UNIT – IV COMPNAY LAW

COMPANY LAW
 Meaning:
• Company law may be defined a breach of
law. It deals with all aspect of relating to
company such as incorporation of
companies, allotment of shares and share
capital, membership in companies,
Borrowing by Companies, Management and
administration of companies and winding up
of the companies.
• The Indian Companies Act 1956, the act
extent to the whole of India and came into
force on 1st April 1956.
COMPANY LAW
 Definition:
• A company is a voluntary association of person
formed to achieve some common goal having a
separate legal entity, independent and separate
from its members with a perpetual succession and
a common seal with capital devisable into transfer
of shares.
Objectives of Company:
• To fix minimum standard of business integrity and
conduct in the promotion of management.
• To protect the interest of shareholders by ensuring
effective participation.
• To enforce proper performance of duties by persons,
responsible of the management.
COMPANY LAW
 Characteristics of Company:
1. It has a separate legal entity
2. Incorporated Association
3. Limited liabilities
4. Separate property
5. Perpetual succession
6. Transferability of shares
7. Common seal
COMPANY LAW
 Kinds of Company:
1. Chartered Company
2. Statutory Company
3. Registered Companies
A) Limited Companies
i) Companies Limited by Shares
ii) Companies Limited by Guarantee
B) Unlimited Companies
4. Private Companies
5. Public Companies
6. Holding Companies
7.Subsidiary Companies
8. Government Companies
9. Foreign Companies.
 Distinguish Between Public and Private Company
1. Minimum Number of Members:
The Minimum Number of member is required for a
Public Company is 7.
The Minimum Number of member is required for a
Private company is only 2
2. Maximum Number of Members:
There is no limit on the maximum number of
members Public Company.
In case of Private Company More than 50 members
is required.
3. Minimum Paid up Capital:
The Public Company minimum paid up capital of
Rs.5 Lakhs.
But the Private Company minimum paid up capital
of Rs.1 lack.
 Distinguish Between Public and Private Company
4. Name Clause:
The name of the Public Company must end with the
word limited.
But the Private Company must add the words
Private Limited. Eg. (P) Ltd.,
5. Commencement of Business:
The public company has been granted the certificate
of Government of Business.
But in case of Private company commence its
business as soon as incorporated.
6. Invitation to Public:
A Public Company by issue a prospects may invite
the Public.
But the Private company can’t extend such invitation
to the public.
 Distinguish Between Public and Private Company
7. Transferability of Shares:
The Public company there is no restriction on the
transfer of shares, demate shares are freely
transferable.
But the Private Company the articles must restrict to
rights of members to transfer of shares.
8.Share Warrant:
A Public Company can issue share warrant.
But the Private Company cannot issue share
warrant.
9.Number of Directors:
The Public Company must have atleast 3 Directors.
But the Private Company must have atleast 2
directors.
 Distinguish Between Public and Private Company
10.Statutory Meeting:
A Public company must hold a statutory meting
and file with the register a report.
But the Private company need not hold statutory
meeting, hence such obligations.
11.Quorum:
In case of Public company 5 members presented.
But in case of Private Company 2 members
personally presented.
12.Managerial Remunerations:
In case of Public Company may not exceed 11% of
Net Profit.
But this restrictions does not apply to private
Company.
 Memorandum of Association
Meaning:
• Memorandum of Association is a Public
Document.
• Every person who deal with a company is
presumed to have a sufficient knowledge of its
content.
• The main purpose of the memorandum of
association is to enable shareholder to deals
with the company.
• The shareholders will come to know for a
purpose of investment is going to be utilise and
to know the risk involved in the investment.
 Clause / Content of Memorandum of Association
Clause of MOA:
• The memorandum of Association of every
company must have the following clauses:
 Name clause
 Registered office clause
 Object clause
 Liability clause
 Capital clause
 Association or subscription clause

.
 Printing & Signing of Memorandum of Association
• Atleast 7 person in case of Public Company
• Atleast 2 in case of Private company
• The person capable to enter in to a contract
• In case of an illiterate to subscribe to the
memorandum their thump impression or duly
attested by the person it should be given.
• The memorandum shall be printed
• Computer printing is must
• It shall be divided in to paragraphs
• Each subscriber shall be signed with address,
description, occupation in the presence of
atleast one (1) witness.
 Form of Memorandum
• The company shall be in such one of the form in
table B,C,D,E in Schedule one.
• Table B is a limited by shares
• Table C limited by Guarantee and not having a
share capital
• The D limited by Guarantee and have a share
capital
• Table E unlimited companies.
 Alteration of Memorandum
• The memorandum of Association is the constitution
of the company, there are more restriction on
change of any clauses of memorandum.
• Sec 16 provide that company the contain in its
memorandum to be extend provide in the Act.
• The Procedure for the alternation of the compulsory
clauses is as follows:
• 1. Change of Name:
• By Special resolution
• By ordinary resolution
• Direction for changing name
• New certificate of incorporation
• Rights and obligations
 Alteration of Memorandum
• 2. Change of Register Office:
• Change within the City
• Change within the State
• Change of register office from one state to another
state.
• Change outside India
• Change object clauses.
 Doctrine of Ultra Virus
• Meaning:
• “Ultra” means Beyond, “Virus” Means Power
• An action outside the memorandum is ultra vires of
the company.
• The Ultra vires performed which is through legal.
• Purpose:
• To protect the shareholders, the investment is not
spend they have in mind.
• To safeguard the interest of the Creditors as the
property of the company.
• A company has power to carryout the object in the
memorandum and also everything necessary to
carryout the objects.
 Articles of Association
• Meaning:
• Articles of Association is another important
document which has to be filled with the register
at the time of incorporation.
• The company Act 1956, Article means the articles
of association of a company as originally framed
or altered from time to time for any previous
company law.
• It is the rules and regulation of a company.
• It is framed by the purpose of management of its
internal affairs.
 Articles of Association
• Form of Articles:
• Table – A:
• The Articles of association of a company limited
by shares.
• Table – B:
• It is a memorandum of association is limited by
shares.
• Table – C:
• Memorandum and Articles of Association of a
company limited by Guarantee and having a
share capital.
• Table – D:
• Unlimited Company.
Alternation of Articles
• Must not be against provision of Act.
• Must not sanction anything illegal.
• Approval of central Government for conversion of public to
private company.
• No increase in liability of members
• Alternation by special resolution.
Doctrine of Indoor Management:
• It is an exception to the rules of constructive notice.
• The person dealing with the company is deemed to have
knowledge of the company.
• He enter into a transaction with the company which is ultra
vires
• A Doctrine of Constructive notice protect the company
against outsider.
• The indoor management protect outsider against the
company.
PROSPECTUS:
• Meaning of Prospectus:
• The Prospectus means any invitation issued
to he public inviting to the deposit with the
company or take shares or debenture of the
company.
• It is any document prospectus includes
notice, circular, advertisement or other
document inviting deposits form the public or
offer from the public for the subscription or
purchase of any shares or debenture of a
body corporate.
PROSPECTUS:

Content of Prospectus:
 General information
 Capital structure of company
 Terms of the present issues
 Particular of the issues
 Company, management and project
 Any capital issued during the last 3 years.
SHARES:

Meaning of Shares:
• A share in a company denotes rights and
obligation.
• It is the interest of the shareholder in a portion
of the capital.
• The relationship between company and
shareholder.
• A share in the share capital of the company and
include stock except between stock and shares
is expressed or implied.
Types of Shares:
1. Preference Shares
2. Equity Shares
SHARES:

Kinds of Preference Shares:

 Cumulative Preference Shares
 Non Cumulative Preference Shares
 Participating Preference Shares
 Non Participating Preference Shares
 Convertible Preference Shares
 Non Convertible Preference Shares
 Redeemable Preference Shares
 Irredeemable Preference Shares
SHARES:

Allotment of Shares:
1.General Allotment:
 Proper Authority
 Absolute and unconditional
 Within reasonable time
 Must be communicated

2. Statutory Allotment:
 When no public offer is made
 When public offer is made.
SHARES:
Call on Shares:
 According to the provision of the Act
 Resolution of the board
 Amount, place and time of payment
 Notice call
 Uniform basis
 SEBI Guidelines
Share Certificate:
 Share certificate is a document issued by a company.
 The person name is the registered holder of a
specified number of a shares
 They are fully paid
 Every person name is entered as a member.
SHARES:
Shares Warrant:
 Share warrant is a document under the common seal.
 It is a barer document and its transferable.
 It is a negotiable instrument.
 The shares are fully paid.
 Prior approval by central govt., on application should
be made RBI
Surrender of Share :
 A company can accept surrender of shares the
following circumstances:
 The articles of the company.
 The company from going through the formalities
 The exchange of new shares.
SHARES:
Forfeiture of Shares :
 Conform to the provisions of articles of association.
 Notice prior to forfeiture.
 Resolution of the board.
 Good faith.
Debentures:
• Company having to borrow large some of money for
business purpose.
• The loan requirements of a company may not be met by a
single lender.
• It is a easy method to borrow by issuing debenture.
• The term debenture includes debentures stock, bond and
any other securities of a company.
• It means document which either create a debt or
acknowledgement and nay document which fulfil either of
those conditions is a debenture.
SHARES:
Kinds of Debentures:
 Debentures may be different kinds which are as
follows:
 Registered Debentures
 Bearer Debentures
 Secured Debentures
 Unsecured Debentures
 Redeemable debentures
 Irredeemable Debentures
 Convertible Debentures
 Non convertible Debentures
COMPANY MEETING
Meaning:
 A Company is a body corp9rate recognized by law as
a person having its entity from its members.
 It is a capable of acting its own name.
 It will take decision through resolutions passed at
meeting of the shareholders.
 The word meeting implies the coming together of a
certain number of meetings for transacting of the
business in agenda for which a previous notice.
• Kinds of Meeting:
• 1. Members Meeting:
a) Statutory Meeting:
Every Members of a Company – Legal
Representative – Official Receiver – The Auditors – The
Public Trustee.
KINDS OF COMPANY MEETING
b) Annual General Body Meeting:
The Board of Directors – The Auditors – Dividend
Proposed – Chairman Speech.
c) Extra – Ordinary Meeting:
Change of MOA – Change of AOA – Re-organization
of Share capital – Issue of Debentures – Removal of
Directors – Removal of Auditors .
d) Class Meeting:

2. Director's Meeting:
a) Board Meeting
B) Committee Members Meeting

3. Creditors Meeting:
a) Debenture holder meeing
b) Creditors Contributor in Winding up.
VALID MEETING
1. Proper Authority Meeting:
Board of Directors – Members – Central Government
– National Company Law.
2. Notice Meeting:
Length of Notice (Not Less than 21 Days) – Notice to
Whom – Content of Notice – Place of Meeting – Day –
Timing.
3. Proper Quorum:
Quorum – It means minimum Number of Members –
Public Company 5 – Private Company – 2
4. Chairman Meeting:
Appointment of Chairman – Election of Chairman.
5. Proxies:
A person appointed to represent another, and vote
at the meeting on behalf of another – Which a person is
appointed proxy.
VALID MEETING
6.. Vote:
 Equity Share Holders
 Preference Share Holders

7. Resolution:
* Ordinary resolution
* Special Resolution
* Resolution a Special notice
* Resolution by Poster

8. Minutes of Meeting:
* Signature
* Minutes to be attached
* Content.
AUDIT:
• The Companies are required to maintain and
keep the proper books of accounts.
• The accounts are maintained we know that
about the true affairs of the company.
• The accounts of every company where public
or private must be audit by qualified auditors.

Appointment of Auditors:
• First Auditors
• Subsequent Auditors
• Appointment by Special Resolution
• Reappointment of Retiring Auditors
• Special Notice of appointment.
Qualification of Auditors:
• He must be Character Accountant. (CA)
• In the CA Act 1948, he can be appointed as
Auditor.
Rights of Auditors:
1. Right to access to Books of Accounts.
2. Right to call information and explanation.
3. Right to visit branch office
4. Right to recover remuneration.
Duties of Auditors:
1. Duty to make a report to the members.
2. Duty to make enquiries
3. Duty to assist inspection
4. Duty to check accuracy of accounts
5. Duty to report to the share holders.
Winding Up:
• The term winding up of a company may be
defined as proceeding by which a company is
dissolved.
• Winding up of a company is the process where
by its life is ended and the property is benefit
of the Creditors and members.
• The administrator called a liquidator.
Mode of Winding Up:
1. Compulsory Winding Up by the Court:
 Special resolution by the company.
 Default in holding statutory meeting
 Failure to commence Business
 Reduction in members
 Inability to pay debt
 Just and equitable.
Mode of Winding Up :
2. Voluntary Wining up:
 Petition by the company.
 Petition by the Cr’s
 Petition by the Contributors
 Petition by the Resistor.
3. Voluntary Wining up:
 Commencement of Winding up.
 Powers of the court on the presentation of
Petition.
 Consequences of winding up orders
 Procedure for compulsory wining up
 Appointment of officials liquidator
 Statement of affairs
 Report by Officials.