bring in partners or
investors in the future.
6. Filing Requirements: OPCs are required to file annual returns and financial statements with the Registrar of Companies.
7. Incorporation: An OPC must be incorporated under the Companies Act, 2013 and must have the words "One Person
Company" as part of its name.
8. Authorized Capital: An OPC must have an authorized capital of at least Rs. 1 lakh. The Authorized Capital of a company is
the maximum amount of share capital that the company is authorized to issue. It represents the upper limit of the capital that
the company is permitted to raise through the issue of shares. The Authorized Capital is mentioned in the Memorandum of
 Association (MOA) of the company and can only be increased by amending the MOA through a special resolution passed
by the shareholders.
9. Minimum Paid-up Capital: The minimum paid-up capital required to incorporate an OPC is Rs. 1 lakh. There is no
mandatory requirement for a minimum paid up capital. The Minimum Paid-Up Capital is the minimum amount of capital that
the company must have received from its shareholders before commencing its business operations. This represents the
actual amount of capital that has been invested by the shareholders.
10. Director Identification Number (DIN): The sole owner of an OPC must obtain a Director Identification Number (DIN) from the
Ministry of Corporate Affairs.
11. Company Identification Number (CIN): An OPC must have a unique Company Identification Number (CIN) assigned by the
Registrar of Companies.
12. Nominee Director: An OPC must appoint a nominee director who will take over the ownership of the company in case of the
death or incapacity of the sole owner.
13. Section 122(1) of Companies Act, 2013 provides that the provisions of Section 98 (Power of Tribunal to call meetings of
members, etc.), Section 100(Calling of extraordinary general meeting) to Section 111(. Circulation of members‘ resolution) –
both inclusive – shall not apply to OPC. In other words the provisions relating to General Meeting, calling of extraordinary
General meeting and Notice of meeting are not applicable to OPC.
14. Audit Requirements: An OPC is exempt from getting its accounts audited if its turnover is less than Rs. 2 crores and if it has
a paid-up capital of less than Rs. 50 lakhs.

Small Company
Section 2(85) of the act - A company other than public company can be regarded as a small company when:
 Its paid-up capital does not exceed Rs. 2 crores, and
 Its turnover as per the previous income statement should not be more than 20 crores.
The Ministry of Corporate Affairs (MCA) has taken several measures in the recent past towards ease of doing business and
ease of living for the corporates. MCA revises threshold for paid up capital of “small companies”
This definition has, now, been further revised by increasing such thresholds for paid up Capital from “not exceeding Rs. 2 crore”
to “not exceeding Rs. 4 crore” and turnover from “not exceeding Rs. 20 crore” to “not exceeding Rs. 40 crore”. Both the clauses
must be satisfied.

It is to be noted that the hitherto clause is not applicable to holding companies or subsidiary companies, companies registered
under section 8 (charitable institutions), company governed by any special activities such as banking or insurance companies.

Q. What are 7 schedules of Companies Act, 2013 ?

List of Schedules under Companies Act 2013 are:
1. Schedule I: Memorandum and Articles (Section 4 and 5)
2. Schedule II: Depreciation (Section 123)
3. Schedule III: Balance Sheet and Statement of Profit & Loss (Section 129)
4. Schedule IV: Code for Independent Directors (Section 149(8))
5. Schedule V: Appointment of managing director, whole-time director or manager (Section 196 and 197)
6. Schedule VI: Infrastructure Projects (Section 55 and 186)
7. Schedule VII: Corporate Social Responsibility (Section 135)

A universal benefit of incorporation is the separate entity doctrine which shields the shareholders, directors and other operators
from liability for corporate omissions. By the doctrine, the company’s debts are limited to the amount shareholders have paid or
have agreed to pay to the company for its shares, in case of insolvency. Consequently, their other assets, homes, pension
funds, cars, yachts, private jets will remain untouched.
Kinds of Company
Broadly there are two types of companies on the basis of the number of members, a private company, and a public company.
But other than this classification, there are other kinds of company. These are classified on the basis of the liabilities of their
shareholders.
The kinds of a company are as follows,
1] Section 2(22) of the Act, Companies Limited by Shares
Here the liability of members is limited by the nominal value of their shares. So if the shares owned by him are fully paid
up, then he has zero liability. If the shares are not fully paid up, he can be called to pay up the balance amount in case of
liquidation of the company.
2] Section 2(21) of the Act, Companies Limited by Guarantee
Some companies are limited by guarantee. This means that the members agree to an amount that they will pay in case of
liquidation, i.e. a guaranteed amount. Such a liability will only rise of the company is being wound up.
3] Section 2(92) of the Act, Unlimited Liability Companies
Here the members of the company are personally liable for the losses of the company. So in case of liquidation,
the assets of the company are not enough to cover its debts, then the members have to pay the balance. Even their private
property can be attached. Such kinds of company are actually not found in India.

Share Capital: Share capital means the capital of a company divided into “shares”. These shares are of a fixed amount and are
generally in multiples of 5 or 10. So share capital is basically the contributions made by all the shareholders of a firm. Since a
capital account cannot be opened for every single shareholder, we club this amount in the share capital account.
From an accounting point of view, there are certain categories of share capital. They are as follows
1] Section 2(8) of the Act, Authorized Share Capital
Also known as Nominal or Registered Share Capital. It is the sum of money stated in the Memorandum of Association as the
share capital of the company. It is the maximum amount of capital (authorised by the memorandum of a company) the company
can raise by issuing shares.
2] Section 2(50) of the Act, Issued Capital
This is the portion of the nominal capital which the company has issued for a subscription. This amount of capital is either
less than or equal to the nominal capital, it can never be more.
3] Section 2(86) of the Act, Subscribed Capital
This is the part of the issued capital that has been subscribed by the shareholders. It’s not necessary that the whole of the
issued capital will receive subscriptions, but at least 90% of issued capital should be subscribed generally.
4] Section 2(15) of the Act, Called-up Capital
The company may not always call up the full amount of the nominal value of shares. The amount of the subscribed capital called
up from the shareholders is the called up capital, which is less or equal to the subscribed capital.
5] Section 2(64) of the Act, Paid-up Capital
This is the amount paid for the shares subscribed. If the shareholder does not pay on call, it will fall under “calls of arrears”.
When all shareholders pay their full amounts paid up capital and subscribed capital will be equal.
6] Reserve Capital
The capital reserved by a company, which is the part of the uncalled capital of a company, to be used in the event of winding up
of the company. Creation of reserve capital is not mandatory.

Q. Explain the Special Court.

Section 435 of the Companies Act, 2013 - Establishment of Special Courts.—
(1) The Central Government may, for the purpose of providing speedy trial of offences punishable under this Act with
imprisonment of two years or more, by notification, establish or designate as many Special Courts as may be necessary:
Provided that all other offences shall be tried, as the case may be, by a Metropolitan Magistrate or a Judicial Magistrate of the
First Class having jurisdiction to try any offence under this Act or under any previous company law.
(2) A Special Court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the
Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.

(3) A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately before such
appointment, holding office of a Sessions Judge or an Additional Sessions Judge.
Section 436 of the Companies Act, 2013, Offences triable by Special Courts.—
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),—
(a) all offences specified under sub-section (1) of section 435 shall be triable only by the Special Court established for the area
in which the registered office of the company in relation to which the offence is committed or where there are more Special
Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned;
(b) where a person accused of, or suspected of the commission of, an offence under this Act is forwarded to a Magistrate under
sub-section (2) or sub-section (2A) of section 167 of the Code of Criminal Procedure, 1973 (2 of 1974), such Magistrate may
authorise the detention of such person in such custody as he thinks fit for a period not exceeding fifteen days in the whole where
such Magistrate is a Judicial Magistrate and seven days in the whole where such Magistrate is an Executive Magistrate:
Provided that where such Magistrate considers that the detention of such person upon or before the expiry of the period of
detention is unnecessary, he shall order such person to be forwarded to the Special Court having jurisdiction;
(c) the Special Court may exercise, in relation to the person forwarded to it under clause (b), the same power which a Magistrate
having jurisdiction to try a case may exercise under section 167 of the Code of Criminal Procedure, 1973 (2 of 1974) in relation
to an accused person who has been forwarded to him under that section; and (d) a Special Court may, upon perusal of the
police report of the facts constituting an offence under this Act or upon a complaint in that behalf, take cognizance of that offence
without the accused being committed to it for trial.
(2) When trying an offence under this Act, a Special Court may also try an offence other than an offence under this Act with
which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974) be charged at the same trial.
(3) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the Special Court may, if it thinks
fit, try in a summary way any offence under this Act which is punishable with imprisonment for a term not exceeding three years:
Provided that in the case of any conviction in a summary trial, no sentence of imprisonment for a term exceeding one year shall
be passed.
Provided further that when at the commencement of, or in the course of, a summary trial, it appears to the Special Court that the
nature of the case is such that the sentence of imprisonment for a term exceeding one year may have to be passed or that it is,
for any other reason, undesirable to try the case summarily, the Special Court shall, after hearing the parties, record an order to
that effect and thereafter recall any witnesses who may have been examined and proceed to hear or rehear the case in
accordance with the procedure for the regular trial.
Section 437 of the Companies Act, 2013, Appeal and revision.— The High Court may exercise, so far as may be applicable, all
the powers conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 (2 of 1974) on a High Court, as if a
Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local
limits of the jurisdiction of the High Court.
Section 439 of the Companies Act, 2013, - Offences to be non-cognizable.—
(1) Notwithstanding anything in the Code of Criminal Procedure, 1973 (2 of 1974), every offence under this Act except the
offences referred to in sub-section (6) of section 212 shall be deemed to be non-cognizable within the meaning of the said Code.
(2) No court shall take cognizance of any offence under this Act which is alleged to have been committed by any company or
any officer thereof, except on the complaint in writing of the Registrar, a shareholder of the company, or of a person authorised
by the Central Government in that behalf:
Provided that the court may take cognizance of offences relating to issue and transfer of securities and non-payment of
dividend, on a complaint in writing, by a person authorised by the Securities and Exchange Board of India:
Provided further that nothing in this sub-section shall apply to a prosecution by a company of any of its officers.

(3) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), where the complainant under sub-
section (2) is the Registrar or a person authorised by the Central Government, the presence of such officer before the Court
trying the offences shall not be necessary unless the court requires his personal attendance at the trial.

(4) The provisions of sub-section (2) shall not apply to any action taken by the liquidator of a company in respect of any offence
alleged to have been committed in respect of any of the matters in Chapter XX or in any other provision of this Act relating to
winding up of companies. Explanation.—The liquidator of a company shall not be deemed to be an officer of the company within
the meaning of sub-section (2).
C. DIFFERENCE BETWEEN NATIONAL COMPANY LAW TRIBUNAL AND SPECIAL COURTS:
Parameters: Special Courts: National Company Law Tribunal (NCLT):

Chapter XXVIII (Section 435 - Establishment of Special

Provisions under Section 408 of the Company Act, 2013
Courts) deals with Special Courts under the Company
Company Act, 2013. deals with the constitution of the NCLT.
Act, 2013.

Adjudicating Authority (Quasi Judicial

Nature: Special Courts are courts which are judicial bodies.
Body)

A single judge holding office as a Sessions Judge or an

Additional Sessions Judge and a Metropolitan Magistrate A President, Judicial Members and
Presided by:
or Judicial Magistrate of First Class, in the cases of other Technical Members.
offences.

Arrangement and Compromise, Winding

Deals with cases in All offences under the CA, 2013 and any offences in
up, Revival of Companies, Oppression
relation to: relation to companies under CrPC.
and Mismanagement.

High Court of the particular jurisdiction of the Special National Company Law Appellate
Forum for Appeal:
Court. Tribunal.

Q. What do you understand by shares ? Distinguish between share certificate and share warrant.
Definition of Shares
A share is defined as the smallest division of the share capital of the company which represents the proportion of ownership of
the shareholders in the company.
The shares are the bridge between the shareholders and the company.
The shares are offered in the stock market or markets for sale, to raise capital for the company.
The shares are movable property which can be transferred in a manner specified in the Articles of Association of the company.
Definition of Share Certificate
A share certificate is an instrument in writing, that is a legal proof of the ownership of the number of shares stated in
it.
Every company, limited by shares, whether it is public or private must issue the share certificate to its shareholders
except in the case where the shares are held in demat system.
The share certificate contains the following details in it, they are:
1. Company name
2. Date of issue
3. Details of the member
4. Shares held
5. Nominal value
6. Paid up value
7. Definite number.
The share certificate is issued by the company within 3 months of the allotment of shares to the applicants, which is
issued under the common seal of the company. Normally, the holder of the share certificate is regarded as the
member of the company.
A share certificate is issued against partly or fully paid up shares while a share warrant is only issued on fully paid
up shares.
Definition of Share Warrant
A share warrant is a negotiable instrument (a negotiable instrument as an unconditioned writing that promises or
orders the payment of a fixed amount of money. Drafts and notes are the two categories of instruments. A draft is an
instrument that orders a payment to be made), issued by the public limited company only against fully paid up
shares.
It is also termed as a document of title because the holder of the share warrant is entitled to the number of shares
mentioned in it.
There is no compulsion of the issue of share warrants by the company.
Although if the public company wants to issue share warrants, then previous approval of the Central Government
(CG) is required, along with that the issue of a share warrant must be authorized in the articles of association of the
company.
The holder of the share warrant can take a share certificate only if he surrenders the share warrant and pays the
required fee for the issue of share certificate.
Thereafter, the company will cancel the warrant and issue a new share certificate to him as well as the company will
enter his name as the member of the company, in the register of members, after which he will become a member of
the company.
Generally, the holder of the share warrant is not the member of the company, but if the articles of association of the
company provide it, then the bearer is deemed to be the member of the company.
Key Differences Between Share Certificate and Share Warrant
The following are the major differences between Share Certificate and Share Warrant:
 A share certificate is the documentary evidence which proves the possession of the shares. A share warrant
is the document of title which states that the holder of the instrument is entitled to the shares.
 The issue of share certificate is compulsory for every company limited by shares but the issue of a share
warrant is not compulsory for every company.
 A Share Certificate is issued against the shares, regardless of the fact that the shares are fully paid up or
partly paid up. Conversely, Share Warrant is issued by the public company only against fully paid up shares.
 Share Certificate can be issued by both public and private companies, whereas Share Warrant is issued
only by the public limited company.
 Share Certificate is to be issued within 3 months of the allotment of shares, but there is no such time limit
specified in the Companies Act for the issue of Share Warrant.
 A share certificate is not a negotiable instrument. As opposed to share warrant, is a negotiable instrument.
 For the issue of a share warrant, prior approval of Central Government is a must. On the other hand, Share
Certificate does not require such type of approval.
 A share certificate can be originally issued, but a share warrant cannot be issued originally.
Comparison Chart
BASIS FOR
SHARE CERTIFICATE SHARE WARRANT
COMPARISON

Meaning A legal document that indicates the A document which indicates that
possession of the shareholder on the the bearer of the share warrant is
 BASIS FOR
SHARE CERTIFICATE SHARE WARRANT
COMPARISON

specified number of shares is known entitled to the specified number of

as share certificate. shares is share warrant.

Compulsory Yes No

Issued by All the companies limited by shares Only public limited companies
irrespective of public or private. have the right to issue share
warrant.

Negotiable Instrument No Yes

Transfer The transfer of share certificate can The transfer of share warrant can
be done by executing a valid transfer be done by mere hand delivery.
deed.

Original Issue Yes No

Amount paid Issued against fully or partly paid up Issued only against fully paid up
share. shares

Approval of Central Not Required at all Prior approval of Central

Government for issue Government is required for issuing
Share Warrant.

Time Horizon for issue Within 3 months of the allotment of No time limit prescribed.
shares.

Provision in Articles of Not Required Required

Association

BASIS FOR
SHARE CERTIFICATE SHARE WARRANT
COMPARISON

Q. Define the share holder of a Company. What are the key differences between equity shares and preference
shares ?
A company issues equity shares to raise capital at the cost of diluting its ownership.
Investors can purchase units of equity shares to get part ownership of the firm.
By purchasing the equity shares, investors will be contributing towards the total capital of the company and becoming its
shareholder.
Equity shareholders are the owners of the company to the tune of the shares held by them.
Through equity investing, investors benefit from capital appreciation and dividends.
In addition to the monetary benefits, equity holders also enjoy voting rights in critical matters of the company.
The primary motive to issue equity shares is to raise funds for expansion and growth.
Company issues equity shares to the general public through Initial Public Offer (IPO).
IPO is a primary market offering.
You can subscribe to the share by subscribing to the IPO.
You can easily trade the stocks upon their allotment and listing on the stock exchange.
The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are popular stock exchanges in India.
Equity shareholders receive the profits a company makes.
Most large-cap and well-established companies pay dividends and bonuses to their shareholders.
The value of an equity share is the face value or book value.
When more people buy shares of a company, the share prices will rise.
While, if more people are selling, then the prices will fall.

Following are the key features of equity shares:

 Permanent Shares: Equity shares are permanent in nature. The shares are permanent assets of a company. And are returned
only when the company winds up.
 Significant Returns: Equity shares have the potential to generate significant returns to the shareholders. However, these are
risky investment options. In other words, equity shares are highly volatile. The price movements can be drastic and are
dependent on multiple internal and external factors. Therefore, investors with suitable risk tolerance levels should only consider
investing in these.
 Dividends: Equity shareholders share the profits of a company. In other words, a company may distribute dividends to its
shareholders from its annual profits. However, a company is under no obligation to distribute dividends. In case a company
doesn’t make good profits and doesn’t have surplus cash flow, it can choose not to give dividends to its shareholders.
 Voting Rights: Most equity shareholders have voting rights. This allows them to select the people who will govern the company.
Choosing effective managers assists the company to enhance its annual turnover. As a result, investors can receive higher
average dividend income.
 Additional Profits: Equity shareholders are eligible for additional profits a company makes. It, in turn, increases the wealth of the
investor.
 Liquidity: Equity shares are highly liquid investments. The shares are traded on the stock exchanges. As a result, you can buy
and sell the share anytime during trading hours. Therefore, one doesn’t have to worry about liquidating their shares.
 Limited Liability: Losses a company makes doesn’t affect the ordinary shareholders. In other words, the shareholders are not
liable for the company’s debt obligations. The only effect is the decrease in the price of the stocks. This will have an impact on
the return on investment for a shareholder.
Preference shares or preferred stock represent ownership in a company. Preference shareholders enjoy the preference
over common shareholders on the assets and earnings. Also, in case of bankruptcy, preferred shareholders enjoy the priority to
receive the company’s assets before common shareholders.
A company issues preference shares to raise capital. This becomes part of the preference share capital. Preference
shareholders receive dividends before the equity shareholders. A specific type of preference share is eligible to receive arrears
of dividends. Furthermore, you can easily convert these shares to equity shares.
Following are the key differences between equity shares and preference shares.
Basis of Difference Equity Shares Preference Shares
Definition Equity shares represent the Preference shareholders have a preferential right or
ownership of a company. claim over the company’s profits and assets.

Return Capital appreciation Regular dividend income

Dividend Pay-out Equity shareholders receive
dividends only after the
preference shareholders receive
their dividends.
Dividend Rate Varies based on the earnings.
Preference shareholders have the priority to receive
dividends.
The rate is fixed.

Bonus Shares Equity shareholders are eligible Preference shareholders do not receive any bonus
to receive bonus shares against shares against their holdings.
their existing holdings.

Capital Repayment Equity shareholders are paid Preference shareholders are paid before the equity
last. shareholder when the company is winding up.
Voting Rights Equity shareholders enjoy voting Preference shareholders do not enjoy voting rights.
rights.
Participation in Equity shareholders have voting Preference shareholders do not participate in
Management rights, and as a result, they management decisions.
Decisions participate in the management
decisions.
Redemption Equity shares cannot be Preference shares can be redeemed.
redeemed.
Convertibility Equity shares cannot be Preference shares can be converted to equity
converted. shares.
Arrears of Dividend Equity shareholders do not Certain types of preference shareholders are eligible
receive arrears of dividends. for arrears of dividends.
Capitalization High chance Low chance
Types Ordinary shares, Bonus shares, Convertible, Non-Convertible, Redeemable,
Rights shares, Sweat equity, and Irredeemable, Participating, Non-Participating,
Employee stock options. Cumulative, Non-Cumulative, Preference Share with
a Callable Option, and Adjustable Preference Shares
Financing Source of long term financing. Source of medium to long term financing.
Mandate Companies have to issue equity All companies don’t have to issue preference share
share capital. capital.
Investment Lower investment option. High investment option.
Suitability High risk-takers Low risk or risk-averse investors
Company’s The company has no obligation The company is obligated to pay dividends to
Obligation to pay dividends to equity preferred shareholders.
shareholders.
Liquidity Highly liquid, traded on the stock Not liquid, but the company can buy back the shares.
market.
Bankruptcy Equity shareholders are paid Preference shareholders have a preferential claim
only after fully paying the over the assets. Therefore, they are paid before
preference shareholders. equity shareholders.
Liquidation Equity shareholders are paid Preference shareholders are paid after paying the
only after making payments to creditors and before the equity shareholders.
creditors and preference
shareholders.

Basis of Difference Equity Shares Preference Shares

The four main types of preference shares are callable shares, convertible shares, cumulative shares, and participatory
shares.
Types of Preference shares
1. Cumulative preference shares: These shares come with a provision that entitles shareholders to receive dividends in
arrears. So, when a company does not make enough profits in a year to pay dividends, they pay cumulative dividends in the
following year.
2. Non-Cumulative preference shares - These shares do not accumulate dividends. It is mostly because non-cumulative
preference shareholders are paid from the current year’s net profits. So, if a company is met with loss in a particular year, the
outstanding dividends cannot be claimed by shareholders from future profits.
3. Redeemable preference shares - These preference shares are also known as callable preferred stock and serve as one of
the most effective ways to finance big companies. These shares come with a blend of equity and debt financing and are readily
traded on stock-exchanges.
Typically, a company has the right to repurchase the shares it had issued to satiate its own purpose. Consequently, the
redeemable preference shares are repurchased at a fixed rate on a fixed date or by announcing the same in advance. Notably,
redeemable preference shares come in handy for cushioning the impact of inflation and the decline of monetary rate.
4. Irredeemable preference shares - This particular share cannot be redeemed or repaid during the active lifetime of a
company. To elaborate, shareholders will have to wait until the company decides to wind up its current operations or liquidate
the venture altogether to initiate the same. It makes the shares a perpetual liability for the company.
5. Participating preference shares - The said shares extend the right to partake in surplus profit during liquidation once the
company in question has paid its other shareholders. So, to elaborate, the participating preference shareholders receive a fixed
rate of dividend and also have a share in the company’s extra earnings. Most individuals invest in participating preference
shares of those companies which are more likely to generate robust profits.
6. Non-participating preference share - As the name suggests, non-participating preference shareholders do not have a share
in the extra earnings or surplus assets during the liquidation of a company. This type of share entitles its shareholders to receive
only the pre-fixed dividends.
7. Convertible preference shares - Convertible shares are fundamentally those shares which enable holders to get them
converted into equity shares at a fixed rate. Notably, these shares can only be converted after the expiry of a specified time and
within a given period, as stated in the memorandum. Ideally, these shares are considered to be beneficial for those investors
who intend to receive preferred share dividends. It also proves rewarding for those who wish to partake in the change in the
price of equity shares. Thus, such shares help investors generate fixed earnings along with the opportunity to accrue higher
returns frequently.
8. Non-convertible preference shares - Non-convertible shareholders cannot convert their shares into equity shares.
Regardless, they enjoy the preferential benefit when it comes to accruing dividends or during company’s dissolution.
The Rights of a Shareholder
As a shareholder, you own part of the company and have certain rights in return for your investment.
In most cases, however, shareholders will have the right to:
 attend shareholder meetings;
 vote on key issues, such as appointing a new director or dismissing an existing director;
 sell their shares (although this right is restricted in most cases);
 receive company reports and announcements;
 participate in corporate actions (such as the issue of more shares, share buybacks or mergers); and
 receive dividends and other distributions.
What Liabilities Do Shareholders Have?
There are very few risks with becoming a shareholder in a company. The underlying reason for this is that a company is a
separate legal entity. This means that separate from the liabilities of the individual members of the company, a company can:
 enter into agreements;
 assume obligations;
 pay taxes or debts; and
 sue or be sued in its own right.
The separate legal status of the company means that even if the company you hold shares in has debts, you are generally not
responsible for those debts. This is the case regardless of whether the company incurs the debts before or during your
membership of the company.
Your liability as a shareholder is generally limited to the unpaid amount on your shares. This is usually a relatively small amount
in comparison to the potential debts a company may incur in its own right.
You may also take on liability as a shareholder where it is expressly provided for in the company’s constitution or shareholders
agreement. This kind of liability is best evaluated on a case-by-case basis, with reference to the company’s key documents.
It is also worth noting that you may take on a much wider range of liabilities than a normal shareholder if you are also a director
of the company. This may occur if you have powers that are ordinarily reserved for directors. Directors are responsible for the
management of the company and its day-to-day affairs. Under the law, directors’ duties place a heavier burden on directors than
on shareholders.

Q. What do you understand by “Company” ? What are the essential elements of Company ? What are the
advantages and disadvantages of Incorporation of a Company ?
Q. Discuss the advantages and disadvantages of incorporation of a business organization as a company.
The word “Company” is derived from the combination of Latin words, ‘Com’ and ‘panis.’ The word ‘Com’ means ‘together’ and
the word ‘panis’ means ‘bread’ meaning thereby taking meals together. The merchants in the leisurly past, took advantage of
these festive gatherings to discuss their matter. The term ‘Company’ in general means a group of or an association of persons
who have agreed to undertake a venture in common.
The English word ‘company’ has its origins in the Old French term ‘compagnie’ (first recorded in 1150), meaning a "society,
friendship, intimacy; body of soldiers", which came from the Late Latin word companio ("one who eats bread with you"). A
business is called company because of its people's will to produce value. The history of “to produce” is Latin, deriving from
produco: to lead forth, or bring forward. The history of “company” is Old French, meaning compaignie, or companionship.
A company is a legal entity formed by a group of individuals to engage in and operate a business enterprise in a commercial or
industrial capacity.
Broadly speaking, the word company connotes two ideas in a legal sense –
 the members of the association are so numerous that it cannot aptly be described as a firm or a partnership;
 a member may transfer his interest in the association without the consent of other members.
A company incorporated under the Companies Act, 2013 has certain nature and characteristics, which makes it a separate
entity and also help us to understand the concept of a company, its functions and features in society.
Q. What do you understand by “Company” ? What are the essential elements of Company ?
Definition of Company
Section 2(20) of the Companies Act, 2013 defines company as an association of persons, formed and registered under the
Indian Companies Act, 2013 or any other previous act. In common parlance, the word ‘company’ is normally reserved for those
associated for economic purposes, i.e., to carry on a business for gain. A company is called an artificial person by the law. It is
called a legal person because it can enter into a contract, own property in its own name, sue and be sued by others, etc. In
essence, it is not human, but it acts through human beings.The following are the major features/legal advantages of a company:
 It is an artificial person: The company, though a juristic person, does not possess the body of a natural being. It exists
only in contemplation of law. Being an artificial person, it has to depend upon natural persons, namely, the directors,
officers, shareholders etc., for getting its various works done. However, these individuals only represent the company
and accordingly whatever they do within the scope of the authority conferred upon them and in the name and on behalf
of the company, they bind the company and not themselves.
 It has a separate legal entity: Unlike partnership, the company is distinct from the persons who constitute it. Hence, it
is capable of enjoying rights and of being subjected to duties which are not the same as those enjoyed or borne by its
members.
 It has limited liability: One of the principal advantages of trading through the medium of a limited company is that the
members of the company are only liable to contribute towards payment of its debts to a limited extent.
o If the company is limited by shares, the shareholder’s liability to contribute is measured by the nominal value of
the shares he holds, so that once he or someone who held the shares previously has paid that nominal
value plus any premium agreed on when the shares were issued, he is no longer liable to contribute anything
further.
o However, companies may be formed with unlimited liability of members or members may guarantee a particular
amount. In such cases, liability of the members shall not be limited to the nominal or face value of their shares
and the premium, if any, unpaid thereon. In the case of unlimited liability companies, members shall continue
to be liable till each paisa has been paid off.
o In case of companies limited by guarantee, the liability of each member shall be determined by the guarantee
amount, i.e., he shall be liable to contribute up to the amount guaranteed by him.
o If the guarantee company also has share capital, the liability of each member shall be determined in terms of
not only the amount guaranteed but also the amount remaining unpaid on the shares held by a member.
 It has perpetual succession: Company being an artificial person cannot be incapacitated by illness and it does not
have an allotted span of life.
Being distinct from the members, the death, insolvency or retirement of its members leaves the company unaffected.
Members may come and go but the company can go for ever.
It continues even if all its human members are dead.
In the above circumstances, the legal heirs of the deceased shareholders will become the members.
  It has a common seal: A company being an artificial person is not bestowed with a body of a natural being. Therefore,
it does not have a mind or limbs of human being.
It has to work through the agency of human beings, namely, the directors and other officers and employees of the
company.
As per section 22, as amended by the Companies (Amendment) Act, 2015, a company may, under its common seal, if
any, through general or special power of attorney empower any person to execute deeds on its behalf in any place
either in or outside India.
It further provides that a deed signed by such an attorney on behalf of the company and under his seal where sealing is
required, shall bind the company.
In case a company does not have a common seal, the authorization shall be made by two directors or by a director and
the company secretary, wherever the company has appointed a company secretary.
Again, except where expressly otherwise provided in this Act, a document or proceeding requiring authentication by a
company may be signed by any key managerial personnel or an officer or employee of the company duly authorized by
the Board in this behalf, and need not be under its common seal.
 Separate property: Shareholders are not, in the eyes of the law, part owners of the undertaking.
In India, this principle of separate property was best laid down by the Supreme Court in Bacha F. Guzdar v. CIT,
Bombay.
The Supreme Court held that a shareholder is not the part owner of the company or its property, he is only given certain
rights by law, for example, to vote or attend meetings, or to receive dividends.
 Transferability of shares: One particular reason for the popularity of joint stock companies has been that their shares
are capable of being easily transferred.
The Act in section 44 echoes this feature.
A shareholder can transfer his shares to any person without the consent of other members.
Articles of association, even of a public company can put certain restrictions on the transfer of shares but it cannot
altogether stop it.
However, a private company is required to put certain restrictions on the transferability of its shares but the right to
transfer is not taken away absolutely even in case of a private company.
 Capacity to sue as a company and get sued: A company can sue and be sued on its behalf and even sue its
members.
It also has the right to seek damages if publishing a defamatory incident about the company affects its operations.
To sue means to bring legal action against (someone) or to bring a suit in court.
All legal proceedings against the company shall be brought in its name.
Likewise, a company can bring action against anyone in its own name.
When the company is harmed, the company has the right to sue such a person.
Therefore, the company has the right to sue for damages in libel or slander on a case-by-case basis.
In the case of Abdul Haq v. Das Mal (1910), Das Mal was an employee of the company and was not paid for several
months, so he sued the director. The Court ruled that the appeal was against the company, not its directors or
members.
 A company is not a citizen: Section 2(1)(f) of the Citizenship Act, 1955 defines that a legal person is not a citizen and
does not include a company or association, whether incorporated or not.
So, from the Act, it is clear that a company cannot be a citizen.
In the case of The State Trading Corporation v. Commercial Tax Officer (1963), the Court held that the word
“citizen” can only refer to a natural person and none other than that. Therefore, a company cannot claim citizenship to
invoke fundamental rights under the Constitution of India.

Advantages of Incorporation of a Company

 Helps to generate Capital
Capital is the money needed to produce goods and services.
A company has two forms of obtaining capital: equity, which means raising funds through the public and debt referring to bank
loans or other forms of credit.
When a company is incorporated, it is considered more reliable; hence it shall be easy to obtain capital.
The SEBI (The Securities and Exchange Board of India is the regulatory body for securities and commodity market in India
under the ownership of Ministry of Finance within the Government of India.) and other allied laws require the incorporation of the
company to allow sourcing funds in the form of equity.
Moreover, if the funds are raised from the public instead of a private group, the company must satisfy the conditions for a public
company and be listed on a recognised stock exchange.
Hence, it promotes the easy way for capital formation and pooling.
 Separate legal entity.
A company incorporated under the Companies Act, 2013 is treated as a separate person distinct from its members under law.
Therefore, the company will be liable for all the acts of the company except any illegal act done by the directors of the company.
Case Law: Salomon vs Salomon: Salomon had a business in leather and shoe manufacturing.
Due to some circumstances, he created his own company and sells his previous business of shoe manufacturing to this
company.
Salomon gave one share each to his wife, daughter, four sons, and the rest of the company’s shares were held by him.
After few years, the company was wound up and had some existing liabilities but did not have enough assets to pay off the
liabilities.
Unsecured creditors sued Salomon for repayment of their money, but the court held that the company was not an agent or a
trustee for Salomon.
The company is entirely different from the individual, and hence the contentions of the creditors could not be upheld.
 Company has limited liability.
The liability of a company may be limited either by Shares or Guarantee.
Company limited by Guarantee: Liability of shareholders is limited to a certain amount of guarantee mentioned in the
memorandum payable only at the time of wind up and losses occurred by the company.
Company limited by Shares: Liability of the members shall be limited to the extent of unpaid money or shares held by them.
 Company has a perpetual succession.
As provided by the Companies Act Section 9, an incorporated company has the characteristic of perpetual succession.
A company can come to an end only by the process of winding up.
Death or retirement of a person does not affect the life of a company.
 Transferability of shares.
There are three types of companies under the Companies Act:
 Public company.
 Private company.
 One Person company.
Section 44 of the companies act states that ‘the shares or debentures or other interest of any member in a company shall be
movable property, transferable in the manner provided by the articles of the company.’
A public company is free to transfer its share from one person to another.
In a private company, the right to transfer shares is restricted.
And in One Person Company (OPC), transferability of shares is not allowed.
 Separate property.
As we have already studied, a company is a separate artificial person created by law, and a company is different from its
members.
Therefore, a company has its separate property and can own, enjoy, and dispose of properties in its name.
Case Law: In RF Perumal vs H. John Deavin it was held that no member can claim themselves to be the owner of the
company’s property during its existence or its wind up.
A company cannot even have an insurable interest in the property of the company.
 Capacity to sue and be sued.
As provided by the Companies Act Section 9, a company can sue and be sued in its name and may even sue its members.
It also has a right to seek damages where a defamatory matter is published about the company, which affects its business.
Case Law: Abdul Haq vs Das Mal: In this case, Das Mal was an employee in the company and was not paid salary for several
months, and therefore he sued the directors.
The court held that the remedy lies against the company and not against the directors or members of the company.

Disadvantages of Incorporation
1. Formalities and Expenses
Starting a business is a very complex and long legal process that requires a great deal of time and money.
These sophisticated procedures discourage people who are seriously and passionately interested in doing business.
Even after the establishment of the company, it must be very tightly controlled and must follow the statutory provisions of the
Companies Act.
Certain special events or activities such as accounting, company audits, meetings, borrowing, lending, investment, and capital
issuance, dividends, etc. must be carried out and performed strictly in accordance with the Companies Act.
Other companies do not have to follow as many rules and regulations as they do.
2. Ongoing Paperwork
Most corporations are required to file annual reports on the financial status of the company.
The ongoing paperwork also includes tax returns, accounting records, preparing meeting minutes and any required licenses and
permits for conducting business.
3. Required Structure:
When you form a corporation, you are required to follow all of the rules outlined by the state in which you filed.
This includes the management of the corporation, operational requirements and the corporation’s accounting practices.
4. Corporate Disclosures
Despite the large legal framework designed to ensure maximum transparency and disclosure of company information, not all the
information is available to the company employees and others in the management.
Everyone has limited access to the company’s information.
5. Separation of Control from ownership
Shareholders of a company who are in minority do not really have control of the functions and decisions of the company.
This is because the number of employees in a company is so large that even individuals or a small number of people cannot
make a significant impact on the work of the organization.
Therefore, the position labeled "ownership" is just a term that has no real meaning.
You have no active or complete control over the activities of the company.
6. Payment of Heavy Taxes in Some Cases
Compared to other forms of companies, incorporations have to pay higher taxes as they do not receive discounts or minimum
tax limits.
They are also required to pay income tax at a fixed rate on all income, while other legal entities are taxed in stages or at a fixed
rate.
Therefore, many companies often start as private or partnership companies. And as the scale grows, it becomes an
incorporated company.
7. Social Responsibility
Many companies have billions of dollars in assets and employ hundreds of thousands of people. They have a significant impact
on society, and these companies often participate in social activities that are part of their corporate social responsibility (CSR)
campaigns. These incorporation companies are so influential that they must adhere to certain social norms and contribute to the
development of society.
8. Lifting of Corporate Veil
From the juristic point of view, a company is a legal person distinct from its members.
This principle may be referred to as the ‘Veil of incorporation’.
The courts, in general, consider themselves bound by this principle.
The effect of this Principle is that there is a fictional veil between the company and its members.
That is, the company has a corporate personality which is distinct from its members.
But, in a number of circumstances, the Court will pierce the corporate veil or will ignore the corporate veil to reach the person
behind the veil or to reveal the true form and character of the concerned company.
The rationale behind this is probably that the law will not allow the corporate form to be misused or abused.
In those circumstances in which the Court feels that the corporate form is being misused, it will rip through the corporate veil and
expose its true character and nature.
9. Difficulty in Dissolving :
While perpetual existence is a benefit of incorporating, it can also be a disadvantage because it can require significant time and
money to complete the necessary procedures for dissolution.

Q. Define the Company. Discuss the legal advantage of incorporation of a company.

Q. “A company is a legal person and it can be formed only for a legal purpose.” Explain the statement with example.
Q. Is company a legal person ? Explain it.
A company is an association of persons who invest money towards a common stock, for carrying on a business and shares the
profits and losses of the business. It is defined as an artificial legal person created by law, having a separate legal entity with
perpetual succession, a common seal, and other limited liability. Yes, a company can be considered a legal person under the
law. This means that it has certain rights and obligations that are separate from those of its owners or shareholders. A company
is a “Separate Legal Entity” having its own identity distinct from its members. A company is called an artificial person by the
law. It is called a legal person because it can enter into a contract, own property in its own name, sue and be sued by others,
etc. A company has a distinct entity and is independent of its members or people controlling it. It is regarded as a single juristic
person distinct from its members who constitute the company. The separate legal entity enables a company to own property and
to deal with it is the way it likes. In essence, it is not human, but it acts through human beings. A company can be formed only
for a legal purpose, which means that its activities and operations must be within the bounds of the law. The primary purpose of
incorporating a company is to engage in business activities that generate profits for its shareholders.
For example, M/s Ashok Leyland is a company formed to manufacture and sell commercial vehicles and to provide services to
businesses. As long as the company's operations and activities are in compliance with applicable laws and regulations, such as
labour laws, environmental regulations, and tax laws, the company is operating for a legal purpose.
It's important to note that a company's purpose should be clearly stated in its articles of incorporation and bylaws, and that the
company must adhere to its stated purpose in order to maintain its legal status.
To better understand this concept, here are some examples:
1. Contractual capacity: A company can enter into contracts in its own name. For instance, a company can sign a lease
agreement to rent office space, or enter into a supply agreement with a vendor to purchase raw materials.
2. Ownership of assets: A company can own assets in its own name, such as real estate, vehicles, equipment, and
intellectual property. For example, a company can own a factory, a trademark, or a patent.
3. Liability for debts: A company can be held liable for its own debts, such as loans, and is responsible for repaying them.
For example, if a company takes out a loan from a bank, it is the company that is responsible for paying back the loan,
not the owners or shareholders.
 4. Right to sue or be sued: A company has the right to sue other parties for damages or breach of contract, and can also
be sued by others. For example, a company can sue a supplier for failing to deliver goods as agreed, or be sued by a
customer for selling defective products.
These examples demonstrate that a company is a distinct legal entity with its own rights and obligations under the law, similar to
an individual person. The legal personality of a company allows it to conduct business and engage in transactions more easily,
as the company can act as a single entity.
However, it's important to note that the legal personality of a company is not absolute. In some circumstances, the law may
"pierce the corporate veil" and hold the owners or shareholders of a company personally liable for the actions of the company.
This can occur, for example, if the company is found to have been used as a vehicle for fraud or other illegal activities.
One famous case that illustrates the concept of a company being formed for a legal purpose is the U.S. Supreme Court case of
United States v. United States Steel Corp. 251 U.S. 417 (1920)
This case dealt with the issue of whether a company's conduct was within the bounds of the law, and specifically whether the
United States Steel Corporation was in violation of antitrust laws by engaging in anti-competitive practices.
In this case, the government charged that U.S. Steel had engaged in price fixing and had acquired a dominant position in the
steel market, thereby violating the Sherman Antitrust Act. The Sherman Act outlaws "every contract, combination, or conspiracy
in restraint of trade," and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize." U.S.
Steel argued that its actions were taken in the legitimate pursuit of profits, and that its conduct was therefore for a legal purpose.
However, the Supreme Court ultimately ruled that U.S. Steel's actions were in violation of the Sherman Antitrust Act, and that
the company's pursuit of profits did not excuse its illegal conduct. The Court stated that a company's actions must be in
compliance with the law, even if the company is pursuing its goals for a legal purpose such as making a profit.
This case highlights the importance of a company's conduct being in accordance with the law, regardless of its stated purpose or
objectives.

Q. Describe in brief the procedure for the registration of a Company ?

Q. Write a note on Registration of Company.
Q. Explain in detail the process of registration of a Company.
Q. What steps must be taken to form a company under Indian Companies Act ? When can a Company commence
business ?
Q. Write a note on Registration of Company.
Q. Discuss the procedure for incorporation of a Company with reference to Soloman Vs Soloman case.
Q. Explain the Incorporation of the Company under the Company Act, 2013.
Q. Describe in brief the procedure for the incorporation of a Company.
Q. What steps must be taken to form a company under Indian Companies Act ? When can a company commence
business ?

How to Register a Company in India: Step by Step Procedure

To start and run a succesfull business you need to be legally compliant with all the formalities of company incorporation.
Incorporation of a company is a process by which a company becomes a legal entity, It can be compared to the birth of a
company. It is a legal process and is governed by The Companies Act 2013.
1. Deciding your Business Structure
This is one of the most fundamental and foundational steps for registration of a company anywhere around the world. Deciding
the business structure of your company (Limited Liability Partnership or One Person Company or Private Limited Company or
Public Limited Company) will basically define the path your company takes and how it handles operations for its entire lifetime. A
basic difference between an LLP and a company lies in that the internal governance structure of a company is regulated by
statute (i.e. Companies Act) whereas for an LLP it would be by a contractual agreement between partners.
2. Obtaining a DSC [Digital Signature Certificate]
 Digital Signature Certificates (DSC) are the digital equivalent (i.e. electronic format) of physical or paper certificates.
Certificates serve as proof of identity of an individual for a certain purpose.
 Likewise, a digital certificate can be presented electronically to prove your identity, to access information or services on
the Internet or to sign certain documents digitally.
 One can get DSC registered by signing MCA-21 E-form digitally.
 A licensed Certifying Authority (CA) issues the digital signature.
 Certifying Authority (CA) means a person who has been granted a license to issue a digital signature certificate.
 The list of licensed CAs along with their contact information is available on the MCA portal ( www.mca.gov.in).
 Check out the Certifying Authorities at (http://www.cca.gov.in/cca/?q=licensed_ca.html) which will take 3-7
business days.

3. File for Name Approval

 When you have a plan to incorporate a company, you certainly have to have a name for it right?
 And it is pivotal that the name approval procedure of the company goes smoothly and without objections or it could stall
all your progress of registering a company.
 To file for name approval for Public Companies, PLCs (Public Limited Company), OPC, NBFC etc use the
RUN(Reserve Unique Name) e-form
 Alternatively, to file for name approval, business owners can utilize the SPICe forms. SPICe stands for Simplified
Performa for Incorporating Company electronically.
 In order to incorporate an LLP however, filing for name approval has to be done via the RUN-LLP forms.
 However, before you even file for approval it is vital that you check that your company’s proposed name is not clashing
with an already existing company name.
 You have to do this in order to prevent legal troubles since many times companies have performed trademark filing
procedure on their company name.
4. Obtain DIN
 DIN stands for Director Identification Number.
 It is a unique identification number given by the Central Government to individuals intending to be the directors of a new
or already existing company.
 DIN Forms
 SPICe Forms: The SPICe forms are used for allocation of the DIN number to the proposed directors of a new
company in the process of the company registration. SPICe+ stands for Simplified Performa for Incorporating
Company electronically Plus.
 DIR-3 Form: DIR-3 form is a form for becoming a director of an already existing company. File DIR-3 Online
 DIR-6 Form: To convey the changes in any particulars of the existing directors
5. File for Incorporation
 The Final step in the company incorporation procedure is filing for incorporation and the MCA has given dedicated
forms for incorporation of companies.
 The incorporation certificate is proof of registration of the company and the company will come into existence as a
separate legal entity.
SPICe Forms (INC-32) The SPICe forms allow for the incorporation processing of Limited Companies (Public /Private/
LLP/OPC) and have the following procedures streamlined.
 Obtaining DIN
  Name Reservation
 Incorporation
 PAN Application
 TAN Number (Tax Deduction Account Number or Tax Collection Account Number is a 10 -digit alpha-numeric
number issued by the Income-tax Department. TAN is to be obtained by all persons who are responsible for deducting
tax at source (TDS) or who are required to collect tax at source)
For Incorporating an LLP, governed by the LLP Act, 2008, the Ministry of Corporate Affairs (MCA) has introduced FiLLiP e-form
to ease the company registration procedure.
6. File AoA and MoA
 MoA stands for Memorandum of Association and AoA stands for Articles of association.
 Together, these two form the constitution of the company.
 These two basically define the extent of the legal powers wielded by the company and the information about the
business activities of the company along with the relationship of the company with the shareholders.
 After you have filed for company registration, you have to file the constitution of the company.
The MCA has provided the e-forms INC-33 for e-MoA and INC-34 e-AoA to help incorporate the company.
 In total, therefore to incorporate a company in India, it would roughly take 7-8 business days.
 In addition to this, you have to follow Companies Post Incorporation Compliances.
 Finally, all these documents are digitally signed by one of the directors and submitted to the Registrar of Companies
online or offline depending on you with the prescribed fees.
 Verification takes place and a license is issued. After which tax registration filings are done.
After following all these 6 steps, company registration in India is done.
To obtain Commencement of Business Certificate after incorporation of the company,
the public company has to make following compliance
• File a declaration in eForm 20 and attach the statement in lieu of the prospectus(schedule III) OR
• File a declaration in eForm 19 and attach the prospectus (Schedule II) to it.
• Obtain the Certificate of Commencement of Business.

Incorporation of a company
 is a process by which a company becomes a legal entity.
 It can be compared to the birth of a company.
 It is a legal process and is governed by The Companies Act 2013.
 There are various types of companies, but the major ones are namely private limited companies and public limited
companies.
Steps To Be Taken To get a New Company Incorporated
 Select, in order of preference, at least one suitable name upto a maximum of six names, indicative of the main objects
of the company.
 Ensure that the name does not resemble the name of any other already registered company.
 Ensure it does not violate the provisions of “The emblems and names (Preventation of Improper Use) Act, 1950” by
availing the services of checking name availability on the portal.
 Apply to the concerned Registrars of Companies (ROC) to ascertain the availability of name in eForm1 by logging in to
the portal. A fee of Rs. 500/- has to be paid alongside and the digital signature of the applicant proposing the company
has to be attached in the form. If proposed name is not available, the user has to apply for a fresh name on the same
application.
 After the name approval, the applicant can apply for registration of the new company by filing the required forms (that is
Form 1, 18 and 32) within 60 days of name approval.
 Arrange for the drafting of the memorandum and articles of association by the solicitors, vetting of the same by RoC and
printing of the same.
 Arrange for stamping of the memorandum and articles with the appropriate stamp duty.
 Get the Memorandum and the Articles signed by at least two subscribers in his/her own hand, his/her father's name,
occupation, address and the number of shares subscribed for and witnessed by at least one person.
 Ensure that the Memorandum and Article is dated on a date after the date of stamping.
 Login to the portal and fill the form # 1, 18 and 32 and attach the mandatory documents listed in the eForm
 Declaration of compliance - Form-1
 Notice of situation of registered office of the company - Form-18.
 Particulars of the Director's, Manager or Secretary - Form-32.
 Submit the following eForms after attaching the digital signature, pay the requisite filing and registration fees and send
the physical copy of Memorandum and Article of Association to the RoC
 After processing of the Form is complete and Corporate Identity is generated, obtain Certificate of Incorporation from
RoC.
Additional steps to be taken for formation of a Public Limited Company:
To obtain Commencement of Business Certificate after incorporation of the company the public company has to make following
compliance
• File a declaration in eForm 20 and attach the statement in lieu of the prospectus(schedule III) OR
• File a declaration in eForm 19 and attach the prospectus (Schedule II) to it.
• Obtain the Certificate of Commencement of Business.
Additional steps to be taken for registration of a Part IX Company(Joint Stock Companies has been specifically defined for the
purposes of Part IX under section 566 of the Companies Act, 1956. )
The Part IX Company is required to file eForm 37 and eForm 39 apart from filing eForm 1, 18 and 32.
The company is required to file eForm 1 first and then the company can file all the other eForms (18, 32, 37 and 39)
simultaneously or separately.

Steps To Be Followed For The Incorporation Of New Company In India

The Companies Act, 2013 lay down the rule for the incorporation of both Public and Private Companies under Chapter-II of the
act along with the [Rules] of the Companies (Incorporation) Rules, 2014. A company to be incorporated as a Private Company
must have a minimum paid-up capital of Rs. 1, 00,000, and minimum number of members required to form a private company is
2 or more members. For Public Company it must have a minimum paid-up capital of Rs. 5, 00,000 and requires at least 7 or
more members.
1. Select Name of Person - Under Section-149(1) (a) of Companies Act, 2013. Select the name of directors i.e. who will be
directors (At least Three Name for Three for Public Company and Two for Private Company) [Rule-17] (The Companies
(Incorporation) Rules, 2014.
2. Apply for Digital Signature Certificate (DSC) -
Digital Signature Certificates (DSC) are the digital equivalent (i.e. electronic format) of physical or paper certificates. Certificates
serve as proof of identity of an individual for a certain purpose. Likewise, a digital certificate can be presented electronically to
prove your identity, to access information or services on the Internet or to sign certain documents digitally. One can get DSC
registered by signing MCA-21 E-forms digitally. A licensed Certifying Authority (CA) issues the digital signature. Certifying
Authority (CA) means a person who has been granted a license to issue a digital signature certificate. The list of licensed CAs
along with their contact information is available on the MCA portal (www.mca.gov.in). The Fees for obtaining DSC is different
among all the Certifying Authority.
3. Apply for Director Identification Number (DIN)
It is a unique identification number allotted to the existing director of the company or intending to be appointment as director of a
company according to Section-152(3), Section-153 & Section-154 of the Companies Act, 2013.
It is only after the DIN is approved, the incorporation documents can be filed with the Registrar Form No.-DIR-3. However, the
name approval can be obtained prior to approval of DIN. It takes about 7 days for getting the DIN approved, provided all proper
documents are furnished. Fees to be paid for the allotment of DIN is Rs.500.
Documents to be furnished for getting DIN application are:
· Identity proof: Copy of PAN card is mandatory.
· Address proof: Copy of passport or Voter Id or Ration card or Electricity bill or any other address proof.
· Passport size photograph (latest) in soft copy (.JPEG format).
· Current occupation.
· Email address of applicant.
· Education qualification and contact number of applicant.
· Verification to be signed by the applicant.
4. Filing the Proposed Name of Company For Approval to The Registrar of Companies (ROC)-
According to Section-4(4) of The Companies Act, 2013 person can make an application to propose the name of the company to
be registered with such forms and manner accompanied by fees of Rs. 1,000/- to be paid, as may be prescribed, to the
Registrar for the reservation of a name set out in the application.
According to Rule No.-9 of Companies (Incorporation) Rules, 2014 reservation of the name can be made by an application for
the reservation of a name shall be made in
Form No. INC.1 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 to the Registrar of
Companies (ROC) in the State/Union Territory in which the company will maintain its Registered Office.
According to Section-4(5) of The Companies Act, 2013 the application submitted to the registrar will be reserved for a period of
60 days to check and verify the document and information furnished along with the application.
5. Drafting of Memorandum of Association (MoA) -
The MoA is the Constitution of the Company which must contain all the fundamental information of the Company. MoA define
the relationship of the Company with its shareholder. Therefore, it is important to draft the MoA very carefully with properly
incorporating Clauses carefully.
Drafting of Memorandum must be done in which:
· Name of the Company lasts with word “Limited” in case of a public limited or the last words “Private Limited” in case of a
private limited company.
· State in which the registered office of the company is to be situated.
· Object of the company for which it is proposed.
· Liabilities of the members of the company Limited/Unlimited.
· Mention the amount of share capital in case of company having a share capital.
· In case of the One Person Company the name of the person who in the event of death of the subscriber shall become the
member of the company.
According to Section-4(6) of The Companies Act, 2013 MoA shall be in respective form as prescribed in Table A, B, C, D and E
of Schedule-I as may be applicable.
6. Drafting of Articles of Association (AoA)-
AoA which is an important document explains the operation of the company, purpose for which Company is incorporated along
with the information for the process of Appointment of Directors and also management of the financial Record of the company.
In drafting of the AoA of company it shall contain-
· Regulation for management of the Company.
· It shall also contain such, matter as may be prescribed.
· May contain the provisions for entrenchment to the effect that specified provision of the Article may be altered only if condition
or procedures as that are more restrictive than those applicable in the case of a special resolution are met or compiled with.
According to Section-5(6) of The Companies Act, 2013 the Article (AoA) shall be in respective form provided in Table F, G, H, I
and J of Schedule-I as may be applicable to such company.
[Rule-10] -Where the articles contain the provisions for entrenchment, the company shall give notice to the Registrar of such
provisions in Form No.INC.2 or Form No.INC.7, as the case may be, along with the fee as provided in the Companies
(Registration offices and fees) Rules, 2014 at the time of incorporation of the company or in case of existing companies, the
same shall be filed in Form No.MGT.14 within thirty days from the date of entrenchment of the articles, as the case may be,
along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014.
7. Application for Incorporation of Company-
According to Section-7 of The Companies Act, 2013 shall be filed with the registrar within whose jurisdiction the registered office
of a company is proposed to be situated. Rule No.-12 of Companies (Incorporation) Rules, 2014- An application shall be filed,
with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated, in Form No.INC.2 (for
One Person Company) and Form no. INC.7 (other than One Person Company) along with the fee as provided in the Companies
(Registration offices and fees) Rules, 2014 for registration of a company.
File with Registrar Form No. INC.7 [Rule 12 to 18] along with Documents -
(a) The Memorandum and Articles of the company duly signed by all subscribers;
(b) A declaration in Form No.INC.8 by an Advocate or Practicing professional (CA, CS, CA) who is engaged in incorporation,
and a person named in director as Director, Manager or Secretary, that all requirements related to incorporation has been
complied with;
(c) An affidavit in Form No. INC.9 from each subscriber and from each person named as first director in the articles that; he is
not convicted if any offence in connection with promotion, formation or management of any company, he is not been found guilty
of any fraud or misfeasance or of any breach of duty to any company during preceding five years, and all the documents filed
with the Registrar contain correct, complete and true information to the best of his knowledge and belief;
(d) The address for correspondence till its registered office is established;
(e) The particulars of every subscriber along with proof of identity. List of poof required Listed under [Rule-16.];
(f) The Particulars of first directors along with proof of identity and his interest in other firms or bodies corporate along with his
consent to act as director;
(g) The particulars of interests of first directors in other firms or bodies corporate along with their consent to act as directors of
the company shall be filed in Form No.DIR.12 along with the fee of Rs.500/- as provided in the Companies (Registration offices
and fees) Rules, 2014.
8. Commencement of Business
According to S.11 of the Companies Act, 2013. – Company having a share capital shall not commence any business or exercise
any borrowing power unless- Director should file Declaration with Registrar in Form No. INC.21 [Rule 24] in such a manner as
may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be
taken by him and the paid up capital is not less than 5 Lakh Rupees in case of Public Company and not less than One Lakh in
case of Private Company. According to [Rule-24] the declaration filed by a director shall be in Form No.INC.21 along with the
fee. The contents of the form shall be verified by a Company Secretary in practice or a Chartered Accountant or a Cost
Accountant in practice:
Provided that in the case of a company requiring registration from sectorial regulators such as Reserve Bank of India, Securities
and Exchange Board of India etc., the approval from such regulator shall be required. Not every company can start its business
after incorporation. It is only a private company that becomes a legal entity as soon as it is incorporated. Thus, only a private
company can immediately commence its business after incorporation.
A public or private limited company with share capital cannot commence doing business unless the Registrar of Companies
issues a certificate of commencement of business (COB).
9. Registered Office
Section-12 of The Companies Act, 2013 that the company on and from the 15 days of its incorporation and at all times
thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be
addressed to it and company shall furnish to the registrar verification of its registered office within a period of 30 days of its
incorporation in such manner as may be prescribed. [Rule-25]The verification of the registered office shall be filed in Form
No.INC.22 along with the fee.
Salomon v Salomon is the leading case which laid down the principle of the Corporate veil. It is a landmark judgment in UK
Company Law case which firmly upheld the Doctrine of Corporate personality as a separate legal entity and thus the
shareholders can’t be personally liable for the insolvency of the company.
The following principles which were laid down by the Lordships in the case are as follows:
1. In order to form a company limited by shares, a memorandum of Association should be signed by seven persons.
2. Every such person should possess at least one share each.
3. If the above-mentioned requirements are complied with it hardly makes any difference whether the signatories are
relations or strangers.
4. The company is at law a different person together from the subscribers of the memorandum of Association.
5. The statute enacts nothing as to the extent or degree or interest which may be held by each of the members.
6. There is nothing in the Act; requiring that the subscribers to the memorandum of Association should be independent or
unconnected or that they should have mind or will of their own.
7. Act does not require anything like a balance of power in the constitution of the company.

Q. Describe the classification Of Companies

The word “Company” is derived from the combination of Latin words, ‘Com’ and ‘panis.’ The word ‘Com’ means
‘together’ and the word ‘panis’ means ‘bread’ meaning thereby taking meals together. The merchants in the leisurly
past, took advantage of these festive gatherings to discuss their matter. The term ‘Company’ in general means a group
of or an association of persons who have agreed to undertake a venture in common. Broadly speaking, the word
company connotes two ideas in a legal sense –
 the members of the association are so numerous that it cannot aptly be described as a firm or a partnership;
 a member may transfer his interest in the association without the consent of other members.

Classification of Company on the basis of the number of members

Q. Give the characteristics of Private and Public Company giving the distinction between them.
There is no minimum paid-up capital requirement for the incorporation of a private and public company in India with the effect of
the Companies Amendment Act, 2015.
Private Companies
 Section 2(68) of Companies Act, 2013 defines private companies.
 According to that, private companies are those companies whose articles of association restrict the transferability of
shares and prevent the public at large from subscribing to them.
 A private limited company is a company that is created and incorporated under the Companies Act, 2013, or any other
act being in force.
 It is a company that is not listed on a recognized stock exchange and whose shares are not traded publicly.
 It restricts the right to transfer shares
 the liability of the company is limited to the number of shares held by them.
Public Company
 As defined under Section 2(71) of the Companies Act, 2013,
 Public Companies are the ones which are not a private company.
 As mandated under Section 3(1)(a) of the Companies Act, 2013, there should be at least 7 members to form a public
company.
 It is the intrinsic nature of the public company that there is the right to transfer shares and debentures of the public
company to the public at large.

Comparison Chart
BASIS FOR
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
COMPARISON

Meaning Private Limited Company refers to the
company which is not listed on a stock
exchange and the shares are held
privately by the members or investors
concerned. PVT LTD is the suffix that
follows the name of a private company.
The main advantage of a private
company is that they are exempt from
having to reveal its financial information
to the general public.
Public Limited Company implies a company
that is listed on a recognized stock
exchange and whose shares are traded
openly by the public. For a public limited
company, the name of the company must
have the word ‘Limited’ as the last word.
The company must launch an IPO in order
to become publicly traded.

Minimum number 2 7
of members

Maximum number 200, except in case of ‘one person Unlimited

of members company’.

Minimum number 2 3
of directors

Articles of It must frame its own articles of It can frame its own articles of association
Association association. or adopt Table F.

Transfer of Shares The shares of a private company The shares of a public company are freely
are not freely transferable, as there are transferable, i.e. freely traded in an open
restrictions in Articles of Association. market called a stock exchange.

Public Subscription Issue of shares or debentures to the It can invite the public to subscribe to its
public is prohibited. shares or debentures.

Issue of prospectus Prohibited from issuing a prospectus. It can issue a prospectus or it can also
opt for private placement.

Minimum amount The company can allot shares, The company cannot allot shares unless
of allotment without obtaining minimum the minimum subscription stated in the
subscription. prospectus is obtained.

Commencement of It can start a business just after receiving It requires a certificate of

Business a certificate of incorporation. commencement of business after it is
incorporated.

Appointment of Two or more directors can be appointed One Director can be appointed by a single
Director by a single resolution. resolution.

Filing of Consent to Directors need not require the filing of Directors must file their consent to act
act as Director their consent to act as a director. as a director, within 30 days of
 BASIS FOR
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
COMPARISON

appointment with the Registrar.

Retirement of The directors are not required to retire by 2/3rd of the total number of
Directors by rotation. The directors can be directors must retire by rotation.
rotation permanent.

Place of Holding AGM can be held anywhere. AGM is held at the registered office or any
AGM other place where the registered office is
situated.

Statutory Meeting Optional Compulsory

Quorum 2 members who are personally present 5 members are required to be present in
at the meeting, constitute a quorum, person when the number of members as on
irrespective of the number of members. the date of the meeting is 1000 or less.

15 members are required to present in

person when the number of members as on
the date of the meeting is more than 1000
but less than 5000.

30 members are required to present in

person when the number of members as on
the date of the meeting is more than 5000.

Exemptions Enjoys many privileges and exemptions. No such privileges and exemptions.

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock
issuance for the first time. An IPO allows a company to raise equity capital from public investors. A company that is publicly
traded allows its shareholders to easily sell shares on a stock exchange. A publicly-traded company must make its annual report
accessible to all stakeholders. In order to grow, a public company must issue more shares to the general public.

One Person Company (OPC)

 Section 2(62) of Companies Act defines a one-person company as a company that has only one person as to its
member.
 With increasing use of information technology and computers, emergence of the service sector, it is time that the
entrepreneurial capabilities of the people are given an outlet for participation in economic activity.
 Such economic activity may take place through the creation of an economic person in the form of a company.
 Yet it would not be reasonable to expect that every entrepreneur who is capable of developing his ideas and
participating in the market place should do it through an association of persons.
 It is possible for individuals to operate in the economic domain and contribute effectively.
 To facilitate this, the Committee recommends that the law should recognize the formation of a single person economic
entity in the form of ‘One Person Company’.
 Such an entity may be provided with a simpler regime through exemptions so that the single entrepreneur is not
compelled to fritter away his time, energy and resources on procedural matters.
The concept of ‘One Person Company’ may be introduced in the Act with following characteristics :-
 Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate OPC.
 “One Person Company” means a company which has only one person as a member.
 OPC may be registered as a private Company with one member and may also have at least one director.
 There is no minimum Capital required to start an OPC Private Limited Company. So, even with zero registered capital,
an OPC can be incorporated and can start doing business.
 Adequate safeguards in case of death/disability of the sole person should be provided through appointment of another
individual as Nominee Director.
 On the demise of the original director, the nominee director will manage the affairs of the company till the date of
transmission of shares to legal heirs of the demised member.
  No person shall be eligible to incorporate more than one OPC or become nominee in more than one such company.
 Letters ‘OPC’ to be suffixed with the name of One Person Companies to distinguish it from other companies.
 OPC to compulsory convert itself into public or private company in certain cases. Where the paid up share capital of an
OPC exceeds fifty lakh rupees (Paid-up capital is the amount of money received by the company when it sells its shares
to the shareholders and investors directly through the primary market. In other words, it is the money that the investors
give to the company on buying a share in that company) or its average annual turnover during the relevant period
exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company.

Classification of Company on the basis of control

 Companies can hold varying degree of interests in other companies by acquiring a shareholding.
 The portion of shareholding decides the power and other rights the holding company.
 “Subsidiary company” or ‘subsidiary’, in relation to any other company (that is to say the holding company), means a
company in which the holding company—
o (i) controls the composition of the Board of Directors; or
o (ii) exercises or controls more than one-half of the total share capital either at its own or together with one or
more of its subsidiary companies.
 “associate company”, in relation to another company, means a company in which that other company has a significant
influence(means control of at least twenty per cent. of total share capital, or of business decisions under an agreement),
but which is not a subsidiary company of the company having such influence and includes a joint venture company .
 The holding company that holds an interest in another company is referred to as the ‘parent company’.
 The key difference between Subsidiary and Associate is that while subsidiary is a company where the parent is a
majority shareholder, parent holds a minority position in an associate.
Holding and Subsidiary Companies
 Seldom is the structure of a business straightforward. The corporate structure varies as per the priorities and needs of
the business.
 This is perhaps the biggest advantage the Companies Act, 2013 offers to the entrepreneurs incorporating new
establishments.
 In a few instances, a company might be independent, while in the others it might be controlled by a parent company.
 The parent company thus holding the control of the other company, may or may not control the stocks of the latter.
 The parent company here is called the holding company if it holds the stocks and is not involved with the business
affairs of the subsidiary company.
 The Companies Act, 2013, mentions that the holding company is one wherein it holds a minimum of 50% of shares of
another corporate entity.
 The holding company, by virtue of this, has the privilege of being a part of the decision-making process of this entity and
has a chance to influence the Board of Directors.
 In a nutshell, the major role of a holding company is controlling and administering the subsidiary companies.
 Therefore, if the subsidiaries run a risk in the due course of business and face debts or losses, the holding company
stays unaffected.
 On the other hand, one of the major perks of the relationship between a holding company and a subsidiary is the
feasibility of accumulating a large capital to run the business.
 The companies can undertake competitive projects combinedly by pooling their assets together.
 As per the Companies Act, 2013, a subsidiary company is one whose operations are monitored or controlled by a
parent company or a holding company.
 More than 50% of the shares of the subsidiary are held by the holding company.
 If 100% of the shares of the subsidiary are owned by the holding company, then it is considered to be a wholly-owned
subsidiary.
 However, a subsidiary does not have the right to own shares of the holding company, except by the provisions stated in
the governing statute.

S.No Holding Company Subsidiary Company

A holding company controls more than 50% of another

The company is in control of another company that
1 company’s stock and hence has the ability to influence
owns more than 50% of its shares
the decisions of the latter

2 The company has the power to hire or fire the members A subsidiary has very little supervisory power over
of the board, directors, and other management personnel the operations of the company. Subsidiaries that
 operate independently, may also be controlled
financially by the holding company

The holding company exercises its ownership rights over A subsidiary company is dependent on the
3
its subsidiaries holding company to arrive at key decisions

When a company becomes a subsidiary of a

respective holding company, all its subsidiaries
become subsidiaries of that holding company
A holding company may invest in a number of subsidiaries,
4 as a part of its investment strategy. This may also be carried
out to minimise risks and for tax emoluments

A subsidiary company finds shelter under

A holding company takes charge of the subsidiary and
its parent holding company to protect itself
5 regulates the market competition for the subsidiary
from unfair competition and other uncertainties.
company

S.No Holding Company Subsidiary Company

Associate Company
These Companies as defined under Section 2(6) of the Companies Act, 2013 are the one in which the other company has
significant influence but these Companies are not the subsidiaries of such influencing companies are known as the Associate
Company. The Joint Venture Companies are such associate companies.
The significant control can be inferred directly from the explanation attached to the provision which requires the influencing
company to hold 20% of the share capital or any agreement whereby the decision making of the associate is placed upon such
Influencing Company. The Associate Company concept has been seen as a harbinger of transparency in the working of the
Company since it provides a more rationale grundnorm for an associated relationship between the two companies.

Classification of Companies on the basis of incorporation

Royal Charter Company
It may be better understood as the company born out of the authorization of the sovereign or the crown. This was the mode of
incorporation which was followed earlier to the Registration under the Companies Act. A charter is granted by the crown to the
people requesting to form a cooperative or a company. To name a few, The Bank of England (1694), The East India
Company (1600) were formed by the means of charters passed by the then Crown of England. The authorization given by
the sovereign gives legal existence to these companies by means of the body of the charter. This mode of incorporation is no
more recognised in any Companies Act to incorporate new Companies.
Statutory Company
As the name suggests, these are the companies that are formed by the means of a special statute passed by the Parliament or
the State Legislature. The examples of statutory companies in India are the Reserve bank of India, the Life Insurance
Corporation of India Act, etc.
The Statutory origins of these companies provide power to such companies to be bound by their own statute, i.e. whenever
there is any dispute between statute under which these companies were formed and the Companies Act 2013, the statute being
special legislation persists over the general law of Companies Act. The parliaments both State and Centre are empowered to
make such legislation for incorporation under the power endowed to them by the Constitution of India.
Registered Company
As defined under Section 2(20) of the Companies Act, 2013, registered companies are the companies which get registered
under the statute of the Companies Act. Companies are also provided with a certificate of incorporation by the Registrar of the
Company.

Classification of Companies on the basis of liability of members

The liability upon the members is also used to classify the companies, it describes the limit to which member will be liable if such
liability were to befall upon the company.
On the basis of liability of the members, the companies may be classified into:
Companies limited by shares: Section 2(22) states ―’company limited by shares’ means a company having the liability
of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
Companies like Reliance, Infosys and Tata are all public companies limited by shares.
 A company limited by shares refers to a company which issues shares to the public.
 Such companies are called public limited company (PLC) in the commonwealth countries and Great Britain.
 They are called ‘Inc’ in the USA.
 The shares of a company limited by shares are generally listed on the stock exchange.
 The ownership of a company limited by shares includes the members of the general public.
 Any person from the public can own a share in the company by buying through the stock exchange.
 The liability of the shareholders of the company is limited to the nominal value of the shares.
 Shareholders are not required to pay up for losses in excess of the nominal value of the shares.
 A company limited by shares should hold an annual general meeting of the shareholders of the company.
 The company should place the financials and related information before the shareholders for their approval.
 The company should pass resolutions in the meetings for the approval of the items on the agenda of the meeting.
 These types of companies are mentioned in Section 2(22) of the Companies Act, 2013.
 The liability of the members of such a company is based upon the number of shares kept unpaid.
 This liability against the shares kept may be brought to the authority.
 Once the payment towards the security is made by the shareholder or member then no liability beyond that is placed
upon such member.
 The liability may be enforced during the company’s existence and even during its winding-up process.
Companies limited by guarantee: Section 2(21) states ―”company limited by guarantee” means a company having the
liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to
the assets of the company in the event of its being wound up;
 In a Company where the liability is limited by guarantee, it means the member of the Company has agreed on the
Memorandum of Association to repay the same amount during winding up of such Company.
 In such companies, the liability of the members is limited to the undertaking given by them.
 examples of companies liability limited by guarantee(no share capital) - Non-profit organizations or charitable institutes,
for example, are funded by public donations or government grants.
Unlimited Liability Company
Is a company not having any limit on the liability of its members. These companies as defined under Section 2(92) of the
Companies Act, 2013 do not have a cap on the amount of liability that may add on their members in case the company has to
repay any debt.
For any amount that the company owes these members, the unlimited liability company shall be liable to the extent of their
interest in the company.
These companies do not draw any popularity when it comes to Indian Market.
Difference between limited and unlimited companies
Limited liability company Unlimited liability company
Liability of the members is only in proportion to the Liability of the members is not in proportion to the
sum they have invested in the company. investment in their company.
Personal properties or assets will not be forfeited if Even the personal property of the member will be
the company goes bankrupt or winds up. forfeited against the liability of the company.

Q. Give the definition of Dividend and Debenture. Write down the distinction between dividend and debenture.
 In the stock market, shares and debentures are familiar words when it comes to investment.
 In business, debt and equity are the two significant methods by which they raise money for the company’s expansion
and growth.
 Whenever a firm chooses equity to boost funds, the shares of the company are issued to the public, and whoever buys
shares gets an opportunity to be part of the company.
 The second is debt a company receives a loan from the public and also agrees to pay the interest regularly.
There, the debenture is issued to the public and whoever buys it is known as creditors.
 Here, shares are defined as the share capital of an organization.
 It gives the shareholder the right to hold a specified amount of the share capital of the firm.
 Similarly, a debenture is a great financial tool that shows the debt of a business to the outside party/public and gives a
fixed interest rate.
 Today, most of the people invest in share or debenture intending to get back better; therefore, it is essential to
understand the two securities of investments.
Meaning of Dividend
 Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders.
 Dividends can be issued in various forms, such as cash payment, stocks or any other form.
  An example of a dividend is cash paid out to shareholders out of profits. They are usually paid quarterly.
Meaning of Debentures
The term ‘debenture’ is derived from the Latin word ‘debere’ which refers to borrow.
Essentially, when a company needs to borrow money, it can issue debentures to investors in exchange for cash.
Debentures are similar to bonds in that they are a type of fixed-income investment.
The investor who purchases a debenture will receive regular interest payments from the company until the debenture matures,
at which point the principal amount will be repaid.
A debenture is a debt tool used by a company that supports long term loans.
Here, the fund is a borrowed capital, which makes the holder of debenture a creditor of the business.
The debentures are both
redeemable debentures are those debentures that are due on the cessation of the time frame either in a lump-sum or in
instalments during the lifetime of the enterprise.
and
irredeemable debentures are also called as Perpetual Debentures and are repayable on the closing up of an enterprise or on
the expiry/cessation of a long period. They are freely transferable with a fixed interest rate.
Unlike shareholders, the debenture holders who are the creditors of the company do not hold any voting rights. The debentures
are of following types:
 Secured Debentures: Secured debentures are that kind of debentures where a charge is being established on the
properties or assets of the enterprise for the purpose of any payment. The charge might be either floating or fixed.
 Unsecured Debentures: They do not have a particular charge on the assets of the enterprise.
 Convertible Debentures: Debentures which are changeable to equity shares or in any other security either at the choice
of the enterprise or the debenture holders are called convertible debentures.
 Non-convertible Debentures: The debentures which can’t be changed into shares or in other securities are called Non-
Convertible Debentures. Most debentures circulated by enterprises fall in this class.
 Registered Debentures: These debentures are such debentures within which all details comprising addresses, names
and particulars of holding of the debenture holders are filed in a register kept by the enterprise. Such debentures can be
moved only by performing a normal transfer deed.
 Bearer Debentures: These debentures are debentures which can be transferred by way of delivery and the company
does not keep any record of the debenture holders Interest on debentures is paid to a person who produces the interest
coupon attached to such debentures.
Meaning of Shares
A tiny part of a firm’s capital is identified as shares and is usually sold in the stock market to raise funds for a business. The price
at which the investor buys the share is known as share price. The shareholders are qualified to receive the dividend as
mentioned by an organisation because they are the owner of a portion of share of the company.
The shares are transferrable/movable and are broadly categorized into two different sections.
 Equity Shares: The shares which carry voting rights on which the rate of dividend is not fixed. They are irredeemable in
nature. In the event of winding up of the company equity, shares are repaid after the payment of all the liabilities.
 Preference Shares The shares which do not carry voting rights, but the rate of dividend is fixed. They are redeemable
in nature. In the event of winding up of the company, preference shares are repaid before equity shares.
Comparison Chart
BASIS FOR
SHARES DEBENTURES
COMPARISON

Meaning The shares are the owned funds of the The debentures are the borrowed funds
company. of the company.

What is it? Shares represent the capital of the Debentures represent the debt of the
company. company.

Holder The holder of shares is known as The holder of debentures is known as

shareholder. debenture holder.

Status of Holders Owners Creditors

Form of Return Shareholders get the dividend. Debenture holders get the interest.

Payment of return Dividend can be paid to shareholders Interest can be paid to debenture
only out of profits. holders even if there is no profit.

Allowable deduction Dividend is an appropriation of profit Interest is a business expense and so it

and so it is not allowed as deduction. is allowed as deduction from profit.
 BASIS FOR
SHARES DEBENTURES
COMPARISON

Security for payment No Yes

Voting Rights The holders of shares have voting The holders of debentures do not have
rights. any voting rights.

Conversion Shares can never be converted into Debentures can be converted into
debentures. shares.

Repayment in the event Shares are repaid after the payment of Debentures get priority over shares,
of winding up all the liabilities. and so they are repaid before shares.

Quantum Dividend on shares is an appropriation Interest on debentures is a charge

of profit. against profit.

Trust Deed No trust deed is executed in case of When the debentures are issued to the
shares. public, trust deed must be executed.

Q. Describe the procedure of conversion of private company to public company. What are the differences between
private company and public company ?
Private Limited Company
 A private limited company is a company that is created and incorporated under the Companies Act, 2013, or any other
act being in force.
 It is a company that is not listed on a recognized stock exchange and whose shares are not traded publicly.
 It restricts the right to transfer shares the liability of the company is limited to the number of shares held by them.
 There is a limit on the maximum number of members, i.e. the number of members cannot be more than
200, excluding current employees and ex-employees who were members of the company when they were employed
and continued to be members even after they left the company.
 Further, one should take note of the fact that joint holders of shares are treated as single members.
 Further, in a private company, any sort of invitation to the public to subscribe for shares is prohibited.
 At least two adults are required to act as the Directors of the Company.
 It can have a maximum of 15 Directors
 At least one director has to be an Indian Citizen and Resident, while the others can be foreign nationals.
 Two persons must act as a shareholder.
Documents Required for Incorporation of Private Limited Company
 Proposed Directors who are Indian Nationals need to submit a copy of PAN as their ID proof and passport or Driving
License or Voter ID or Adhar Card as their proof of address.
 They are also required to submit their bank statement or electricity/phone bill as their proof of residence.
 Proposed Directors who are Foreign Nationals need to submit a copy of their passport as their ID proof which can also
act as a proof of address. They are also required to submit a copy of their bank statement or electricity/phone bill as
their proof of residence.
 If the registered office is set up in a rented property, a rental agreement and no objection certificate by the landlord are
required.
 If a registered office is set up in an owned property, ownership property documents are needed.
 Utility bills of the business place
Public Limited Company
 A Public Limited Company or PLC is a joint-stock company that is created and incorporated under The Indian
Companies Act, 2013 or any other act being in force previously.
 It is listed on a recognized stock exchange to raise capital from the general public.
 It is a company with limited liability and is permitted to issue registered securities i.e. shares or debentures to the public,
by inviting them to subscribe for its shares through IPO and is traded openly on at least one stock exchange.
 The liability of the shareholders is limited to the extent of the amount contributed by them.
 Minimum number of 3 directors are required to form a public company.
 Minimum 7 shareholders are required to form a public company.
 Digital Signature Certificate (DSC) of any one director is required, in case self-attested copies of identity proof and
address proof are submitted.
 Director Identification Number (DIN) is a must.
  An application containing the object clause of the company is to be made.
Documents Required for Incorporation of Public Limited Company
 Digital Signature Certificate (DSC) and Directors Identification Number (DIN) of all Directors
 Copies of identity proofs such as Adhar Card, Voter ID, PAN Card or passport of all directors
 Passport size photograph of all Directors.
 If the registered office is set up in a rented property, a rental agreement and no objection certificate by the landlord are
required.
 If a registered office is set up in an owned property, ownership property documents are needed.
 Utility bills of the business place
Points to be noted
 As per Section 185 of Companies (Amendment) Act, 2017, there is a complete ban on providing loans, guarantees, or
advances to the Directors or its holding company, or any partner of the Director or any firm wherein the Director or
relative is a partner.
 The maximum number of Directors that a company can appoint is 15. However, a company can appoint more than 15
Directors by passing a special resolution at the general meeting.
 While a private company needs to add the words ‘Private Limited (Pvt. Ltd.)” at the end of its name, as a suffix, a public
limited company needs to add the words ‘Limited’ at the end of its name.
Procedure for Conversion of Private Company into Public Company
1. Board resolution for approval for conversion and alteration of memorandum & article of association
2. Special resolution for approval for conversion and alteration of memorandum & articles of association and change of name to
delete word “Private”
3. eForm MGT-14 for filing the resolution with Registrar within 30 days of passing special resolution alongwith: (a) Special
resolution (b) Notice & explanatory statement (c) Altered memorandum & articles of association
4. eForm INC.27 for application for conversion of company with ROC within 15 days of passing of special resolution along with:
(a) Special resolution (b) Minutes of members’ meeting (c) Altered articles of association
5. Compliance of provisions applicable on public companies like appointment of addtional no. of Directors and increase in no. of
members. The article has been prepared considering the relevant Guidelines/ Circulars/ Notifications/ Provisions of the
Companies Act, 2013, the rules made there under & The Companies Act, 2013. Readers are requested to cross-check the
provisions before acting upon the same. The author will not be liable for any damages or penalties caused.

Stepwise process for conversion of Private Limited Company to Public Limited Company
Step 1 Conduct a Board Meeting to pass Board Resolution for the approval of Notice of General Meeting, Conversion and for
the alteration of MOA and AOA.
Step 2 Conduct General Meeting and pass Special Resolution for the Conversion, Alteration in MOA and AOA and for the name
change of company (delete word “Private”)
Step 3 File an E-Form MGT-14 within 30 days from the passing of Special Resolution with following attachments:
1. Notice of General Meeting along with copy of Special Resolution
2. Altered MOA
3. Altered AOA (Note: As per section 117 (1) of the Companies Act, 2013 copy of every resolution which has the effect of
altering the articles shall be embodied in or annexed to every copy of the articles issued after passing of the resolution)
Step 4
File an E-Form INC-27 for conversion of Private to Public Company within 15 days from passing of Special Resolution with
following attachments:
1. Notice of General Meeting along with copy of Special Resolution
2. Altered MOA
3. Altered AOA
4. Details of Director Promoter and Subscribers
5. Minutes of the General Meeting After the approval of both the above forms the CIN number of Company will be change by
substituting word “PTC” to “PLC”.
Post Conversion Requirements:
1. A Fresh PAN card has to be applied for
2. All Business letterheads and related stationery should be updated with the company’s new name
3. The bank account details of the company to be updated
4. Intimation to concerned authorities to be given
5. Printing of copies of New MOA and AOA

Comparison Chart
 BASIS FOR
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
COMPARISON

Meaning Private Limited Company refers to the
company which is not listed on a stock
exchange and the shares are held
privately by the members or investors
concerned. PVT LTD is the suffix that
follows the name of a private company.
The main advantage of a private
company is that they are exempt from
having to reveal its financial information
to the general public.
Public Limited Company implies a company
that is listed on a recognized stock
exchange and whose shares are traded
openly by the public. For a public limited
company, the name of the company must
have the word ‘Limited’ as the last word.
The company must launch an IPO in order
to become publicly traded.

Minimum number 2 7
of members

Maximum number 200, except in case of ‘one person Unlimited

of members company’.

Minimum number 2 3
of directors

Articles of It must frame its own articles of It can frame its own articles of association
Association association. or adopt Table F.

Transfer of Shares The shares of a private company The shares of a public company are freely
are not freely transferable, as there are transferable, i.e. freely traded in an open
restrictions in Articles of Association. market called a stock exchange.

Public Subscription Issue of shares or debentures to the It can invite the public to subscribe to its
public is prohibited. shares or debentures.

Issue of prospectus Prohibited from issuing a prospectus. It can issue a prospectus or it can also
opt for private placement.

Minimum amount The company can allot shares, The company cannot allot shares unless
of allotment without obtaining minimum the minimum subscription stated in the
subscription. prospectus is obtained.

Commencement of It can start a business just after receiving It requires a certificate of

Business a certificate of incorporation. commencement of business after it is
incorporated.

Appointment of Two or more directors can be appointed One Director can be appointed by a single
Director by a single resolution. resolution.

Filing of Consent to Directors need not require the filing of Directors must file their consent to act
act as Director their consent to act as a director. as a director, within 30 days of
appointment with the Registrar.

Retirement of The directors are not required to retire by 2/3rd of the total number of
Directors by rotation. The directors can be directors must retire by rotation.
rotation permanent.

Place of Holding AGM can be held anywhere. AGM is held at the registered office or any
AGM other place where the registered office is
situated.
 BASIS FOR
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
COMPARISON

Statutory Meeting Optional Compulsory

Quorum 2 members who are personally present 5 members are required to be present in
at the meeting, constitute a quorum, person when the number of members as on
irrespective of the number of members. the date of the meeting is 1000 or less.

15 members are required to present in

person when the number of members as on
the date of the meeting is more than 1000
but less than 5000.

30 members are required to present in

person when the number of members as on
the date of the meeting is more than 5000.

Exemptions Enjoys many privileges and exemptions. No such privileges and exemptions.

Q. What is ‘Allotment of Shares‘ ? What are the requisites of valid allotment ? What is the effect of an irregular
allotment ?
Nature and Classes of Shares
A share of a company is one of the units into which the capital of a company is divided. So if the total capital of a company is 5
lakhs, and such capital is divided into 5000 units of Rs 100/- each, then this one unit of amount 100 is a share of the company.
Thus a share is the basis of ownership of the company. And the person who holds such shares and is thus a member of the
company is known as a shareholder.
Now the Articles of Association will contain some essential information about shares and share capital, like the classes of shares
to be prescribed. In all, there are two types of shares a company can allot according to the Companies Act 2013. They have
different natures, rights, and obligations.
Issue of Shares
A company can issue its shares either at par, at a premium or even at a discount. The shares will be at par is when the shares
are sold at their nominal value. Shares sold at a premium cost more than their nominal value, and the amount in excess of the
face value is the premium. And of course, shares sold at discount cost less than the face/nominal value.
When the company decides to issue shares at a price higher than the nominal value or face value we call it shares issued at a
premium. It is quite a common practice especially when the company has a great track record and strong financial performances
and standing in the market.
So say the face value of a share is Rs 100/- and the company issues it at Rs 110/-. The share is said to have been issued at a
10% premium. The premium will not make a part of the Share Capital account but will be reflected in a special account known as
the Securities Premium Account.
Preference Shares
A preference share is one which carries two exclusive preferential rights over the equity shares. These two special conditions of
preference shares are
 A preferential right with respect to the dividends declared by a company. Such dividends can be at a fixed rate on the
nominal value of the shares held by them. So the dividend is first paid to preference shareholders before equity
shareholders.
 Preferential right when it comes to repayment of capital in case of liquidation of the company. This means that the
preference shareholders get paid out earlier than the equity shareholders.
Other than these two rights, preference shares are similar to equity shares. The holders of preference shares can vote in any
matters directly affecting their rights or obligations.
Preference shares can actually be of various types as well. They can be redeemable or irredeemable. They can be participating
(participate in further profits after a dividend is paid out) or non-participating. And they may be cumulative (arrears in demand will
cumulate) or non-cumulative.
Equity Shares
Equity share is a share that is simply not a preference share. So shares that do not enjoy any preferential rights are thus equity
shares. They only enjoy equity, i.e. ownership in the company.
The dividend given to equity shareholders is not fixed. It is decided by the Board of Directors according to the financial
performance of the company. And if in a given year no dividend can be declared, the shareholders lose the dividend for that
year, it does not cumulate.
Equity shareholders also have proportional voting rights according to the paid-up capital of the company. Essentially it is one
share one vote system. A company cannot issue non-voting equity shares, they are illegal. All equity shares must come with full
voting rights.
Procedure of Issue of New Shares
Q. Write short notes on ‘Allotment of Shares or Securities’.
What is allotment ?
 Section 2(70) of the Companies Act defines the term “prospectus” as any notice, circular, advertisement or other
document inviting offers from the public for the subscription or purchase of any securities of body corporate.
 Issue of prospectus inviting general public on a prescribed form by the company is an invitation to an offer.
 When offer for shares or debentures are made by the investors, it is an offer.
 When this offer is accepted by the company, it is an allotment.
 And it creates a binding contract between the company and investors i.e., shareholders or debenture holders.
1] Issue of Prospectus
 Before the issue of shares, comes the issue of the prospectus.
 The prospectus is like an invitation to the public to subscribe to shares of the company.
 A prospectus contains all the information of the company, its financial structure, previous year balance sheets and profit
and Loss statements etc.
 It also states the manner in which the capital collected will be spent.
 When inviting deposits from the public at large, it is compulsory for a company to issue a prospectus.
2] Receiving Applications
 When the prospectus is issued, prospective investors can now apply for shares.
 They must fill out an application and deposit the requisite application money in the schedule bank mentioned in the
prospectus.
 Section 39(2) of the Companies Act, 2013 provides - Allotment of securities by company.—
o No allotment of any securities of a company offered to the public for subscription shall be made unless the
amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on
application for the amount so stated have been paid to and received by the company by cheque or other
instrument.
o The amount payable on application on every security shall not be less than five per cent. of the nominal amount
of the security or such other percentage or amount, as may be specified by the Securities and Exchange Board
by making regulations in this behalf.
o If the stated minimum amount has not been subscribed and the sum payable on application is not received
within a period of thirty days from the date of issue of the prospectus, or such other period as may be specified
by the Securities and Exchange Board, the amount received under sub-section (1) shall be returned within
such time and manner as may be prescribed
 The application process can stay open a maximum of 120 days.
 If in these 120 days minimum subscription has not been reached, then this issue of shares will be cancelled.
 The application money must be refunded to the investors within 130 days since issuing of the prospectus.
3] Allotment of Shares
 Minimum subscription is a minimum amount that must be raised when the shares are offered to the public during the
issue of shares.
 This minimum subscription is generally set by the Board of directors, but it cannot be less than 90% of the issued
capital. The first requisite of a valid allotment is that of minimum subscription.
 When shares are offered to the public, the amount of minimum subscription has to be stated in the prospectus.
 So at least 90% of the issued capital must receive subscriptions or the offer will be said to have failed.
 In such a case the application money received thus far must be returned within the prescribed time limit.
 Once the minimum subscription has been reached, the shares can be allotted.
 Generally, there is always oversubscription of shares, so the allotment is done on pro-rata basis.
 Letters of Allotment are sent to those who have been allotted their shares.
 This results in a valid contract between the company and the applicant, who will now be a part owner of the company.
 If any applications were rejected, letters of regret are sent to the applicants.
 After the allotment, the company can collect the share capital as it wishes, in one go or in instalments.

An allotment of shares shall be termed irregular if it is made without fulfilling the conditions precedent to a regular allotment. The
allotment of shares is irregular in the following cases:
 Where an allotment is made without receiving the minimurn subscription.
 Where an allotment is made without receiving atleast five per cent of the nominal value of shares as application money.
 Where an allotment is made without depositing the application money in a scheduled bank.
 In the case of a company which does not invite public to subscribe its shares, if the allotment is made without filing with
the Registrar the 'Statement in lieu of prospectus' at least thre-e days before the first allotment of shares.
 Where the company fails to apply for listing of its shares in one or more recognised stock exchanges before the tenth
day after the first issue of prospectus or wheresuch permission has been applied for before that day but the permission
has not been . granted by the stock exchange before the expiry of ten weeks from thc date of the closing of the
subscription list.
 Where the allotment is made before the expiry of the fifth day aftcr the date of issue of the prospectus.
Consequences: The consequences of an irregular allotment are as follows:
i) Voidable at the option of the allottee: In the first four cases discussed above the allotment isvoidable at the option of the
allottee. But this right should be exercised by the allottee within two months after the holding of the statutory mesting by the
company or where the company is not required to hold a statutory meeting or where the allotment is made after. the holding of
the statutory meeting, within two months after the date of allotment. It is not necessary that the allottee must commence legal
proceedings within the said period, what is required is that he must give a notice to the ' company of his intention to avoid the
allotment. The option to avoid the allotment can be exercised even after the company has gone into liquidation and is in the
course of liquidation.
ii) Fine: Where time limit regarding the opening of the subscription lisi is not observed, the allotment remains valid but the
cornpany and every officer who is in default are liable to a fine upto Rs. 5,000 each.
iii) Allotment is void: In the fifth case discussed above if the application for listing oi shares has not been made or such a
request for permission of shares to be dealt in the stock exchange has not been granted within the prescribed time, tll \llotmcnt
shall be void. In this case the money must be returned within eight aays, failing which the directors are liable to pay it with
inteiest at such rate which shall not bc less than 4 per cent and not more than 15 per cent as may be prescribed, having regard
to the length of the period of delay in making repayment.
iv) Director's liability: The directors of the company who are rcsponsiblc for irregular allotment, are liable to compensate the
company and the. allottcc for any loss, darnagesor cost suffered or incurred by them. However, the action to recover such loss
or damage or cost must be started within two years of allotment.

Another answer for the question -

Q. What is ‘Allotment of Shares‘ ? What are the requisites of valid allotment ? What is the effect of an irregular
allotment ?
Allotment of Shares: Rules, Restrictions and Effects | Company Accounts
Rules Regarding Allotment of Shares: The following rules regarding allotment of shares are noted:
(a) Application Form:
A prospectus is an invitation to the public to purchase shares. Naturally, the intending purchaser has to apply in a prescribed
form (given in the prospectus) for the purpose which is known as ‘application form’.
Needless to mention that the prospectus fixes the time when the application will be opened and the allotment will be made.
Letter of allotment should be sent to the applicant of shares after the allotment is made.
(b) Offer and Acceptance:
We know that membership of a company after purchasing shares is nothing but a contract. The application form which is given
by the members is the ‘offer’ and allotment by directors is the ‘acceptance’ of that ‘offer’ and, similarly, the notice of acceptance
which is sent is the ‘acceptance of the offer.’
(c) Conditional offer and Acceptance for ‘Offer’:
Usually, the conditions are printed in the application form, e.g., in case of over-subscription of shares, shares will be allotted on
pro-rata basis etc. Conditions for acceptance is practically invalid.
(d) Proper Authority:
It should be remembered that allotment of shares should always be made by the proper authority e.g., by the board of directors,
and allotment made without proper authority is void. Although allotment can be delegated to some persons if the Articles so
provide.
(e) Reasonable Time:
After receiving the application form allotment should be made as soon as possible by the directors i.e., within a reasonable time.
Otherwise, applications for ‘offer’ will be revoked if such reasonable time expires.
(f) Fictitious Name:
Sec. 68A states that any person who
(i) Makes in a fictitious name for acquiring or subscribing for any share; or,
(ii) induces a company to allot, register any transfer of shares to him or any other person in a fictitious name shall be punishable
by imprisonment up to 5 years.
Restrictions on Allotment of Shares:
The following restrictions have been prescribed by the Companies Act regarding allotment of shares:
(a) Minimum Subscription:
Sec. 69(1) states that no allotment can be made by the company until the minimum subscription has been received.
(b) Application Money:
Sec. 69(3), however, lays down that the amount payable on each share with the application form must not be less than 5% of
the nominal value of the shares.
(c) Money to be Deposited in a Scheduled Bank:
Sec. 69(4) states that money received from the applicants must be deposited in a Scheduled Bank until the certificate to
commence business has been obtained or until the entire amount payable on applications for shares in respect of the minimum
subscription has been received by the company.
(d) Returns of Money:
Sec. 69(5) states that if the minimum subscription has not been raised or if the allotment could not be made within 120 days
from the date of publication of the prospectus, the directors must return the money received from the applicants. If the money is
refunded within 130 days no interest is payable, beyond which the directors are liable to pay interest @ 6% p.a. from the 130th
day to the day of repayment.
(e) Statement in lieu of Prospectus:
Sec. 70 of the Companies Act states that a public company which has not issued any prospectus must deliver to the Registrar
for registration a statement in lieu of prospectus signed by every director or proposed director or his agent in the form prescribed
in Schedule III of the Act, at least 3 days before the first allotment of shares.
(f) Opening of the Subscription List:
Sec. 72 lays down that no allotment can be made until the beginning of the 5th day after the publication of the prospectus or
such later time as may be prescribed for the purposes in the prospectus.
(g) Revocation of Application:
Application for shares cannot be revoked until after the expiration of the 5th day after the time of opening of the subscription list
except in one case, i.e. if any responsible person gives public notice of withdrawal of the consent to the issue of the prospectus,
any applicant can revoke his application.
Effects of an Irregular Allotment of Shares:
The following consequences are to be made if the allotment is made in contravention of Sees. 69, 70 and 73, stated earlier:
(i) Option:
See. 71(1) and (2) states that the allotment becomes voidable at the option of the shareholders. The option to avoid the contract
must be exercised within 2 months of holding the statutory meeting or where no statutory meeting is held or where the allotment
is made after the holding of the statutory meeting, within 2 months after the date of allotment.
The same can be exercised even if the company is in course of liquidation.
(ii) Compensation:
Sec. 71(3) lays down that if any director knowingly or wilfully contravenes the rules or authorizes the contravention, he is liable
to pay compensation to the shareholders concerned for any loss or damage suffered by him. But the suit for compensation must
be filed within 2 years from the date of allotment.
(iii) Fine:
Sec. 72(3) states that the validity of an allotment shall not be affected by any contravention of the foregoing provisions of this
section, but,, in the event of any such contravention, the company, a fid every officer of the company who is in default, shall be
punishable with fine which may extend to Rs. 5,000.
(iv) Void:
If any allotment is made in violation of Sec. 73, the same is treated as void.
Returns as to Allotment of Shares:
According to Sec. 75 of the Companies Act, a company having a share capital (whether public or private) must file with the
Registrar a return of the allotment within 30 days after making such allotment of shares giving full particulars of allotment made,
such as:
(i) The number and the nominal amount of the shares allotted;
(ii) The names, addresses and occupations of the allottees; and
(iii) The amount paid or payable on each share.
If any shares (other than bonus shares) are allotted as partly paid-up or fully paid-up (other than cash) the company must
produce for the inspection of the registrar:
(i) A contract in writing constituting the title of the allottee to the shares;
(ii) The contract of sale or for services or other consideration for which the allotment was made; and
(iii) file with the Registrar—(a) copies or the contract (mentioned above) and (b) a return stating the number and nominal amount
of the share so allotted.
While allotting bonus shares, the return should state the names, addresses and occupations of the allottee, in addition to the
number and nominal amount of the shares constituted in allotment together with a copy of the resolution authorising the issues
of such shares.
It should be remembered that no return need be filed relating to the issues and allotment of shares which the company had
forfeited for non-payment of calls. Re-issue of forfeited shares is not an allotment within the meaning of Sec. 75(1).

Q. Define Memorandum of Association. What are the statutory provisions relating to its form and contents ?
Q. Discuss various clauses of Memorandum of Association.

 According to section 2(56) of the Companies Act, 2013, memorandum means memorandum of association of a
company. The memorandum of association and articles of association are the two charter documents, for the
setting up of the company and its operations thereon.
 ‘Memorandum of Association‘ abbreviated as MOA, is the root document of the company, which contains all
the basic details about the company.
  On the other hand, ‘Articles of Association‘ shortly known as AOA, is a document containing all the rules and
regulations designed by the company.
 While the MOA sets out the company’s constitution, and so it is the cornerstone on which the company is built.
 Conversely, AOA comprises bye-laws that govern the company’s internal affairs, management, and conduct.
 Both MOA and AOA, require registration, with the registrar of companies (ROC), when the company goes for
incorporation. MOA is a public document according to Section 399 of the Companies Act, 2013 (Inspection,
production and evidence of documents kept by Registrar).
Object of registering a Memorandum of Association or MOA
 The MOA of a company contains the object for which the company is formed. It identifies the scope of its
operations and determines the boundaries it cannot cross.
 It is a public document according to Section 399 of the Companies Act, 2013. Hence, any person who enters into
a contract with the company is expected to have knowledge of the MOA.
 It contains details about the powers and rights of the company.
Under no circumstance can the company depart from the provisions specified in the memorandum. If it does so, then it
would be ultra vires and void.
Format of Memorandum of Association (MOA)
According to Section 4 of the Companies Act, 2013, companies must draw the MOA in the form given in Tables A-E in
Schedule I of the Act. Here are the details of the forms:
 Table A: Form for the memorandum of association of a company limited by shares.
 Table B: Form for the memorandum of association of a company limited by guarantee and not having a share capital.
 Table C: Form for the memorandum of association of a company limited by guarantee and having a share capital.
 Table D: Form for the memorandum of association of an unlimited company.
 Table E: Form for the memorandum of association of an unlimited company and having share capital.

 Memorandum of Association (MOA) is the supreme public document that contains all the information that is
required for the company at the time of incorporation.
 It can also be said that a company cannot be incorporated without a memorandum.
 At the time of registration of the company, it needs to be registered with the ROC (Registrar of Companies).
 It contains the objects, powers, and scope of the company, beyond which a company is not allowed to work,
i.e. it limits the range of activities of the company.
 Any person who deals with the company like shareholders, creditors, investors, etc. is presumed to have read
the memorandum, i.e. they must know the company’s objects and its area of operations. The Memorandum is
also known as the charter of the company.

The contents of the Memorandum of Association or its clauses are:

Name Clause –
 The name of the company is its first unique identity.
 The first restriction as to use of the name clause is that it shall not be the undesirable name. Section 4(2) of the
Companies Act, 2013 provides that a name is undesirable.
 Thus the name clause of the memorandum consists of the authentic, legal and approved name of the company.
Company names should not bear any similarities to a company registered with a similar name because many times
these companies protect the name of their companies via a Trademark Registration procedure.
 It should not contravene the provisions of the Emblems and Names (Prevention of Improper use) Act, 1950.
 For a public limited company, the name of the company must have the word ‘Limited’ as the last word.
 For the private limited company, the name of the company must have the words ‘Private Limited’ as the last words.
 In terms of Section 439 of the Companies Act, 2013 - the improper use of words “Limited”/”Private Limited” is a
non-cognizable offence.
 The Name Clause is not applicable to companies formed under Section 8 of the Act who must include one of the
words, as applicable: Foundation; Forum; Association; Federation; Chambers; Confederation; Council; Electoral
trust.

Domicile Clause –
 According to Section 4(1)(b), every company must specify the name of the state in which the registered office of
the company is located.
 According to Section 12(2), the company shall furnish to the Registrar verification of its registered office within a
period of thirty days of its incorporation in such manner as may be prescribed.
 Section 12 (4) states - Notice of every change of the situation of the registered office, verified in the manner
prescribed, after the date of incorporation of the company, shall be given to the Registrar within fifteen days of the
change, who shall record the same.
 Section 12 (5) states - No company shall change the place of its registered office from the jurisdiction of one
Registrar to the jurisdiction of another Registrar within the same State unless such change is confirmed by the
Regional Director on an application made in this behalf by the company in the prescribed manner.
  Section 13 (4) The alteration of the memorandum relating to the place of the registered office from one State to
another shall not have any effect unless it is approved by the Central Government on an application in such form
and manner as may be prescribed.
Object Clause –
 Section 4 (1)(c) - The memorandum of a company shall state— the objects for which the company is proposed to
be incorporated and any matter considered necessary in furtherance thereof;
 Objects Clause constitutes the main body of the memorandum.
 It specifies the sphere of activities of the company.
 The sub-clause ‘Other objects’ states the other objects of the company, not included in the main objects.
 There is another sub-clause – the States to whose territories the objects extend, in the case of companies (other
than trading corporations) with objects not confined to one State.
 The Doctrine of Ultra Vires is a fundamental rule of Company Law.
 When a company violates its objects clause in the Memorandum, it amounts to ultra vires act, which is absolutely
void.
 It cannot be ratified by the share-holders even if they agree to do so.
 It states that the objects of a company, as specified in its Memorandum of Association, can be departed from only
to the extent permitted by the Act.
 The Doctrine of Ultra Vires is introduced to safeguard the creditors and investors of the company.
 The doctrine of Ultra vires prevents the company from using the money of the investors other than those
mentioned in the object clause of the memorandum.
 Some of the consequences of ultra vires acts are – Directors are personally liable and Ultra vires contracts are
void.
Liability Clause –
 It simply states that every member of the company has limited liability. The clause also specifies the amount of
contribution agreed upon for each individual participant in case the company is closing or winding up. It should
specify the liability of the members of the company, whether limited or unlimited.
 For a company limited by shares – As per Section 4(1)(d)(i), in the case of a company limited by shares, that
liability of its members is limited to the amount unpaid, if any, on the shares held by them;
 As per Section 4(1)(d)(ii), for a company limited by guarantee – it should specify the amount undertaken by each
member to contribute to:
o The assets of the company in the event of its being wound-up while he is a member or within one year after he
ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities
as may have been contracted before he ceases to be a member, as the case may be; and,
o The costs, charges, and expenses of winding up and for adjustment of the rights of the contributories among
themselves.
 Unlimited company is a company not having any limit on the liability of its members [Section 2(92)]. An unlimited
company must have Articles of Association showing the number of members with which the company is seeking
registration, however, if the company has a share, the Articles of Association must mention the amount of share
capital with which company is to be registered. An unlimited company has its own advantages. There is no need
to have any share capital and such company has also the liberty to increase or reduce its capital without any
restriction. Statutory restrictions on purchase of shares of company or loan by company for purchase of its own or
its holding company’s shares do not apply.
Capital Clause –
 This is compulsory only in the case of limited company that is, companies having share capital (The capital of a
company is contributed by a large number of persons known as shareholders. These shareholders are issued
shares of the company. The accounting of such transactions is special and involves the share capital account).
 Section 4(1)(e) provides that in the case of a company having a share capital,— the amount of share capital with
which the company is to be registered and the division thereof into shares of a fixed amount and the number of
shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share;
 These companies must specify the amount of Authorized capital divided into shares of fixed amounts.
 The capital clause should also mention the types of shares, the number of each type of share, and the face value
of each share.
 Further, it must state the names of each member and the number of shares against their names.
Subscription Clause or Association Clause –
 This is a subscribers declaration clause, and is also known as Association clause.
 The subscription clause basically lists down the motives of the shareholders behind the incorporation of the
company and also states that the subscribers are agreeing to take up shares in the company.
 The MOA must clearly specify the desire of the subscriber to form a company.
 It also specifies the number of shares taken up by each subscriber.
 For One-Person-Company: The MOA must specify the name of the person who becomes a member of the
company in the event of the death of the subscriber.

Q. What do you understand by Dividend ? Who are entitled to get dividend ? Explain.
  Almost all commercial corporate enterprises are undertaken with a view of making profits fo their members.
 The profits of a company when distributed among its members are called “dividends”.
 Dividends are a post-tax appropriation and is paid out to shareholders and expressed either in rupee terms or in
percentage terms.
 For example if the face value of the stock is Rs. 10 and the company announces 30% dividend then it means that a
dividend of Rs. 3 per share will be paid out to shareholders.
 Dividend includes any interim dividend [Section 2(35)].
 It is implied authority of company to distribute dividends.
 Therefore, no express power to distribute dividend is required in the Articles of Association or Memorandum of
Association of the company.

Power to declare dividend:

Ordinarily, the power to declare dividend at the annual general meeting lies with the share-holders of the company. However,
the directors have a right to recommend dividend to the share-holders. The payment of dividends is based on two fundamental
principles, namely:
 Firstly, dividends must never be paid out of capital; and
 Secondly, dividends shall be paid only out of profits.
Section 8. Formulation of companies with charitable objects, etc.—
(1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be
registered under this Act as a limited company—
(a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity,
protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members

Dividend to be paid only out of profits:

Section 123 of the Companies Act, 2013 declares that dividend must be paid only out of profits. The Companies Act provides
three sources from which dividends are to be paid, namely –
 The profits of the company for that financial year for which dividends are to be paid.
 Undistributed profits of the previous financial year; and
 Money provided by the Central Government or the State Government for the payment of dividends in pursuance of a
guarantee by the Government concerned.
Provided also that no dividend shall be declared or paid by a company from its reserves other than free reserves.
Section 123(5) - No dividend shall be paid by a company in respect of any share therein except to the registered shareholder of
such share or to his order or to his banker and shall not be payable except in cash.
Section 123(6) A company which fails to comply with the provisions of sections 73 and 74 shall not, so long as such failure
continues, declare any dividend on its equity shares.
Section 73 is Prohibition on acceptance of deposits from public while Section 74 is Repayment of deposits, etc., accepted before
commencement of this Act.
A declared dividend is a statutory debt:
Once the dividend is declared, it becomes a statutory debt towards the company. In such circumstances the company
is under a legal obligation to pay the dividends to its share-holders and each share-holder is entitled to sue the
company for his proportion.
Interim dividend – whether creates a debt - On the other hand, a declared interim dividend [Section 123(3)] does not
create a debt against the company. By virtue of the Articles of Association of the company, the directors may be
empowered to recommend for interim dividend. But it does not become a debt against the company. It is open for the
director to rescind the declaration by the board’s resolution before payment.
According to Section 123(4) of the Companies Act, 2013, the amount of dividend including interim dividend shall be
deposited to a scheduled bank in a separate account within five days from the date of declaration of such dividend.
It is to be noted that dividend is to be paid only to the registered share-holders. Warrant holders may also be paid as
specified.
Section 51. Payment of dividend in proportion to amount paid-up—A company may, if so authorised by its articles, pay
dividends in proportion to the amount paid-up on each share.
In order to ascertain which shareholders are eligible to receive the company bonus or dividend, the company
establishes a record date. This date helps determine who are the company's shareholders on that date, who will qualify
to receive the bonanza. Shareholders in a traded stocks keep changing continuously, and thus a pre-decided date can
help identify the actual beneficiary of such occasional dole-outs. All the shareholders holding a company’s shares on
the record date are eligible to get dividend/bonus declared by the company.
Another important date related to the record date is the ex-dividend date. The ex-dividend date or the ex-date is usually
set one business day prior to the record date, since India follows a T+2 rolling settlement for delivery of shares.

Shares that are bought before the ex-dividend date are the ones eligible for receiving the dividend announced by a
company. If someone buys a stock on ex-date, it will not be credited to her demat account on the record date, and
therefore, that investor will not be eligible for receiving the bonus share. However, the person who sold the stock will
be eligible for the same.

Q. Write a note on appointment and qualification of Director.

Q. Describe in detail the appointment of Directors. What is the position of Director of a Company ? Explain.
Q. Describe the powers, duties and liabilities of Director.
 A Director of a Company is a person that is elected by the shareholders to manage the affairs of the company
as per the MOA and AOA.
 As the company is an artificial person it can only act through the agency of a natural person.
 Thus, a director has to be a living person and the management of the company is entrusted to its Board of
Directors.
 So needless to say, after the shareholders, the directors are the most important people in the company.
 They wield the power and the responsibilities of the shareholders on their behalf.
 The appointment of the Directors can be required from time to time based on the requirements of the
shareholders of the business.
 Section 2(34) of the Companies Act, 2013 defines a ‘director’ to mean a director appointed to the Board of a
company.
APPOINTMENT AND QUALIFICATIONS OF DIRECTORS, Section 149. Company to have Board of Directors.—
(1) Every company shall have a Board of Directors consisting of individuals as directors and shall have—
(a) a minimum number of three directors in the case of a public company, two directors in the case of a private
company, and one director in the case of a One Person Company; and
(b) a maximum of fifteen directors: Provided that a company may appoint more than fifteen directors after passing a
special resolution: Provided further that such class or classes of companies as may be prescribed, shall have at least
one woman director.
The Companies Act has not prescribed any academic or professional qualifications for directors. Also, the Act imposes
no share qualification on the directors. So, unless the company’s articles contain a provision to that effect, a director
need not be a shareholder unless he wishes to be one voluntarily. But the articles usually provide for a minimum share
qualification.
Procedure for Appointment of a Director
Before considering the appointment of the director a few checks have to be made. There are also certain prerequisites
to being nominated for the appointment of a director. Let’s first take a look at those.
 First of all the nominee has to be above 21 years of age. This is mandatory as per the Companies’ Act.
 Then, a background check has to be conducted to ensure that the nominee has not been disqualified from
being a director by any court or any other competent authority such as the Company Law Board or the
Securities Exchange Board of India.
 The nominee should not be suffering from any kind of mental illness that may impair their judgement when it
comes to taking decisions in the best interests of the company. These are the minimum mandatory
requirements for a person to be nominated as a director.
 The nominee must possess a DIN or a Director Identification number. Any person can apply for this number
through the online portal of the Ministry of Corporate Affairs. You have to download a form called form DIR 3
and fill up the necessary details. The details required are usually very general in nature, mostly personal details
of the person.
 The nominee must possess a digital signature. This can be purchased through any vendor authorised by the
government of India such as eMudhra and TCS.
 The nominee must possess a PAN. This is because any person who becomes a director must file their annual
returns every year. Any person in default of filing annual returns for a period of three years consecutively will
be automatically disqualified from being a director in any company
 The nominee must not be a director in more than ten companies at a given time. So you must check if the
nominee has the regulatory bandwidth to be appointed as a director in the first place.
If all the above requirements have been met, then the company can proceed with the appointment of the nominee
through the following procedure.
 Obtaining Consent of the Nominee – First and foremost, the consent of the person who is being nominated has
to be obtained. He or she has to declare that they consent to being a director in the company and have no
objections with the nomination. He or she then has to provide some basic personal details such as contact
 details, DIN, nationality, occupation etc. He or she also has to declare that they are eligible to be directors and
have not been disqualified by any competent authority from being a director. If the person is a professional
member of any professional body such as the Indian Medical Association or the Institute of Chartered
Accountants of India, then he or she has to provide the membership number. All of this can be done on the
online portal of the Ministry of Corporate Affairs. From this portal the nominee has to download form DIR-2, fill
it out with the details mentioned above and upload it back onto the portal.
 Calling for a Board Meeting – Once the DIR-2 form has been processed and put on record by the ministry of
corporate affairs, a notice has been sent out for a meeting of the existing board of directors. At the board
meeting the appointment of the nominee as a director is put up for a vote and recorded. Once the vote has
been passed, a resolution has to be passed confirming the decision of the board. The board also has to pass a
resolution to call for an EGM or an emergency general meeting with all the members / shareholders to ratify the
decision of the board. As soon as the board meeting has been concluded, the notice for the EGM has to be
sent out to all the members to vote for the resolution.
 Holding the EGM – At the EGM the matter is put forth to the members present with regards to the appointment.
Here the members can raise any concerns they may have or make any enquiries they may have with regard to
the appointment. The members must then vote to either ratify or veto the resolution passed by the board
members. The shareholders have the choice of personally voting for the resolution by attending the meeting,
conveying their vote through mail ballot or by appointing a proxy who will vote on behalf of the member /
shareholder.
 Issuing Letter of Appointment – Once the members / shareholders have ratified the board resolution, the
appointment of the nominee is considered finalised for all practical purposes. This leaves the final formalities
pending. A letter of appointment is issued to the nominee with details of his or her directorship, roles and
responsibilities as well as remuneration during his or her tenure of directorship.
 Filing Form DIR-12 – This form is described as ‘a return containing the particulars of appointment of director or
key managerial personnel and changes therein.’ This form has to be filed with the ministry of corporate affairs
within thirty days of issuing the letter of appointment. Besides certain basic details of the newly appointed
director, the key managerial person and the company in general, the form also requires the notarized true
copies of the board resolution as well as the resolution of the EGM to be attached as soft copies while
uploading the form. Once this form has been processed and taken on record, the procedure for the
appointment of the director is complete.
Disqualifications of a Director
Section 164(1) of the Companies Act, 2013 provides that a person shall not be eligible for appointment as a director of
a company, if —
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in
respect thereof to imprisonment for not less than six months. However, this disqualification will last only up to five
years from the date of expiry of the sentence.
But, if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of
seven years or more, he shall not be eligible to be appointed as a director in any company;
(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in
force;
(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others,
and six months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during
the last preceding five years;
(h) he has not complied with sub-section (3) of section 152; or
(i) he has not complied with the provisions of subsection (1) of section 165.
Section 165(1) limits the number of directorships to 10 public companies and total companies to 20.
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
Duties of Directors
Board of Directors acts as agent of the Company. However while acting for Company, Director needs to take care of his
duties which are as follows:-
 To act in good faith
 Act in accordance with the Articles of Association of the Company
 To act so as to promote the objects of the Company
 Act in best interest of the Company and its stakeholders
 Exercise duties with due and reasonable care
 To exercise independent judgement
 Not to get involved in a situation where his interest conflicts with the interest of the Company
 He cannot assign his office to any other person.
Not to achieve undue gain or advantage
Liabilities of a Director
Liability against Company
The directors will have to make good for any loss on account of
 an ultra vires act where the directors have entered into a contract beyond their powers. In such case directors
are personally liable for the loss caused to the company.
 breach of trust where the directors make a secret profit out of the business.
 for negligence or for not performing his duties honestly and carefully
 For dishonest act to make personal profits
 For the activity of the co-directors
Liability towards 3rd parties
The directors will be personally liable towards the 3rd parties,
 For any mis-statement in the prospectus for acting fraudulently, the directors shall be liable to pay
compensation to every person who subscribe for shares on the faith of such prospectus.
 For the failure to repay application money on non- receipt of minimum subscription.
 Failure to repay Application money on refusal to list shares by the stock exchange .
 For acting in their own name without mentioning the name of the company.
 For acting beyond the powers of the company.
 When the liability has been made unlimited by the Memorandum
 For any liability at the Company at the time of winding up.
Criminal liability of Directors
Will be liable with a fine and imprisonment or both for fraud of non-compliance of any statutory provision.
 For mis-statement in prospectus
 Failure to file return on allotment with the registrar.
 Failure to give the notice to the registrar for conversion of share into stock.
 Failure to issue share certificate and debenture certificate.
 Failure to maintain register of the members and register of debenture holders.
 Default in holding Annual General Meeting.
 Failure to provide Annual accounts and Balance Sheet.
 For holding the office of director in more than 15 companies.

Q. Define “Director”. What is the position of Directors of Company ?

 Directors are professionals deputed by the Company to run its business.
 They are officers who control the overall functioning of the Company involving day-to-day management and
superintendence of the company’ affairs.
 Section 2(34) of the Companies Act, 2013 defines director means a director appointed to the Board of a
Company. Directors are collectively referred as Board of Directors. Only an individual person can be appointed
to hold the position of director.
 An artificial person or an entity cannot be appointed as the director of a company.
 When we consider a company as a separate legal entity, then the directors are considered as the mind and the
will of the company as they control the actions of the company.
 In simple words, they are the brain of the company.
 Their role is important in the overall administration and management of a Company.
 They act in multiple capacities at different times to run the Company in an efficient manner.
Are directors servants of the company?
Considering directors as a servant of the company will be wrong as these are professional men and women of the
company who are hired to direct the affairs of the company. A more adequate way to describe them is as officers of the
company. Furthermore, in the case of Moriarty v. Regent’s Garage Co ((1921) 1 KB 423), it has been stated that a
director is not a servant of the company rather a controller of the affairs of a company.
“Directors are described sometimes as agents, sometimes as trustees and sometimes as managing directors. But each
of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful points of
view from which they may for the moment and for the particular purpose be considered.”
1. Directors As Agents of The Company
It is established in the case of Ferguson v. Wilson that the directors are considered as “agents of the Company” in the
eyes of law. A company is an artificial person created by law and cannot act on its own. It operates through its
directors i.e. agents of the Company. His lordship summarises the true position of the directors in case of Faure
Electric Accuinuolator Co., (1888) 40 Ch. D. 147) that directors are agents for the company with powers and duties of
carrying on the whole of its business subject to the restrictions imposed by the articles and the statutory provisions.
Their role as an agent is guided by the powers and duties entrusted to them.
2. Authority to Act as an Agent
A director derives his authority to act as agent of the Company by virtue of its Articles of Association which is drafted
in accordance with provisions of the Companies act. Thus, his actions as agents are considered as “actions of the
Company” itself. However, the director is not held personally liable for his acts unless specifically provided in the law.
Wherever a liability would attract to an agent; directors would be held liable whereas where the liability would attract to
the principal, the burden of liability will be shifted to the company.
3. Directors as Trustees of the Company
I. Trustees to the money and property:
The office of the director is fiduciary in nature and powers are delegated to them to act on behalf of the Company.
Directors are often referred to as “trustees of the company”. They are treated as trustees of the Company with regards
to the money and the property of the company they handle. They undertake all the transactions on behalf of the
company and utilize the company’s funds in the best possible manner to gain profits.
ii. Trustees to the powers entrusted:
The directors are also the trustees in respect of powers entrusted to them. They must exercise these powers bonafide
and for the overall benefit of the company. They have the power to utilize the funds of the company, to declare
dividends in the general meeting, to make calls and even to forfeit shares, to approve the transfer of shares, and accept
the surrender of shares. They exercise their powers which are basically “powers in trust” in good faith and for the
benefit of the Company.
iii. Management of the Company’s affairs as an office of trust:
The directors are officers deputed to manage the Company’s affairs for the benefit of the shareholders; it is an office of
trust which, if they undertake, it is their duty to perform fully and entirely; as observed by his Lordship Romilly in York
and North Midlands Railway Co. v. N. Hudson, 16 Bev. 485. Director is also required to consider the interests of all
stakeholders such as labour, customers, consumers, suppliers which are affected by the operations of company; while
executing their functions as trustees of the Company.
iv. Liabilities as trustees of Company:
Madras High Court has observed in a well-decided case of Ramaswami lyer v. Brahmayya and Co. (1966) 1 Comp. L.J.
107 (Mad) 7 that the directors of a company are trustees for the company and with reference to their power of applying
funds of the company and for misuse of the power they could be rendered liable as trustees and on their death, the
cause of action survives against their legal representatives. In this case his lordship also mentions about the liabilities
that a director can incur as a trustee while asserting the role of director as trustees of the Company.
Trustees for individual shareholders of the Company?
It is important to note that directors are trustees of the company but not for individual shareholders of the company. It
is laid down in the case of Percival v. Wright. The same principle was noted again in the case of Peskin v.
Anderson that the directors do not hold any fiduciary relationship with individual members of the company. The
directors are also not responsible as trustees for the debt due to a company or for the creditors of company even
though they are trustees of the assets of the Company.
Trustees of Company in the legal sense:
In terms of Trust laws in India, a trustee holds legal ownership over the trust property of which the equitable ownership
lies with the beneficiary. Considering this explanation, directors are not considered as full-fledged trustees of the
Company. Unlike a trustee, the property of the company is not legally vested in him. Also, a trustee executes contracts
in respect of the trust property in his own name whereas directors do the same under the common seal of the company
and not in his personal capacity.
A trustee never manages the trust property for his benefit whereas the director undertakes the management of trust
property for benefit of himself and other shareholders in the company. An artificial person can become a trustee but an
artificial person cannot become a director of the Company. As the only an individual can be a director who can execute
the transaction in the name of the Company. Directors are commercial officers managing a trading concern for the
benefit of themselves and of all the shareholders in it. They are paid officers of the Company. Thus we can say that
directors are not trustees in a real sense. Their functions and duties make them Trustees of the Company. Directors
may better be regarded as quasi trustee looking at their roles.
Q. Who are members of a Company ? Explain the rights and liabilities of a member of the Company.
MEMBER: A member of a company is the one who holds the Equity Shares (An equity share, normally known as ordinary
share is a part ownership where each member is a fractional owner and initiates the maximum entrepreneurial liability related to
a trading concern.) of that particular company + His name has been entered into the Register of Members of the company.
Every company must have at least one member. The fact that a person owns shares in the company does not make him a
member of the company. A shareholder becomes a member once his name is entered into the company's register of
members or if he is a subscriber to the constitution of the company.
Also, Dividend declared by the company is distributed to only those equity shareholders whose names appear in the Register of
Members.
Section 2(55) ―”member”, in relation to a company, means—
(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company,
and on its registration, shall be entered as member in its register of members;
(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of
members of the company;
(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a
depository;
Rights of a member of the Company are as below:
(1) Right of accessing books and documents: The members have a right to receive (get) the copies of Memorandum of
Association, Articles of Association, Auditors’ and Directors' Reports, Balance Sheet and Profit and Loss Account.
They have a right to inspect Register of Members, Register of debenture holders, Register of charges and investments and
copies of annual returns, Minutes book of all general meetings and proxies lodged for general meetings.
(2) Right to make fundamental Corporate decisions: The members have exclusive rights and powers to make fundamental
corporate decisions on the issues like
(a) Change of Registered office of the company
(b) Change of objects of the company
(c) Increase in Authorised Capital
(d) Change or amendment of Articles of Association
(e) Acquisition, merger and take over by the company
(f) Appointment of sole selling agents and
(g) Winding-up of the company.
(3) Right to participate in General Meetings: The members have the right to receive notices, agenda and circulars of all
general meetings. They also have right to attend general meetings or appoint proxies, vote on resolutions and proceedings in
person or by proxy, to demand and vote at a poll, demand to call an extraordinary general meeting, etc.
(4) Right to appoint and remove a director: The members have the right to hold an annual general meeting and extraordinary
general meeting to elect and remove directors by way of voting rights.
(5) Right with respect to the company's accounts and its audit: The members have the right to approve and adopt annual
accounts and auditors' report In annual general meetings. They also have the right to appoint or re-appoint auditors of the
company, decide their remuneration and to remove the auditors.
(6) Right to participate in the profits of the company: The members have right to approve dividend and share rate ably
dividend declared by the directors and get the dividend within 30 days of its declaration in the annual general meeting.
(7) Shareholding Right: The members have a right to receive a share certificate from the company within the specified time.
They also have the right to transfer shares, to get the Rights issue and Bonus issue shares.
(8) Right to receive surplus assets: The members have the right to share the surplus assets of the company (after the
settlement of all dues payable to stakeholder) at the time of the winding-up of the company.
(9) Right to class action suit: The members jointly have right to file a suit against the company or its directors in an appropriate
court of law for mismanagement, misappropriation of money, corruption or any fraudulent; the unlawful or wrongful act or
mission or misleading statements in the Audit report. The shareholders holding 10% of voting rights or any 100 members jointly
can apply to the tribunal for redress. They also have a right to demand investigation in the affairs of the company. If a situation
arises they have the right to file a petition for winding-up (closing down) the company.
Liabilities of a Member:
1. Section (21) ―’company limited by guarantee’ means a company having the liability of its members limited by the
memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the
event of its being wound up;
2. Section (22) ―’company limited by shares’ means a company having the liability of its members limited by the
memorandum to the amount, if any, unpaid on the shares respectively held by them;
3. Unlimited companies: Unlimited companies are those companies without limited liability. Section 3 specifically provides that
any 7 or more persons (2 or more in case of a private company) may form an incorporated company, with or without limited
liability.
Q. How is auditor appointed ? Describe his rights and duties.
Q. What do you understand by “Auditor” ? What are the rights and duties of an auditor ? Explain.
Introduction
Every entity in charge of the business is expected to conduct an audit on a daily, weekly, monthly, half-yearly, or
annual basis. The Company must conduct an audit to determine its financial soundness, as well as to verify the Annual
Accounts, Risk Policy, Compliance, and other regulations that apply to it. As per section 139 of the Companies Act,
2013 first auditor needs to be appointed within 30 days of its incorporation. In this article, there will be detailed
information related to the procedure for the appointment of an auditor, procedure for the appointment of the First
Auditor for a Company.

Purpose of an Auditor in a Company

An Auditor’s role in a company is to safeguard the interest of shareholders in a company. The auditor is required by
law to analyze the accounts kept by the directors and to tell them of the company’s true financial status. The auditor
will reveal the true financial position of a company, which will help investors, shareholders, and stakeholders of a
company, along with that it will help directors in making future decisions related to the company.

Appointment of an Auditor under Companies Act, 2013

The First Auditor of a business other than a government business must be appointed by the Board within 30 days of its
incorporation, according to section 139(5) of Companies Act, 2013. In the event that the Board fails, an EGM
(Extraordinary General Meeting) must be called within 90 days to appoint the First Auditor. The 90-day limit begins on
the day of incorporation rather than the expiration of the 30-day period.

Form ADT needs to file at the time of the First Auditor Appointment in a company. Once the authorization of an
Auditor has been obtained, the Board of Directors of the Company can execute a resolution to appoint the Auditor. The
auditor’s appointment must be reported to the Registrar of Companies within 15 days of her or his appointment. From
the conclusion of that meeting until the conclusion of the company’s sixth AGM (Annual General Meeting), the first
auditor can serve. The corporation should, however, put the question of an auditor’s appointment up for ratification by
members at each Annual General Meeting (AGM).

Different types of Auditors appointed in a Company

 First Auditor
 Internal Auditor(Section 138)
 Subsequent Appointment of Auditor
 Secretarial Auditor
 Cost Auditor
Procedure for appointment of First Auditor
The auditor in this position will serve until the end of the first Annual General Meeting. The company must submit Form
ADT-1 to the Registrar of Companies, together with the requisite payments.

If it is a Public Listed Company, then, in that case, the first auditor will be appointed by the Comptroller and Auditor
General of India within 60 days of the Company’s incorporation date, and if the Comptroller General of India does not
appoint such auditor within the said period of time, the Company’s Board of Directors shall appoint such auditor within
the next thirty days, and if the Board fails to appoint such auditor within the next thirty days, the Company shall be
dissolved. The First Auditor will hold the position until the First Annual General Meeting concludes.

Procedure for appointment of an Auditor other than First Auditor

The members of the company must appoint auditors (other than the first auditors) in a general meeting. The auditor
appointed at the general meeting takes office immediately after the meeting, and the existing meeting will be
considered as the first auditor meeting for the newly appointed auditor.

However, if a casual vacancy [Section 139(8)] in the office of an auditor arises as a result of registration, the consent of
members must be acquired within three months of the Board’s recommendation date. The auditor appointed in the
meeting will continue his or her work till the next Annual General Meeting. It is required for the Company to file ADT-1
within 15 days of appointing the subsequent auditor.

Documents required for appointing a new auditor for a Company

Following are the forms that need to be filed by the company at the time of appointing an auditor for a company
 At the time of the First Auditor Appointment, submit Form MGT-14 together with proof of the resolution.
 Form ADT-1 needs to be filed with the ROC (Registrar of Companies)
In addition to the foregoing forms, the ROC requires the following information
 The new auditing firm’s name.
 The new auditing firm’s address.
 PAN Number and email address
 The length of time for which the firm has been hired.
 Information about the resigned auditing firm.
 The new auditor firm’s appointment date.
 Form ADT-1, digitally signed (along with the signature of the director of the company).
Conclusion
The Auditor is appointed in the companies under section 139 of the Companies Act, 2013. The provisions governing
the appointment of an auditor for a Public Business are more strict than those governing the appointment of an auditor
for a Private Firm. A listed business, for example, cannot select an individual as an auditor for more than five years in a
row. In addition, an audit firm cannot serve as the auditor of a publicly listed company for more than two terms, that is
five consecutive years.
Section 143, the Companies Act, 2013: Powers/Rights and Duties of auditors and auditing standards.—
Powers / Rights of Auditors
(1) Every auditor of a company shall have a right of access at all times to the books of account and vouchers of the
company, whether kept at the registered office of the company or at any other place.
(2) Right to require from the officers of the company such information and explanation as he may consider necessary
for the performance of his duties as auditor.
(3) Section 145. Auditor to sign audit reports, etc.— The person appointed as an auditor of the company shall sign the
auditor‘s report or sign or certify any other document of the company in accordance with the provisions of sub-section
(2) of section 141, and the qualifications, observations or comments on financial transactions or matters, which have
any adverse effect on the functioning of the company mentioned in the auditor‘s report shall be read before the
company in general meeting and shall be open to inspection by any member of the company.
(4) Section 146. Auditors to attend general meeting.— All notices of, and other communications relating to, any general
meeting shall be forwarded to the auditor of the company, and the auditor shall, unless otherwise exempted by the
company, attend either by himself or through his authorised representative, who shall also be qualified to be an
auditor, any general meeting and shall have right to be heard at such meeting on any part of the business which
concerns him as the auditor.
(5) To visit Branch Office of the Company and have access to books, accounts, etc.
(6) To inspect the minute books (Minutes of Meeting) of the Board.
(7) To inform the Central Government about any fraud being committed against the company.

Duties of the Auditors

Section 143(1) - Performance of his duties as auditor to inquire into the following matters,.
 (a) whether loans and advances made by the company on the basis of security have been properly secured and
whether the terms on which they have been made are prejudicial to the interests of the company or its
members;
 (b) whether transactions of the company which are represented merely by book entries are prejudicial to the
interests of the company;
 (c) where the company not being an investment company or a banking company, whether so much of the
assets of the company as consist of shares, debentures and other securities have been sold at a price less
than that at which they were purchased by the company;
 (d) whether loans and advances made by the company have been shown as deposits;
 (e) whether personal expenses have been charged to revenue account;
  (f) where it is stated in the books and documents of the company that any shares have been allotted for cash,
whether cash has actually been received in respect of such allotment, and if no cash has actually been so
received, whether the position as stated in the account books and the balance sheet is correct, regular and not
misleading: Provided that the auditor of a company which is a holding company shall also have the right of
access to the records of all its subsidiaries in so far as it relates to the consolidation of its financial statements
with that of its subsidiaries.
Section 143(2) - The auditor shall make a report to the members of the company on the accounts examined by him and
on every financial statements which are required by or under this Act to be laid before the company in general meeting.
Section 143 (3) The auditor‘s report shall also state—
(a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and
belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on
the financial statements;
(b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as
appears from his examination of those books and proper returns adequate for the purposes of his audit have been
received from branches not visited by him; 94
(c) whether the report on the accounts of any branch office of the company audited under subsection (8) by a person
other than the company‘s auditor has been sent to him under the proviso to that sub-section and the manner in which
he has dealt with it in preparing his report;
(d) whether the company‘s balance sheet and profit and loss account dealt with in the report are in agreement with the
books of account and returns;
(e) whether, in his opinion, the financial statements comply with the accounting standards;
(f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on
the functioning of the company;
(g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters
connected therewith;
(i) whether the company has adequate internal financial controls system in place and the operating effectiveness of
such controls;

Q. State the Doctrine of Indoor Management. How does it differ from Doctrine of Ultravires ?
Q. Explain the Doctrine of Management. State the exceptions of this doctrine.
Doctrine Of Ultra Vires:
The Doctrine of ultra-vires was given under section 245(1)(b) of the Companies Act, 2013. The term Ultra-vires (Beyond-
powers) for a firm refers to an action that is beyond the company's legal capacity and jurisdiction. If a corporation does
an act or a series of activities that are in violation of the Companies Act of 2013, they are subject to legal penalties. The
word "Ultra vires" refers to conduct carried out beyond the legal powers granted by the object clause of the
Memorandum of Association.
The doctrine of ultra vires restricts the company's actions to those defined under the object clause of MOA. The effects
of ultra-vires transactions are void-ab-initio, they cannot be turned into intra-vires after the ratification by the share-
holders. The injunction orders can be issued. The directors can be personally made liable. Sometimes, even criminal
action can be taken against deliberate fraud/misapplication.
Types of ultra vires and their ratification:
 In case of Ultra-vires to the companies act, it is Void-ab-initio or void from the beginning and Shareholders
cannot ratify.
 In case of Ultra-vires to the memorandum of the company, it is Void-ab-initio and Shareholders cannot ratify.
 In case of Ultra-vires to the articles of the company which is otherwise Intra-vires to the company,
Shareholders can ratify after alterations.
 In case of Ultra vires to the directors of the company, which is otherwise Intra-vires to the company,
Shareholders can ratify.
The Doctrine of Constructive Notice:
Section 399 of the Companies Act, 2013 states that any person may, after payment of the prescribed fees inspect by
electronic means any documents kept with the Registrar of Companies.
Any person can also obtain a copy of any document including the certificate of incorporation from the Registrar.
In line with this provision, the Memorandum of Association and the Articles of Association are public documents once
they are filed with the Registrar.
Any person may inspect the same after payment of the fees prescribed.
The special resolutions are also required to be registered with the Registrar under the Companies Act, 2013.
The doctrine presumes that every person has knowledge of the contents of the Memorandum of Association, Articles
of Association and every other document such as special resolutions as it is filed with the Registrar and available for
public view.
  The Memorandum of Association and Articles of Association of any company are public documents which can
be inspected by the general public on MCA portal by paying the required fees.
 Doctrine of constructive notice assumes that any person who deals with a company, must have inspected its
documents and establish conformity with the provisions.
 Though, if a person fails to read them, then the law assumes that he is aware of the all the contents of the
documents. Such an assumption or presumption notice is called Constructive Notice.
 In simpler words, if a person enters into a contract which is beyond the powers of a company, then he has no
right to sue the company for its redemption.
 The Memorandum of Association is the charter document that states the powers of its directors and its
members.
 If a person enters into a contract which is beyond the powers of the company or outside the limits of its
authority, he cannot acquire any rights against the property of the company.
The Doctrine of Indoor Management is an exception to the Doctrine of Constructive Notice. The doctrine of
Constructive Notice seeks to protect the company from the outsider whereas the Doctrine of Indoor Management seeks
to protect the outsider from the company.
The Doctrine of Indoor management can also be traced in the Indian Companies Act, 1956 under Section 290
Validity of acts of Directors
Acts done by a person as the director shall/can be valid notwithstanding that later it may be discovered that his
appointment was invalid due to any disqualification or defect or was terminated by any provision of the Act or the
Articles. Provided that nothing in the section shall give validity to any of the acts done by a director after his
appointment has been shown to the company to be invalid or terminated.
The Doctrine of Indoor Management:
 The doctrine of indoor management, also known as the Turquand rule is a 150-year old concept, which protects
outsiders against the actions done by the company.
 Any person who enters into a contract with the company shall ensure that the transaction is authorised by the
articles and memorandum of the company.
 The doctrine of indoor management is contrary to the doctrine of constructive notice.
 Doctrine of indoor management assumes that outsiders are unaware of the internal affairs of the company.
 This principle is based on the landmark case between The Royal British Bank and Turquand. Royal British
Bank v Turquand (1856) 6 E&B 327 is a UK company law case that held people transacting with companies are
entitled to assume that internal company rules are complied with, even if they are not. This "indoor
management rule" or the "Rule in Turquand's Case" is applicable in most of the common law world.
 Therefore, this rule of indoor management is important to people who deal with a company through its
directors or other persons.
 They can assume that the members of the company are performing within the scope of their authority as
mentioned in the charter documents i.e. Memorandum / Articles of association.
 “Outsiders are bound to know the external position of the company, but are not bound to know its indoor
management”. The Doctrine of Indoor Managements states that outsider person has no responsibility to have
the knowledge about the internal affairs of the company.
 The outsider person cannot be bound by the duty to review the internal functioning or the internal managerial
proceedings of the company.
 So, the outsider person shall not be made liable for the irregularities in the internal proceedings of the
company.
 The company cannot transfer its liability on the outsider person of its own irregular internal actions.
 This principle is called the Doctrine of the Indoor Management.
 It mitigates the effects of the “Doctrine of Constructive Notice”.
 It is based on positive concept.
Exceptions to the Doctrine of Indoor Management
Listed below are the exceptions to the doctrine that have been judicially established, which provide circumstances
under which the benefit of indoor management cannot be claimed by a person dealing with the company.
Knowledge of Irregularity
 This rule does not apply to circumstances where the person affected has actual or constructive notice of the
irregularity.
 In Howard V Patent Ivory Manufacturing Company (1888) 38 Ch D 156, the Articles of the company empowered
the directors to borrow up to 1,000 pounds. The limit could be raised provided consent was given in the
General Meeting. Without the resolution being passed, the directors took 3,500 pounds from one of the
directors who took debentures.
 Held, the company was liable only to the extent of 1,000 pounds.
 Since the directors knew the resolution was not passed, they could not claim protection under Turquand’s rule.
Suspicion of Irregularity
  In case any person dealing with the company is suspicious about the circumstances revolving around a
contract, then he shall enquire into it.
 If he fails to enquire, he cannot rely on this rule.
 In the case of Anand Bihari Lal V Dinshaw & Co., (1946) 48 BOMLR 293, the plaintiff accepted a transfer of
property from the accountant.
 The Court held that the plaintiff should have acquired a copy of the Power of Attorney to confirm the authority
of the accountant.
 Thus, the transfer was considered void.
Forgery
 Transactions involving forgery are void ab initio (null and void) since it is not the case of absence of free
consent;
 it is a situation of no consent at all.
 This has been established in the Ruben V Great Fingall Consolidated Case [1906] 1 AC 439.
 A person was issued a share certificate with a common seal of the company.
 The signature of two directors and the secretary was required for a valid certificate.
 The secretary signed the certificate in his name and also forged the signatures of the two directors.
 The holder contented that he was not aware of the forgery, and he is not required to look into it.
 The Court held that the company is not liable for forgery done by its officers.
Examples of Doctrine of Indoor Management:
1. Abc received a cheque from Xyz company. The Articles of Association of Xyz company provided that cheques
issued by the company need to be signed by two directors and countersigned by the secretary. The directors nor the
secretary who signed the cheque was appointed properly and thus the cheque issued was not valid. Abc sued the
company for the irregularities in the procedure. Is Abc liable for relief ?
Abc is entitled to relief and the company has to pay the amount of the cheque since the appointment of directors is a
part of the internal management of the company and a person dealing with the company is not required to enquire
about it.
2. Xyz company receives a share certificate of ABC Limited issued under the seal of the company. The company
secretary issues the certificate after affixing the seal and forging the signature of the two directors. Xyz files a lawsuit
claiming that the forging of signatures is a part of the internal management of the company. Is the claim by Xyz valid
and is liable to get relief ?
According to the exceptions to the doctrine of indoor management, a transaction involving forgery is null and void.
Since the document issued to Xyz is null and void, the claim made by him is not valid. Thus, he is not entitled to any
relief.

Case law on the doctrine of Indoor Management.

Royal British Bank v Turquand (1856) 6 E&B 327 is a UK company law case - Decided on: 1st May 1856
Facts of the case
 In the instant case, the directors of Royal British Bank Ltd. (R.B.B) issued a bond to Turquand and borrowed
money from him.
 The Articles of Association authorized the directors to issue such bonds with the approval of a proper
resolution.
 The directors were empowered by the Articles to borrow on bonds only such sums of money as the company
in a general meeting resolves to borrow from time to time (through the passing of necessary resolution).
 However, no such resolution was passed for authorizing the issue of bonds.
 And the directors issued a bond to Turquand without the authority of a necessary resolution.
 Later, the repayment of the loan defaulted and the company was questioned to be liable.
 The claim was refused by the shareholders in the absence of the resolution.
Issues raised
In the given case, the question arose as to whether the company (R.B.B) was liable for repayment of the bond.
The rule laid down in Royal British Bank v Turquand
 The case of Royal British Bank v Turquand is popularly known for laying down the doctrine of indoor
management.
 According to this principle, if an act is authorized by the articles or memorandum of a company, an outsider is
entitled to believe that all of the specified formalities for carrying out that act have been followed by the
company.
 In other words, persons dealing with a company who have satisfied themselves that the intended transaction is
not inherently inconsistent with the Memorandum and Articles, are not required to enquire about the validity of
internal proceedings of the company.
  That is to say that when they contract with a company considering that the intended transaction falls within the
purview of its Memorandum and Articles, they are entitled to presume that the provisions of the
Memorandum/Articles have been observed by the officers of the company.
 It is not the duty of outsiders to ensure that the company fulfills its internal regulations. It is sufficient that they
ensure that the proposed transaction is permitted by the charter documents of the company.
 They by no means can know what does or does not take place inside the company.
Judgment of the Court in Royal British Bank v Turquand
 Regardless of the fact that the bonds were issued without being authorized under a resolution, it was
determined that Turquand could sue on the bonds since he was entitled to presume that the resolution had
been legally passed.
 It was pointed out that an ordinary person dealing with a company is entitled to assume that the necessary
compliance or delegation of powers to the officer(s) dealing on behalf of the company has been made. He does
not need to inquire beyond what is apparent and obvious from the situation.
 In other words, an outsider is entitled to assume that, in relation to a contract entered into with him, all of the
essential formalities to be carried out under the Articles or Memorandum have been duly carried out.
 In this view, Lord Hatherley cited the principle of indoor management.
 He observed that “Outsiders are bound to know the external position of the company, but are not bound to
know its indoor management”.
 Hence, the Courts held that the Royal British Bank was liable for the bond because Turquand was entitled to
assume that the required resolution of the company in its general meeting (to authorize the issue of bonds) had
been passed.
 Turquand’s only duty was to ensure that the transaction was within the powers of the company’s Articles.
 As long as he ascertains this, the company shall be held liable if it fails to abide by the internal proceedings
necessary to give effect to the transaction.
 It was not the duty of Turquand to enquire whether the resolution had been actually passed or not.
 Hence, he could sue the company on the bond. And the bond was binding on the company.
Conclusion
The “doctrine of indoor management”, as laid down in the case of Royal British Bank v Turquand, permits all those
who deal with a company to believe that the terms & provisions of the articles have been followed by the company’s
officials. Thus, those who deal with the company are not required to enquire about the regularity of internal
proceedings.

Q. Describe the procedure of conversion of private company to public company. What are the differences between
private company and public company ?
Procedure for Conversion of Private Company into Public Company
1. Board resolution for approval for conversion and alteration of memorandum & article of association
2. Special resolution for approval for conversion and alteration of memorandum & articles of association and change of name to
delete word “Private”
3. eForm MGT-14 for filing the resolution with Registrar within 30 days of passing special resolution alongwith: (a) Special
resolution (b) Notice & explanatory statement (c) Altered memorandum & articles of association
4. eForm INC.27 for application for conversion of company with ROC within 15 days of passing of special resolution along with:
(a) Special resolution (b) Minutes of members’ meeting (c) Altered articles of association
5. Compliance of provisions applicable on public companies like appointment of addtional no. of Directors and increase in
number of members.

Comparison Chart
BASIS FOR
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
COMPARISON

Meaning Private Limited Company refers to the
company which is not listed on a stock
exchange and the shares are held
privately by the members or investors
concerned. PVT LTD is the suffix that
follows the name of a private company.
The main advantage of a private
company is that they are exempt from
having to reveal its financial information
to the general public.
Public Limited Company implies a company
that is listed on a recognized stock
exchange and whose shares are traded
openly by the public. For a public limited
company, the name of the company must
have the word ‘Limited’ as the last word.
The company must launch an IPO in order
to become publicly traded.
 BASIS FOR
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
COMPARISON

Minimum number 2 7
of members

Maximum number 200, except in case of ‘one person Unlimited

of members company’.

Minimum number 2 3
of directors

Articles of It must frame its own articles of It can frame its own articles of association
Association association. or adopt Table F.

Transfer of Shares The shares of a private company The shares of a public company are freely
are not freely transferable, as there are transferable, i.e. freely traded in an open
restrictions in Articles of Association. market called a stock exchange.

Public Subscription Issue of shares or debentures to the It can invite the public to subscribe to its
public is prohibited. shares or debentures.

Issue of prospectus Prohibited from issuing a prospectus. It can issue a prospectus or it can also
opt for private placement.

Minimum amount The company can allot shares, The company cannot allot shares unless
of allotment without obtaining minimum the minimum subscription stated in the
subscription. prospectus is obtained.

Commencement of It can start a business just after receiving It requires a certificate of

Business a certificate of incorporation. commencement of business after it is
incorporated.

Appointment of Two or more directors can be appointed One Director can be appointed by a single
Director by a single resolution. resolution.

Filing of Consent to Directors need not require the filing of Directors must file their consent to act
act as Director their consent to act as a director. as a director, within 30 days of
appointment with the Registrar.

Retirement of The directors are not required to retire by 2/3rd of the total number of
Directors by rotation. The directors can be directors must retire by rotation.
rotation permanent.

Place of Holding AGM can be held anywhere. AGM is held at the registered office or any
AGM other place where the registered office is
situated.

Statutory Meeting Optional Compulsory

Quorum 2 members who are personally present 5 members are required to be present in
at the meeting, constitute a quorum, person when the number of members as on
irrespective of the number of members. the date of the meeting is 1000 or less.

15 members are required to present in

person when the number of members as on
the date of the meeting is more than 1000
but less than 5000.
 BASIS FOR
PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
COMPARISON

30 members are required to present in

person when the number of members as on
the date of the meeting is more than 5000.

Exemptions Enjoys many privileges and exemptions. No such privileges and exemptions.

Q. Write short notes on a Private Limited Company and a Public Limited Company. What are the documents required
for Incorporation of Public Limited Company ???
Private Limited Company
 A private limited company is a company that is created and incorporated under the Companies Act, 2013, or any other
act being in force.
 It is a company that is not listed on a recognized stock exchange and whose shares are not traded publicly.
 It restricts the right to transfer shares the liability of the company is limited to the number of shares held by them.
 There is a limit on the maximum number of members, i.e. the number of members cannot be more than
200, excluding current employees and ex-employees who were members of the company when they were employed
and continued to be members even after they left the company.
 Further, one should take note of the fact that joint holders of shares are treated as single members.
 Further, in a private company, any sort of invitation to the public to subscribe for shares is prohibited.
 At least two adults are required to act as the Directors of the Company.
 It can have a maximum of 15 Directors
 At least one director has to be an Indian Citizen and Resident, while the others can be foreign nationals.
 Two persons must act as a shareholder.
Documents Required for Incorporation of Private Limited Company
 Proposed Directors who are Indian Nationals need to submit a copy of PAN as their ID proof and passport or Driving
License or Voter ID or Adhar Card as their proof of address.
 They are also required to submit their bank statement or electricity/phone bill as their proof of residence.
 Proposed Directors who are Foreign Nationals need to submit a copy of their passport as their ID proof which can also
act as a proof of address. They are also required to submit a copy of their bank statement or electricity/phone bill as
their proof of residence.
 If the registered office is set up in a rented property, a rental agreement and no objection certificate by the landlord are
required.
 If a registered office is set up in an owned property, ownership property documents are needed.
 Utility bills of the business place
Public Limited Company
 A Public Limited Company or PLC is a joint-stock company that is created and incorporated under The Indian
Companies Act, 2013 or any other act being in force previously.
 It is listed on a recognized stock exchange to raise capital from the general public.
 It is a company with limited liability and is permitted to issue registered securities i.e. shares or debentures to the public,
by inviting them to subscribe for its shares through IPO and is traded openly on at least one stock exchange.
 The liability of the shareholders is limited to the extent of the amount contributed by them.
 Minimum number of 3 directors are required to form a public company.
 Minimum 7 shareholders are required to form a public company.
 Digital Signature Certificate (DSC) of any one director is required, in case self-attested copies of identity proof and
address proof are submitted.
 Director Identification Number (DIN) is a must.
 An application containing the object clause of the company is to be made.
Documents Required for Incorporation of Public Limited Company
 Digital Signature Certificate (DSC) and Directors Identification Number (DIN) of all Directors
 Copies of identity proofs such as Adhar Card, Voter ID, PAN Card or passport of all directors
 Passport size photograph of all Directors.
 If the registered office is set up in a rented property, a rental agreement and no objection certificate by the landlord are
required.
 If a registered office is set up in an owned property, ownership property documents are needed.
 Utility bills of the business place
Points to be noted
  As per Section 185 of Companies (Amendment) Act, 2017, there is a complete ban on providing loans, guarantees, or
advances to the Directors or its holding company, or any partner of the Director or any firm wherein the Director or
relative is a partner.
 The maximum number of Directors that a company can appoint is 15. However, a company can appoint more than 15
Directors by passing a special resolution at the general meeting.
 While a private company needs to add the words ‘Private Limited (Pvt. Ltd.)” at the end of its name, as a suffix, a public
limited company needs to add the words ‘Limited’ at the end of its name.

Q. Explain the majority rule with the help of decided cases.

The corporate world is governed and managed by democratic principle. A company is a juristic person which is conferred a
separate legal entity different from the members who form it i.e. members of the company. Decisions of the company are taken
by the Member Shareholders and the Board of Directors on behalf of the Company. The company also takes decisions
regarding pursuing litigation. As per the Companies Act 1956, shareholders who hold the majority of shares, rule the company.
This majority principle is recognized in a landmark case Foss v Harbottle. The decision taken by the majority shareholders was
binding on the minority. Now, this principle has been replaced and minority shareholders have been given greater power under
Companies Act 2013. There were provisions under the Companies Act, 1956 to protect the interest of the minority shareholders.
But the minority has been incapable or unwilling due to lack of time, recourse or capability- financial or otherwise. Hence there
were many cases of oppression of minority shareholders. The Companies Act, 2013 has provided for protection of minority
shareholders’ rights and can be regarded as a game-changer in the tussle between the majority and minority shareholders.
The principle of rule by the majority has been made applicable to the management of the affairs of Companies. The members
pass a resolution on various subjects either by a simple majority or by a 3/4 majority (special majority). Once passed by majority
members as per requirements, it becomes binding on all the members of the Company.
The Court will not ordinarily intervene to protect the minority interest affected by the resolution, as on becoming a member, each
person impliedly consents to submit to the will of the majority of the members. Thus, if wrong is done to the Company, it is the
Company which is the legal entity having its own personality, and that can only institute a suit against the wrongdoer, and
shareholders individually do not have the right to do so. This rule was laid down as early as 1843 in the landmark case of Foss
v. Harbottle.
This rule is the foundation of common law jurisprudence regarding who may bring an action on behalf of the company.
In Foss v Harbottle (1843) 67 ER 189 case, two shareholders Richard Foss and Edward Turton commenced legal action
against the promoters and directors of the company alleging that they had misapplied the company assets and had improperly
mortgaged the company property, thus the property of the company was misapplied and wasted. They also prayed that the
defendant might be decreed to make good to the company the losses. The Court rejected the two shareholders’ claim and held
that a breach of duty by the directors of the company was a wrong done to the company for which the company alone could
sue. In other words, the proper plaintiff, in that case, was the company and not the two individual shareholders.
The principle of Foss v Harbottle only applies where a corporate right of a member is infringed. The rule does not apply where
an individual right of a member is denied.
In Edwards v. Halliwell, [1950] 2 All ER 1064 is a UK labour law and UK company law case about the internal organisation of
a trade union, or a company, and litigation by members to make an executive follow the organisation's internal rules.
Facts: Some members of the National Union of Vehicle Builders sued the executive committee for increasing fees. Rule 19 of
the union constitution required a ballot and a two-thirds approval level by members. Instead a delegate meeting had purported to
allow the increase without a ballot.
Judgment: Jenkins LJ granted the members' application. He held that under the rule in Foss v Harbottle the union itself is prima
facie the proper plaintiff and if a simple majority can make an action binding, then no case can be brought. But there are
exceptions to the rule. First, if the action is ultra vires a member may sue. Second, if the wrongdoers are in control of the union's
right to sue there is a "fraud on the minority", and an individual member may take up a case. Third, as pointed out by Romer J
in Cotter v National Union of Seamen , a company should not be able to bypass a special procedure or majority in its own
articles. This was relevant here. And fourth, as here, if there is an invasion of a personal right. Here it was a personal right that
the members paid a set amount in fees and retain membership as they stood before the purported alterations.case,

Rajahmundry Electric Supply Corpn. v. A. Nageshwara Rao, 1956 AIR SC 213 - This appeal arises out of an application
filed by the first respondent under Section 162, clause (v) and (vi), Companies Act, 1913, for an order that the Rajahmundry
Electric Supply Corporation Ltd. be wound up.
The grounds on which the relief of wound up was claimed were that the affairs of the Company were being grossly mismanaged,
that large amounts were owing to the Government for charges for electric energy supplied by them, that the directors had
misappropriated the funds of the Company, and that the directorate which had the majority in voting strength was “riding
roughshod” over the rights of the shareholders.
In the alternative, it was prayed that action might be taken under Section 153-C and appropriate orders passed to protect the
rights of the shareholders.
The Court observed
This case was related with the Mismanagement in the Company and because of the gross mismanagement in the Company, the
first respondent filed for the winding up of the company against which this appeal arose.
It was found that the large amounts were owed to the Government related to the charges for electric energy supplied by them.
It was found that the directors of the company had misappropriated the funds of the Company, and that the directorate which
had the majority in the voting strength was destroying the rights of the shareholders. Therefore, under Sec 162(v) and Sec.
162(vi), the request for winding up was submitted before the Court.
In this case, after taking into consideration all the relevant sections and the contentions presented by the parties as well as the
facts of the case, the Court found the prevalence of the mismanagement in the Company and therefore, the appeal filed before
the Hon’ble Court against the winding-up of the company was failed and therefore, Court found the winding up order passed by
the lower court is valid.
As a result, the appeal fails and is dismissed.

1. In ICICI v. Parasrampuria Synthetic Ltd, JT 2000 (8) SC 270, (2002) 9 SCC 428
2. The appellant is one of the creditors of the first respondent - Parasrampuria Synthetics Ltd. (hereinafter referred to as 'PSL').
Invoking the provisions of Sick Industrial Companies Act (for short, 'the SICA'), PSL approached the B.I.F.R. seeking a
declaration that it is a sick Company. BIFR is the Board for Industrial and Financial Reconstruction, an agency of the
Government of India and a division of the Department of Financial Services of the Ministry of Finance, created under the Sick
Industrial Companies Act (SICA), 1985.
On March 17,1999, B.I.F.R. declared PSL as a sick Company.
Against that order of the B.I.F.R., an appeal is filed by the appellant before the A.A.F.I.F. (hereinafter referred to as 'the
Tribunal'), (A.A.I.F.R?) which is now pending.
Two orders of the Tribunal - first passed on 28.9.1999 in MA 61/99 which relates to taking on record the documents filed by the
appellant and the second passed on 13.10.99 in MA 33/99, which, inter alia, relates to granting of permission to the appellant to
proceed with the Suit No. 3287 of 1997 filed by it against PSL, and its guarantors for recovery of loan advanced by it - were
questioned by PSL in Writ Petition No. 1517 of 1999 before the High Court of Madhya Pradesh at Indore.
3. On 14.2.2000 the High Court passed the following interim order :
When the matter is taken up Mr. Mehta prays for adjournment. List on 21.2.2000 on condition that there shall be a stay of further
proceedings before the Tribunal till that day.
4. On 23.2.2000 the High Court modified the said order by passing the following order :
Heard on admission. Admit. No notice is necessary to the other side as the respondents are represented.
The interim relief granted earlier to continue. However, the parties are free to approach the B.I. F.R. , if they want.
5. Aggrieved by the said two orders of the High Court, the appellant filed these appeals by special leave.
6. On 17.4.2000 this Court passed the following order :
Notice.
Stay of the High Court in the meanwhile. Further proceedings in the High Court is also stayed.
The petitioner will be at liberty to proceed with the sale of the assets.
7. PSL filed IA No. 1/2000 to modify the said order in this Court.
8. The learned Counsel for the parties have consented to address their arguments in the appeals.
9. The contentions of learned senior Counsel appearing for the PSL, are : (1) the Tribunal is not having a judicial member and in
spite of the direction of the High Court no judicial member has been appointed, so the Tribunal can not be allowed to proceed
with the appeal; (2) the Tribunal is proceeding in a manner which amounts to denial of giving fair hearing to the PSL, therefore,
the Tribunal should not be allowed to proceed in the matter; (3) PSL consented for sale of the properties on the understanding
that no permission will be granted to the appellant to proceed with the suit and as the permission to proceed with the suit is
granted, the consent given must be deemed to have been withdrawn and, therefore, sale of the properties has to be stayed; (4)
if the suit is allowed to proceed it will result in two sales taking place one by the Receiver appointed by the Court and another by
the Authority pursuant to the order of the Appellate Tribunal and this will cause prejudice to PSL.
10. Learned senior Counsel appearing for the appellant, argues that the Tribunal's Constitution is not the subject matter of the
orders impugned in the writ petition and that in regard to the fair procedure we may give appropriate directions to the Tribunal
but the hearing of the appeal may not be stayed as it has become part heard. With regard to the permission granted to the
appellant to proceed with the suit the learned Counsel invited our attention to Para 9(c) of the order and submits that it contains
sufficient safeguard for PSL and that stay of suit will not be in the interest of any of the parties as the interest on loan amounting
to lacs of rupees will be adding up. Mr. K.K. Venugopal, the learned senior Counsel, who appears for the lead bank supported
the case of the appellant and stressed the point that by sale of properties at least some burden of interest would be reduced.
11. On the aforesaid submissions, the only point which falls for our consideration is that in view of orders passed by the Tribunal
which are subject matter of writ petition and in view of the interim orders passed by the High Court, what appropriate order be
passed by this Court to safeguard the rights of all the parties and to meet the ends of justice.
13. Regarding the hearing of the appeal and the procedure to be adopted by the Tribunal, we are of the view that it will not be in
the interest of justice to stay hearing of the appeal. However, the Tribunal is directed to grant a period of one week to PSL to file
its objections to the affidavit of the appellant for taking the documents on record and after considering the objections the Tribunal
may pass appropriate orders in regard to those documents.
14. Insofar as the sale of the properties is concerned which has also been permitted by the interim order of this Court, we see no
justifiable reason to interdict the sale of properties. The sale of the properties as ordered by the Tribunal may go on.
15. With regard to the permission granted by the Tribunal to proceed with the suit, in our view, the rights of PSL are not
prejudiced as the apprehension ex pressed by the learned Counsel that sales will be conducted by two authorities - one by an
authority under the order of the Tribunal and the other by the Receiver under the order of the Court - will not be in the interest of
PSL, is not ten able. The order of the Tribunal granting permission to the appellant to proceed with the suit, provides in Para 9(c)
as under :
ICICI is permitted to proceed with Suit No. 3287/97 against PSL and its guarantors in Hon'ble Mumbai High Court subject to the
condition that if any decree is obtained, and if its claim is not satisfied by its share in the sale proceeds in pursuance of Clause
(b) above, such decree can only be executed with prior consent as may be necessary under Section 22(1) of SICA.
From the perusal of the clause it is evident that if a decree is passed in favour of the appellant, further permission has to be
obtained under Section 22(1) of the Act for execution of the decree. At that stage the conduct of the sale of properties by the
Court Receiver can be prescribed appropriately.
16. It is needless to mention that any order passed by the Tribunal will be subject to the result of the writ petition.
17. The appeals are disposed of accordingly. No order as to costs.

Q. Describe the The Rule Of Majority And Exceptions To It in the case of Foss Vs. Harbottle:
Key takeaways
 In this case, the plaintiffs claimed that the company's property had been misused, wasted, and the wrong kinds of
mortgages had been granted on it. They demanded that a receiver be appointed and that the responsible people be
made liable to the business.
 Wigram VC rejected the claim and declared that only the firm has legal standing to file a lawsuit when its directors
wrong a company.
 The principle expressed in Sections 397 and 398 of the Indian Companies Act, which provide for the prevention of
oppression and mismanagement, was ruled by the Calcutta High Court to be an exception to the rule in Foss v.
Harbottle
Court actions continue to be the best defence against any mistreatment of corporate executives. Democracy is based on the
principle of majority rule, and a company, which is association of people and operates in line with decisions made by the majority
of its members, operates similarly. The sole remaining course of action for a disgruntled minority is to file a legal appeal if they
are unable to gain satisfaction for what they perceive to be a director wrongdoing through the regular process of interventions at
company meetings. Therefore, provisions for the protection of the investor's interests in the company are included in the
Companies Act, 2013.
The registration statute of 1844 had a significant impact on the joint-stock company control procedures by bringing about judicial
control of corporate activities under English law. This was done to make sure that they are under control and that the law is
upheld. This authority had always been used by the King's Court. Because of this, it was deemed practical to analyse the issue
using 1844 as a pivotal year.
Facts of the case
In September 1835, the "Victoria Park Company" was established.
Minority shareholders in the company Richards Foss and Edward Starkie Turton filed a lawsuit against the promoters and
directors.
The plaintiffs claimed that the company's property had been misused, wasted, and the wrong kinds of mortgages had been
granted on it.
They demanded that a receiver be appointed and that the responsible people be made liable to the business. Additionally, the
defendant can be ordered to make up the business losses.
Five business executives (Thomas Harbottle, Joseph Adshead, Henry Byrom, John Westhead, and Richard Bealey) as well as
attorneys (Joseph Denison, Thomas Bunting, and Richard Lane) and an architect made up the defendants.
Judgement of the case
Wigram VC rejected the claim and declared that only the firm has legal standing to file a lawsuit when its directors wrong a
company. The court essentially created two rules. First, under the "appropriate plaintiff rule," only the company may seek
redress for wrongs committed against it. Second, the court will not intervene if the alleged injustice can be affirmed or ratified by
a simple majority of members present at a general meeting, according to the "majority rule principle."
The Rule of Majority
This court is not to be necessary on a regular basis to assume control of every theatre and brewery in the kingdom, according to
Lord Eldon. The courts have generally adopted a laissez-faire principle (Laissez-faire is a policy of minimum governmental
interference in the economic affairs of individuals and society) and allowed majority rule to function unchecked.
A rule of procedure, most often known as the rule in Foss v. Harbottle, has been the primary judicial tool used to uphold this
non-interventionist policy. This rule is further based on two principles:
(a) the proper claimant principle; and
(b) the internal management principle.
Both of these concepts assume that the company itself is the claimant in the case and has the authority to resolve the alleged
injustice that was done to it.
Because of its intricacy and because it is viewed as unfair to recognise a substantive right yet refuse a remedy on procedural
grounds, the rule established in the case received harsh condemnation from across the Atlantic and in other areas of the world.
The requirements and interests of controllers and minorities have been attempted to be balanced by requiring a special
resolution rather than a simple majority vote in significant matters, such as constitutional amendments and judicial sanctions in
cases of capital reduction. The courts are also accessible to members directly via various statutory procedures.
Exceptions to the rule
The application of stated regulation includes situations when corporations have the authority to approve managerial
transgressions. However, there are some actions that cannot be approved or affirmed by a majority of shareholders, and each
and every shareholder has the right to bring legal action to enforce a debt owing to the corporation. A representative action of
this type is referred to as a "derived action" in American literature.
Ultra Vires: When it comes to matters that are outside the scope of the company's authority and that a majority of shareholders
cannot approve, a shareholder has the right to file a lawsuit against the company and its officers.
"There does not appear to be any case where the necessity of the corporation being a party has been expressly decided,"
according to the Bharat Insurance Company case, "but with respect to the first class of action, the question can admit of no
doubt - the relief therein claimed against the corporation itself."
Fraud on Minority: Even one shareholder may impeach the actions of the majority of a company's members if they use their
influence to cheat or mistreat the minority.
The landmark Menier Case provides the clearest explanation of it. It was decided that Hooper should face a derivative lawsuit
because of its oppressive expropriation of the minority shareholders through its schemes to profit from the unlawful agreements
it had signed.
Wrongdoers in Control: Any member or members may file a lawsuit in the company's name to protect its interests because it would
be pointless if the wrongdoers didn't have a decisive impact on the outcome, whether directly or indirectly. Glass v. Atkin
reached the same conclusion.
Acts Requiring Special Majority: At a general shareholder meeting, special resolutions are necessary for a number of acts.
Therefore, any member may file an action to restrain the majority if it intends to perform any such act by passing merely an
ordinary resolution or without passing special resolution in the manner required by law. In the Dhakeswari Cotton Mills Case and
the Nagappa Chettiar Case, such action was permitted.
Individual Membership Rights: Each shareholder has specific personal rights that he may exercise against the company and his
fellow shareholders. Many of these rights were granted to shareholders by the act itself, although they may also result from the
articles of association. These rights are frequently referred to as individual membership rights, and without respect for them, the
rule of majority is inapplicable.
Class Action: A class action lawsuit enables a group of claimants with the same complaint against a company to do so. For people
with limited resources or tiny claims that make individual lawsuits expensive and impractical, the scale of economies associated
with class actions seem especially crucial. When a company's management or conduct of its operations is allegedly detrimental
to the interests of the company its members, or its depositors, shareholders or depositors may submit an application with the
National Company Law Tribunal (NCLT).
Oppression and Mismanagement:The principle expressed in Sections 397 and 398 of the Indian Companies Act, which provide for
the prevention of oppression and mismanagement, was ruled by the Calcutta High Court to be an exception to the rule in Foss v.
Harbottle.
Conclusion: Foss v Harbottle It might be said that the well-known case law of Foss v. Harbottle holds a special place in English
jurisprudence. Numerous statutes dealing with company law in many nations have their roots in its ramifications. However, in
light of minority rights and the repressive tactics of majority stakeholders, the application of the rule of majority established in the
aforementioned case has become vulnerable to various exceptions. Not every decision-making process is won by the majority
leadership. Therefore, India cannot mechanically apply the principles established in this instance.

Write short notes on

 ‘Memorandum of a Company.’
 ‘Articles of Association’
 ‘Powers of Company Law Board’
 ‘Foreign Company’
According to section 2(56) of the Companies Act, 2013, memorandum means memorandum of association of a company.
 The memorandum of association and articles of association are the two charter documents, for the setting up
of the company and its operations thereon.
 ‘Memorandum of Association‘ abbreviated as MOA, is the root document of the company, which contains all
the basic details about the company.
 On the other hand, ‘Articles of Association‘ shortly known as AOA, is a document containing all the rules and
regulations designed by the company.
 While the MOA sets out the company’s constitution, and so it is the cornerstone on which the company is built.
 Conversely, AOA comprises bye-laws that govern the company’s internal affairs, management, and conduct.
 Both MOA and AOA, require registration, with the registrar of companies (ROC), when the company goes for
incorporation. MOA is a public document according to Section 399 of the Companies Act, 2013 (Inspection,
production and evidence of documents kept by Registrar).
Object of registering a Memorandum of Association or MOA
 The MOA of a company contains the object for which the company is formed. It identifies the scope of its
operations and determines the boundaries it cannot cross.
 It is a public document according to Section 399 of the Companies Act, 2013. Hence, any person who enters into
a contract with the company is expected to have knowledge of the MOA.
 It contains details about the powers and rights of the company.
Under no circumstance can the company depart from the provisions specified in the memorandum. If it does so, then it
would be ultra vires and void.
Format of Memorandum of Association (MOA)
According to Section 4 of the Companies Act, 2013, companies must draw the MOA in the form given in Tables A-E in
Schedule I of the Act. Here are the details of the forms:
 Table A: Form for the memorandum of association of a company limited by shares.
 Table B: Form for the memorandum of association of a company limited by guarantee and not having a share capital.
 Table C: Form for the memorandum of association of a company limited by guarantee and having a share capital.
 Table D: Form for the memorandum of association of an unlimited company.
 Table E: Form for the memorandum of association of an unlimited company and having share capital.

 Memorandum of Association (MOA) is the supreme public document that contains all the information that is
required for the company at the time of incorporation.
 It can also be said that a company cannot be incorporated without a memorandum.
 At the time of registration of the company, it needs to be registered with the ROC (Registrar of Companies).
 It contains the objects, powers, and scope of the company, beyond which a company is not allowed to work,
i.e. it limits the range of activities of the company.
 Any person who deals with the company like shareholders, creditors, investors, etc. is presumed to have read
the memorandum, i.e. they must know the company’s objects and its area of operations. The Memorandum is
also known as the charter of the company.
Keep in mind the following aspects before submitting the MOA:
1. Print the MOA
2. Divide it into paragraphs
3. Number the pages in sequence
4. Ensure that at least seven people sign it (2 in the case of a private limited company and one in case of a One
Person company).
5. Have at least one witness to attest the signatures
6. Enter particulars about the signatories and witnesses like address, description, occupation, etc.
A few things to remember
1. A company can subscribe to an MOA through its agent
2. A minor cannot sign an MOA. However, the guardian of a minor, who subscribes to the MOA on his behalf, will
be deemed to have subscribed in his personal capacity.
3. Companies can attach additional provisions as required apart from the mandatory ones mentioned above.

Definition of Articles of Association

 Section 2(5) ―articles means the articles of association of a company as originally framed or as altered from
time to time or applied in pursuance of any previous company law or of this Act.
 Articles of Association (AOA) is the secondary document, which defines the rules and regulations made by the
company for its administration and day-to-day management.
 In addition to this, the articles contain the rights, responsibilities, powers, and duties of members and directors
of the company.
 It also includes information about the accounts and audits of the company.
 Every company must have its own articles.
 However, a public company limited by shares can adopt Table F instead of Articles of Association.
 It comprises all the necessary details regarding the internal affairs and the management of the company.
 It is prepared for the persons inside the company, i.e. members, employees, directors, etc.
 The governance of the company is done according to the rules prescribed in it.
  The companies can frame their articles of association as per their requirement and choice.
 The Articles of Association of a Company are available under Public documents section on Ministry of
Corporate Affairs portal.

Q. what are the contents of Articles of Association ?

It is important to pay extra attention to the Contents of the Articles of Association (AOA) at the initial phase since they are
important for the ability of the Company to make profits and keep their shareholders satisfied. It is also important to make sure
that they are as per the Company’s interests because amending the Articles later requires a two-thirds majority of the votes at
the general meeting of shareholders.
Contents of Articles of Association of a limited company is prescribed in Table-F of the Companies Act, 2013(TABLE F
— ARTICLES OF ASSOCIATION OF A COMPANY LIMITED BY SHARES.). Generally, the contents of AOA are as follows:
DIRECTORS
The AOA defines the guidelines of the Directors’ appointment; their qualifications for appointment; their remuneration once
appointed and the powers of the Board of Directors in the Company meetings.
GENERAL MEETINGS
The AOA provides the basic framework of all the General Meetings to be conducted as well as all the provisions that are related
to the functioning of the General Meetings in any manner.
ACCOUNTING AND AUDITING
The provisions in AOA will define the guidelines subjected to the Auditing of the accounting of the Company.
SHAREHOLDERS
The AOA streamlines the sub-division of the Share capital of the Company including the rights of the Shareholders and the
relationship of these rights with other elements of the Company. The shareholders have to pay the whole or part of the
remaining unpaid amount on each share purchased on the Company’s demand; i.e Call on Shares.
LIEN OF SHARES
The Company is eligible to retain the Shares of any member of the Company in case they fail to pay the debt to the Company.
The member will not be allowed to transfer their shares unless they pay their debt.
TRANSFER AND TRANSMISSION OF SHARES
The AOA defines the procedure during the process of transfer of shares between the transferee and the shareholders.
Transmission of shares comes into effect with death, insolvency, marriage, succession, etc. It is also a part of AOA despite
being involuntary.
FORFEITURE AND SURRENDER OF SHARES
The AOA provides for the rules of forfeiture of shares if the member is not able to meet the purchase payments like paying call
money or any allotment on the Shares. Shareholders may choose to surrender or voluntary return their shares to the Company
pertaining to the guidelines of the AOA.
CONVERSION OF SHARES IN STOCK
The Company can pass an ordinary resolution in a General Meeting to convert their shares into stock. The management of the
decision and resolution passed should be in accordance with the AOA.
ISSUING SHARE WARRANT
Public Limited Companies are eligible to issue a share warrant staying within the provisions mentioned in AOA. A share warrant
is a bearer document which is related to the title of shares issued by the Company.
ALTERATION OF CAPITAL
Similar to the conversion of Shares into Stock, AOA provides the rules of the procedure to alter capital as per the Company’s
interests. The Company can decide to increase, decrease or rearrange the Capital.
VOTING RIGHTS
The AOA notes down the specific Company matters which calls for voting by members as well as the procedure of voting
whether by a poll or through proxies.
DIVIDENDS AND RESERVES
The AOA also provides the distribution of dividends among the Shareholders of the Company.
WINDING UP
 Winding up of the Company means the liquidation of all the assets of the Company to pay its debt.
 The remaining money left after the payment of all debt and expenses are distributed among the shareholders of the
Company.
 The AOA also provides the provisions and procedure related to the Winding Up of the Company and has to proceed in
accordance with the AOA.
IMPORTANCE OF THE ARTICLES OF ASSOCIATION
 The Articles of Association is one of the most important documents in the organization.
 The importance of the AOA rests in the important guidelines it provides for handling financial affairs of the Company,
managing the powers and responsibilities of the Directors, and their relationship with the Shareholders of the Company.
 The Articles details the voting rights of the members as well as the procedure of the voting.
 The Articles of Association protects the interests of the investors and the Shareholders.
 It keeps the interests of the Directors in any competing business and prevents any conflict of interest if the Articles
specifies that in its provisions.
 In conclusion, the Articles of Association are important for the welfare of the Company as an organization and for its
smooth functioning in fulfilling its objectives as an organization.

Comparison Chart
BASIS FOR
MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION
COMPARISON

Meaning Memorandum of Association is a Articles of Association is a

document that contains all the document containing all the
fundamental information which are rules and regulations that
required for the incorporation of the governs the company.
company.

Type of Powers and objects of the company. Rules of the company.

Information
contained

Status It is subordinate to the Companies It is subordinate to the

Act. memorandum.

Retrospective The memorandum of association of The articles of association can

Effect the company cannot be amended be amended retrospectively.
retrospectively.

Major contents A memorandum must contain six The articles can be drafted as
clauses. per the choice of the company.

Obligatory Yes, for all companies. Only a private company is

required to frame its articles
while a public company limited
by shares can adopt Table F in
place of articles.

Compulsory filing Required Not required at all.

at the time of
Registration

Alteration Alteration can be done, after passing Alteration can be done in the
 BASIS FOR
MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION
COMPARISON

Special Resolution (SR) in Annual Articles by passing Special

General Meeting (AGM) and previous Resolution (SR) at Annual
approval of Central Government (CG) General Meeting (AGM)
or Company Law Board (CLB) is
required.

Relation Defines the relation between company Regulates the relationship

and outsider. between company and its
members and also between
the members inter se.

Acts done beyond Absolutely void Can be ratified by

the scope shareholders.

BASIS FOR
MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION
COMPARISON

The Company Law Board

 The Company Law Board (CLB) is a quasi-judicial body, exercising equitable jurisdiction, which was earlier being
exercised by the High Court or the Central Government. It was established in May 1991 under Section 10E of
Companies Act 1956.
 The Board has powers to regulate its own procedures.
 The Company Law Board has framed “Company Law Board Regulations 1991” prescribing the procedure for filing the
applications/petitions before it.
 The Board has its Principal Bench at New Delhi, and four Regional Benches located at New Delhi, Mumbai, Kolkata and
Chennai.
 Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within
sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of
law arising out of such order.
But all the powers as discharged by the Company Law Board were ceased with the introduction of the National Company Law
Tribunal in 2002.
Constitution of Company Law Board
The board shall consist of members not more than nine members appointed by the Central Government. Among the members,
one member is appointed by the Central Government and shall be the chairman of the board.
Powers of Company law board
 The members were given exclusive powers and any acts done by the board cannot be called in question on the
grounds of defect in the constitution, the existence of any vacancy among the members of the board as per Section
10E(4) of Companies Act, 1956.
 Company law board shall have the same powers as Civil Procedure Code, 1908 while deciding any proceedings such
as:
 Discovering and inspection of documents or other material objects producible as evidence;
 Enforcing the attendance of witnesses and requiring the deposits of their expense;
 Compelling the production of documents;
 Examining the witnesses on oath;
 Granting of adjournments;
 Reception of evidence on affidavits.
 Members of the board were given power under Companies act, 1956 to provide the relief to the shareholder against the
oppression and mismanagement.
 Members of the board were given execution powers and the orders which have been executed by the board shall be
enforceable in the same way as if a court has been executed.
 Member’s of the board shall have the power to regulate its own procedure but they were guided by the principles of
natural justice.
Appeals against the orders of Company Law Board
 Any person who has been aggrieved by the order of the company law board within sixty days (may extend time period
on certain circumstances) from the date of order of CLB shall file an appeal to the high court.
  The essential point to take into consideration is that an appeal cannot be filed to the high court if the appeal is related to
question in fact.
 An appeal would lie in a high court in whose jurisdiction the registered office of the company is situated.
Enforcement of orders of Company Law Board
As per Section 634A of the Companies Act, 1956 the orders which have been passed by the board is enforceable in the same
way as it has been enforced by the courts. When the board is unable to execute its orders it may send to the court which has the
jurisdiction over the party against whom the order is to be enforced.

Foreign company
 The business world is no more disconnected or limited to political territories.
 We all know that many business entities function in many countries as a foreign company and have expanded
themselves to operate all over the world.
 However, when you wish to start operations in a country, other than the home country, you will have to comply with
various rules and regulations that are stipulated by that particular country for foreign business entities.
 Similarly, India too has specific stipulations and provisions for foreign companies.
 A foreign company in India is an entity that has been incorporated outside India, but happens to perform business
operations and activities in India.
 It has been accurately defined under the Companies Act 2013.
 Under the Companies Act 2013, a ‘Foreign Company’ has been defined under section 2 (sub-section 42). It defines a
foreign company as any entity that has been incorporated outside India and –
 Happens to have a place of business in India either physically, through any other agent or via electronic/digital means.
 Business activities are conducted by the entity in any other manner.
To be considered a Foreign Company in India, the entity must fulfill the above-mentioned criteria completely.
Let us now try to comprehend the implications of the terms ‘electronic mode’ and ‘business activities’ with regard to the
aforementioned criteria under the Companies Act 2013.
The term ‘electronic mode’ is defined under the Companies (Specification of Definitions Details) Rules, 2014 with regard to a
company (as given under Rule 2(h) and Rule 2 (1)(c) of Companies ‘Registration of Foreign Companies’ Rules, 2014).
In accordance with the aforementioned sections, electronic mode may include all transactions that have an electronic or digital
base, including –
 Business to business and business to consumer transactions.
 Data exchange.
 Digital supply transactions.
 All online services.
 Data communication services (through mobile, email, social media, cloud computing, etc.).
 Thus, even if the source of the transaction (main server) happens to be outside India, any activity being carried out in
the electronic mode in India by a business entity will come under the purview of a foreign company in India.
 The term explanation of the term ‘business activities’ can be sought from companies (Registration Offices and Fees)
Rules, 2014 and the definitions of specified terms for a ‘foreign company’ under the Companies Act, 2013.
 As per the aforementioned sections, a business activity with regard to a foreign company would not just involve having
a place of business or carrying out a transaction physically In India, but also such transactions which have been entered
into with any person residing in India (even if it does not have any place of business or electronic server in India).
 This has led to the consideration of e – commerce sites and other companies as a foreign company even if they do not
have any office or physical transaction in India.
Important Points
 The new Companies Act 2013 also includes ‘body corporates’ in its definition of a foreign company, due to which the
scope of the definition has been extended.
 Even a virtual presence is enough for an entity to come under the purview of the definition of a foreign company under
the new Companies Act 2013.
 The regulations and compliances for foreign companies under the new companies act have been widened and
compliance has been strictly stipulated. Provisions of chapter 22 have been stipulated to be followed by foreign
companies as well as those under the new law.

Q6. Define the expression “Promoter of a Company” and discuss the legal position of a Promoter.
Q. What do you understand by Promoter ? Explain the Functions, Rights and Liabilities of Promoters.
Q. Who is Promoter ? What are the duties and powers of a promoter in Company Law ?
A promoter is a person or a group of persons who take the responsibility to organize and establish a business enterprise, directly
or indirectly.
Section 2(69) of Companies Act 2013, deals with the term Promoter to mean the following:
 A person who has been named as the Promoter in the prospectus or the annual returns of the company.
  A person who has control over the affairs of the company, directly or indirectly, whether as a shareholder, director or
otherwise.
 A person in accordance with whose advice or instructions the board of directors of a company is accustomed to act.
 A person advising in professional capacity shall not fall under this definition.
 Therefore, if a company secretary or a legal counsel tendering advice to the company in professional capacity shall not
be termed as promoters.
 The definition of ‘promoter’ under the Indian Corporate law is inclusive in nature and not exhaustive.
 Its scope is very broad and it includes any person who has been associated with the organisation and establishment of
the company in a personal capacity.
 Thus, the promoter may be an individual, a firm or a company that does all the necessary preliminary duties to bring a
company into existence.
 The promoter’s work is to formulate new ideas and to develop it and also persuade others to join the company.
 Legal Position of a Promoter is that he is not an agent or trustee or Owner of the company.
 Promoter has a fiduciary relationship (involving trust, especially with regard to the relationship between a
trustee and a beneficiary) with the company which is based on trust and confidence.
 Therefore, a promoter is obliged to disclose all the relevant facts and any secret profit which is made by him in relation
to the formation of the Company.
Functions of a Promoter:
1. To think of the idea of forming a company and also to determine the possibilities.
2. The necessary negotiation can be conducted for the purchase of business if it is intended to purchase an existing business.
The help of the expert can be taken only if it is necessary.
3. To collect the requisite number of persons which is 7 in the case of the public company and 2 in case of a private company,
who can sign the Articles of Association’ and ‘Memorandum of Association’ of the company and also agree to as act as the first
directors of the company.
4. To decide about the following:
(i) The name of the Company,
(ii) The location of its registered office,
(iii) The form and amount of its share capital,
(iv) The brokers or underwriters for the capital issue
(v) The bankers,
(vi) The auditors,
(vii) The legal advisers.
5. To draft and print the Memorandum of Association (MoA) and Articles of Association (AoA)
6. Making of preliminary contracts with underwriters, vendors, and others.
7. Making arrangements for the preparation of the prospectus, it’s filing, advertisement and the issue of capital.
8. Arrangement for the registration of the company and obtaining the certificate of incorporation.
9. To defray preliminary expenses.
10. To arrange the minimum subscription.
Rights of Promoter:
1. If there is more than one promoter in a company, then the promoter can claim against another promoter for the damages and
compensation paid by him.
2. If any untrue statement is given in the prospectus and for the secret profits, then the promoters will be held liable severally
and jointly as well.
3. The promoter has the right to get paid for all the legitimate expenses he has incurred in the process of formation of the
company such as fee of a solicitor or the cost of advertisement etc.
However, it is not a contractual right to receive the preliminary expenses but it depends on the director’s discretion.
4. A promoter has no right against the company for his remuneration unless there is a contract to that effect.
In some cases, articles of the company provide for the directors paying a specified amount to promoters for their services but
this does not give the promoters any contractual right to sue the company.
This is simply an authority vested in the directors of the company.
Duties and liabilities of Promoter:
1. It is the duty of the promoter to disclose all the secret profits made by him and also he should not make any secret profit and
even if he does, then he has to disclose it.
2. It is the duty of the promoter to disclose all the relevant material facts.
3. It is the duty of the promoter to make good to the company what he has obtained as a trustee and not what he may get at any
time.
4. The promoter has to disclose all the private arrangement which gives him the profit by promoting the company.
5. It is the duty of the promoter to stand in relation to the future allottees of the shares.

Q. Explain the revival and rehabilitation of a Company.

Q. What do you understand by “Sick Company” ? What are the provisions provided in Company Law for its revival and
rehabilitation ?
Section 3(1)(o) of THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 - “sick industrial company”
means an industrial company (being a company registered for not less than five years) which has at the end of any financial
year accumulated losses equal to or exceeding its entire net worth.
Explanation.—For the removal of doubts, it is hereby declared that an industrial company existing immediately before the
commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993 (12 of 1994), registered for not
less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth,
shall be deemed to be a sick industrial company;

The Ministry of Corporate Affairs has formulated the framework for Revival and Rehabilitation of Sick Companies under
the Companies Act. This framework intends to timely detect the sickness and take appropriate measures for revival of sick
companies.
Objectives
The objectives of the Revival and Rehabilitation of Sick Companies are listed below:
 To enable sick companies to seek relief and concession to revive over difficult financial times.
 To assess the economic viability of sick companies and rehabilitate them.
Determination of Sickness of Company
The company is assessed to be sick on demand by the creditors of a company representing 50% of the amount of debt under
the following circumstances:
 Any company has failed to pay the debt within 30 days from the issuance of notice by the creditors.
 Any company has failed to secure the debt received from the creditors.
Overview of the Process
Once the company is determined to be a sick company, the application can be filed by the creditors to the tribunal in the
prescribed format. The tribunal would make decisions within 60 days from the date of submission of application.
Once the tribunal is satisfied on that a company has turned a sick company, and it is in the state to repay its debts, within a
specified time, then the order from the tribunal to the company is made to repay its debts.
Application for Revival and Rehabilitation
Any companies determined as the sick company can make an application in the prescribed format to the tribunal in order to take
necessary steps to be taken for its revival and rehabilitation and the application has to be accompanied by the following
documents:
 Audited financial statements of the sick company relating to the immediately preceding financial year.
 The draft of the scheme for revival and rehabilitation of the company in the prescribed format.
 The above-mentioned documents and particulars have to be duly authenticated in such manner, along with such fees
as prescribed.
Note: The application has to made to the tribunal within 60 days from the date of identification of the company as a sick
company by the tribunal under the Companies Act, 2013.
Appointment of Interim Administrator
Upon submission of application, the tribunal would fix a date of hearing and appoint an interim administrator who should appoint
a meeting with creditors of the company within 45 days and prepare a draft of the scheme for revival and present it before the
tribunal within sixty days from the meeting.
In case of no draft, the scheme is provided, then the tribunal would assist the interim administrator in taking over the
management of the business. The full assistance in coordinating the interim administrator would be provided by the Director or
Management of the company.
Committee of Creditors
The interim administrator will appoint a committee of creditors such number of creditors would not exceed seven, and these
members should be present in all the meetings, and the interim administrator would direct all the directors, promoters, key
managerial personnel of the company to attend the meeting and furnish the information whichever is required and necessary.
Order of Tribunal
If the tribunal has approved the report passed by the interim administrator stating that it is not likely to revive and rehabilitate the
sick company, then the tribunal would take the following steps:
 In case of the revival and rehabilitation of the sick company is not possible, the tribunal would order that the
proceedings for the winding up of the company to initiate.
 In case of revival and rehabilitation of the sick company is possible, the tribunal would appoint a company administrator
for the company to prepare a scheme for revival and rehabilitation of a company by adopting certain measures.
Scheme of Revival and Rehabilitation
A revival and rehabilitation of sick industries scheme will be prepared by the company administrator which includes measures
like proper management of the sick company, financial reconstruction of the sick company, lease or sale of a part of any assets,
amalgamation of the sick company with another company or another company with the sick company, takeover of the sick
company by solvent company, rationalization of managerial personnel.
Sanction of the Scheme
The scheme prepared by the management of the company should be placed before the creditors of the sick company in a
meeting for their approval within the period of 60 days. If the scheme is approved by the secured creditors and then it would be
examined by the tribunal and copy of the scheme draft with modifications made by the tribunal would be forwarded to the sick
company for the suggestion. Then the tribunal would pass the order within 60 days sanctioning the scheme on receipt of the
scheme.
Winding up of a Company
If the revival and rehabilitation scheme is not sanctioned by the secured creditors and the administrator has to present the report
within 15 days stating the same, and the tribunal would order for the winding up of the company.
Rehabilitation and Insolvency Fund
A fund which is known as the Rehabilitation and Insolvency Fund will be allocated for the purposes of revival, rehabilitation, and
liquidation of the sick companies.
Penalty
In case of providing a false statement or violating any order made by the tribunal or the appellate tribunal would be punishable
with imprisonment for a term of seven-year or more along with a fine of Rs.1 lakh.

Q. Explain the winding up of Company.

Q. What do you understand by winding up of a company ? Describe its various modes.
Q. What do you understand by “winding up of the company” ? Describe the various modes of “winding ups”.
What Is Winding Up?
Winding up is the liquidation of Company’s assets which are collected and sold in order to pay the debts incurred.
When the company winding up takes place firstly the debts, expenses and costs are paid away and distributed among the
shareholders.
“Winding up precedes dissolution”
Once the Company is liquidated it is formally dissolved and the Company ceases to exists.
Winding up is the legal mechanism to shut down a company and cease all the activites that are carried on .
After the Company winding up the existence of the Company comes to an end and the assets are monitored so that the
stakeholders interest is not hampered.
A Private Limited Company is an artificial judicial person and requires various compliances. If the company fails to maintain
these compliances there are fines and penalties or even disqualification of the Directors from further incorporating a Company. It
is always better to wind up a company that has become inactive or where there are no transactions.
The shareholders of the Company can initiate the winding up of the company anytime. If there are secured or unsecured
creditors or employees on roll then all the dues need to be settled. After settling the dues it is necessary to close all the
Company bank accounts. The GST registration must also be surrendered in case of Company wind up.
Once all the registration are surrendered the winding up application petition can filed with the Ministry of corporate affairs.
Modes of Company windup (Section 270 of the Companies Act, 2013)
A company can be wound up in two different ways-
 Voluntary winding up of a Company(Section 304 to 323 of the Companies Act, 2013)
 Compulsory winding up of a company by the Tribunal(Section 271 to 303 of the Companies Act, 2013)
1. Voluntary Winding up of a Company(Section 304 to 323 of the Companies Act, 2013) -
Procedure for Voluntary winding up of a Company
 Section 304 of the act - Circumstances in which company may be wound up voluntarily.— A company may be
wound up voluntarily,— (a) if the company in general meeting passes a resolution requiring the company to be wound
up voluntarily as a result of the expiry of the period for its duration, if any, fixed by its articles or on the occurrence of
any event in respect of which the articles provide that the company should be dissolved; or (b) if the company passes a
special resolution that the company be wound up voluntarily.
 Section 305 of the act - Declaration of solvency in case of proposal to wind up voluntarily.— Where it is
proposed to wind up a company voluntarily, its director or directors, or in case the company has more than two
directors, the majority of its directors, shall, at a meeting of the Board, make a declaration verified by an affidavit to the
effect that they have made a full inquiry into the affairs of the company and they have formed an opinion that the
company has no debt or whether it will be able to pay its debts in full from the proceeds of assets sold in voluntary
winding up. Declaration of solvency
o (a) is made within five weeks immediately preceding the date of the passing of the resolution for
winding up the company and it is delivered to the Registrar for registration before that date;
o (b) contains a declaration that the company is not being wound up to defraud any person or
persons;
o (c) is accompanied by a copy of the report of the auditors of the company prepared in
accordance with the provisions of this Act, on the profit and loss account of the company and
the balance sheet of the company made out as on that date which would also contain a statement
of the assets and liabilities of the company on that date; and
o (d) where there are any assets of the company, it is accompanied by a report of the valuation of
the assets of the company prepared by a registered valuer.
 Any director of a company making a declaration under this section without having reasonable grounds
for the opinion that the company will be able to pay its debts in full from the proceeds of assets sold in
voluntary winding up shall be punishable with imprisonment for a term which shall not be less than
three years but which may extend to five years or with fine which shall not be less than fifty thousand
rupees but which may extend to three lakh rupees, or with both.
 Section 306 of the act - Meeting of creditors.— (1) The company shall along with the calling of meeting
of the company at which the resolution for the voluntary winding up is to be proposed, cause a meeting
of its creditors either on the same day or on the next day and shall cause a notice of such meeting to be
sent by registered post to the creditors with the notice of the meeting of the company under section 304.
If the 2/3rd in value of the creditors are of the opinion that it is in interest of all parties to windup the Company, the the
Company can wound up voluntarily.
 The notice of any resolution passed at a meeting of creditors in pursuance of this section shall be given
by the company to the Registrar within ten days of the passing thereof. If a company contravenes the
provisions of this section, the company shall be punishable with fine which shall not be less than fifty
thousand rupees but which may extend to two lakh rupees and the director of the company who is in
default shall be punishable with imprisonment for a term which may extend to six months or with fine
which shall not be less than fifty thousand rupees but which may extend to two lakh rupees, or with
both.
 Section 307 of the act - Publication of resolution to wind up voluntarily.— (1) Where a company has
passed a resolution for voluntary winding up and a resolution under sub-section (3) of section 306 is
passed, it shall within fourteen days of the passing of the resolution give notice of the resolution by
advertisement in the Official Gazette and also in a newspaper which is in circulation in the district where
the registered office or the principal office of the company is situate. (2) If a company contravenes the
provisions of sub-section (1), the company and every officer of the company who is in default shall be
punishable with fine which may extend to five thousand rupees for every day during which such default
continues.
 Section 310 of the act - Appointment of Company Liquidator.— (1) The company in its general
meeting, where a resolution of voluntary winding up is passed, shall appoint a Company Liquidator
from the panel prepared by the Central Government for the purpose of winding up its affairs and
distributing the assets of the company and recommend the fee to be paid to the Company Liquidator. (2)
Where the creditors have passed a resolution for winding up the company under sub-section (3) of
section 306, the appointment of the Company Liquidator under this section shall be effective only after
it is approved by the majority of creditors in value of the company: Provided that where such creditors
do not approve the appointment of such Company Liquidator, creditors shall appoint another Company
Liquidator. (3) The creditors while approving the appointment of Company Liquidator appointed by the
company or appointing the Company Liquidator of their own choice, as the case may be, pass suitable
resolution with regard to the fee of the Company Liquidator. (4) On appointment as Company
Liquidator, such liquidator shall file a declaration in the prescribed form within seven days of the date of
appointment disclosing conflict of interest or lack of independence in respect of his appointment, if any,
with the company and the creditors and such obligation shall continue throughout the term of his or its
appointment.
 Section 312 of the act - Notice of appointment of Company Liquidator to be given to Registrar.— (1)
The company shall give notice to the Registrar of the appointment of a Company Liquidator along with
the name and particulars of the Company Liquidator, of every vacancy occurring in the office of
Company Liquidator, and of the name of the Company Liquidator appointed to fill every such vacancy
within ten days of such appointment or the occurrence of such vacancy.
(2) If a company contravenes the provisions of sub-section (1), the company and every officer of the
company who is in default shall be punishable with fine which may extend to five hundred rupees for
every day during which such default continues.
 Section 313 of the act - Cesser of Board‘s powers on appointment of Company Liquidator.— On the
appointment of a Company Liquidator, all the powers of the Board of Directors and of the managing or
 whole-time directors and manager, if any, shall cease, except for the purpose of giving notice of such
appointment of the Company Liquidator to the Registrar.
 Section 314 of the act - Powers and duties of Company Liquidator in voluntary winding up.— (1) The
Company Liquidator shall perform such functions and discharge such duties as may be determined from
time to time by the company or the creditors, as the case may be. (2) The Company Liquidator shall
settle the list of contributories, which shall be prima facie evidence of the liability of the persons named
therein to be contributories. (3) The Company Liquidator shall call general meetings of the company for
the purpose of obtaining the sanction of the company by ordinary or special resolution, as the case may
require, or for any other purpose he may consider necessary. (4) The Company Liquidator shall maintain
regular and proper books of account in such form and in such manner as may be prescribed and the
members and creditors and any officer authorised by the Central Government may inspect such books of
account. (5) The Company Liquidator shall prepare quarterly statement of accounts in such form and
manner as may be prescribed and file such statement of accounts duly audited within thirty days from
the close of each quarter with the Registrar, failing which the Company Liquidator shall be punishable
with fine which may extend to five thousand rupees for every day during which the failure continues. (6)
The Company Liquidator shall pay the debts of the company and shall adjust the rights of the
contributories among themselves. (7) The Company Liquidator shall observe due care and diligence in
the discharge of his duties. (8) If the Company Liquidator fails to comply with the provisions of this
section except sub-section (5) he shall be punishable with fine which may extend to ten lakh rupees.
 Section 315 of the act - Appointment of committees.— Where there are no creditors of a company, such
company in its general meeting and, where a meeting of creditors is held under section 306, such
creditors, as the case may be, may appoint such committees as considered appropriate to supervise the
voluntary liquidation and assist the Company Liquidator in discharging his or its functions.
 Section 316 of the act - Company Liquidator to submit report on progress of winding up.— (1) The
Company Liquidator shall report quarterly on the progress of winding up of the company in such form
and in such manner as may be prescribed to the members and creditors and shall also call a meeting of
the members and the creditors as and when necessary but at least one meeting each of creditors and
members in every quarter and apprise them of the progress of the winding up of the company in such
form and in such manner as may be prescribed. (2) If the Company Liquidator fails to comply with the
provisions of sub-section (1), he shall be punishable, in respect of each such failure, with fine which
may extend to ten lakh rupees.
 Section 317 of the act - Report of Company Liquidator to Tribunal for examination of persons.— (1)
Where the Company Liquidator is of the opinion that a fraud has been committed by any person in
respect of the company, he shall immediately make a report to the Tribunal and the Tribunal shall,
without prejudice to the process of winding up, order for investigation under section 210 and on
consideration of the report of such investigation, the Tribunal may pass such order and give such
directions under this Chapter as it may consider necessary including the direction that such person shall
attend before the Tribunal on a day appointed by it for that purpose and be examined as to the promotion
or formation or the conduct of the business of the company or as to his conduct and dealings as officer
thereof or otherwise.
(2) The provisions of section 300 shall mutatis mutandis (making necessary alterations while not
affecting the main point at issue.) apply in relation to any examination directed under sub-section (1).
 Section 318 of the act - Final meeting and dissolution of company.— (1) As soon as the affairs of a
company are fully wound up, the Company Liquidator shall prepare a report of the winding up showing
that the property and assets of the company have been disposed of and its debt fully discharged or
discharged to the satisfaction of the creditors and thereafter call a general meeting of the company for
the purpose of laying the final winding up accounts before it and giving any explanation therefor. (2)
The meeting referred to in sub-section (1) shall be called by the Company Liquidator in such form and
manner as may be prescribed. (3) If the majority of the members of the company after considering the
report of the Company Liquidator are satisfied that the company shall be wound up, they may pass a
resolution for its dissolution. (4) Within two weeks after the meeting, the Company Liquidator shall—
 (a) send to the Registrar— (i) a copy of the final winding up accounts of the company and shall make a
return in respect of each meeting and of the date thereof; and (ii) copies of the resolutions passed in the
meetings; and (b) file an application along with his report under sub-section (1) in such manner as may
be prescribed along with the books and papers of the company relating to the winding up, before the
Tribunal for passing an order of dissolution of the company. (5) If the Tribunal is satisfied, after
considering the report of the Company Liquidator that the process of winding up has been just and fair,
the Tribunal shall pass an order dissolving the company within sixty days of the receipt of the
application under sub-section (4). (6) The Company Liquidator shall file a copy of the order under sub-
section (5) with the Registrar within thirty days. (7) The Registrar, on receiving the copy of the order
passed by the Tribunal under subsection (5), shall forthwith publish a notice in the Official Gazette that
the company is dissolved. (8) If the Company Liquidator fails to comply with the provisions of this
section, he shall be punishable with fine which may extend to one lakh rupees.

2. Compulsory winding up of a Private Limited Company by the Tribunal(Section 271 to 303 of the Companies Act,
2013)
Tribunal is responsible for this kind of wind up of Companies.
Here are the reasons for the same:
 if the company is unable to pay its debts;
 if the company has, by special resolution, resolved that the company be wound up by the Tribunal;
 if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly
relations with foreign States, public order, decency or morality;
 if on an application made by the Registrar or any other person authorised by the Central Government by notification
under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent
manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or
management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is
proper that the company be wound up;
 If the annual returns or financial statements are not filed for immediately preceding five consecutive years with the ROC
 if the Tribunal has ordered the winding up of the company.
Procedure for compulsory winding up of a Company
 Step:1 Is to File a petition to the tribunal along with the statement of the affairs of the Company that is to wind up.
 Step:2 The tribunal will either accept or reject the petition. If a person other than company files a petition, then the
tribunal may ask the company to file objection.
 Step:3 Liquidator needs to be appointed by the tribunal for the winding up process. The liquidator carries out the
function of assisting and monitoring the liquidation proceedings.
 Step:4 Liquidator is supposed to prepare a draft report for approval. When the draft report gets approved he shall
submit the final report to the tribunal for passing the winding up order.
 Step:5 It is necessary of the liquidator to forward a copy to the Registrar of Companies within 30 days. If he fails to do
so then he will get a penalty.
 Step:6 If the Registrar of Companies finds the draft satisfactory he then approves the winding up of the Company and
the name of the Company is struck off from the register of Companies.
 Step:7 Registrar of Companies sends notice for Publication in the official gazette of India
Section 302 of the Companies Act, 2013 Dissolution of company by Tribunal.—
(1) When the affairs of a company have been completely wound up, the Company Liquidator shall make an application to the
Tribunal for dissolution of such company.
(2) The Tribunal shall on an application filed by the Company Liquidator under sub-section (1) or when the Tribunal is of the
opinion that it is just and reasonable in the circumstances of the case that an order for the dissolution of the company should be
made, make an order that the company be dissolved from the date of the order, and the company shall be dissolved
accordingly.
(3) A copy of the order shall, within thirty days from the date thereof, be forwarded by the Company Liquidator to the Registrar
who shall record in the register relating to the company ‘a minute of the dissolution’ of the company.
(4) If the Company Liquidator makes a default in forwarding a copy of the order within the period specified in sub-section (3), the
Company Liquidator shall be punishable with fine which may extend to five thousand rupees for every day during which the
default continues.

Winding up by the Tribunal (Section 271 to Section 303 of the act) explained in detail as per the act:
271. Circumstances in which company may be wound up by Tribunal.
(1) A company may, on a petition under section 272, be wound up by the Tribunal,—
(a) if the company is unable to pay its debts;
(b) if the company has, by special resolution, resolved that the company be wound up by the Tribunal;
(c) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State,
friendly relations with foreign States, public order, decency or morality;
(d) if the Tribunal has ordered the winding up of the company under Chapter XIX;
(e) if on an application made by the Registrar or any other person authorised by the Central Government by notification
under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent
manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or
management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is
proper that the company be wound up;
(f) if the company has made a default in filing with the Registrar its financial statements or annual returns for
immediately preceding five consecutive financial years; or
(g) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.

272. Petition for winding up.

a petition to the Tribunal for the winding up of a company shall be presented by— (a) the company; (b) any creditor or
creditors, including any contingent or prospective creditor or creditors; (c) any contributory or contributories; (d) all or
any of the persons specified in clauses (a), (b) and (c) together; (e) the Registrar; (f) any person authorised by the Central
Government in that behalf; or (g) in a case falling under clause (c) of sub-section (1) of section 271, by the Central
Government or a State Government.
A copy of the petition made under this section shall also be filed with the Registrar and the Registrar shall, without
prejudice to any other provisions, submit his views to the Tribunal within sixty days of receipt of such petition.

273. Powers of Tribunal.

— (1) The Tribunal may, on receipt of a petition for winding up under section 272 pass any of the following orders,
namely:— (a) dismiss it, with or without costs; (b) make any interim order as it thinks fit; (c) appoint a provisional
liquidator of the company till the making of a winding up order; (d) make an order for the winding up of the company
with or without costs; or (e) any other order as it thinks fit: Provided that an order under this sub-section shall be made
within ninety days from the date of presentation of the petition:

274. Directions for filing statement of affairs.

275. Company Liquidators and their appointments.

(1) For the purposes of winding up of a company by the Tribunal, the Tribunal at the time of the passing of the order of
winding up, shall appoint an Official Liquidator or a liquidator from the panel maintained under sub-section (2) as the
Company Liquidator. (2) The provisional liquidator or the Company Liquidator, as the case may be, shall be appointed
from a panel maintained by the Central Government consisting of the names of chartered accountants, advocates,
company secretaries, cost accountants or firms or bodies corporate having such chartered accountants, advocates,
company secretaries, cost accountants and such other professionals as may be notified by the Central Government or
from a firm or a body corporate of persons having a combination of such professionals as may be prescribed and having
at least ten years‘ experience in company matters

276. Removal and replacement of liquidator.

277. Intimation to Company Liquidator, provisional liquidator and Registrar.

— (1) Where the Tribunal makes an order for appointment of provisional liquidator or for the winding up of a company,
it shall, within a period not exceeding seven days from the date of passing of the order, cause intimation thereof to be
sent to the Company Liquidator or provisional liquidator, as the case may be, and the Registrar. (2) On receipt of the
copy of order of appointment of provisional liquidator or winding up order, the Registrar shall make an endorsement to
that effect in his records relating to the company and notify in the Official Gazette that such an order has been made and
in the case of a listed company, the Registrar shall intimate about such appointment or order, as the case may be, to the
stock exchange or exchanges where the securities of the company are listed. (3) The winding up order shall be deemed
to be a notice of discharge to the officers, employees and workmen of the company, except when the business of the
company is continued. (4) Within three weeks from the date of passing of winding up order, the Company Liquidator
shall make an application to the Tribunal for constitution of a winding up committee to assist and monitor the progress
of liquidation proceedings by the Company Liquidator in carrying out the function. (5) The Company Liquidator shall be
the convener of the meetings of the winding up committee which shall assist and monitor the liquidation proceedings in
following areas of liquidation functions, namely:— (i) taking over assets; (ii) examination of the statement of affairs; (iii)
recovery of property, cash or any other assets of the company including benefits derived therefrom; (iv) review of audit
reports and accounts of the company; (v) sale of assets; (vi) finalisation of list of creditors and contributories; (vii)
compromise, abandonment and settlement of claims; (viii) payment of dividends, if any; and (ix) any other function, as
the Tribunal may direct from time to time. (6) The Company Liquidator shall place before the Tribunal a report along
with minutes of the meetings of the committee on monthly basis duly signed by the members present in the meeting for
consideration till the final report for dissolution of the company is submitted before the Tribunal. (7) The Company
Liquidator shall prepare the draft final report for consideration and approval of the winding up committee. (8) The final
report so approved by the winding up committee shall be submitted by the Company Liquidator before the Tribunal for
passing of a dissolution order in respect of the company.

278. Effect of winding up order.

279. Stay of suits, etc., on winding up order.
280. Jurisdiction of Tribunal.
281. Submission of report by Company Liquidator.
282. Directions of Tribunal on report of Company Liquidator.
283. Custody of company‘s properties.
284. Promoters, directors, etc., to cooperate with Company Liquidator.
285. Settlement of list of contributories and application of assets.
286. Obligations of directors and managers.
287. Advisory Committee.
288. Submission of periodical reports to Tribunal.
289. Power of Tribunal on application for stay of winding up.

290. Powers and duties of Company Liquidator.

(1) Subject to directions by the Tribunal, if any, in this regard, the Company Liquidator, in a winding up of a company by
the Tribunal, shall have the power— 173 (a) to carry on the business of the company so far as may be necessary for the
beneficial winding up of the company; (b) to do all acts and to execute, in the name and on behalf of the company, all
deeds, receipts and other documents, and for that purpose, to use, when necessary, the company‘s seal; (c) to sell the
immovable and movable property and actionable claims of the company by public auction or private contract, with
power to transfer such property to any person or body corporate, or to sell the same in parcels; (d) to sell the whole of
the undertaking of the company as a going concern; (e) to raise any money required on the security of the assets of the
company; (f) to institute or defend any suit, prosecution or other legal proceeding, civil or criminal, in the name and on
behalf of the company; (g) to invite and settle claim of creditors, employees or any other claimant and distribute sale
proceeds in accordance with priorities established under this Act; (h) to inspect the records and returns of the company
on the files of the Registrar or any other authority; (i) to prove rank and claim in the insolvency of any contributory for
any balance against his estate, and to receive dividends in the insolvency, in respect of that balance, as a separate debt
due from the insolvent, and rateably with the other separate creditors; (j) to draw, accept, make and endorse any
negotiable instruments including cheque, bill of exchange, hundi or promissory note in the name and on behalf of the
company, with the same effect with respect to the liability of the company as if such instruments had been drawn,
accepted, made or endorsed by or on behalf of the company in the course of its business; (k) to take out, in his official
name, letters of administration to any deceased contributory, and to do in his official name any other act necessary for
obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name
of the company, and in all such cases, the money due shall, for the purpose of enabling the Company Liquidator to take
out the letters of administration or recover the money, be deemed to be due to the Company Liquidator himself; (l) to
obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations
and responsibilities and for protection of the assets of the company, appoint an agent to do any business which the
Company Liquidator is unable to do himself; (m) to take all such actions, steps, or to sign, execute and verify any paper,
deed, document, application, petition, affidavit, bond or instrument as may be necessary,— (i) for winding up of the
company; (ii) for distribution of assets; (iii) in discharge of his duties and obligations and functions as Company
Liquidator; and (n) to apply to the Tribunal for such orders or directions as may be necessary for the winding up of the
company.

291. Provision for professional assistance to Company Liquidator.

292. Exercise and control of Company Liquidator‘s powers.
293. Books to be kept by Company Liquidator.
294. Audit of Company Liquidator‘s accounts.
295. Payment of debts by contributory and extent of set-off.
296. Power of Tribunal to make calls.
297. Adjustment of rights of contributories.
298. Power to order costs.
299. Power to summon persons suspected of having property of company, etc.
300. Power to order examination of promoters, directors, etc.
301. Arrest of person trying to leave India or abscond.

302. Dissolution of company by Tribunal.

— (1) When the affairs of a company have been completely wound up, the Company Liquidator shall make an
application to the Tribunal for dissolution of such company. (2) The Tribunal shall on an application filed by the Company
Liquidator under sub-section (1) or when the Tribunal is of the opinion that it is just and reasonable in the circumstances
of the case that an order for the dissolution of the company should be made, make an order that the company be
dissolved from the date of the order, and the company shall be dissolved accordingly. (3) A copy of the order shall,
within thirty days from the date thereof, be forwarded by the Company Liquidator to the Registrar who shall record in
the register relating to the company a minute of the dissolution of the company. (4) If the Company Liquidator makes a
default in forwarding a copy of the order within the period specified in sub-section (3), the Company Liquidator shall be
punishable with fine which may extend to five thousand rupees for every day during which the default continues.

303. Appeals from orders made before commencement of Act.

Q. Distinguish between winding up and dissolution of a company.

 Winding up is the liquidation of Company’s assets which are collected and sold in order to pay the debts incurred.
 When the company winding up takes place firstly the debts, expenses and costs are paid away and distributed among
the shareholders.
 “Winding up precedes dissolution”
 Once the Company is liquidated it is formally dissolved and the Company ceases to exists.
 Winding up is the legal mechanism to shut down a company and cease all the activites that are carried on .
 After the Company winding up, the existence of the Company comes to an end and the assets are monitored so that the
stakeholders interest is not hampered.
 The winding-up of a company is judged by the Tribunal and the procedure for winding up of a company in India is purely
a judicial function. There is a liquidator who carries off and administers the winding-up process. After winding up, the
dissolution process takes place.
 The dissolution of a company is recorded by the registrar of companies. This is a purely administrative function and
does not involve any role for the liquidator. Dissolution is a necessary step following the winding up of a company.
For a better understanding of the difference, refer to the following table:
Particulars Winding-up Dissolution

Meaning Winding up means appointing a liquidator to Dissolution means to dissolve the company
sell off the assets of the company, divide the completely. Any further operations cannot be
proceeds among creditors, and file to the done in the company name.
NCLT for dissolution.

Process Winding up is one of Dissolution is the end process/result

the methods through which the dissolution of of winding up and getting the name
 a company is carried on. stuck off from the Register of Companies.

Existence of Company The legal entity of the company continues The dissolution of the company brings
and exists at the commencement and during an end to its legal entity status.
the winding-up process.

Continuation of A company can be allowed to continue its The company ceases to exist
Business business during the winding-up process if it upon its dissolution.
is required for the beneficial winding up of
the company.

Moderator The liquidator carries out the process of The NCLT passes the order of
winding up. dissolution.

Activities Included Filing of winding up resolution or petition, the
appointment of the liquidator, receiving
declarations, preparation of reports,
disclosures to ROC, and filing for dissolution
to the NCLT.
Filing of resolutions, declarations, and
other required documents to the
NCLT to pass dissolution order.

What do you understand by the word amalgamation ?

Have you ever played with clay before? Or water? Or sand? If you have, you might know that putting two pieces of clay together
forms a new piece of clay much bigger than both. Keep this idea in mind because this will help us understand the concept of
amalgamation. Just as two pieces of clay come together to form an even bigger clay, the same can happen in the financial world
with corporations.
In accounting, an amalgamation, or consolidation, refers to the combination of financial statements. For example, a group of
companies reports their financials on a consolidated basis, which includes the individual statements of several smaller
businesses. An amalgamation is a combination of two or more companies into a new entity. Amalgamation is distinct from a
merger because neither company involved survives as a legal entity. Instead, a completely new entity is formed to house the
combined assets and liabilities of both companies.
Amalgamation helps all the companies involved to diversify their operations and get a wider reach in the market which will also
help to increase the customer base of the companies. Amalgamation can increase the economies of scale and has the potential
to increase the shareholder value.
There are two types of amalgamation, including merger and purchase methods. In both cases, the legal entity of the preexisting
companies vanishes, replaced by a new company with combined assets and liabilities.
Understanding Amalgamation: To understand the concept of amalgamation, let us look back at the clay example. What are the
prerequisites required for two objects like clay to combine and form the same object but bigger?
Well, the number one spot goes to be identical to each other since we know that only clay and clay makes clay, just like that two
companies while merging should have identical professions or goals like only two companies dealing with finance can make a
financial company, there could not be companies with a different profession merging.
Also, at number two comes the fact that the bigger clay always has an upper hand over the smaller one meaning that the
smaller clay is essentially engulfed by the bigger one. So, if we take this particular example back to the financial world, this
means that if two companies were to come together, one small and one large or one weaker and one stronger company, then
the weaker one has to be the transferor and the strong one to be the transferee but it couldn’t be vice versa. There are such
instances where large companies often take over a bunch of smaller firms to increase their assets and assert dominance in their
particular field of work.
Pros of Amalgamation
Amalgamation is a concept with its fair share of benefits, some of its advantages are listed below:
 It leads to improved competitiveness
 It has the potential of increasing the value of shares
 It helps in the reduction of taxes
 It helps in the diversification of firms
 It also leads to an increase in the economy’s size
Cons of Amalgamation:
Nothing is perfect in this world and amalgamation is certainly not one of them, everything comes with its own set of problems
regardless of its excellence with amalgamation being no exception to it. Some of its disadvantages are listed below:
 It leads to an increase in the firm’s load of debt
 It results in people losing jobs
 It leads to concentration of power on the one hand
 It helps companies to create monopolies
Types of Amalgamation
There are two major types of the amalgamation process which are given below:
Merger Amalgamation: This type of amalgamation generally involves two companies similar in size coming together to form a
new company, generally with each one having respectable shares and authority over the newly formed company. This also
leads to sthe culmination of assets and liabilities with each one having the same amount of control over it. This type of
amalgamation leads to companies working together as partners to develop new projects and make the company.
Purchase Amalgamation: This type of amalgamation occurs when a small and a large company or a weak and a strong
company decide to come together as a new entity. This type of merger is essentially an acquisition where the stronger or larger
company buys off the weaker or smaller company and integrates it within increasing the size of the larger company. This
amalgamation is generally sided with the purchaser having all the benefits, some of which include having total control over the
functioning of both the companies in all aspects with the bought company having no say in it. Also, all the assets and liabilities of
both companies are now in the hands of a single company bearing all the burden of it. To top it off, this type of amalgamationis
not a partnership, rather it’s a sort of ownership with the purchasing company having to make all the decisions and the sold
company has to follow it with no ifs or buts.

Q. Define “Government Company”. What are the essential elements of a Government Company ?
A government company is established under The Companies Act, 2013 and is registered and governed by the
provisions of The Act.
These are established for purely business purposes and in true spirit compete with companies in the private sector.
Section 2(45) of the Companies Act, 2013 ―Government company means 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;
There are many government companies, few of them are, Steel Authority of India Limited, Bharat Heavy Electricals
Limited, Coal India Limited, State Trading Corporation of India, etc.
All provisions of the Act are applicable to government companies unless otherwise specified.
A government company may be formed as a private limited company or a public limited company.
There are certain provisions which are applicable to the appointment/retirement of directors and other managerial
personnel.
From the above it is clear that the government exercises control over the paid up share capital of the company.
The shares of the company are purchased in the name of the President of India.
Since the government is the major shareholder and exercises control over the management of these companies, they
are known as government companies.
Features Government companies have certain characteristics which makes them distinct from other forms of
organisations. These are discussed as follows:
(i) It is an organisation created under the Companies Act, 2013 or any other previous Company Law.
(ii) The company can file a suit in a court of law against any third party and be sued;
(iii) The company can enter into a contract and can acquire property in its own name;
(iv) The management of the company is regulated by the provisions of the Companies Act, like any other public limited
company;
(v) The employees of the company are appointed according to their own rules and regulations as contained in the
Memorandum and Articles of Association of the company. The Memorandum and Articles of Association are the main
documents of the company, containing the objects of the company and its rules and regulations;
vi) These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the
Central Government and the Annual Report is to be presented in the Parliament or the State Legislature;
(vii) The government company obtains its funds from government shareholdings and other private shareholders. It is
also permitted to raise funds from the capital market.

Merits Government companies enjoy several advantages, which are as follows:

(i) A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate
Act in the Parliament is not required;
(ii) It has a separate legal entity, apart from the Government;
(iii) I t enjoys autonomy in all management decisions and takes actions according to business prudence;
(iv) These companies by providing goods and services at reasonable prices are able to control the market and curb
unhealthy business practices.

Limitations Despite the autonomy given to these companies, they have certain disadvantages:
(i) Since the Government is the only shareholder in some of the companies, the provisions of the Companies Act does
not have much relevance;
(ii) It evades constitutional responsibility, which a company financed by the government should have. It is not
answerable directly to the Parliament;
(iii) The government being the sole shareholder, the management and administration rests in the hands of the
government. The main purpose of a government company, registered like other companies, is defeated.

Role and Importance: The importance and role of public sector companies have changed with time. Let us see the role
of these companies in nation’s growth.
1. Economies of Scale
The sectors where a large amount of capital is required, which in general terms private sector companies don’t
accommodate are dealt in by the public sector companies. Industries like, electric power plants, natural gas, petroleum
etc are under the control of public sector companies.
2. Regional Balance
For the overall development of the nation, various areas which economically backwards be never touched by
companies. Mainly the development was done near port areas and interior parts of the country were never accessed.
To have a balanced growth of the whole nation, public sector companies take the charge and do the development in
underprivileged areas.
3. Development of the Infrastructure
All the heavy industries were very less in number and low capacity at the time of independence. These industries were
like, engineering, iron, and steel, oil and gas refineries, heavy goods machinery, etc.
Private Sector was never willing to participate in the development of heavy industries because the gestation period
was too long in these industries and the amount of capital to be invested is huge in number. So the government had to
rely on public sector companies to develop these sectors which were an integral part of the development of the nation.
4. Control on Monopoly and Restrictive Trade Practices
Public sector companies have a very important role to control the monopoly created by private sector companies.
Public sector companies keep a check on guidelines of Monopolistic and Restrictive Trade Practices.
5. Import Substitution
Public enterprises are also engaged in manufacturing and production of capital equipment which was earlier imported
from other countries. Companies like MMTC have played a very crucial and vital role in expanding Indian markets for
exports and other trades.

Q. Explain the facts and principles of law laid down in the case of Ashbury Railway Carriage and Iron Co v
Riche (1875) LR 7 HL 653
Introduction
The case of Ashbury Railway Carriage & Iron Co. versus Riche held much importance prior to the Companies Law, 2006 came
into force.
With the introduction of Section 17 of the new amended act, the crux of this case has been rendered moot.
Section 17, Companies (Amendment) Act, 2006 -
Special resolution and confirmation by Company Law Board required for alternation of memorandum. –
(1) A company may, by special resolution, alter the provisions of its memorandum so as to change the place of its registered
office from one State to another, or with respect to the objects of the company.
(2) The alteration shall not take effect until, and except in so far as, it is confirmed by the 1 Company Law Board] on petition.
(3) Before confirming the alteration, the Company Law Board must be satisfied-
(a) that sufficient notice has been given to every holder of the debentures of the company, and to every other person or class of
persons whose interests will, in the opinion of the Company Law Board, be affected by the alteration;
(b) that, with respect to every creditor who, in the opinion of the Company Law Board, is entitled to object to the alteration, and
who signifies his objection in the manner directed by the Company Law Board, either his consent to the alteration has been
obtained or his debt or claim has been discharged or has determined, or has been secured to the satisfaction of the Company
Law Board:
Provided that the 1 Company Law Board may, in the case of any person or class of persons, for special reasons, dispense with
the notice required by clause (a).

Facts
Ashbury Railway Carriage and Iron Co. Ltd., in the object clause of its MOA had stated that the object of the incorporation of the
company was ‘to make or sell, or lend, or hire, railway carriages and wagons, and all kinds of railway plants, fittings, machinery
and rolling stock; to carry on the business of the mechanical engineers and the general contractors; to purchase and sell, as
merchants, timber, coal, metals, or other materials; and to buy and sell any such materials on commission, or as agents.’
The directors of the company entered into a contract with Riches, wherein a railway line was to be constructed in Belgium, and
the contract was for the financing of the construction.
The Clause 4 of the object clause specifically mentioned that beyond the scope of the above-mentioned clause, there was a
need of a special resolution to indulge in any activity which was beyond the scope of the object clause in the MOA.
However, the company superseded this requirement and agreed to give Riches the loan and financing they needed to build the
railway line.
The contract which was thus entered into by the company was ratified by all the members of the company.
However, later on, the company reneged (go back on a promise, undertaking, or contract) on their side of the deal
repudiating the contract (to say that you refuse to accept or believe something) that was entered into by the company and
Riches.
Riches sued the company for the breach of the contract and claimed damages.
Issue
Whether the company can enter into a contract which is beyond the scope of the object clause in the MOA of the company?
Summary of Judgement
The House of Lords held that the objectives of the company as mentioned in the object clause of the company’s MOA were
absolute.
House of Lords, in this case, applied this same principle and held that the contract which had been entered into by the company
was beyond the scope of the object clause of the MOA of the company.
The House of Lords also held that by entering into the concerned contract with Riches, the company was in breach of the
clauses that had been included in the constitution of the Company.
The clauses that were included in the MOA did not allow the company to make a contract. Keeping this in mind, the House of
Lords held that the transaction concerned here was invalid, and thus, consequentially held that the contract shall have no
legal effect for the company or the Riches.
The judgment resulted in a defeat for Riches to have the contract enforced since there could not be any breach.
This was due to the fact that there could not have been any contract to be breached in the first place.
Analysis
The judgment in Ashbury Railway Carriage & Iron Co. versus Riche laid the foundation of the rule of ‘ultra vires’, which meant
that the company was only allowed to do what it had been enabled to do in the object clause of the MOA.
Even if in this case, if the contract which the company entered into had been included as an allowed transaction in the object
clause, the same might have been allowed.

https://youtu.be/6ymbUOqyQaY?t=227

Corporate Case Brief

Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd [1916] 2 AC 307 is a UK company law case,
concerning the concept of "control" and enemy character of a company. It is usually discussed in the context of lifting
the corporate veil, however it is merely an example of where the corporate veil is not in issue as a matter of company
law, since the decision turns on correct interpretation of a statute.
Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] concerns the notion of ’trading with the enemy’.
Acts:
Companies Act, 1905, Trading with the Enemy Act, 1914.
Facts:
Continental Tyre and Rubber Company was incorporated in England, but the holders of all its shares except one, and
also all the directors, were Germans, residing in Germany. The secretary was English. It had 25,000 shares issued. A
non-German national held only one share.
The Daimler Company Limited, prior to 1910 The Daimler Motor Company Limited, was an independent British motor
vehicle manufacturer founded in London by H. J. Lawson in 1896, which set up its manufacturing base in Coventry.
After the outbreak of the First World war, Continental Tyre Company brought an action against Daimler Co. Ltd. to
recover trade debt.
Continental Tyre and Rubber Co Ltd supplied tyres to Daimler, but Daimler was concerned that making payment might
contravene a common law offence of trading with the enemy as well as a proclamation issued under section 1(2)
Trading with the Enemy Act 1914.
The appellants contended
(1) that it was illegal to trade with or pay money to or for the benefit of alien enemies during the war, and that in
substance and in fact the respondent company was an alien enemy;
(2) that the solicitors for the respondent company had no authority to issue the writ in the action. Held that as the
secretary was not ex officio authorised to commence actions on the company's behalf, and the directors were
precluded by their character of alien enemies from instructing him to do so, the action was irregular and unauthorised.
Issues:
  During the First World War against Germany, the appellant company, Daimler Ltd, claimed that it did not have
to pay the money it owed to the respondent company. The appellant company argued that such payment would
constitute ‘trading with the enemy’. Whether Daimler Ltd was entitled to refuse the payment because the
respondent company was controlled by the enemy?
 Whether the character of a company’s corporators is relevant to determine the character of the company; is the
company capable of acquiring enemy character?
 Whether lifting the corporate veil can be used in emergencies?

Held:
The court said that the actions and character of the members of the company are capable of changing the nature of a
company and a company can acquire enemy character on the basis of the character of its members.
The House of Lords held that though the Continental Tyre Company was incorporated in England, its effective control
was in the hands of Germans and, therefore, the company had acquired the enemy character.
The House of Lords reiterated the basic principle that the identity of a company’s shareholders was immaterial to the
company’s separate legal personality.
However, they allowed the possibility there will be occasions when the shareholders’ identity does affect the corporate
personality.
This may occur in times of war, as in the present case.
The respondent company was in de facto control of the company since all of its directors were German and most of its
shareholders were also German.
In these circumstances, the House of Lords allowed the appeal by the Daimler Ltd.

Gilford Motor Co v Horne [1933] Ch. 935

Gilford Motor Co v Horne [1933] concerns the former director’s attempt to evade restraint of trade by founding a new
company.
Keywords:
Company law – Contract terms – Director – Restraint of trade – Restrictive covenant – Injunction granted – Court of
Appeal
Facts:
In the case of Gilford Motor Co v Horne [1933], Mr Horne was employed by Gilford Motors as its managing director. His
contract of employment contained a covenant not to solicit its customers after leaving its employment. He left Gilford
Motors and set up a new company which then began to compete with Gilford Motors and solicit its customers in
breach of the covenant. Gilford Motors sought an injunction against both Mr Horne and his new company.
Held:
The Court of Appeal granted an injunction against both Mr Horne and the new company in order to restrain further
breaches of Mr Horne’s covenant.
The Court of Appeal held that the new company was nothing more than a sham. The company was founded by Mr
Horne with the only purpose to evade his contractual undertaking not to compete with Gilford Motors.

Q. Explain the facts and principles of law laid down in case of Salomon v. Salomon & Company Ltd., 1897, PC 22.
Brief History
 Salomon had a business in leather and shoe manufacturing.
 Due to some circumstances, he created his own company and sells his previous business of shoe manufacturing to this
company.
 Salomon gave one share each to his wife, daughter, four sons, and the rest of the company’s shares were held by him.
 After few years, the company was wound up and had some existing liabilities but did not have enough assets to pay off
the liabilities.
 Unsecured creditors sued Salomon for repayment of their money, but the court held that the company was not an agent
or a trustee for Salomon.
 A company is a separate legal entity distinct from its members and so insulating Mr. Salomon, the founder of A.
Salomon and Company, Ltd., from personal liability to the creditors of the company he founded. The court also
upheld firmly the doctrine of corporate legal personality, as set out in the Companies Act 1862, so that creditors of an
insolvent company could not sue the company's shareholders to pay up outstanding debts.
 The company is entirely different from the individual, and hence the contentions of the creditors could not be upheld.
 This is a landmark case under UK company law - to uphold doctrine of corporate legal personality under
Companies Act, 1862.
 In this case, it established the concept of separate legal personality of a company that allowed shareholders to
carry on trading with minimal exposure to the risk of personal insolvency in the event of collapse.
Facts
 Aron Salomon had for many years carried on a prosperous business as a leather merchant.
  In 1892, he decided to convert it into a limited company and for that purpose Salomon & Co. Ltd. was formed with
Salomon, his wife, his daughter and his four sons as members, and Salomon as Managing Director.
 The company purchased the business of Salomon for £ 39,000.
 Transfer of the business took place on 1 June 1892. The company also issued to Mr Salomon £10,000 in debentures.
On the security of his debentures, Mr Salomon received an advance of £5,000 from Edmund Broderip.
 So the price was satisfied by £ 10,000 in debentures, conferring a charge over all the company’s assets, £ 20,000 in
fully paid up £ 1 shares, and the balance in cash.
 Seven shares were subscribed in cash by the members and the result was that Salomon held 20,001 shares out of
20,007 shares issued, and each of the remaining six shares were held by six members of his family.
 Soon after Mr Salomon incorporated his business there was a decline in boot sales. The company failed, defaulting on
its interest payments on its debentures (half held by Broderip). Broderip sued to enforce his security. The company was
put into liquidation. Broderip was repaid his £5,000. This left £1,055 company assets remaining, of which Salomon
claimed under the debentures he retained. If Salomon's claim was successful, this would leave nothing for the
unsecured creditors. When the company failed, the company's liquidator contended that the floating charge should not
be honoured, and Salomon should be made responsible for the company's debts. Salomon sued.
Issues raised
 Whether in truth, the artificial creation of the company had been validly created in the instant case?
 Whether Salomon was liable for the debts of the company?
 Was the formation of Salomon's company a fraud intended to defraud the creditor?
Arguments
The Liquidator contended that though Salomon & Co. Ltd. was incorporated under the Act, the company never had an
independent existence. It was only a one man show since all the shares except six were held by Salomon himself. The vast
preponderance of shares made Salomon absolute master. The business was solely conducted for and by him and the company
was mere sham and fraud. Unsecured creditor claim as a first right to receive because there is no separate legal existence and
the company was acting as Salomon's agent.
Judgment:
 The House of Lords held that in order to determine the question it is necessary to look at the statute itself without
adding to or taking from the requirements of the statute.
 The sole guide must be the statute itself.
 In the present case, the Act provided that any seven or more persons, associated for a lawful purpose may, by
subscribing their names to a memorandum of association and otherwise complying with the provisions of the Act in
respect of registration and form a company with or without limited liability.
 The Act further provided that “no subscriber shall take less than one share.”
 That there were seven actual living persons who held shares in the company was never doubted.
 Since the company fulfilled all the requirements of the Act, the court held that the company had been validly formed and
was a real company.
 Rejecting the contention of the Liquidator that all the shares were bought by Salomon and his family members and that
the company was nothing but one man show, House of Lords held that the provisions of the Act did not require that the
persons subscribing shall not be related to each other.
 Whether the capital of the company is owned by seven persons in equal share, with the right to equal share in profits, or
whether it is almost owned by one person who takes practically the whole profits, it does not concern a creditor of the
company.
 The company does not lose its identity if the bulk of its capital is held by one person.
 The company at law is altogether different person from its subscribers.
 The House of Lords further stated that the Act said nothing about the subscribers being independent or that they should
take a substantial interest in the undertaking, or that they should have a mind and will of their own.
 The court said that on incorporation the company becomes an independent legal person and not an agent of Salomon.
 Salomon, as a debenture holder of the company, was ought to get priority in payment over the unsecured creditor.
Conclusion
The concept of lifting of the corporate veil was later introduced after this case where no person could hide behind the company’s
entity to commit fraud and avoid any sort of liability. A certain amount of proximity should be there to apply this concept of lifting
the veil. In this case it was decided that no illegal or sham act has been done by Mr. Aron Salomon and that he was legally the
creditor of the company and has a right to be paid at the winding up of the company before the unsecured creditors as his debt
was secured by a charge against the assets of the company.
The following principles which were laid down by the Lordships in the case are as follows:
1. In order to form a company limited by shares, a memorandum of Association should be signed by seven persons.
2. Every such person should possess at least one share each.
3. If the above-mentioned requirements are complied with, it hardly makes any difference whether the signatories are
relations or strangers.
4. The company is at law a different person together from the subscribers of the memorandum of Association.
5. The statute enacts nothing as to the extent or degree or interest which may be held by each of the members.
 6. There is nothing in the Act; requiring that the subscribers to the memorandum of Association should be independent or
unconnected or that they should have mind or will of their own.
7. Act does not require anything like a balance of power in the constitution of the company.

What is the doctrine of corporate legal personality ?

The doctrine of corporate legal personality has emerged as a universally recognised legal business construct. The crux of the
doctrine is simply this; that the company is a legal person distinct from its members. Even where a single shareholder virtually
holds the entire share capital of a company, the company is to be differentiated from such a shareholder.

Q. Discuss the facts and principles of law laid down in the case of Madhusudan Goverdhandas & Co. Vs
N W Industries, 1971 AIR 2600, 1972 SCR(2) 201
ACT:
Companies Act (1 of 1956), section 433(c) and section 557- Principles for ordering winding up of company.
Section 433(c) in The Companies Act, 1956, if the company does not commence its business within a year from its
incorporation, or suspends its business for a whole year;
Section 557 in The Companies Act, 1956 - Meetings to ascertain wishes of creditors or contributories (a person liable to
contribute towards the assets of the company in the event of its being wound up)
(1) In all matters relating to the winding up of a company, the Court may-
(a) have regard to the wishes of creditors or contributories (a person liable to contribute towards the assets of the company in
the event of its being wound up) of the company, as proved to it by any sufficient evidence;
(b) if it thinks fit for the purpose of ascertaining those wishes, direct meetings of the creditors or contributories to be called, held
and conducted in such manner as the Court directs; and
(c) appoint a person to act as chairman of any such meeting and to report the result thereof to the Court.
(2) When ascertaining the wishes of creditors, regard shall be had to the value of each creditor's debt.
(3) When ascertaining the wishes of contributories, regard shall be had to the number of votes which may be cast by each
contributory.
HEADNOTE:
The appellants are a partnership firm - Madhu Wool Spinning Mills.
The partners are three brothers - the Katakias.

The respondent company N W Industries, has the nominal capital of Rs. 10,00,000 divided into 2000 shares of Rs. 500 each.
The issued subscribed and fully paid up capital of the company is Rs. 5,51,000 divided into 1,103 Equity shares of Rs. 500 each.
The three Katakia brothers had three shares in the company.
The other 1,100 shares were owned by N.C. Shah and other members described as the group of ‘Bombay Traders.’

Prior to the incorporation of the company there was an agreement between the Bombay Traders and the appellants in the month
of May, 1965.
The Bombay Traders was floating a new company for the purpose of running a Shoddy Wool Plant.
The Bombay Traders agreed to pay about Rs. 6,00,000 to the appellants for acquisition of machinery and installation charges
thereof.
The appellants had imported some machinery and were in the process of importing some more.
The agreement provided that the erection expenses of the machinery would be treated as a loan to the new company.
Another part of the agreement was that the machinery was to be erected in portions of a shed in the compound of Ravi
Industries Private Limited.
The company was to pay Rs. 3,100 as the monthly rent of the portion of the shed occupied by them.
The amount which the Bombay Traders would advance as loan to the company was agreed to be converted into Equity capital
of the company.
Similar option was given to the appellants to convert the amount spent by them for erection expenses into equity capital.
The company was incorporated in the month of July, 1965.
The appellants allege that the company adopted the agreement between the Bombay Traders and the appellants.
The company however denied that the company adopted the agreement.
The appellants filed a petition for winding up in the month of January, 1970.
The appellants alleged that the company was liable to be wound up under the provisions of section 433 (c) of the Companies
Act, 1956 The appellants filed a petition for winding up of the respondent company, on the grounds :
(1)that the company was unable to pay the debts due to the appellants,
(2)that the company showed their indebtedness in their books of account for a much smaller amount,
(3)that the company was indebted to other creditors, M/s Nandkishore & Co., and M/s Bhupendra & Co.
(4)that the company was effecting an unauthorised sale of its machinery, and even after the sale of machinery at Rs
4,50,000, the company would not be in a position to discharge its indebtedness.
(5)that the company had incurred losses and stopped functioning since September 1969 and therefore the substratum of the
company disappeared and there was no possibility of the company doing any business at profit.
(6) that the company was insolvent and it was just and equitable to wind up the company.
The High Court dismissed the petition. The single judge of the High Court dismissed the winding up application on the ground
that the company had accepted the demand of the appellants and therefore, there was no existence of any liability.
Dismissing the appeal to this Court, the High Court upheld the judgment and order and found that the alleged claims of the
appellants were very strongly and substantially denied and disputed.
HELD :
 The rules for winding up on a creditor's petition are if there is a bona fide dispute about a debt and the defence is a
substantial one, the court would not order winding up.
 The defence of the company should be in good faith and one of substance. If the defence is likely to succeed on a point
of law and the company adduced prima facie proof of the facts on which the defence depends, no order of winding up
would be made by the Court.
 Further under section 557 of the Companies Act, 1956, in all matters relating to winding up of a company the court
may ascertain the wishes of the creditors.
 If, for some good reason the creditors object to a winding up order, the court, in its discretion, may refuse to pass such
an order. Also, the winding up order will not be made on a creditor's petition if it would not benefit the creditor or the
company's creditors generally.
(1)In the present case, the claims of the appellants were disputed both in fact and in law.
The company had given prima facie evidence that the appellants were not entitled to any claim.
The company had also raised the defence of lack of privity and of limitation.
(2)One of the claims of the appellants was proved by the company to be unmeritorious and false, and as regards the admitted
debt the company had stated that there was a settlement between the company and the appellants that the appellants would
receive a lesser amount and that the company would pay it off out of the proceeds of sale of the company's properties.
(3)The creditors of the company for the sum of Rs.7,50,000 supported the company and resisted the appellants' application for
winding up.
(4)The cumulative evidence in support of the case of the company is that the appellants consented to any approved of the sale
of the machinery.
As shareholders, they had expressly written that they had no objection to the sale of the machinery and the letter was issued in
order to enable the company to hold an extraordinary general meeting on the subject.
On 8/1/1970, the company passed a resolution authorising the sale.
The appellants themselves were parties to the proposed sale and wanted to buy the machinery.
Where the shareholders had approved of the sale it could not be said that the transaction was unauthorised or improvident.
(5)In determining whether or not the substratum of the company had gone, the objects of the company and the case of the
company on that question would have to be looked into. The disappearance of the substratum of a company refers to a
situation where the underlying foundation or structure of the company is fundamentally altered, making it difficult or impossible
for the company to continue to operate as before.
In the present case, the company alleged that with the proceeds of sale the Company intend to enter into some other profitable
business such as export business which was within its objects.
The mere fact that it had suffered trading losses will not destroy its substratum unless there is no reasonable prospect of it ever
making a profit in the future. A court would not draw such an inference normally.
Among the creditors who supported the company, the largest amount was represented by Nandkishore and Company with a
claim for Rs. 4,95,999 - One of its largest creditors, who opposed the winding up petition and who backed the company to help
in the export business.
The company had not abandoned the objects of its business. Therefore, on the facts and circumstances of the present case it
could not be held that the substratum of the company had gone.
Nor could it be held that the company was unable to meet the outstandings of any of its admitted creditors. The company had
deposited money in court as per the directions of the Court and had not ceased carrying on its business.
(6) On the facts of the case it is apparent that the appellants had presented the petition with improper motives and not for
any legitimate purpose.
The appellants, the Katakia brothers were its directors, had full knowledge of the company's affairs and never made demands
for their alleged debts. They resigned in August 1969, went out of management of the company, sold their shares in December
1969, and just when the sale of the machinery was going to be effected presented the petition for winding up of the company in
January 1970.

Q. Discuss the facts and principles of law laid down in the case of The Commissioner Of Income-Tax, ... vs Sri
Meenakshi Mills Ltd. & Ors on 25 October, 1966
Equivalent citations: 1967 AIR 819, 1967 SCR (1) 934
Supreme Court Of India - Commissioner Of Income-Tax, Madras Vs. Shree Meenakshi Mills Ltd., Madurai
Date Of Judgment: 19/09/1966 Bench: J.C. Shah, Vishishtha Bhargava
Citation: 1967 Air 444, 1967 Scr (1) 392
Section 42, Indian income-tax act, 1922 - Income deemed to accrue or arise within the taxable territories.

 Madurai based Meenakshi Mills; Rajendra Mills ; Saroja Mills - the three respondents (hereinafter called the assessee-
companies) are public limited companies engaged in the manufacture and sale of yarn at Madurai.
 Each of the assessee-companies had a branch at Pudukottai, a former native State, engaged in the production and sale
of cotton yarn.
 The sale-proceeds of the branches were periodically deposited in the branch of Madurai Bank Ltd. (hereinafter referred
to as the 'Bank') at Pudukottai either in the current accounts or fixed deposits which earned interest.
 Madurai Bank Ltd. was incorporated on February 8, 1943 with Thyagaraja Chettiar as founder Director, the Head Office
being at Madurai.
 Out of 15,000 shares of this bank issued, 14,766 were held by Thyagaraja Chettiar, his two sons Manickavasagam and
Sundaram and the three assessee-companies.
 The assessee-companies held majority share in a Bank which, too, had its head office at Madurai and branch at
Pudukottai.
 Thyagaraja Chettiar, who was a shareholder of the Bank, was the moving figure in the assessee-companies.
 The assessees borrowed money from the Madurai head office of the Bank on the security of fixed deposits
made by the assessees' branches with the Pudukottai branch of the Bank.
 The loans were far in excess of the available profits at Pudukottai.
 The Income-tax Officer held that the borrowings in British India on the security of the fixed deposits made at
Pudukottai amounted to constructive remittance of the profits by the branches of the assessee-companies to their Head
Office in India within the meaning of section 4 of the Income-tax Act, and this view the Appellate Assistant
Commissioner upheld.
Constructive remittances refer to money transfers made by immigrants to their home countries that are intended to support
economic development and improve living standards. Constructive remittances are often promoted as a way to harness the
power of the global diaspora to promote economic growth and poverty reduction in developing countries. By directing their
financial resources toward productive investments, immigrants can help to create jobs and spur economic activity, ultimately
leading to a more sustainable and equitable development path.
 The assessees appealed to the Tribunal which took note that the branch whether of the assessee of the Bank
constituted only one unit, and the establishment of the branch of the Bank at Pudukottai was intended to help the
financial operations of Thyagaraja Chettiar in the concerns in which he was interested., and the Pudukottai branch of
the Bank had transmitted funds deposited by the assessees for enabling the Madurai branch to advance loans at
interest to the assessees and the transmission of the funds was made with the knowledge of assessees.
The Tribunal held that the assessees were rightly assessed.
 At the instance of the assessee-companies the appellate Tribunal referred the following question of law for the
determination of the High Court:
"Whether on the facts and in the circumstances of the case, the taxing of the entire interest earned on the fixed deposits made
out of the profits earned in Pudukottai by the assessee's branches in the Pudukottai branch of the Bank of Madurai is correct?"
In reference, the High Court answered the question in favour of the assessees
 holding it was not established that there was any arrangement between the assessees and the Bank whether at
Pudukottai or at Madurai for transference of moneys from Pudukottai branch to Madurai and the facts on record did not
establish that there was any transfer of funds between Pudukottai and Madurai for the purpose of advancing moneys
to the assessees, and the transactions represented ordinary banking transactions and there was nothing to show that
the amounts placed in fixed deposits in the branch were intended to and were in fact transferred to head office for the
purpose of lending them out to the depositor himself.
Supreme Court
In appeals by the Commissioner, the apex Court held, the appeals must be allowed.
 The High Court erred in law in interfering with the findings of the appellate Tribunal.
 In a reference, the High Court must accept the findings of fact reached by the appellate Tribunal and it is for the party
who applied for a reference to challenge those findings of fact first by an application under Section 66(1).
 If the party failed to file an application, under Section 66(1), expressly raising the question about the validity of the
findings of fact, he is not entitled to urge before the High Court that the findings are vitiated (vitiate means to make
something less effective; to spoil something) for any reason.
 In the context of the facts as found by the Tribunal, the entire transactions formed part of a basic arrangement or
scheme between the creditor and the debtor that the money should be brought into British India after it was taken by
the borrower outside the taxable territory.
  Section 42 requires, in the first place, that money should have been lent at interest outside the taxable territory. In the
second place, income, profits or gains should accrue or arise directly or indirectly from such money so lent at interest.
In the third place, that the money should be brought into the taxable territories in cash or in kind.
 If these three conditions are fulfilled, then the section lays down that the interest shall be deemed to be interest
accruing or arising within the taxable territories.
 The provision in Section 42(1), which brings within the scope of the charging section interest earned out of money
lent outside, but brought into British India, was not ultra vires the Indian Legislature on the ground that it was extra
territorial in operation.
 The section contemplates the bringing of money into British India with the knowledge of the lender and borrower and
this gives rise to a real territorial connection.
 This knowledge must be an integral part of the transaction.

Q. Discuss the facts and principles of law laid down in the case of Naresh Chandra vs. Calcutta Stock Exchange
Association, AIR 1971 SC 422.
Naresh Chandra Sanyal vs Calcutta Stock Exchange ... on 25 September, 1970 AIR 422, 1971 SCR (2) 483
Introduction
The Articles of Association (hereinafter referred to as ‘AOA’) is a vital document for the incorporation of any company, wherein
the manner is dictated in which the company is to be conducted. The AOA is binding in nature, and the provisions regarding the
duties of the members of the company are also contained in the AOA. The AOA is also the embodiment of the rights and duties
endowed on the members of the company. The judgment in Naresh Sanyal v. Calcutta Stock Exchange reasserted the
importance of the AOA of the company, wherein the Hon’ble Supreme Court of India reiterated this principle by calling these
articles a contract between the company and the members, and a contract among the members themselves.
Facts
Naresh Chandra Sanyal, the appellant held fully paid-up shares in the Calcutta Stock Exchange Association Ltd. (hereinafter
referred as ‘the exchange’).
Since he was a member of the exchange, he had received explicit permission to carry on his own business in the exchange as a
broker for shares, stocks and other securities in the Hall of Exchange.
In December 1941, Sanyal purchased one hundred shares of the Indian Iron & Steel Company Ltd. from Johurmull Daga &
Company, but did not take delivery of the shares on due date.
Johurmull Daga & Company sold the shares pursuant to the authority given to them by the Sub-Committee of the Exchange.
The transaction resulted in a loss of Rs. 438.10/-.
The Sub-Committee later directed Mr. Naresh Chandra Sanyal to pay the due amount remaining on his part, but the appellant
i.e. Mr. Naresh Chandra Sanyal failed to follow this direction of the Sub-Committee.
On January 7, 1942, the complaint of Johurmull Daga & Company was referred to the Full Committee of the Exchange.
Mr. Sanyal failed to pay the amount directed to be paid by him and he was by resolution dated February 19, 1942, declared a
defaulter.
On September 1, 1942, 6 months later, at a meeting at which Sanyal was present, the Full Committee ordered that the share
standing in his name be forfeited by the Exchange with effect from September 1, 1942, and that Mr. Sanyal be expelled from the
membership of the Exchange.
Aggrieved by this decision, Mr. Sanyal instituted a suit against the Exchange contending that the AOA of the Exchange were
invalid, ultra vires and inherently illegal, and also as an alternative, claimed damages of Rs. 55,000.
The trial court dismissed the suit, but the decree was confirmed later under the Letters Patent. The Letter Patent Appeal, aka
LPA, refers to an appeal by a petitioner against an order of an individual judge to another bench of the same court. It is a kind of
redressal mechanism facilitated when the high court came into existence in India in 1865.
However, Mr. Sanyal later approached the Supreme Court with special leave.
Issues
The main issues which the court faced for consideration were as follows –
1. Were the alleged AOA of the Calcutta Stock Exchange Association Ltd. invalid and ultra vires ?
2. Whether the appellant was liable to pay the damages caused to Johurmull Daga & Co.?
Held
In Naresh Sanyal v. Calcutta Stock Exchange, the Supreme Court deliberated on the case and concluded that they did not
concur with the opinion and the stance taken by the High Court in this matter.
That the exchange was entitled to retain the balance after all the debts had been satisfied, and all the liabilities and the
engagements related to the appellant which were due had been made even, was an opinion that the Supreme Court seemed to
have differing thoughts about.
In light of that, the Supreme Court set aside the judgement delivered by the High Court and further, it remanded the case back to
the High Court, with additional instructions to assess the extent of the liability which was due on the part of the appellant towards
the exchange. This extent was to be assessed concerning not only the transactions related to Johurmull Daga & Co. but as
regards to the other members of the exchange as well. The Supreme Court held that the appellant shall be entitled to the due
amount from the exchange only after all the deductions related to the outstanding liabilities have been made.
Analysis
The decision of the court stated that subject to the provisions of the Companies Act, a company and its members are bound by
the provisions of the company’s AOA. The AOA regulates the internal management of the company and specifically defines the
power of its officers. In the eyes of the Court, it was the duty of the AOA to manage the internalised administration harmony
within the organization, something which should also be reflected in the decisions of the company. The Supreme Court further
stated that AOA is a contract between the company and its members and among the members inter se which governs the
ordinary rights and obligations incidental to membership of the company.
Conclusion
The Supreme Court in Naresh Sanyal v. Calcutta Stock Exchange rejected the opinion of the High Court and held that instead of
only the outstanding amount due in the case of Johurmull Daga & Co., the appellant was also to be charged for the other
outstanding liabilities owed by the plaintiff towards the other members of the exchange. The appellant was also liable for
committing the default against them, which the Court took into consideration, rather than only allowing the exchange to balance
out the loss caused to it due to the actions of the appellant.

Some important articles of AoA of the Calcutta Stock Exchange Association Ltd
Art. 21-"The Committee shall have power to expel or suspend any member or if being firm any member or authorized assistant
of the firm in any of the events following. If the member or if being a firm any member or authorized assistant of the firm refuses
to abide by the decision of the Committee in any matter which under these articles or under the bylaws for the time being in
force is made the subject of a reference to the Committee.
Art. 22-"Any member who has been declared a defaulter by reason of his failure to fulfill any engagement between himself and
any other member or members and who fails to fulfill such engagements within six months from the date upon which he has
been so declared a defaulter shall at the expiration of such period of six calendar months automatically cease to be a member."
Art. 24-"Upon any member ceasing to be a member under the provisions of article 22 hereof and upon any resolution being
passed by the Committee expelling any member under the provisions of Article 21 hereof or upon any member being
adjudicated insolvent, the share held by such member shall ipso facto (by that very fact or act) be forfeited."
Art. 27-"Any share so forfeited shall be deemed to be the property of the Association, and the Committee shall sell, re-allot, and
otherwise dispose off the same in such manner to the best advantage for the satisfaction of all debts which, may then, be due
and owing either to the Association or any of its members arising out of transactions or dealings in stocks and shares."
Art. 28-"Any member whose share has been so forfeited shall notwithstanding be liable to pay and shall forthwith pay to the
Association all moneys owing by the member to the Association at the time of the forfeiture together with interest thereon, from
the time of forfeiture until payment at 12 percent per annum and the committee may enforce the payment thereof, without any
deduction or allowance for the value of the share at the time of forfeiture."
Art. 29-"The forfeiture of a share shall involve the extinction of all interest in and also of all claims and demands against the
Association in respect of the share, and all other rights incidental to the share. except only such of those rights as by these
Articles expressly saved."
Art. 31-"The Association shall have a first and paramount lien upon the share registered in the name of each member and upon
the proceeds of sale thereof for his debts, liabilities and engagements.
Art. 32-"For the purpose of enforcing such hen the Association may sell the share subject thereto in such manner as, they think
fit.
Art. 33-"The nett proceeds of any such sale shall be applied in or towards satisfaction of the debts, liabilities, or engagements,
residue (if any) paid to such member, his executors, administrators, committee, curator or other representatives."

Q. Discuss the facts and principles of law laid down in the case of Official Liquidator, Supreme ... vs P. A. Tendolkar
(Dead) By L. Rs. And ... on 19 January, 1973; AIR 1973, SC 1104.
The Official Liquidators are officers appointed by the Central Government under Section 448 of the Companies Act,
1956 and are attached to various High Courts. The Official Liquidators are under the administrative charge of the
respective Regional Directors, who supervise their functioning on behalf of the Central Government. A liquidator is a
person with the legal authority to act on behalf of a company to sell the company's assets before the company closes
in order to generate cash for a variety of reasons including debt repayment. Liquidators are generally assigned by the
court, by unsecured creditors, or by the company's shareholders.
Introduction
Directors are the means through which a company can exercise the right to function as an individual. There are plenty
of precedents, wherein the courts have established that the directors are the minds of the company, and it is their duty
to manage the affairs of the company, such that the benefit of the company is ensured to the maximum extent.
However, a fiduciary duty is also owed by the directors to the company, such that their conduct is not detrimental to
the interests of the company, and if it is so, the director can be held liable for any negligent conduct on their part. The
judgment in Official Liquidator Supreme Bank Ltd. v. P.A. Tendolkar , AIR 1973, SC 1104 reaffirmed this position and it
was held in this case that if a director is responsible for causing a huge loss to the company, then such a director can
be held liable for the loss so incurred.
Facts
The Supreme Bank of India after its incorporation in May, 1939 commenced operations from 6/10/1939. However, the
bank had to shut down its operations on 27/11/1954 because the acts of gross mismanagement in the bank had caused
a huge sum of money to be misappropriated. An application for winding up of the Supreme Bank of India was filed. A
liquidator for completing the process of winding up was appointed on March 15th, 1956. As a liquidator, he filed an
application for initiating proceedings of misfeasance (a transgression, especially the wrongful exercise
of lawful authority) on 27/8/1960 under Section 45H of the Banking Regulation Act, 1949 read with Section 235 of the
Indian Companies Act, 1913.
Section 45G of the Banking Companies Act, 1949 - Public examination of directors and auditors.
Section 45H of the Banking Regulation Act, 1949 - Special provisions for assessing damages against delinquent
directors, etc.
Section 45-O of the Banking Regulation Act, 1949 – Special period of limitation.
Section 235 of Companies Act, 2013, gives the power to the majority shareholders to transfer the entire shares of the
company if 9/10th of the shareholders assented to the scheme, subject to the approval of Tribunal if any, thus minority
shareholders have very minimal role to play when the majority decides to transfer the shares. The Tribunal will
consider the application when there is any oppression from the part of majority and any other criteria which makes the
scheme illegal or invalid in the opinion of the Tribunal and then passed appropriate decision it thinks fit. Moreover, the
will of majority always prevails subject to the Order of Tribunal if any applies.
Section 22 in Banking Regulation Act, 1949 - Licensing of banking companies.

The liquidator had relied his claims on several reports made by the Reserve Bank of India and several other authorities,
under the orders of the High Court. Thereby, the proceedings were initiated against the directors, the managing
directors, and the other officers of the company. However, pending the delivery of judgement by the Court, two of the
directors passed away, and after the death of the third director, his legal representatives were brought before the court
for subsequent proceedings. The liquidator had included in the prayer all sorts of judgement that the learned judge
could have thought to give in the given set of circumstances.
Issues
Whether the liability of the directors as decided by the Company Judge was appropriate or not?
Held
The Court agreed with the Company Judges and with the Division Bench when it came to deciding the liability of the
directors, for the delinquent conduct they had committed. The Court agreed that the total liability of the delinquent
board should be Rs. 2,50,000. However, this court averred that this liability should be paid by the directors who were
alive at the time when the Company Judge passed his order. Only those directors who were alive at the time to witness
the order of the Company Judge should contribute to the assets of the company. However, the court indeed set aside
the order of the Division Bench in part where the Division Bench had determined the liabilities of the Managing
Director, and two of the directors. The directors were held to be joint and severally liable for the repayment of the
outstanding sum to be paid by the defaulters, after the respective repayment by the Managing Directors, and a
considerable amount from the total had been deducted. The Court then further remanded the case back to the learned
Company judge with the instructions to pass the order in likewise for the Directors of the Company.
Analysis
In Official Liquidator Supreme Bank Ltd. v. P.A. Tendolkar, by holding the delinquent group of directors accountable for
their actions, the Supreme Court reiterated the importance of diligence which is to be expected from the directors of
the company. The opinion of the court established the fact that if the conduct of a director is negligent in nature to
such an extent, that it enables the commission of frauds and as a result of such a conduct, if heavy losses are incurred
by the company, then in such a situation, the director can indeed be held accountable and liable for such losses. The
directors have long been established as the hands and minds of the corporation since it is through them the company
can act as an individual, which is why the same is also reflective on the conduct of the director. If the company suffers
losses due to the negligent conduct of the director, then the negligent director or the board of directors, as the case
may be, maybe held to be liable for the losses so incurred.
Conclusion
The Court allowed the appeal filed by the liquidator seeking punishment for the conduct of the directors of the
company. The order of the Division Bench was set aside by the Apex Court, who remanded the case back to the
learned company judge with certain directions regarding the nature of the punishment for the directors.

Q. Discuss the facts and principles of law laid down in the case of R.Mathalone vs. Bombay Life Assurance
Corporation Ltd. AIR 1953, SC 195.
Mathalone vs Bombay Life Assurance Co. ... on 19 May, 1953
Subject: July 1944 struggle between the group of Sir Padampat Singhania (hereinafter called ‘B’) and the group of Shri
Maneklal Premchand for control of the management of the Bombay Life Assurance Co. Ltd.
ACT:
Indian Companies Act (VII of 1913), Section 105-C-Transfer of shares-Transferee's name not entered on register-Offer of
new shares under Section 105-C-Transferor whether bound to acquire the new shares as trustee for transferee-Duties of
transferor--Validity of requisition by transferee-Suit by transferee against transferor-Maintainability.
HEADNOTE:
Mr P.V. Reddy, who was a director of the Bombay Life Assurance Co., Ltd. (hereinafter called ‘A’), who held a certain number of
shares in a company, sold 484 shares to ‘B’ (Sir Padampat Singhania) on the 29th July, 1944, and executed blank transfer
forms in respect of the shares.
 ‘B’ made an application to the company for registration of his name, only on the 11th April, 1945, and his application was
rejected on 8th May, 1945.
Meanwhile, on 21st February, 1945, in order to combat the move of ‘B’ to acquire control of its management, the company
resolved to issue 4,956 new shares of Rs 100 each at a premium of Rs 75 per share. On the existing shares, only Rs 25 per
share had been called up.
The company therefore decided that the new shares should be offered to the existing share holders, in the proportion of 4
shares to every 5 shares held by the shareholders and offered to A the number of shares to which he was entitled under the
provisions of section 105-C of the Indian Companies Act, 1913 in respect of the shares which stood in the register in his name.
‘A’ did not apply for the new shares pertaining to the shares sold to ‘B’.
On the 23rd February, 1945, M/s JL Mehta and NK Bhartiya purporting to act on behalf of the purchaser of 484 shares wrote to
‘A’ asking him to forward to them the company’s circular letter along with the two forms, Form ‘A’ being the application form for
allotment of new shares and form ‘B’ being a renunciation form as and when received by him, after appending to them his
signatures, to enable them to apply for these shares either in ‘A’ ‘s name or in the name of the transferees.
On the 28th February, 1945, M/s Craigie, Blunt & Caroe, a firm of solicitors sent a requisition to ‘A’ on behalf of B, C, D, E and
others who claimed to be the purchasers of the shares sold by ‘A’, calling upon ‘A’ to apply for the additional shares, and to hold
them, when allotted, on behalf of B, C, D and E and others, and offering to indemnify ‘A’ against all liabilities he may incur
thereby.
‘A’ declined to apply but offered to sign the renunciation form in favour of the true purchasers.
As the time fixed for making an application for the new shares was about to expire, ‘B’ filed a suit against ‘A’ praying that ‘A’ may
be ordered to deliver to ‘B’ the application form for the new shares, and to hand over the new share certificates when received,
with transfer forms in blank duly signed by him, and for damages in the alternative.
A receiver was appointed and he applied to the company in his own name for allotment of the new shares and for registering his
name in respect thereof but the company declined to do so.
The receiver filed a suit against the company for allotment of the new shares to him.

The High Court of Bombay held that, as ‘A’ was a trustee of ‘B’ in respect of the new issue, and he had failed to apply for the
new shares, he was liable in damages to B.

On appeal:
The Supreme Cour held,
(i) that if ‘A’ was not prepared to obtain the new shares in his name, there was no principle of law or equity by which he could he
compelled to aquire those shares by spending his own money or by undertaking financial liabilities and pass them over to ‘B’ on
receiving the amount spent by him from the purchaser or being otherwise fully indemnified by him in respect of the liabilities
incurred or to be incurred.
(ii) Assuming that ‘A’ was under any such obligation, as the requisition made by the solicitors to ‘A’ to purchase the shares was
made on behalf of four disclosed and some undisclosed persons, it was ineffective and inadequate, and ‘A’ was not guilty of any
breach of duty as a trustee in not complying with the requisition. ,
(iii) As ‘B’ had no right to call upon ‘A’ to buy the new shares in his own name for his (‘B’'s) benefit, a fortiori, the receiver had
also no such right.
(iv) In any event, as the company was not a party to B's suit, no order could be issued to the company in that· suit to recognise
the receiver as a shareholder in respect of shares sold to B· and, as long as he was not on the register, the company was not
bound to entertain an application from him for issue of the new shares in his favour.

Q. Write a brief account of history of Company Law in India.

Q. Highlight in short the history of Companies Act in India.
Q. Describe in detail the historical development of company law in India.
Company law in India has its roots in the English Companies Act of 1844, which was passed during the British colonial
rule in India.
Over the years, the Indian legal system has evolved and several modifications have been made to the original act to
suit the needs of Indian businesses.
Here's a brief overview of the historical development of company law in India.
1. Indian Companies Act of 1857: The first Indian Companies Act of 1857 was enacted during British rule and was
applicable only to British-owned companies operating in India. The act dealt with the registration of companies and
provided for the appointment of an official liquidator in the event of a company's dissolution.
2. Indian Companies Act of 1913: The Indian Companies Act of 1913 replaced the 1857 act and expanded its provisions to
include Indian-owned companies as well. This act was an improvement over the 1857 act. It introduced the concept of a
limited liability company, which meant that the liability of the shareholders was limited to the amount of capital they
had invested in the company. The Indian Companies Act of 1913 was the first comprehensive legislation aimed at
regulating the formation and functioning of companies in India. The Act provided a framework for the formation of
 companies, including the requirements for incorporation, capital, management, and winding up. The 1913 act also
provided for the appointment of auditors.
3. Indian Companies Act of 1956: This act replaced the 1913 act, and it was a comprehensive piece of legislation that
provided for the incorporation, regulation, and winding up of companies in India. It introduced several new provisions,
including the requirement for companies to file annual returns and the appointment of auditors. The new act aimed to
improve the regulation of companies and provide greater protection to investors. It introduced several important
provisions, including the requirement for regular financial audits and the appointment of a company secretary. It
introduced the concept of a public limited company and provided for the regulation of share capital, share transfers,
and the appointment of directors.
4. 1991: Economic liberalization in India in 1991 marked a turning point in the development of company law. The
government initiated several reforms aimed at promoting entrepreneurship and attracting foreign investment. The
Companies Act of 1956 was amended several times to keep pace with the changing business environment.
5. The Companies (Amendment) Act of 2000 was enacted to further streamline the incorporation process and improve the
regulatory framework for companies. The act introduced several important changes, including the introduction of a
fast-track process for the incorporation of small companies, the introduction of electronic filing of documents, and the
recognition of foreign companies.
6. The Indian Companies Act of 2013: The Indian Companies Act of 2013 replaced the 1956 act and brought significant
changes to the corporate sector in India. An Act to consolidate and amend the law relating to companies, The
Companies Act, 2013 came into force on 29/8/2013. Some of the key features of the 2013 act include greater
accountability and transparency, enhanced protection of minority shareholders, increased regulatory powers for the
government, and a more robust framework for corporate governance. The act introduced several important provisions,
including the requirement for corporate social responsibility, greater transparency in corporate governance, and
improved disclosure requirements.
Importance of Companies Act, 2013 - As we already know that company law has been amended many times but the
changes which took place in 2013 under company’s act has great importance and the reasons are:
 Firstly, the number of members in the private company as a shareholder were increased from fifty to two
hundred.
 Secondly, the concept of One Person Company was introduced. In this, the company is incorporated by a
single person and that single person is also the nominee of that company.
 Thirdly, one of the most important change which took place in this act was of the changes related to the rights
of renounciation. The shareholder can renounce his offered shares in favour of other person whether he is a
shareholder of company or not.
 lastly, section 135 of this act was amended which deal with the corporate social responsibility as well as
company law tribunal and company law appellate tribunal.
Basically, this act of 2013 modernized the whole concept of company law. As a result, companies act of 2013 only
consists of twenty-nine chapters and four hundred seventy sections whereas the earlier acts had six hundred fifty-
eight sections and seven schedules.
Recent Developments in this Pandemic in Companies Act, 2013
 All the companies of India are managed by the Ministry of Corporate Affairs and is working under Companies
Act of 2013.
 In pandemic, the Ministry of Corporate Affairs companies amended the 2013 act by 2020 act by inserting a
provision rule 2(1) (e) of this act, which explain that any company which is already engaged in research and
development of vaccine required in covid-19 and medical devices needed in their normal course of business,
they are forced to disclose their activity on the research to CSR separately in the annual report included in the
board report.
 The MCA has amended this act to help and enable company management to comply with the provisions of this
act in the crucial and difficult times.
 Furthermore, the steps taken by MCA has proven beneficial to investors and companies.
 While MCA has implemented the conduct of board such as ‘the Annual General Meetings’ through electronic
communications so that people did not get affected by the pandemic. We can also say that it would be safe to
assume that conducting meetings via such methods will become the new norms in future.

Q. Write short notes on

 Appointment of Management Personnel
 Inspection
 Remuneration
 Investigation
 Inquiry
 Compromise
The word compromise has nowhere been defined in the Companies Act. It basically connotes the settlement of a
conflict by mutual consent and agreement or through a scheme of compromise. Thus, for a compromise, there has to
be some dispute or conflict. On the other hand, the word arrangement has been defined under section 230(1) of the
companies act. The arrangement has a wider connotation than compromise. The arrangement means re-organizing the
right and liabilities of the shareholders of the company without the existence of some dispute. A company may enter
into a compromise or arrangement to take itself out from the winding-up proceedings.
Situations under which a company may call for a scheme of compromise:
 If in the normal course of business, it becomes impossible to pay all the creditors in full.
 Subsidiaries/Units cannot work without incurring losses.
 Where liquidation of the company may prove harsh for the creditors or members.
Situation under which a company may enter into arrangements:
 For the issue of new shares.
 For any variation in property.
 Conversion of one class of share to another.
 For reorganizing the share capital of the company.

Procedure for compromise and arrangement under the company law

After the enactment of the Companies Act, 2013, the procedure for mergers, acquisitions, amalgamations and
restructuring has been simplified by the new provisions. The Act of 2013 has removed all the backdrops of the older
legislation and is aimed to bring more transparency. It allowed cross border mergers as well, increasing the horizons
for the industries and making it easier for them to expand. In order to speed up the process and to bring more
transparency the assistance of tribunal was invoked under the 2013 Act. So below is the stepwise procedure for the
scheme of compromise and arrangement:
 Preliminary Stage (Preparation of Scheme): This is the first stage, in which a detailed scheme is prepared by the
members of the creditors. This scheme must contain all the matters that are of substantial interest, it must also
explain or show how the scheme is going to affect the members, creditors and all the other companies. The
scheme must also disclose the material interest of the director.
 Application to Tribunal: Any member or a creditor of the company (in case the company is winding up, its
liquidator) can make an application to the Tribunal i.e. to NCLT proposing the scheme of merger or acquisition
between two or more companies. The tribunal can also make the application on a suo moto basis.
 Tribunal looks into the application: Once an application proposing the scheme is made, the tribunal will take a
look as to whether the application is within the ambit of Section 230-240. It is pertinent to note here that in this
stage the tribunal is not concerned with the merits of the application, it will only look as to whether the
application is within the ambit of the act or not. It will also see that the application is accompanied by an
explanatory statement.
 Conveyance of Meeting: Once the tribunal sees the application, it issues a notice for the conveyance of the
meeting of the creditors and the members of the company within 21 days. It must be noted that, if the scheme is
not going to have any adverse effect on any party, then the tribunal can also avoid the call for the meeting. If
the meeting is conveyed then the scheme must be approved by a majority of three fourth members present and
voting.
 Presentation of the outcome of the Meeting before the Tribunal: Once the scheme is approved by the members or
creditors or the liquidator (in case of a winding company) in the meeting, the report of the meeting must be
presented before the tribunal within seven days of the meeting. The report must show the confirmation of the
scheme of compromise or arrangement.
 Commencement of Hearings: After the submission of the report the tribunal shall fix a date for hearing. Such
data must be notified in the newspaper through advertisement. Such advertisement must be notified before 10
days of the hearing.
 Sanction of Cases: The tribunal shall after hearing all the objections and concerns of all the parties, if it is
deemed fair and reasonable to the tribunal then the tribunal may sanction the compromise or arrangement.
 Registration of the Scheme with Registrar: Once the scheme is sanctioned by the Tribunal, a certified copy of the
order shall be filed with the ROC (Registrar of Company) within 14 days from such sanction order.

INSPECTION, INQUIRY AND INVESTIGATION

Section 206. Power to call for information, inspect books and conduct inquiries.— (1) Where on a scrutiny of any
document filed by a company or on any information received by him, the Registrar is of the opinion that any further
information or explanation or any further documents relating to the company is necessary, he may by a written notice
require the company— (a) to furnish in writing such information or explanation; or (b) to produce such documents,
within such reasonable time, as may be specified in the notice.
Section 207. Conduct of inspection and inquiry.— (1) Where a Registrar or inspector calls for the books of account and
other books and papers under section 206, it shall be the duty of every director, officer or other employee of the
company to produce all such documents to the Registrar or inspector and furnish him with such statements,
information or explanations in such form as the Registrar or inspector may require and shall render all assistance to
the Registrar or inspector in connection with such inspection.
Section 208. Report on inspection made.— The Registrar or inspector shall, after the inspection of the books of
account or an inquiry under section 206 and other books and papers of the company under section 207, submit a
report in writing to the Central Government along with such documents, if any, and such report may, if necessary,
include a recommendation that further investigation into the affairs of the company is necessary giving his reasons in
support.
Section 209. Search and seizure.— (1) Where, upon information in his possession or otherwise, the Registrar or
inspector has reasonable ground to believe that the books and papers of a company, or relating to the key managerial
personnel or any director or auditor or company secretary in practice if the company has not appointed a company
secretary, are likely to be destroyed, mutilated, altered, falsified or secreted, he may, after obtaining an order from the
Special Court for the seizure of such books and papers.
Section 210. Investigation into affairs of company.— (1) Where the Central Government is of the opinion, that it is
necessary to investigate into the affairs of a company,— (a) on the receipt of a report of the Registrar or inspector
under section 208; (b) on intimation of a special resolution passed by a company that the affairs of the company ought
to be investigated; or (c) in public interest, it may order an investigation into the affairs of the company.

Q. What do you understand by “Manager” ? Who are the various kinds of managerial personnel ?
The Companies Act, 2013 (‘Act’) mandates that certain classes of companies have to appoint Key Managerial Personnel (KMP).
KMP is a group of people in charge of the company’s operations. They are the decision-makers and responsible for the
company’s smooth functioning. They are employees vested with certain essential functionalities and roles.
Section 2(51) of the Act defines Key Managerial Personnel (KMP). It states that the KMP of a company means:
 the Chief Executive Officer or the Managing Director or the Manager
 the Company Secretary
 the Whole-time Director
 the Chief Financial Officer
 such other Officers, designated by the Board as KMP but are not more than one level below the Directors in whole-time
employment
The Chief Executive Officer or the Managing Director or the Manager
Responsible for running the company. The Managing Director has authority over all company operations. They are also
responsible for growing and innovating the company to a larger scale.
Under the Act, the Managing Director is defined as a director having substantial powers over the company management and its
affairs. A Managing Director is appointed through any of the following means:
 By the Articles of Association
 An agreement with the company
 A resolution passed in a General Meeting
 By the company board of directors
Company Secretary
A company secretary is responsible for looking after the efficient administration of the company. They take care of the
company’s compliance and regulatory requirements. They also ensure that the instructions and targets of the board are
implemented.
As per the Act, a company secretary or secretary means a company secretary defined under Section 2 of the Company
Secretaries Act, 1980. The Company Secretaries Act defines a Company Secretary as a person who is a member of the
Institute of Company Secretaries of India (ICSI). The company secretary should ensure that the company complies with
secretarial standards.
Whole-Time Director
Under the Act, a Whole-Time Director is defined as a director who is in whole-time employment of the company. A Whole-Time
Director means a director who works during the entire working hours of the company. They are different from an independent
director as they are part of the daily operation and has a significant stake in the company. A Managing Director can also be a
Whole-Time Director.
Chief Financial Officer
A Chief Financial Officer is responsible for handling the company’s financial status. They keep a tab on cash flow operations,
create contingency plans for financial crises and do financial planning. They lead the treasury and financial functions of the
company.
Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides the class of
companies that must appoint the whole-time KMP, which are as follows:
 Every listed company
 A public company having a paid-up share capital of Rs 10 crore or more
  A private company having a paid-up share capital of Rs 10 crore or more
Every whole-time, KMP is appointed through a resolution of the board containing the conditions and terms of appointment,
including remuneration. A whole-time KMP must not simultaneously hold office in more than one company except its subsidiary
company.
The board is responsible for filling the vacancies in the post of KMP within six months of the vacancy. A company can appoint or
re-appoint a person as its managing director, whole-time director or manager for a maximum of five years.
The KMPs are responsible for taking crucial company decisions and managing the employees. They are also liable when the
company does not follow the mandatory compliances laid down by the Act. The KMPs of the company are essential persons
who look after the management and affairs of a company. The companies specified under Rule 8 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014, must mandatorily appoint KMP for the company
management.

‘Remuneration’ means any money or its equivalent given to any person for services rendered by him and includes the
perquisites mentioned in the Income-tax Act, 1961. Managerial remuneration in simple words is the remuneration paid
to managerial personnel meaning directors including managing director and whole-time director, and manager.
Section 2(78) ―’remuneration’ means any money or its equivalent given or passed to any person for services rendered
by him and includes perquisites as defined under the Income-tax Act, 1961 (43 of 1961);

What is the permissible managerial remuneration payable under the Companies Act 2013?
Total managerial remuneration payable by a public company, to itsdirectors, managing director and whole-time
director and its manager in respect of any financial year:
Condition Max Remuneration in any financial year

Company with one Managing director/whole time 5% of the net profits of the company
director/manager

Company with more than one Managing director/whole time 10% of the net profits of the company
director/manager

Overall Limit on Managerial Remuneration 11% of the net profits of the company

Remuneration payable to directors who are neither managing directors nor whole-time directors

For directors who are neither managing director or whole-time 1% of the net profits of the company if there is a managing
directors director/whole time director

If there is a director who is neither a Managing director/whole 3% of the net profits of the company if there is no managing
time director director/whole time director

The percentages displayed above shall be exclusive of any fees payable under section 197(5).
Until now, any managerial remunerationin excess of 11% required government approval. However, now a public
company can pay its managerial personnel remuneration in excess of 11% without prior approval of the Central
Government. A special resolution approved by the shareholders will be sufficient. In case a company has defaulted in
paying its dues or failed to pay its dues, permission from the lenders will be necessary.
When the company has inadequate profits/no profits: In case a company has inadequate profits/no profits in any
financial year, no amount shall be payable by way of remuneration except if these provisions are followed:

Where the effective capital is: Limits of yearly remuneration

Negative or less than 5 Crores 60 Lakhs

5 crores and above but less than 100 Crores 84 Lakhs

100 Crores and above but less than 250 Crores 120 Lakhs

250 Crores and above 120 Lakhs plus 0.01% of the effective capital in excess of 250 Crores
Please note:
These restrictions do not apply to the sitting fees of the directors (managing director, whole time director/manager).
 Remuneration in excess of the aforementioned limits may be paid only if a special resolution is passed by the
shareholders.
 Remuneration as per the above limits may be paid if:
o A managerial personnel is functioning in a professional capacity.
o The managerial person does not have an interest in the capital of the company/holding
company/subsidiary company either directly, or indirectly, or through any statutory structures.
o The managerial person does not have a direct/indirect interest or related to the directors /promoters of
the company/holding company/subsidiary company any time during the last 2 years either
before/on/after the date of appointment.
o He/She is in possession of a graduate level qualification along with expertise and specialized
knowledge in the field in which the company mainly operates.
If any employee holds less than 0.5% of the company’s paid-up capital under any scheme (including ESOP) or by way
of qualification, for this purpose he/she is considered to not have interest in the share capital of the company.

Please note: ESOP stands for employee stock ownership plan. An ESOP grants company stock to employees, often
based on the duration of their employment. Typically, it is part of a compensation package, where shares will vest over
a period of time. ESOPs are designed so that employees' motivations and interests are aligned with those of the
company's shareholders. From a management perspective, ESOPs have certain tax advantages, along with
incentivizing employees to focus on company performance.

Important pointers
Determination of Remuneration: The remuneration payable to the directors shall be determined by
 The articles of the company
 A resolution
 Special resolution if articles require it to be passed in the general meeting
Fees to directors
The directors may receive fees for attending meetings and such fees cannot exceed the limits prescribed.
The fees can be paid:
 Monthly
 As a specified percentage of the Net Profits yearly
 Partly by each of the above two methods
Remuneration of independent directors: An independent director shall be entitled to a sitting fees, a reimbursement
for participation in meetings and profit related commission as approved by Board. However, he shall not be entitled to
ESOP.
Excess remuneration to be refunded: If any director receives any remuneration in excess of the provisions of the law,
the same shall be refunded to the company or kept in trust for the company. Such recovery shall not be waived unless
permitted by the Central Government.

Q. Write short notes on the following:

 Prospectus
 Differences between Share and Stock
 Kinds of Meetings
 Kinds of resolution

Prospectus means, “any document containing information about securities.”

Section 2(70) of the Companies Act defines the term “prospectus” as under:
“Prospectus means, any document described or issued as a prospectus and includes any notice, circular, advertisement or
other document inviting deposits from the public or inviting offers from the public for the subscription or puchase of any shares or
debentures of a body corporate.”
Any advertisement inviting the public for sale of shares or debentures of the company is called prospectus.
A prospectus must have following essentials:
 It must contain an invitation for deposit or an invitation to purchase shares or debentures of the company: and
 The invitation must be made to the public.
Genuineness of prospectus/Section 26 deals with the matters to be stated in prospectus.—
A valid prospectus must contain the following essentials:
  Every prospectus must be dated. The date given in the prospectus shall be taken to be the date of its publication unless
proved to the contrary. Date of filing of the prospectus with the Registrar is taken to be the date of its issue. Date of
issue of the prospectus may, however, be different from the date of its publication.
 Section 26(4) - No prospectus shall be issued by or on behalf of a company or in relation to an intended company
unless on or before the date of its publication, there has been delivered to the Registrar for registration, a copy thereof
signed by every person who is named therein as a director or proposed director of the company or by his duly
authorised attorney.
 Section 26(5) - A prospectus issued under sub-section (1) shall not include a statement purporting to be made by an
expert unless the expert is a person who is not, and has not been, engaged or interested in the formation or promotion
or management, of the company and has given his written consent to the issue of the prospectus and has not
withdrawn such consent before the delivery of a copy of the prospectus to the Registrar for registration and a statement
to that effect shall be included in the prospectus.
 Section 26(7) - The Registrar shall not register a prospectus unless the requirements of this section with respect to its
registration are complied with and the prospectus is accompanied by the consent in writing of all the persons named in
the prospectus.
 Section 26(8) - No prospectus shall be valid if it is issued more than ninety days after the date on which a copy thereof
is delivered to the Registrar under sub-section (4).
 Every form of application for subscribing the shares or debentures of a company shall not be issued unless it is
accompanied by a prospectus or an abridged prospectus, unless the offer or invitation has not been made to the public.
Misrepresentation in the prospectus:
The issue of prospectus carries great advantages to the company as well as to the public who offered to take shares on the
basis of informations furnished therein.
Therefore, a prospectus must give a complete, accurate and fair state of company’s affairs.
Any misrepresentation or omission in the prospectus is regarded as a serious mistake wherein the aggrieved person may seek
the remedy against the company. Section 62 of the Companies Act, 1956 imposes civil liability for mis-statements in the
prospectus, whereas Section 63 of the said Act imposes criminal liability for mis-statements in the prospectus.
Derry v Peek (1889) 14 App Cas 337
Tort Law: False representation
Brief Fact Summary. Plaintiff brought suit after it bought shares in Defendant’s company, under the belief that Defendant would
have the right to use steam power, as opposed to other companies, which would not.
Synopsis of Rule of Law. Misrepresentation, alone, is not sufficient to prove deceit.
Facts. Plaintiff received a prospectus regarding the incorporation of Defendant’s company, which highlighted that the company
would have the right to use steam or mechanical power.
After receiving the prospectus, Plaintiff bought shares of the company, relying on the allegations of the prospectus, and believing
that the company had the absolute right to use steam or mechanical power.
The board of trade refused to allow steam or mechanical power, and the company was wound up, unable to complete its work.
Thereafter, Plaintiff brought suit against Defendant for fraudulent misrepresentations.
The trial judge dismissed the action, after coming to the conclusion that the directors knew that the use of steam or
mechanical power was contingent on the board of trade and it was not unreasonable or deceitful for them to rely on the
board.
On appeal, the dismissal was reversed, because the court found that the Defendants may have reasonably believed the
prospectus and, because they did not have reasonable grounds for what they wrote in the prospectus, they should be held liable
for Plaintiff’s reliance.
Defendant appealed.
Issue. Whether it is deceit when a company forms a prospectus to solicit investors, which later proves to be wrong?
Held. Reversed.
The House of Lords reversed the judgment of the court of appeals, and reinstated the judgment of the lower court. The court
found this to be an action of deceit, under which the establishment of misrepresentation alone is not enough to prove liability. In
this case, Plaintiff relied on the prospectus, which may have been misrepresentation, but Defendants reasonably believed they
could glean approval of the board of trade and should not be held liable for their later failure to do so.
Discussion. An action of deceit will only stand in a court when a plaintiff can show not only misrepresentation, but also that
defendants knew they would be unable to follow through with their representations.

Differences between Share and Stock

Comparison Chart
BASIS FOR COMPARISON SHARE STOCK

Meaning The capital of a company, is divided The conversion of the fully paid up
into small units, which are commonly shares of a member into a single fund
known as shares. is known as stock.
 BASIS FOR COMPARISON SHARE STOCK

Is it possible for a company Yes No

to make original issue?

Paid up value Shares can be partly or fully paid up. Stock can only be fully paid up.

Definite number A share have a definite number known A stock does not have such number.
as distinctive number.

Fractional transfer Not possible. Possible

Nominal value Yes No

Denomination Equal amounts Unequal amounts

Definition of Shares
A share is defined as the smallest division of the share capital of the company which represents the proportion of ownership of
the shareholders in the company. The shares are the bridge between the shareholders and the company. The shares are
offered in the stock market or markets for sale, to raise capital for the company. The shares are movable property which can be
transferred in a manner specified in the Articles of Association of the company.
The shares are mainly divided into two categories: Equity shares and Preference shares.
Equity shares are the common shares of the company which carries voting rights while Preference shares are the shares which
carry preferential rights for the payment of dividend and also for the repayment of capital in the event of winding up of the
company.
The shares of a company can be issued in three ways:
 Par
 Premium
 Discount
Definition of Stock
The stock is a mere collection of the shares of a member of a company in a lump sum. When the shares of a member are
converted into one fund is known as stock. A public company limited by shares can convert its fully paid-up shares into stock.
However, the original issue of stock is not possible. For the conversion of the shares into stock the following conditions are to be
fulfilled in this regard:
 The Articles of Association should specify such conversion.
 The company should pass an Ordinary Resolution (OR) in the Annual General Meeting (AGM) of the company.
 The company shall give notice to the ROC (Registrar of Companies) about the conversion of shares into stock within
the prescribed time.
After the conversion of shares into the stock, Register of members of the company will show the stock held by each member, in
place of shares held by them. Although, there should not be any change in the voting rights of the members. In addition to this,
there is no effect on the transferability of shares. Instead, they can now be transferred in the fraction. They are of two types:
Common Stock and Preferred Stock.
Key Differences Between Share and Stock
The principal points of difference between share and stock are as follows:
1. A share is that smallest part of the share capital of the company which highlights the ownership of the shareholder. On
the other hand, the bundle of shares of a member in a company, are collectively known as stock.
2. The share is always originally issued while the original issue of Stock is not possible.
3. A share has a definite number known as a distinctive number which distinguishes it from other shares, but a stock does
not have such number.
4. Shares can be partly paid or fully paid. Conversely, Stock is always fully paid.
5. Shares can never be transferred in the fraction. As opposed to stock, can be transferred in the fraction.
6. Shares have nominal value, but the stock does not have any nominal value.
Conclusion:
In short, it can be said that the tiny part of the company’s capital is share while the collection of shares held by a
member is stock. The Indian Companies Act, 2013 authorized a limited company to convert shares into stock and vice versa.
There are certain legal formalities which are to be met for such conversion.
Nominal value of a security, often referred to as face or par value, is its redemption price and is normally stated on the front of
that security.
Why stock has no nominal value?
Par value, which is also called par, nominal value, or face value, is the amount at which a security is issued or can be
redeemed. No-par value stock doesn't have a redeemable price, rather prices are determined by the amount that investors are
willing to pay for the stocks on the open market.

Q. What do you understand by Meeting of Company ? Explain its various kinds.

Q. What are the types of meetings of a Company ? How resolution can be passed in such meetings ?
Kinds of Meetings
Meeting is not defined under any provisions of Companies Act of 2013. Ordinarily, a company may be defined as gathering,
assembling or coming together of two or more persons (by previous notice or by mutual arrangement) for discussion and
transaction of some lawful business. A company meeting may be defined as a concurrence or coming together of at least a
quorum of members in order to transact either ordinary or special business of the company.
Characteristics of a Company Meeting:
1. Two or more persons (who are the members of the Company) must be present at the meeting.
2. The assembly of persons must be for discussion and transaction of some lawful business.
3. A previous notice would be given for convening a meeting.
4. The meeting must be held at a particular place, date and time.
5. The meeting must be held as per provisions/rules of Companies Act.
Therefore the company meetings are broadly classifies as follows:
1. Shareholders Meeting:

a. Annual General Meeting –

 This is defined under section 96 of Company Act, 2013, wherein every company, whether public or private, except One
Person Company, is required to convene first AGM within 9 months from the date of closing of the first Financial
Year to decide the overall progress of the company as well as to plan future courses of action.
 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.
 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 if there any urgent circumstances or
emergency situations arises, when company wasn’t able to conduct the AGM, then The National Company Law
Tribunal may grant the extension of 3 months, but said extension not available in first AGM, and therefore first AGM
must be conducted within 9 months from end of F.Y.
 Power of National Company Law Tribunal(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.
 The National Company Law Tribunal was setup by the Central Government in 2016 under Section 408 of
the Companies Act, 2013. The National Company Law Tribunal has been setup as a quasi-judicial body to
govern the companies registered in India and is a successor to the Company Law Board. With the
establishment of the NCLT and NCLAT, the Company Law Board under the Companies Act, 1956 has now
been dissolved.

b. 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.
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 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.

2. 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
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.

In Sharp vs Dawes (1876), A general meeting of a co. was called for the purpose of making a call.
Only one shareholder attended the meeting.
Held: That one person could not constitute a meeting.
Exceptions are,
i)Where there is class meeting of shareholders and all the shares of that class are heldby one person.
ii)Directors meeting – in case of private company
iii)If at the adjourned meeting also the quorum is not present within half an hour of thetime of the meeting, the members present
even one member constitute a meeting
iv)Creditors meeting in course of winding up
v)Meeting convened pursuant to a court order sec. 135(i)
vi)A.G.M. convened by or at instance of the registrar

Kinds of resolution
A corporate resolution is a written document created by the board of directors of a company detailing a binding corporate action.
A corporate resolution is a legal document that provides the rules and framework for how the board can act under various
circumstances.
What is Resolution?
The “resolution” is a plan sent to the meeting for discussion and approval. If the motion is approved by the members present at
the meeting unanimously, it is referred to as a resolution. Three forms of resolutions are available: ordinary resolution, special
resolution and unanimous resolution. There is no concept of special resolution in board meetings and very few unanimous
resolutions are also required. However, all three are covered in the case of general meetings.
Company decisions are made by passing resolutions. Resolutions are passed both by the company's members and by its
directors. In either case, resolutions may be passed at meetings or by written resolution.
Members resolutions
Directors' resolutions
There are now just two types of resolution, ordinary resolutions (passed by a simple majority) and special resolutions (passed by
a 75% majority).
The Companies Act 2013 provides: Section 114. Ordinary and special resolutions.—
(1) A resolution shall be an ordinary resolution if the notice required under this Act has been duly given and it is required to be
passed by the votes cast, whether on a show of hands, or electronically or on a poll, as the case may be, in favour of the
resolution, including the casting vote, if any, of the Chairman, by members who, being entitled so to do, vote in person, or where
proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the resolution by members, so entitled
and voting.
(2) A resolution shall be a special resolution when—
(a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general
meeting or other intimation given to the members of the resolution;
(b) the notice required under this Act has been duly given; and
(c) the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as the case may be, by
members who, being entitled so to do, vote in person or by proxy or by 73 postal ballot, are required to be not less than three
times the number of the votes, if any, cast against the resolution by members so entitled and voting.
Following are some actions for which ordinary Resolution required:
1. Accepting deposits from public
2. Appointment of alternate director
3. To fill casual vacancy of official liquidator
4. Removal of Director before expiry of term except Director appointed by NCLT
5. Ordinary business transacted at Annual General Meeting
Following are some actions for which Special Resolution required:
1. For changing registered office of company as per sec 12(5) of Companies Act, 2013
2. For altering Memorandum of association
3. For altering Article of Association including alteration having effect of conversion of Private company into Public
company and vice versa
4. For variation of shareholders’ rights as per section 48(1)
5. For reducing share capital of company
Section 115 of The Companies Act 2013 - Resolutions requiring special notice.—Where, by any provision contained in this Act
or in the articles of a company, special notice is required of any resolution, notice of the intention to move such resolution shall
be given to the company by such number of members holding not less than one per cent. of total voting power or holding shares
on which such aggregate sum not exceeding five lakh rupees, as may be prescribed, has been paid-up and the company shall
give its members notice of the resolution in such manner as may be prescribed.
Section 116 of The Companies Act 2013 Resolutions passed at adjourned meeting.—Where a resolution is passed at an
adjourned meeting of— (a) a company; or (b) the holders of any class of shares in a company; or (c) the Board of Directors of a
company, the resolution shall, for all purposes, be treated as having been passed on the date on which it was in fact passed,
and shall not be deemed to have been passed on any earlier date.
DIFFERENCE BETWEEN ORDINARY AND SPECIAL RESOLUTION
BASIS OF
ORDINARY RESOLUTION SPECIAL RESOLUTION
COMPARISON

If a majority vote is required in the general meeting to put Whether a super-majority vote is required at the
Meaning
forward the proposal, it is considered an ordinary resolution. general meeting, it is referred to as a special resolution.

Consent of A minimum of 51% of members should demonstrate a strong A minimum of 75% of members should demonstrate
members favor for the motion. a strong favor for the motion.

Registration with Filing a copy for “Ordinary Resolution” with ROC (only certain
Filing a copy of “Special Resolution” with ROC.
ROC cases).

Business Either the ordinary business or a special business- depends on

Only a special business.
transacted the need of the Act.

Write short notes on “The National Company Law Tribunal” or NCLT

Sections 407 to 434 provides details on NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL
National Company Law Tribunal
The National Company Law Tribunal was setup by the Central Government in 2016 under Section 408 of the Companies Act,
2013. The National Company Law Tribunal has been setup as a quasi-judicial body to govern the companies registered in India
and is a successor to the Company Law Board.
Scope of National Company Law Tribunal
The National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of the Company Law Board, Board for
Industrial and Financial Reconstruction (BIFR), The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and
the powers relating to winding up or restructuring and other provisions, vested in High Courts. With the establishment of the
NCLT and NCLAT, the Company Law Board under the Companies Act, 1956 has now been dissolved.
Advantages for National Company Law Tribunal
 NCLT is a specialized court only for Corporates, i.e., companies registered in India.
 This will be no more than a Tribunal for the Corporate Members.
 NCLT will reduce the multiplicity of litigation before different forums and courts.
 NCLT has 16 branches and is able to provide justice at a close range.
 NCLT consists of both judicial and technical members while deciding on matters.
 The time taken to windup a company is reduced.
 Speedy disposal of cases will help reduce the number of cases.
 NCLT & NCLAT have exclusive jurisdiction.
National Company Law Tribunal benches are at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guahati, Hyderabad,
Kolkata, Mumbai with the principal bench and NCLT at New Delhi. Each Bench is headed by a President, 16 judicial members,
and 9 technical members. The first President of the NCLT is Chief Justice (Rtd.) Shri Mahesh Mittal Kumar. Since 1/11/2021,
Chief Justice (Rtd.) Shri Ramalingam Sudhakar is the NCLT President.
Powers of National Company Law Tribunal (NCLT)
The Tribunal and the Appellate Tribunal is bound by the rules laid down in the Code of Civil Procedure, 1908 and is guided by
the principles of natural justice, subject to the other provisions of this Act and of any rules that are made by the Central
Government.
The Tribunal and the Appellate Tribunal has the power to control its own procedure.
Further, no civil court has the jurisdiction to consider any suit or proceeding with reference to any matter which the Tribunal or
the Appellate Tribunal is empowered to decide.

National Company Law Tribunal enjoys a wide range of powers. Its powers include:
 Power to seek assistance of Chief Metropolitan Magistrate.
 De-registration of Companies.
 Declare the liability of members unlimited.
 De-registration of companies in certain circumstances when there is registration of companies is obtained in an illegal or
wrongful manner.
 Remedy of oppression and mismanagement.
 Power to hear grievance of refusal of companies to transfer securities and rectification of register of members.
 Protection of the interest of various stakeholders, especially non-promoter shareholders and depositors.
 Power to provide relief to the investors against a large set of wrongful actions committed by the company
management or other consultants and advisors who are associated with the company.
 Aggrieved depositors have the remedy of class actions for seeking redressal for the acts/omissions of the company
which hurt their rights as depositors.
 Powers to direct the company to reopen its accounts or allow the company to revise its financial statement but do not
permit reopening of accounts. The company can itself also approach the Tribunal through its director for revision of its
financial statement.
 Power to investigate or for initiating investigation proceedings. An investigation can be conducted even abroad.
Provisions are provided to assist investigation agencies and courts of other countries with respect to investigation
proceedings.
 Power to investigate into the ownership of the company.
 Power to freeze assets of the company.
 Power to impose restriction on any securities of the company.
 Conversion of public limited company into private limited company.
 If the company cannot or has not held an Annual General Meeting as required under the Companies Act or a required
Extraordinary General Meeting, then the Tribunal has powers to call for a General Meetings.
 Power to alter the financial year of a company registered in India.
National Company Law Appellate Tribunal (NCLAT)
Appeal from order of Tribunal can be raised to the National Company Law Appellate Tribunal (NCLAT). Appeals can be made by
any person aggrieved by an order or decision of the NCLT, within a period of 45 days from the date on which a copy of the order
or decision of the Tribunal.
On the receipt of an appeal from an aggrieved person, the Appellate Tribunal would pass such orders, after giving an
opportunity of being heard, as it considers fit, confirming, changing or setting aside the order that is appealed against.The
Appellate Tribunal is required to dispose the appeal within a period of six months from the date of the receipt of the appeal.

Write short notes on “The National Company Law Tribunal” or NCLT

The National Company Law Tribunal or NCLT is a quasi-judicial body in India adjudicating issues concerning companies in the
country. It was formed on June 1, 2016, as per the provisions of the Companies Act 2013 (Section 408) by the Indian
government.
What is National Company Law Tribunal?
The tribunal was established under the Companies Act 2013 and was constituted on 1 June 2016 by the Government of India
and is based on the recommendation of the V. Balakrishna Eradi committee on law relating to the insolvency and the winding up
of companies. The Tribunal and the Appellate Tribunal is bound by the rules laid down in the Code of Civil Procedure and is
guided by the principles of natural justice, subject to the other provisions of this Act and of any rules that are made by the
Central Government.
As of now, the Ministry of Corporate Affairs has 16 NCLT benches. Each Bench is headed by a President, 16 judicial members,
and 9 technical members. The President, Chairperson or members of the NCLT/NCLAT shall hold office for a term of 5
years starting from the date upon which he enters the office.
The first President of the NCLT was Chief Justice (Rtd.) Shri Mahesh Mittal Kumar on 11/2/2016. The current president is Sri
Ramalingam Sudhakar since 1/11/2021.

NCLT Functions
 All proceedings under the Companies Act such as arbitration, arrangements, compromise, reconstruction, and winding
up of the company will be disposed of by the Tribunal.
 The NCLT is also the Adjudicating Authority for insolvency proceedings under the Insolvency and Bankruptcy Code,
2016.
 In the above-mentioned subjects, no civil court will have jurisdiction.
 The NCLT has the authority to dispose of cases pending before the Board for Industrial and Financial Reconstruction
(BIFR), as well as, those pending under the Sick Industrial Companies (Special Provisions) Act, 1985.
 Also to take up those cases pending before the Appellate Authority for Industrial and Financial Reconstruction.
 It can also take up cases relating to the oppression and mismanagement of a company.

What is the role of the National Company Law Tribunal ?

As the NCLT is established under the Companies Act, 2013, it has the role to settle disputes in relation to the companies. It also
handles the structures and laws of the companies.
What is the difference between a tribunal and a court ?
Tribunal is the Quasi-judicial body with the power to try cases of special matter which are conferred on them by statutes. The
court is a part of the traditional judicial system whereby judicial powers are derived from the state.
Comparison Chart
BASIS FOR
TRIBUNAL COURT
COMPARISON

Meaning Tribunals can be described as Court refers to a part of legal system

minor courts, that adjudicates which are established to give their
disputes arising in special cases. decisions on civil and criminal
cases.

Decision Awards Judgement, decree, conviction or

acquittal

Deals with Specific cases Variety of cases

Party A tribunal may be a party to the Court judges are impartial arbitrator
dispute. and not a party.

Headed by Chairperson and other judicial Judge, panel of judges or magistrate

members
 BASIS FOR
TRIBUNAL COURT
COMPARISON

Code of No such code of procedure. It has to follow the code of procedure

Procedure strictly.

BASIS FOR
TRIBUNAL COURT
COMPARISON

Q, What is Share Capital with example ?

Q. What do you understand by Share Capital of Company ? State the kinds of share capital.
 Share capital refers to the funds that a company raises from selling shares to investors.
 The money raised by the corporation by issuing shares to the general public is referred to as share capital.
 In simple terms, share capital refers to the money invested in a firm by its shareholders.
 It is a long-term source of capital in which stockholders receive a portion of the company’s ownership.
 The term capital usually refers to the amount of money used to launch a firm.
 In general it refers to the money subscribed pursuant to the Company’s Memorandum of Association.
 The assets with which the business is carried on are referred to as capital.
 There are different types of share capital available in the market.
 The total nominal value of a company’s shares is referred to as its share capital.
 The terms “capital” and “share capital” have been seen as interchangeable in the context of corporations.
 The capital of the company must be indicated in the company’s Memorandum and Articles of Association.
 For example, the sale of 10,000 shares at Rs 10 per share raises Rs 100,000 of share capital.
 There are two general types of share capital, which are common stock and preferred stock.
 Share capital does not deal with the company's market value.
 No matter what the market value is, the balance sheet specifies what the company earned at the time of the IPO.
 It only considers the issued price. If a company issues 10,000 shares at Rs 10, the capital is Rs 100,000. After five
years, the market price becomes Rs 100; the capital is still Rs 100,000 until the company issues new shares.
Below given are the different types of share capital:
1. Authorized Share Capital
The total capital that a corporation accepts from its investors by issuing shares that are listed in the firm’s official documents is
known as authorized share capital.
Because a corporation is registered with this capital, it is also known as Registered Capital or Nominal Capital.
The limit of Authorised Capital is set by the Capital Clause in the Memorandum of Association, according to Section 2(8) of the
Companies Act, 2013. The firm has the authority to take the necessary actions to expand the limit of authorized capital in order
to issue more shares, but it is not permitted to issue shares that exceed the limit of authorized capital in any case.
Issued Share + Unissued Share = Authorized Share.
2. Issued Share Capital
The portion of Authorized Share Capital that is issued to the public for subscription is known as Issued Share Capital. Issuance,
allocation, or allotment are the terms used to describe the act of issuing shares. To put it another way, Issued Share Capital is
the subset of Authorized Share Capital. A subscriber becomes a shareholder after the allotment of shares.
3. Unissued Share Capital
Companies, as previously stated, commonly issue shares from time to time. As a result, their authorized and issued share
capital will differ. The difference between the two sums will be the company’s unissued share capital. This unissued capital
refers to the number of shares that a firm has available to raise capital.
4. Subscribed Capital
The portion of issued capital that has been sold to the public is known as subscribed capital. It is not necessary for the issued
Capital to be fully subscribed by the general public. It is the portion of the issued capital for which the corporation has received
an application. Let’s look at an example: If a firm issues 16000 shares of one hundred rupees each and the public only applies
for 12000, the issued capital is Rs 16 lakh and the subscribed capital is Rs 12 lakh. The total number of outstanding and
treasury shares is equal to the number of issued shares.
5. Called-Up Capital
Called-up Capital is the portion of the Subscribed Capital that comprises the shareholder’s payment. The capital is not given to
the company in its whole at once. It makes use of a portion of the subscribed capital when it is required in instalments. Uncalled
Capital refers to the remainder of the Subscribed Capital.
6. Paid-Up Capital
Paid-up Capital is the portion of Called-up Capital that is paid by the shareholder. The shareholder does not have to pay the sum
requested by the corporation. The shareholder may pay half of the called-up Capital, referred to as Reserved Capital, to the
company.
7. Uncalled Share Capital
When a company issues shares to its shareholders, it expects them to pay for them. They may, however, choose not to do so.
Uncalled share capital refers to shares that have been issued but not yet been claimed. This capital also refers to the
shareholders’ contingent liabilities. It is the remaining amount after deducting the called-up capital from the total number of
shares allotted.
8. Reserve Share Capital
Reserve capital is the amount of stock that a firm can’t sell unless it goes bankrupt. These shares are usually issued following a
special resolution that receives more than three-quarters of the vote. Companies, likewise, cannot change their articles of
incorporation to overturn this choice. Reserve share capital serves a specific purpose: to make liquidation easier.
Reserve capital is subject to a number of restrictions. Companies are unable to use this money as a form of security or convert it
to ordinary capital. Companies, on the other hand, can have it overturned by obtaining a special court order. Reserve share
capital reflects the capital that will not be available unless the company is liquidated.
9. Fixed and circulating share capital
A company’s subscribed capital includes circulating share capital. Operational assets, such as bank reserves, book debts,
invoices receivable, and so on, provide this capital. These funds comprise funds used for a company’s fundamental operations.
Fixed capital, which is made up of a company’s fixed assets, is also closely related.

Q. What do you understand by dividend ? Explain in detail.

A dividend may be defined as a reward a company gives to its shareholders in return for their investment in the company. It is
the portion of profit received by the shareholders after the accounts of the company are finalized. The reward may take the form
of cash or stock. Section 2(35) of the Companies Act, 2013 (“Companies Act”) defines “dividend”, stating that it includes any
‘interim dividend’. It is given in proportion to the amount paid for each share held by the shareholders if so authorized by the
Articles of Association of the company (Section 51, Companies Act). All companies except Non-Profit Organizations, i.e.,
companies registered under Section 8, can declare a dividend.
Sections 123 to 127, Chapter VIII, Companies Act deal with the declaration and payment of dividends. The company may pay a
dividend in the manner prescribed under Section 123:
1. By paying out of the profits of the current year of the company,
2. by paying out of the accumulated and undistributed profits of the previous years of the company, and
3. by paying out of the amount of money for the purpose of payment of dividend given by the Central or State
Governments under a guarantee.
The company may declare dividend only when the following conditions are fulfilled:
 Depreciation: Depreciation is provided on all depreciable assets according to the rates and useful life of assets given
under Schedule II of the Companies Act.
 Transfer to reserves: A certain proportion of profit must be transferred to reserves.
 Settling of losses of the previous years: Losses of the previous years and depreciation of the company are set off from
the current year’s profit.
 Free reserves: The dividend must be declared only from free reserves.

At times, it may so happen that the company might have no profits or might not make adequate profits to pay a dividend to its
shareholders.
However, under the second Proviso of Section 123 (1), the company can propose to declare and pay dividends to its
shareholders from the unutilized profits from the previous years, subject to certain conditions. This article discusses the
conditions and protocol for the declaration and payment of dividends out of reserves under the Companies Act, 2013 and
the Companies (Declaration and Payment of Dividend) Rules, 2014.

Who is entitled to a dividend, and how is the dividend to be paid?

Unlike equity shareholders, preference shareholders are entitled to a fixed rate of dividend and also enjoy a preference to
payment of dividend. This means that in case the company is facing problems in the payment of dividends, claims of preference
shareholders will take precedence over those of equity shareholders. Further, preference shareholders cannot treat preference
dividends as debt and sue for recovery of debt. In the case of equity shareholders, the dividend could be any amount based on
the profit.
According to Section 123 (5), dividends shall be paid only to the shareholder entitled to such payment of the dividend. The
dividend shall be paid only in the form of cash and may be paid by cheque, warrant or in any electronic mode.
According to Section 123 (6), a company that has failed to comply with Section 73 (Prohibition on acceptance of deposits from
public) and Section 74 (Repayment of deposits, etc., accepted before commencement of this Act) shall be barred from declaring
any dividend.

When is the interim dividend declared?

According to Section 123 (3), the Board of Directors may declare interim dividend:
 During the current financial year or any fiscal year, or
 During the period from the date of closing of the fiscal year to the date of holding the annual general meeting.
It must be noted that under Section 2 (35), it is stated that “dividend includes interim dividend”. This means that the provisions
under the Companies Act that are applicable to the final dividend to that extent are also applicable to interim dividends.
Conclusion
 When shareholders invest money in a company, the company shares its profits out of business with the shareholders.
 Such a share in the profits of the company is the dividend for the shareholders.
 It is pertinent to note that such dividend is not a right the shareholders are entitled to.
 However, once the dividend is declared by the company, it constitutes debt which cannot be revoked.
 The shareholders become entitled to claim the dividend.
 Furthermore, before declaring an interim dividend, the company must ensure that its financial position permits such
payment of dividend.
 It should be declared only if the company has made adequate profits during a particular period of the financial year and
sufficient profits are expected in the remaining part of the year.

Q. Explain ‘Charge’ under the Companies Act, 2013. Give a list of those charges which are necessary for the
registration.
According to section 2(16) of the Companies act 2013, charge means an interest or lien created on the property or assets of a
Company or any of its undertakings or both as security and includes a mortgage.
Most companies and LLPs borrow from banks and financial institutions to finance their short-term and long-term capital
requirements.
The bank or financial institution requires security (i.e., property, vehicle, etc.,) for the loan provided.
If a proper security is created over the assets of the company, then the bank or financial institution can take possession of the
assets secured and conduct sale, to repay the loan.
The Companies Act, 2013 requires all companies to file the requisite particulars with the ROC for all security created over the
assets of the company.
The process of creating a security over assets of the company is referred to as registration of charges or creation of charges.
To secure the funds lent to the company, banks use a number of legal documents like loan agreements, hypothecation
agreements, mortgage deeds, etc., to lay out the terms of the loan and ensure repayment with interest as per schedule.
Companies and LLPs have the ability to borrow from a number of banks or financial institutions based on their financial
requirements, therefore it is then important to track the assets pledged to the bank(s) and the loans provided to ensure security
for the lenders.
In this aspect, the creation of charges over the assets of a company helps lenders know the assets pledged to the lenders –
thereby avoiding double financing. The charges on a company is public information and can be found in the MCA website.
Creation of Charge
The process for creation of charge begins with passing of a board resolution by the Board of Directors of the Company for
availing loan from the lender and includes execution of relevant loan documents or deeds. Once, the borrower and the lender
agree on the terms and conditions of the loan or financial assistance, they both sign on the loan document and other relevant
paperwork. Once, the loan documents are signed, the charges over the properties of the company have been created.
Registration of Charge
Once a charge is created, it becomes the responsibility of the company to register those charges with the Registrar of
Companies, along with the documents, that create a charge over the company.
As per the Companies Act, 2013, the following charges created on a company must be registered with the Registrar of
Companies.
 A charge created for the purpose of securing any issue of debentures or deposits;
 A charge on uncalled share capital of the company;
 A charge on any immovable property, wherever situated, or any interest therein;
 A charge on any book debt of the company;
 A charge, not being a pledge, on any movable property of the company;
 A floating charge on the undertaking or any property of the company including stock-in-trade;
 A charge on calls made but not paid;
 A charge on a ship or any share in a ship;
 A charge on intangible assets, including goodwill, patent, a license under a patent, trademark, copyright or a license
under a copyright.
Registration of charges of a motor vehicle is not mandatory, unless required by the lender. Further, in case of non-registration of
charges, a disclosure must be made in the balance sheet of the company.
The time period for registration of charge with the ROC is thirty days of creation of a charge. A filing of registration of charge can
be made upto three hundred days from date of creation of charge, provided relevant explanation and applicable fee is paid for
late filing of registration of charges.
If an application is made for registration of charges to the ROC in the prescribed format and the ROC is satisfied with the
application, then a certificate of registration of charge would be issued by the ROC. The charge created on the assets of the
company can be also be viewed online on the MCA website.
A stock, also known as equity, is a security that represents the ownership of a fraction of the issuing corporation. Units of stock
are called "shares" which entitles the owner to a proportion of the corporation's assets and profits equal to how much stock they
own. Stocks are bought and sold predominantly on stock exchanges and are the foundation of many individual investors'
portfolios.
 Corporations issue stock to raise funds to operate their businesses.
 There are two main types of stock: common and preferred.

Equity, typically referred to as shareholders' equity (or owners' equity for privately held companies), represents the amount of
money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was
paid off in the case of liquidation.
Shareholders’ Equity=Total Assets−Total Liabilities

There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders'
meetings and to receive any dividends paid out by the corporation.
Preferred stockholders generally do not have voting rights, though they have a higher claim on assets and earnings than
common stockholders. For example, owners of preferred stock receive dividends before common shareholders and have priority
if a company goes bankrupt and is liquidated.

Stocks are issued by companies to raise capital to grow the business or undertake new projects. There are important
distinctions between whether somebody buys shares directly from the company when it issues them in the primary market or
from another shareholder in the secondary market. When the corporation issues shares, it does so in return for money.
Most often, stocks are bought and sold on stock exchanges, such as the Nasdaq or the New York Stock Exchange (NYSE).
After a company goes public through an initial public offering (IPO), its stock becomes available for investors to buy and sell on
an exchange. Typically, investors will use a brokerage account to purchase stock on the exchange, which will list the purchasing
price (the bid) or the selling price (the offer). The price of the stock is influenced by supply and demand factors in the market,
among other variables.

Bonds vary from stocks in several ways. Bondholders are creditors to the corporation and are entitled to interest as well as
repayment of the principal invested. Creditors are given legal priority over other stakeholders in the event of a bankruptcy and
will be made whole first if a company is forced to sell assets.
Conversely, shareholders often receive nothing in the event of bankruptcy, implying that stocks are inherently riskier investments
than bonds.

Authorized Share Capital is the maximum amount of share capital that a company is authorized to raise. This limit is outlined in
its constitutional documents and can only be changed with the approval of the shareholders.
Authorized share capital, also known as authorized capital or registered capital, is the maximum amount of stock that a company
is legally authorized to issue, according to its articles of incorporation or equivalent founding document. It is the limit set by a
company's charter on the total number of shares of stock that the company is allowed to issue. This number is usually
expressed in terms of a currency, such as dollars or euros.
In other words, authorized share capital represents the upper limit of a company's potential equity and the maximum amount of
funds that the company can raise through the sale of stock. Companies can issue shares within this limit, but cannot issue more
shares than their authorized share capital.

Issued share capital is the total value of the shares a company elects to sell. In other words, a company may elect to only issue
a portion of the total share capital with the plan of issuing more shares at a later date. Not all these shares may sell right away,
and the par value of the issued capital cannot exceed the value of the authorized capital.
Issued share capital, also known as issued capital, is the portion of a company's authorized share capital that has been actually
issued to shareholders in exchange for money or other consideration. It refers to the number of shares that a company has
actually issued and sold to investors.
For example, if a company has an authorized share capital of 100,000 shares and it has issued and sold 80,000 shares, its
issued share capital is 80,000 shares. The remaining 20,000 shares, which have not been issued or sold, are referred to as
unissued share capital.
The issued share capital is important because it represents the ownership structure of a company and the amount of equity that
has been raised through the sale of stock.
The total par value of the shares that the company sells is called its paid share capital. This is what most people refer to when
speaking about share capital. Issued share capital is simply the monetary value of the portion of shares of stock a company
offers for sale to investors.
Paid-up share capital, also known as paid-in capital or fully paid capital, is the portion of a company's issued share capital that
has been paid for by shareholders. It refers to the amount of money that shareholders have actually invested in the company in
exchange for shares.
For example, if a company has issued 100 shares and each share has a par value of $100, the total issued share capital is
$10,000. If each shareholder has paid the full $100 for the shares they own, the total paid-up share capital is $10,000.
Paid-up share capital is important because it represents the actual amount of equity that has been invested in the company by
shareholders. This equity can be used by the company as a source of financing for its operations, and it can also provide a
cushion for the company in the event of financial difficulties. Additionally, the amount of paid-up share capital can affect the level
of control that shareholders have over the company, as well as their rights to receive dividends and vote on important matters.
Paid-up capital is the amount of money a company has been paid from shareholders in exchange for shares of its stock. Paid-up
capital is created when a company sells its shares on the primary market, directly to investors. Paid-up capital is important
because it's capital that is not borrowed. A company that is fully paid-up has sold all available shares and thus cannot increase
its capital unless it borrows money by taking on debt. Paid-up capital can never exceed authorized share capital.
Paid-up capital can be found or calculated in the company's financial statements. The Securities and Exchange Commission
(SEC) requires publicly traded companies to disclose all sources of funding to the public.
What is minimum paid up capital in company law ?
In company law, the minimum paid-up capital refers to the minimum amount of capital that a company must have as per the
regulations in order to incorporate and operate as a legal entity. This requirement serves as a measure of a company's financial
stability and ability to meet its financial obligations.
The minimum paid-up capital requirement varies by jurisdiction and type of company. For example, in some countries, the
minimum paid-up capital for a private limited company may be as low as a few thousand dollars, while in others it may be
significantly higher. Additionally, the requirements for a publicly traded company are typically higher than those for a private
company.
It's important to note that having the minimum paid-up capital requirement is just one of several requirements that a company
must meet in order to incorporate and operate legally. Other requirements may include filing the necessary paperwork with the
relevant government agencies, obtaining necessary licenses and permits, and complying with accounting and reporting
requirements.
What is the authorized capital in company law ?
Authorized capital, also known as authorized share capital or registered capital, refers to the maximum amount of capital that a
company is legally allowed to issue and sell to raise funds. This amount is specified in the company's articles of incorporation or
memorandum of association and is recorded in the company's official registration documents. Authorized share capital is the
number of stock units (shares) that a company can issue as stated in its memorandum of association or its articles of
incorporation. Authorized share capital is often not fully used by management in order to leave room for future issuance of
additional stock in case the company needs to raise capital quickly. Another reason to keep shares in the company treasury is to
retain a controlling interest in the business.
The authorized capital represents the maximum limit of the company's financial resources and is an indicator of the company's
potential financial strength. However, it is important to note that just because a company has an authorized capital of a certain
amount, it does not mean that it has to issue or sell that much in actuality. A company may choose to issue only a portion of its
authorized capital, and may choose to issue more in the future if necessary. A company's authorized share capital will not
increase without shareholder approval.
The purpose of having an authorized capital is to provide a company with the flexibility to raise additional capital in the future if
needed, without having to go through the legal process of modifying its articles of incorporation. This can be particularly useful
for growing companies that need to raise additional funds to finance their operations, invest in new projects, or acquire other
companies.

Issued capital is a part of the Authorized capital, offered by the company for the subscription. This includes the allotment of
shares. Section 2(50) of the Companies Act, 2013, offers this definition. Further, it is mandatory for companies to disclose its
issued capital in the balance sheet (Schedule III of the Act).
Q. Write short notes on OPC Registration Procedure in India
As per Section 2(62) of the Company’s Act 2013, a company can be formed with just one person as a member. It is a form of a company where the compliance
requirements are lesser than that of a private company.
The Companies Act, 2013 provides that an individual can form a company with one single member and one director. The director and member can be the same
person. Thus, one person company means one individual who may be a resident or NRI can incorporate his/her business that has the features of a company and
the benefits of a sole proprietorship.
Advantages Of OPC
Legal status
The OPC receives a separate legal entity status from the member. The separate legal entity of the OPC gives protection to the single individual who has
incorporated it. The liability of the member is limited to his/her shares, and he/she is not personally liable for the loss of the company. Thus, the creditors can sue
the OPC and not the member or director.
Easy to obtain funds
Since OPC is a private company, it is easy to go for fundraising through venture capitals, angel investors, incubators etc. The Banks and the Financial Institutions
prefer to grant loans to a company rather than a proprietorship firm. Thus, it becomes easy to obtain funds.
Less compliances
The Companies Act, 2013 provides certain exemptions to the OPC with relation to compliances. The OPC need not prepare the cash flow statement.
The company secretary need not sign the books of accounts and annual returns and be signed only by the director.
Easy incorporation
It is easy to incorporate OPC as only one member and one nominee is required for its incorporation. The member can be the director also. The minimum
authorised capital for incorporating OPC is Rs.1 lakh but there is no minimum paid-up capital requirement. Thus, it is easy to incorporate as compared to
the other forms of company.
Easy to manage
Since a single person can establish and run the OPC, it becomes easy to manage its affairs. It is easy to make decisions, and the decision-making
process is quick. The ordinary and special resolutions can be passed by the member easily by entering them into the minute book and signed by the
sole member. Thus, running and managing the company is easy as there won’t be any conflict or delay within the company.
Perpetual succession
The OPC has the feature of perpetual succession even when there is only one member. While incorporating the OPC, the single-member needs to
appoint a nominee. Upon the member’s death, the nominee will run the company in the member’s place.
Disadvantages Of OPC
Suitable for only small business
OPC is suitable for small business structure. The maximum number of members the OPC can have is one at all times. More members or shareholders
cannot be added to OPC to raise further capital. Thus, with the expansion and growth of the business, more members cannot be added.
Restriction of business activities
The OPC cannot carry out Non-Banking Financial Investment activities, including the investments in securities of anybody corporates. It cannot be
converted to a company with charitable objects mentioned under Section 8 of the Companies Act, 2013.
Ownership and management
Since the sole member can also be the director of the company, there will not be a clear distinction between ownership and management. The sole
member can take and approve all decisions. The line between ownership and control is blurred, which might result in unethical business practices.
One Person Company (OPC) Registration Process
Step 1: Apply for DSC
The first step is to obtain the Digital Signature Certificate (DSC) of the proposed Director which required the following
documents:
Address proof
Aadhaar card
PAN card
Photo
Email Id
Phone number
Step 2: Apply for DIN
Once the Digital Signature Certificate (DSC) is made, the next step is to apply for the Director Identification Number (DIN) of the
proposed Director in SPICe Form along with the name and the address proof of the director. Now DIN can be applied within the
SPICe form for up to three directors.
Step 3: Name Approval Application
The next step while incorporating an OPC is to decide on the name of the Company. The name of the Company will be in the
form of “ABC (OPC) Private Limited”.
The name can be approved in the Form SPICe+ 32 application. Only one preferred name along with the significance of keeping
that name can be given in the Form SPICe+ 32 application. If the name gets rejected, another name can be submitted by
applying another Form SPICe+ 32 application.
Once the name is approved by the MCA we move on to the next step.
Step 4: Documents Required
We have to prepare the following documents which are required to be submitted to the ROC:
The Memorandum of Association (MoA) which are the objects to be followed by the Company or stating the business for which
the company is going to be incorporated.
The Articles of the Association (AoA) lays down the by-laws on which the company will operate.
Since there are only 1 Director and a member, a nominee on behalf of such a person has to be appointed because in case he
becomes incapacitated or dies and cannot perform his duties the nominee will perform on behalf of the director and take his
place. His consent in Form INC – 3 will be taken along with his PAN card and Aadhar Card.
Proof of the Registered office of the proposed Company along with the proof of ownership and a NOC from the owner.
Declaration and Consent of the proposed Director of Form INC -9 and DIR – 2 respectively.
A declaration by the professional certifying that all compliances have been made.
Step 5: Filing of Forms With MCA
All these documents will be attached to the SPICe Form, SPICe-MOA and SPICe-AOA along with the DSC of the Director and
the professional, and will be uploaded to the MCA site for approval. The PAN Number and TAN is generated automatically at the
time of incorporation of the Company. There is no need to file separate applications for obtaining PAN Number and TAN.
Step 6: Issue of the Certificate of Incorporation
On verification, the Registrar of Companies (ROC) will issue a Certificate of Incorporation and we can commence our business.

Checklist For Registering OPC

 Minimum and Maximum of one member.
 A nominee should be appointed before incorporation.
 Consent of the nominee should be obtained in Form INC-3.
 The name of the OPC must be selected as per the provisions of the Companies (Incorporation Rules) 2014.
 Minimum authorised capital of Rs.1 lakh.
 DSC of the proposed director.
 Proof of registered office of the OPC.
 Timelines for OPC Registration
The DSC and DIN of the proposed directors can be obtained in 1 day. The Certificate of Incorporation of an OPC is obtained in
3-5 days. The whole incorporation process of an OPC takes approximately 10 days, subject to departmental approval and revert
from the respective department.
Frequently Asked Questions
Who is eligible to be a member of an OPC?
Only a natural person who is an Indian citizen and resident in India shall be eligible to act as a member and nominee of an OPC.
For the above purpose, the term “resident in India” means a person who has stayed in India for a period of not less than one
hundred and eighty-two days during the immediately preceding one financial year.
Can a person be a member of more than one OPC?
No, a person can be a member in only one OPC.
Is there any tax advantage on forming an OPC?
There is no specific tax advantage to an OPC over any other form of company. The tax rate is flat 30%, other tax provisions like
MAT & Dividend Distribution Tax (DDT) apply as they apply to any other form of company.
Is there any threshold limits for an OPC to mandatorily get converted into either a private or public company?
No, the compulsory conversion of OPC upon meeting the criteria of exceeding the minimum paid-up capital and average annual
turnover was removed in the Companies (Incorporation) Second Amendment Rules, 2021. Thus, currently, an OPC need not
convert into either a private or public company upon an increase in its paid-up capital and average annual turnover.
What is the mandatory compliance that an OPC needs to observe?
The basic mandatory compliance comprises:
At least one Board Meeting in each half of the calendar year and the time gap between the two Board Meetings should not be
less than 90 days.
Maintenance of proper books of accounts.
Statutory audit of Financial Statements.
Filing of business income tax returns every year before 30th September.
Filing of Financial Statements in Form AOC-4 and ROC Annual Return in Form MGT 7.
Who cannot form an OPC?
A minor, a foreign citizen, a Non-Resident, and any person incapacitated by contract will not be eligible to become a member.
How do I convert an OPC to a Private limited company?
An OPC can be converted voluntarily into a private limited company by passing a special resolution after increasing the
minimum number of members and directors to two. No Objection Certificate (NOC) in written form from the creditors must be
obtained for the conversion of OPC to a private limited company. Click here to know more about the conversion of an OPC to a
private limited company – https://cleartax.in/s/convert-opc-private-limited-company.
What are the various aspects of a sample format of Articles of Association of a Company?
Here's a sample format for the Articles of Association (AoA) of a company:
ARTICLES OF ASSOCIATION OF [COMPANY NAME]
Definition and Interpretation
1.1 In these articles, unless the context otherwise requires:
"Company" means [COMPANY NAME]
"Directors" means the directors of the Company from time to time.
"Members" means the members of the Company.
1.2 The headings used in these articles are for convenience only and shall not affect their interpretation.
Objectives
The objectives of the Company are to engage in [insert objectives here].
Registered Office
The registered office of the Company shall be located at [insert address here].
Share Capital
4.1 The authorized share capital of the Company shall be [insert amount here].
4.2 The Company may issue shares of such classes and with such rights, privileges, and conditions as the Directors may
from time to time determine.
Members
5.1 The members of the Company shall be such persons as are admitted to membership in accordance with these articles.
5.2 The Company may have unlimited members.
Transfer of Shares
The transfer of shares in the Company shall be made in accordance with the provisions of the Companies Act [insert
relevant act].
Directors
7.1 The business of the Company shall be managed by the Directors who may exercise all such powers of the Company as
are not required by law or by these articles to be exercised by the Members.
7.2 The number of Directors shall not be less than [insert number here] nor more than [insert number here].
7.3 The first Directors of the Company shall be [insert names here].
Meetings
8.1 The first annual general meeting of the Company shall be held [insert date here].
8.2 The Directors may call such other meetings as they think fit.
Accounts
9.1 The Directors shall cause proper books of account to be kept with respect to the Company's transactions and affairs.
9.2 The Directors shall cause the accounts of the Company to be audited annually by a qualified auditor.
Winding Up
The Company may be wound up in accordance with the provisions of the Companies Act [insert relevant act].
Amendment of Articles
These articles may be amended by a special resolution of the Members.
Interpretation
These articles shall be construed in accordance with the Companies Act [insert relevant act].
Commencement
These articles shall come into effect on [insert date here].
Signed by [insert names and titles of signatories].
Note: This is just a sample format and the actual AoA should be prepared based on the specific requirements of the
company and should comply with the relevant laws and regulations of the jurisdiction in which it is incorporated.

Q. What do you understand by the term ‘charge’ ?

A charge is a legal term used to describe an interest or lien created on the property or assets of a company. This means that a
charge is a way of securing a debt or obligation, and it gives the creditor the right to claim the assets of the company if the debt
is not paid. Section 2(16) defines the term ‘charge.’
There are different types of charges that can be created on a company's assets, including fixed charges and floating charges.
A fixed charge is a charge that attaches to a specific asset or group of assets, such as a piece of equipment or a building.
The creditor who holds a fixed charge on an asset has priority over other creditors in the event of a liquidation or bankruptcy of
the company.
 A floating charge, on the other hand, is a charge that attaches to a class of assets, such as inventory or accounts receivable.
The creditor who holds a floating charge has the right to take possession of the assets covered by the charge, but only after a
trigger event, such as a default on the debt.
When a company creates a charge, it must be registered with the appropriate government agency to make it enforceable.
In many countries, such as the United Kingdom, companies are required to register charges with the Companies House, while in
the United States, charges are often recorded with state or county recording offices.

In summary, a charge is a legal instrument used to secure a debt or obligation against a company's asset.
It gives the creditor the right to claim the assets if the debt is not paid, and there are different types of charges, including fixed
and floating charges.

A lien is a legal claim or encumbrance on a property or asset, which serves as collateral for a debt or obligation.
When a lien is created on a property, it means that the owner of the property has given the creditor the right to seize the property
if the debt or obligation is not paid.
For example, if you take out a mortgage to buy a house, the lender will place a lien on the property, which means that they have
a legal claim to the property until the mortgage is paid off.
This lien gives the lender the right to foreclose on the property and sell it to recover the debt if the borrower defaults on the
mortgage.
Similarly, when a charge is created on the assets of a company, it means that a creditor has a lien or legal claim on those assets
until the debt or obligation is paid off. The creditor who holds the charge has the right to seize the assets covered by the charge
if the company defaults on the debt.
In summary, creating a lien on a property or asset means that a creditor has a legal claim on that property or asset until a debt
or obligation is paid off. A lien can give the creditor the right to seize the property or asset if the debtor defaults on the debt. In
the context of a company, a charge is a type of lien created on the company's assets to secure a debt or obligation.

The process of establishing a charge on the assets of a company involves several steps. Here are the general steps involved in
creating a charge:
1. Identify the assets to be charged: The first step in creating a charge is to identify the assets that will be used as collateral for the
debt. These assets can include land, buildings, machinery, inventory, accounts receivable, and other assets that have value.
2. Negotiate the terms of the charge: Once the assets have been identified, the creditor and the company will need to negotiate the
terms of the charge. This includes determining the amount of the debt, the interest rate, the repayment terms, and other details.
3. Create the charge document: The next step is to create a legal document that outlines the terms of the charge. This document is
typically called a charge or debenture, and it will be signed by both the creditor and the company.
4. Register the charge: In most jurisdictions, charges on company assets must be registered with a government agency, such as
Companies House in the UK or the Secretary of State in the US. Registration creates a public record of the charge, which helps
to protect the creditor's interest in the collateral.
5. Enforce the charge: If the company defaults on the debt, the creditor has the right to enforce the charge by seizing and selling
the assets covered by the charge. This can be done through a court process or through negotiations with the company.
It's important to note that the specific process of creating a charge can vary depending on the jurisdiction and the type of assets
being charged. In some cases, additional legal documents or filings may be required. It's also important to consult with legal and
financial professionals to ensure that the charge is properly established and registered.

Mortgages are typically issued by banks, credit unions, and other financial institutions. The terms and requirements of a
mortgage can vary depending on the lender and the type of mortgage. For example, some mortgages require a certain credit
score or down payment, while others offer more flexible terms for borrowers with less-than-perfect credit.
In summary, a mortgage is a type of loan used to purchase a property, with the property serving as collateral for the debt.
Mortgages typically require a down payment and repayment over a period of years, with interest. The terms and requirements of
a mortgage can vary depending on the lender and the type of mortgage.