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MODULE 1
1. FRAMEWORK FOR COMPANY LAW ADMINISTRATION

 Companies Act 2013 is the principal legislation dealing with the administration of
companies along with other legislations like Securities and Exchange Board of India
(SEBI) Act 1992, The Securities Contracts Regulation Act (SCRA) 1956, The
Depositories Act 1996 etc.
 The rules and regulations which control the corporate world are made by the Central
Government exercised the Ministry of Corporate Affairs.
 Powers under Companies Act are also exercised by the Registrar of Companies
(RoC), and Regional Directors, in their respective areas of jurisdiction.
 The Companies Act 2013 vests substantial powers with two tribunals in matters of
civil nature connected with companies. They are National Company Law Tribunal
(NCLT) and National Company Law Appellate Tribunal (NCLAT)
 Dispute Resolution Mechanism
Dispute Resolution Mechanism

Civil matters Criminal matters

NCLT SFIO
(NATIONAL COMPANY LAW
TRIBUNAL) (Serious Fraud Investigation Officer)
 Constituted by the central
 Headed by a Director( an
govt
officer not below the rank of a
 Presiding officer should be a
joint secretary to the Govt. of
person who is or has been a
India having knowledge and
judge of a HC for 5yrs. experience in the matters of
Corporate affairs).
Appeal is given to
NCLAT
(NATIONAL COMPANY LAW
APPELLATE TRIBUNAL)
 Consisting of 11 definite
members and technical
officers as needed.
 Presiding officer should be a
SC Judge with 5 years
experience or Chief Judge in
HC.

Appeal is given to
SUPREME COURT
 Only in case of question of
law
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2. Define Company. Characteristics of a company.

According to Sec 2(20) of Companies Act 2013, Company means „a company incorporated
under this act or under any of the previous company law‟.
 Separate legal entity
-The main feature of a company is its independent corporate existence.
Company is in law regarded as an entity separate from its members. The
company‟s money and property belong to the company and not to the
shareholders
Case law: Salomon Vs Salomon and Co Ltd
 Limited liability
-A company may be limited by shares or limited by guarantee. A company can
be incorporate unlimited liability also
 Perpetual succession
-A company never dies. A company is created by a process of law and can be
put to an end only by a process of law
 Common seal
-When a company enters into contract through its agent, it is authenticated an
made binding on the company by affixing the common seal of the company.
 Transferability of shares
-The shares of a company are freely transferable and can be bought or sold in
the share market. The articles of the company can prescribe the manner of
transfer of shares.
 Separate property
-A company is legal person and therefore is capable of enjoying, owning and
disposing properties in its own name.
 Capacity to sue and be sued
-A company can sue and be sued in its corporate name.
 Artificial person
-Though company has neither a body nor a soul, the law recognises it as a
person.
3.Classification of company
(A) On the basis of incorporation:
On the basis of incorporation, companies can be classified as:
(i) Chartered companies
(ii) Statutory companies
(iii) Registered companies
(i) Chartered companies:
 Co incorporated under the royal charter or special order of king or queen.
 Eg. East India Company , Bank of England
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(ii) Statutory companies:

 A company may be incorporated by means of a special Act of the Parliament or any
state legislature. Such companies are called statutory companies.
 Eg. Reserve Bank of India.
(iii) Registered companies:
 Companies registered under the Companies Act 2013, or earlier Companies Acts are
called registered companies.
(B) On the basis of liability:
On the basis of liability the company can be classified into:
(i) limited companies
- Companies limited by shares
- Companies limited by guarantee
(ii) Unlimited companies.
(i) limited companies:
• Companies limited by shares:
When the liability of the members of a company is limited to the amount if any unpaid on the
shares, such a company is known as a company limited by shares.
• Companies limited by guarantee:
It is a registered company in which the liability of members is limited to such amounts as
they may respectively undertake by the memorandum to contribute to the assets of the
company in the event of its being wound up.
(ii) Unlimited companies:
A company not having a limit on the liability of its members is termed as unlimited company.
(C) On the basis of number of members:
(i) Private company:
 A private company means a company which prohibits any invitation to the public to
subscribe for any shares or debentures of the company.
 Minimum- 2 members, Maximum-200 members.
 Quorum- 2 members
 No. of directors- minimum 2
(ii) Public company:
 A public company means a company which is not a private company.
 Minimum -7 members, Maximum- Unlimited
 No. of directors- 3
 Quorum- Depends on the number of members
o No. of members o Quorum
o Upto 1000 o 5
o Between 1000 and 5000 o 15
o Above 5000 o 30
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(iii) One man Company:

 This is a company in which one man holds practically the whole of the share capital
of the company.
 Minimum- 1 person
(D) On the basis of control:
(i) Holding companies:
 A company is known as the holding company of another company if it has control
over another company.
(ii) Subsidiary companies:
 A company is known as subsidiary of another company when control is exercised by
the latter over the former called a subsidiary company.
(iii) Associate company:
 An 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.
(E) On the basis of ownership:
(i) Government Companies:
 Government companies are those in which more than 50% of share capital is held by
either the central government, or by one or more state government, or jointly by the
central government and one or more state government.
(ii) Non Government companies:
 All companies outside the purview of government company are non government
companies.
(F)Other companies:
(i) Foreign companies:
 Foreign companies are incorporated outside India but has a place of business in India
(ii)Associations not for profit(Sec.8 company)
A Co. not for profit organisation is an organisation dedicated to furthering a particular social
cause.
(iii) Small company:
Small company means a company whose
 paid-up share capital does not exceed fifty lakh rupees or such higher amount as may
be prescribed which shall not be more than five crore rupees.
or
 turnover of which does not exceed 2cr rupees or such higher amount as may be
prescribed which shall not be more than 20cr.
(iv) Producer Company:
 A Producer Company is s a body corporate having an object that is one or all of the
following production, harvesting, procurement, grading, pooling, handling, marketing,
selling, export of primary produce of the Members or import of goods or services for
their benefit. Eg. VANILCO
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(v) Dormant Companies:

 These companies are generally formed for future projects.
 They do not have significant accounting transactions and do not have to carry out all
compliances of regular companies
vi) Nidhi Companies:
 A Nidhi company functions to promote the habits of thrift and saving amongst its
members. It receives deposits from members and uses them for their own benefits.
(vii) Illegal association:
 An association or partnership formed for gaining of profit which consist of more than
50 members should be compulsorily be registered. If it is not registered then it will
be considered as illegal association.
 Exceptions-
o HUF carrying on any business
o Association or partnership formed by professionals

4. CORPORATE VEIL AND LIFTING OF CORPORATE VEIL

(Separate legal identity)
The company has an existence separated from its members. The imaginary separation or
shield that separates the company from its members is known as CORPORATE VEIL. The
advantages of incorporation are to be enjoyed only by those who makes an honest use of the
company.
In case of dishonest or fraudulent use of the facility of incorporation, the court may break
through or lift the corporate veil to find out the real culprits who acted fraudulently. This is
known as lifting of corporate veil or piercing of corporate veil.
Circumstances under which corporate veil is lifted are classified into 2
a) Based on judicial interpretation
 For the protection of revenue.
If the corporate entity of a company is used for tax evasion, the court may ignore the
corporate entity of the company.
Case law: In Re Sir Dinshaw Maneekjee Patit
 Prevention of fraud or improper conduct.
If the machinery of incorporation (company) is used for some fraudulent purpose like
defrauding creditors or avoiding specific performance of contract, the court may disregard the
legal personality of the company.
Case law: Jones vs. Lipman
 Determination of enemy character of a company.
In order to determine the character of the company i.e. whether it is an enemy or not, the
court may lift the corporate veil.
Case law: Daimler Co. Ltd. Vs. Continental Tyre and Rubber Co.
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 Avoidance of welfare legislation.

 Where the company is acting as agent of the shareholders.
b) Statutory provision
 If the number of members go below statutory minimum.
 If there is any misstatement in prospectus.
 Failure to refund the application money.
 Misdescription of the name of the company in any negotiable instruments .
 Fraudulent trading.
 Ultra vires act.
5. Stages of formation of a company?
The stages of formation of a company are
1. Promotion 2. Incorporation 3. Raising of funds 4. Commencement of business
Promotion
The preliminary groundwork for the formation of a company is known as promotion and the
person who does promotion is known as promoter.
Promoter means a person
who has been named in a prospectus or identified by the company in annual return
OR
who has control over the affair of the company directly or indirectly whether as a
shareholder, director or otherwise
OR
in accordance with whose advice director or instruction the board of director of the company
is accustomed to act
Duties and liabilities of promoter
● Promoter has a fiduciary relationship with the company.
● Promoter must not take any secret profit
● The result of all negotiations entered by the promoter on behalf of the company
should be given to company itself
● The promoters should not cause any undue influence or fraud or any contracts with
the company
Remuneration of Promoters
● Commission maybe paid to the promoter on the purchase price of the business or
property acquired by the company
● The company may pay him a lump sum amount as remuneration
● Promoters maybe given fully or partial paid shares
● He may be given on the shares sold
SPICE- Simplified performance for incorporation of company electronically
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INC 32- Single form for uploading every details

INC 33&34 - Article & Memorandum
RUN - Reserve unique name
Incorporation
Documents required for SPICe
❏ Name of company, affidavit ,subscriber details
❏ Legal process to form or corporate entity
❏ Documents to be filed , MOA duly signed and stamped, AOA, consent of director
❏ Declaration, all the requirement are to be fulfilled
❏ Affidavit from those subscribers
❏ Address for correspondence
❏ Particulars of members, residential status, nationality and other details of every
subscribers
Steps for online registration
❏ Obtain digital signature certificates
❏ Directors identification number
❏ Create an account on MCA portal
❏ Details required to file an online form
Electronic incorporation is done through spice form
Proposed name, application form, DIN, MOA, AOA, declaration, details of directors,
subscribers and other required documents through INC form 32
After verification of all these documents the certificate of incorporation to be issued together
with CIN(corporate identity number) which is a 21 digit alphanumeric code which provides a
distinct identity to the company
Raising of capital
1. Public companies-
● Offering prospectus to the public for inviting the to buy shares
● Prospectus describe the position and efficiency of the company to the public
● Public offers are also made for public company to raise the capital either by
public offers ,private placements or right issue and bonus issue
2.Private companies-
● Private company can raise capital either by private placement or right issue or bonus
issue
● Private placement invitation letter should be offered to existing member of 200
● All monies payable towards subscription of securities shall be paid through cheque or
DD
● The money received
● Money on this application under this section is kept under separate bank account and
shall not be used for other purposes
● Company are prohibited from releasing any public advertisements or utilising any
media , marketing or distribution channels to inform public at large about such an
offer
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Commencement of business
After all these process the company has to get certificate for commencement of business from
the registrar
● Registrar should verify all the documents and registered office and every subscribers
to the memorandum has to pay the value of shares agreed by him
● Paid up capital of a public company is not less than 5 lakh rupees and private
company is not less than 1 lakh rupees
All these procedures should be done before 3 months from date of incorporation of the
company.
Section 11 which prescribes the commencement of business was omitted from the
companies Act.
Note:
And later on by the amendment Act of 2019 a new section 10-A was inserted which
provides for the commencement of business for the companies incorporated after the
commencement of Companies Amendment Act 2019.

6. MEMORANDUM OF ASSOCIATION
Fundamental rules with regard to the formation of the company. It is the charter or the
constitution of the company and defines the reason for its existence.
Clauses of memorandum
 Name clause – it mentions the name of the co. The name of the pvt co ends with pvt
ltd and that of the public co with ltd .The name mentioned should not be similar to
any other existing co. It should not be undesirable according to the opinion of central
government and it should not constitute an offence under any law.
 Registered office clause – It contains the domicile and nationality of the company.it
should be the place to which all the communications and notice must be sent.
 Object clause –It shows the objects for which the company is incorporated and it also
prescribes the scope of activity of the company.
 Capital clause – it shows the registered capital or nominal capital or authorised
capital of the company. The amount of share capital with which the co is proposed to
be registered and the division of it into shares of fixed amt.
 Liability clause –it mentions the liability of its members .Liability of members may
be limited by shares and limited by guarantee.
 Association and subscription clause – it provides the details of the subscribers and
also about the number of shares they intend to take from the co. Minimum number of
subscribers in case of a public co is 7 and that of a pvt co is 2.
 Nominee clause –It is mandatory in case of OPC.it suggest the nominee member in
case of the death or incapacity of the original member of OPC.

ALTERATION OF MEMORANDUM

Name clause
The name clause can be altered by passing a spl resolution and with the approval of
central govt.it has to be informed to the registrar and a fresh certificate of
incorporation has to be obtained.
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If the rectification is made at the direction of central govt then ordinary resolution has
to be passed and it has to be informed to the registrar and a fresh certificate of
incorporation has to be obtained.
Registered office clause
a. Change from one place to another place in the same city, town or village
 Resolution should be passed in the board meeting for changing the office.
 After changing the office, verification is to be given to the registrar within
15 days from the date of change.
b. Change from one town to another town in the same state
 Resolution should be passed in the board meeting
 Special resolution should be passed in the general meeting
 The details of the change of address have to be intimated to the registrar
within 15 days.
c. Change of registered office of a company from the jurisdiction of one
registrar to the jurisdiction of another registrar within the same state
 Resolution should be passed in the board meeting
 Special resolution should be passed in the general meeting
 Application seeking approval of regional director has to be given.
 In order to get approval from regional director, company should serve
individual notice to each debenture holders, depositors, creditors stating
the matter of change of office.
 They could provide their ground of opposition if any, and if no objections
are received, the permission of regional director could be obtained.
 After confirmation of the regional director, copy of confirmation must be
given within 60 days to the registrar of companies where the old office
was situated.
 And after making the change, it has to be informed within 15 days to the
registrar where the new office is situated.
d. Change of registered office from one state to another state
 Resolution should be passed in the board meeting
 Special resolution should be passed in the general meeting
 Approval by the central government has to be obtained
 In order to get approval from the central government, the creditors and
debenture holders of the company has to be informed about the change.
 If no objections are obtained from them, company could get the approval.
 When approval is obtained, a certified copy of the order confirming the
alterations shall be filed with the registrars of both the states.
 All the records of the company shall be transferred to the registrar of the
state in which the registered office of the company is transferred.
Alteration of the object clause
a. Normal cases
 Resolution has to be passed in the board meeting
 Special resolution has to be passed in the general meeting
 Any alteration of object clause has to be informed to the registrar within
30 days of passing of resolution
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b. In the case of a company which raises money through issuing of prospectus

and has any unutilised amount
 Special resolution has to be passed by postal ballet
 For that, notice of resolution should be sent to each and every member of
the company
 The notice should contain
 Total money received
 Total amount utilised for the object stated in the prospectus
 The unutilised amount so raised
 The details of proposed change of object
 Reason for alteration
 Amount required for the new object
 Estimated financial impact of the company
 Other relevant information regarding the proposed resolution
 The details of the proposed resolution should be published in two
newspapers which is in circulation at the place where the registered office
is situated, and also on the website of the company
 The members should submit their opinion within a period of 30 days to the
company and on the basis of it decision will be taken in the next general
meeting
 The shareholders having difference of opinion shall be given an
opportunity to exit in accordance with the regulations specified by SEBI
 The registrar shall register the change of object of the company and certify
the registration within a period of 30 days from the filing of special
resolution
Change of capital clause
a. Company limited by shares can alter its share capital if so authorised by the
articles of association
 Alteration can be done by
 Increasing its authorised capital
 Consolidated and divide all or any parts of its share capital into
shares of larger amount
 Convert fully paid up shares into stock
 An ordinary resolution has to be passed in the general meeting to exercise the
power of alteration
 The company must give notice of alteration to the registrar within 30 days
b. Reduction of share capital can be done if so authorised by the articles of
association
 Special resolution must be passed
 Approval of tribunal has to be obtained
o Before giving approval to the reduction, issue notice to the central
government, registrar, SEBI and the creditors of the company and shall
take into consideration their representations
Alteration of liability clause
 In order to increase the liability of the members, written consent of all the members
has to be obtained
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7.Doctrine of ultravires
Ultra means beyond, vires means powers. An act is said to be ultravires when it is not
authorised by the objects clause in the memorandum or the statute. Such acts are void and
cannot be ratified even by the approval of all the shareholders. The doctrine serves two
purposes:
1. It protects the shareholders
2. It safeguards the interests of the creditors
Exceptions:
a. If an act ultravires the directors, but intravires the memorandum, the
shareholders can ratify it by resolution in a general meeting
b. If an act ultravires the articles, but intravires the memorandum, the company can
ratify it by altering the articles by special resolution

8.ARTICLES OF ASSOCIATION
The articles of association are the rules and regulations of a company framed for the purpose
of internal management of the company.
Contents of articles
 Share capital
 Rights of shareholders
 Variation of rights of shareholders
 Payment of commissions
 Lien on shares
 Calls on shares
 Transfer of shares
 Transmission of shares
 Forfeiture of shares
 Conversion of shares into stock
 Share warrants
 Alteration of capital
 General meetings and proceedings
 Voting rights of members, voting and poll, proxies
 Directors, their appointment, remuneration, qualifications, powers and proceedings of
board of directors
 Dividends and reserves
 Accounts, audit and borrowing power
 Capitalisation of profit
 Winding up, etc.
Alteration of articles
 Articles could be altered by passing a special resolution subject to limitations.
o Alteration must not be against the provisions of the Act
o Must not be inconsistent with the Memorandum
o Must not sanction anything illegal
o Must be for the benefit of the company
o Should not cause breach of contract
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o By altering the articles the liability of the members cannot be increased

 Entrenchment of articles
o A new concept introduced by the Companies Act of 2013.
o The word entrenched means to establish an attitude, habit or relief so firmly
that change is very difficult or unlikely
o Entrenchment provisions cannot be altered merely by special resolution
o Entrenchment provisions can be included in the articles either at the time of
formation of the company or by amendment in the articles
9. Doctrine of constructive notice
The memorandum and articles of every company are required to be registered with
the Registrar of Companies. They are public documents. These documents are open
for public inspection on payment. Therefore it is presumed that everyone dealing with
the company should have read these two documents. This deemed knowledge of the
contents of these two documents is known as constructive notice of memorandum and
articles. It protects the company against the outsiders.
10. Describe doctrine of indoor management. (5 marks)
Ans: The doctrine of indoor management is an exception to the rule of constructive
notice.
A person dealing with the company is deemed to have knowledge of the
memorandum and the articles of association of the company. But he is not bound to
inquire into the internal affairs of the company as to whether they are being conducted
in accordance with the articles of the company.
He has a right to assume that internal proceedings and affairs of the company are
being regularly carried on in accordance with the rules and regulations. This
limitation to doctrine of constructive notice is called „doctrine of indoor
management‟. . This doctrine had its origin in the leading case
Royal British Bank vs. Turquand. So it is also known as Turquand’s rule.
The doctrine of indoor management protects the outsiders against the company. The
following are the exceptions of this doctrine:
Exceptions of the doctrine of indoor management
1. Actual or constructive notice(Knowledge of irregularity)
Where a person with a company has actual or constructive notice of the
irregularity as regards internal management, he cannot claim benefit under the rule
of indoor management.
2. Negligence
Where a person dealing with the company would discover the irregularity if he
had made proper enquiries, he cannot claim the benefit of the rule under the
doctrine of indoor management.
3. Act void ab initio and forgery
Where the act done in the name of the company are void ab initio, the doctrine of
indoor management does not apply. It applies only to irregularities that otherwise
might effect a genuine transaction. It does not apply to forgery. Company can
never be bound by forgeries committed by its officers.
4. Agent acting outside the scope of his authority
If an agent of a company enters into a contract with a third party and if the act of
the agent is beyond the scope of his authority, the company is not bound.
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5. No knowledge of the contents of articles and memorandum

A person who has not actually read the memorandum and articles of a company
and who has not, at the time he entered into the contract, was aware of their
contents, cannot seek to rely on a statement contained in it.
11. DIFFERENCE BETWEEN ARTICLES OF ASSOCIATION
AND MEMORANDUM OF ASSOCIATION
Ans:
Memorandum of Association Articles of Association
1. It is a supreme document. 1. It is considered as a subordinate to
memorandum.
2. Memorandum defines the relation 2. It deals with the rules & regulations
of the company with the outside necessary for internal output of
world. company.
3. There are 6 clauses in memorandum 3. Depending on the need of the
of association. company the clauses would be
included.
4. The alteration of Memorandum of 4. The articles of associations can be
Association can be done by following altered by passing special resolution.
the precise provisions for each and
every clauses.
5. The company cannot go beyond the 5. If anything done against the articles
objectives prescribed in the which is intra vires the Memorandum
memorandum of association. of articles can be ratified.
12. Define prospectus? What are the different types of prospectus? ( 5 marks)
Ans :- Section 2(70) Companies act defines prospectus as” any document described or issued
as a prospectus and includes a red herring prospectus referred to in Sec 32or shelf prospectus
referred to in Sec31 or any notice, circular, advertisement or other document inviting offers
from the public for subscription or purchase of any securities of a body corporate”.
Types of prospectus
1. Deemed prospectus (Prospectus issued by intermediary)-When a company allots or agrees
to allot any securities of the company with a view to all or any of those securities being
offered for sale to the public. Any document by which such offer for sale to the public is
made is deemed to be a prospectus by implication of law or deemed prospectus.
2. Shelf prospectus – means a prospectus in respect of which the securities or class of
securities included therein are issued for subscription in one or more issues over a certain
period without the issue of a further prospectus. Shelf prospectus is issued by any class of
companies prescribed by SEBI. The validity period is one year. Company shall also file
information memorandum on new charges created, of any change in financial position with
registrar prior to the issue of the second or subsequent offer under shelf prospectus.
3. Red-herring prospectus – means a prospectus which does not include complete particulars
of the quantum or price of the securities included therein.
4. Abridged prospectus Abridged prospectus means a memorandum containing such salient
features of a prospectus as may be specified by SEBI by making regulation in this behalf.
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Such a memorandum which contains only salient features of the original prospectus that are
specified by the SEBI is called an Abridged prospectus.
13. Contents and Misstatements of prospectus.
Ans. Contents of Prospectus
General info
 Name, address of the registered office of the Company, CFO, auditors, legal advisors,
bankers etc.
 Opening and closing dates of issue, and declaration about the issue of allotment letters
and refunds within the prescribed time.
 Statement by the board of directors about separate bank account.
 Underwriting of the issue.
 Capital structure of the Company.
 Main object of public offer.
 Present object and schedule for implementation of object.
Particulars relating to:
 Management perception of risk factors.
 Gestation period of the project.
 Deadline of completion.
 Any litigation or legal action taken against the promoters of Company during the last
5 years issue of prospectus.
 Details of directors including their appointment & remuneration.
Reports
 Reports by the auditors of the company with respect to its profits and losses and assets
and liabilities and such other matters as maybe prescribed.
 Reports relating to profits and losses for each of the five financial years immediately
preceding the financial year of the issue of prospectus including such reports of its
subsidiaries and in such manner as may be prescribed.
 Reports made in the prescribed manner by the auditors upon the profits and losses of
the business of the company for each of the five financial years immediately
preceding issue and assets and liabilities of its business on the last date to which the
accounts of the business were made up, being a date not more than one hundred and
eighty days before the issue of the prospectus.
 Reports about the business or transaction to which the proceeds of the securities are to
be applied directly or indirectly.
Declaration
 Make a declaration about the compliance of the provisions of this Act and a statement
to the effect that nothing in the prospectus is contrary to the provisions of this Act, the
Securities Contracts (Regulation) Act, 1956(42 of 1956) and the Securities and
Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made
there under ; and
 State such other matters and set out such other reports, as may be prescribed.
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14.Misstatements of Prospectus
Prospectus must make full and honest declaration of all material facts without
concealing or omitting any relevant facts. Also it should not conceal any fact which
ought to be disclosed. This is known as the ‘golden rule ‘for framing prospectus as
laid down in New Brunswick .v. Muggeridge.
Liability for Misstatement
Civil
 Against the company
1. Recession of contract to take shares.
2. Punishment for failure to comply with sec 26.
3. Damages for fraud.
 Against the Directors, promoters & experts
1. Compensation
2. Damages under general law.
Criminal
Minimum six months imprisonment up to 10 years and the amount not less than the amount
of fraud which may extent up to 3 times the amount