COMPANIES ACT, 2013

Forms of Business Organization

 There are the following two principal forms of business organization namely:
(a)Traditional and (b) Modern
 Traditional form of business organization include: sole proprietary firms or
HUF run by the families members which suffered from unlimited liability
 Modern Forms of Business include:
(i) Unincorporated Associations of Persons (AOP) like Partnership Firms
which had the same drawback as sole proprietorship and in which the law ,
does not distinguish between private and business assets so that if business
liabilities exceed its assets, the personal property of the partners or the
proprietor will be used to pay off the business liabilities which may lead to
both personal and business bankruptcy.
(ii) Incorporated AOP like LLP, and Joint Stock Companies which enjoy
the benefit of limited liability and perpetual succession due to separate legal
personality. Law distinguishes personal assets and business assets and
liabilities.
CONCEPT & FEATURES OF A JOINT STOCK COMPANY
 A joint stock company is:
 ‘an incorporated association of persons,
 having artificial and separate legal personality,
 perpetual succession,
 limited liability,
 transferability of shares,
 common seal, and
 capacity to sue and of being sued.’
FEATURES OF JOINT STOCK COMPANY
1 Incorporated Association of Persons comprising 1 natural person in case of One Person
Company; and 2 and 7 natural/ artificial persons in case of ‘Private company’, and Public
company.
2 Artificial Legal Personality on Incorporation:
On incorporation, a company becomes an ‘entity’ i.e., an artificial person without any
physical attributes like mind, eyes and ears possessed by natural persons and it is invisible,
intangible and immortal working through the brain of its Board of directors.
3 Separate Personality of the company distinct from those forming it so that it can make
contracts and hold properties in its own name .
CASE ON SEPARATE PERSONALITY OF A COMPANY
[Salomon versus Salomon & Co Ltd 1897 AC]
 FACTS: Salomon transferred his sole proprietary shoe business to a company incorporated by by him
along with his SIX family members each of whom held one share each with Salomon holding 20,001 out
of total 20,007 equity shares. He also held debentures against a loan to the company with floating charge
on company properties. Salomon was also the Managing Director with his family members sitting on the
Board of the company as directors.
 The company filed for liquidation due to failure of business. On the assets, Salomon had a prior right of
recovery over the unsecured creditors. Unsecure creditors cried foul stating that the company and
Salomon were one and the same thing and the company was sham and illusory which was nothing but
Solomon himself.
ISSUE: Is a shareholder liable for company liabilities despite its being a separate person ?
JUDGMENT:
 The Court of Appeal held that on incorporation, a company becomes separate from those forming it.
Outwardly, it may appear to be the same but under law those forming it can be its lenders, borrowers,
employees, etc.
 Solomon cannot be held personally liable for debts of the company. Law does not look into the motives of
those forming the company.
 Therefore, company stands separate from Solomon and his family and it has a corporate personality of is
own which is distinct from those who have formed it.
Note: Judgment in the case is reckoned as the bedrock of company law without which it would not have
been possible for corporations to gain wide popularity as a mechanism for doing business.
 Features of Joint Stock Companies- Contd
4. Perpetual Succession in the sense that the company being a creation of law can be
put an end only by recourse to law and until then it shall continue for ever and will
not close even if all its shareholders may have died [Lee v Lee’s Air Farming Ltd
1960 in which the company continued despite death of one of the two shareholders
in air crash and wife of the deceased shareholder complained compensation which
was allowed despite the fact that Lee was also the employer]
5. Limited Liability of the members to the extent of money remaining unpaid on their
shareholding irrespective of the liabilities of the company itself so that insolvency
of company will have no effect on their financial fortunes.
6. Transferability of Shares as a piece of property without approval of the company
though a private company may impose restrictions on such right of transfer.
7. Common Seal is adopted to function as a symbol of collective consent of all
shareholders to an action by the company else on a contract by the company each
member will have to put his signature making finalization of contract quite
cumbersome.
8. Capacity to sue and of being sued in its own name due to its being a separate
person.
CLASSIFICATION OF COMPANIES
 CLASSIFICATION OF COMPANIES
1. According to Mode of Incorporation
(a) Chartered Companies
These are set up under a charter given by the king or queen defining powers
and business of the company. Examples of such companies are: East India
Company, Royal Bank of England. After independence, no such company exists
in India
(b) Statutory Companies
These are set up under a Special Act of the Legislature such as RBI, SBI,
Universities, etc so that these need not have Memorandum of Association or
Article of Association. Their accounts are audited by the Comptroller and
Auditor General of India. However, company legislation continues to apply to
them in so far as its provisions are not inconsistent with those of the Special
Act.
(C) Registered Companies
These are the companies registered under the previous or existing law on
companies in India.
 CLASSIFICATION OF COMPANIES - 2
2. According to Liability of Members
(a) Liability Limited by Shares so that a shareholder of the
company is liable to pay to the extent of money remaining
unpaid on shares held by him
(b) Liability Limited by Guarantee so that the amount of
guarantee given by each member of the company is mentioned
in the Memorandum of Association and it becomes due on
winding up of the company which are mainly formed for non-
profit objectives
(c ) Unlimited Liability Companies are those in which each
member has to contribute towards the liability of the company
in proportion to their capital undertaken to be contributed on
dissolution of the company.
CLASSIFICATION OF COMPANIES ---3
3. According to Number of Members
A: Private Company [Section 2(68)]
It has a minimum of 2 members and 2 directors with the words ‘Private Limited’
appearing at the end of its name and has a minimum paid up capital of Rs One
lakh. It imposes following three restrictions through its Articles of association:
i. Restriction on right to transfer shares without concurrence of directors;
ii. Restriction on maximum number of members to 200 not including present and
past employees who are members of the company;
iii. Prohibition on inviting public subscription.
B: Public Company [Section 2(71]
 It has minimum of 7 members and 3 directors with its name ending with the words

‘Limited’.
 it has no restriction on the maximum number of members; right of transferability
of its shares & can make public issue.
 Its minimum paid up share capital is rupees 5 lakh.
NOTE: A private company Subsidiary of a public company will also be deemed to
be a public company even if it is a private company
CONVERSION OF PRIVATE COMPANY INTO PUBLIC
COMPANY & VICE VERSA
CONVERSION OF PRIVATE COMPANY INTO PUBLIC COMPANY
 A private company can become a public company by passing a special

resolution to alter its Articles of Association to remove the restrictions on

maximum number of its members,
 transferability of shares,
 right to make public issue,
 increasing the minimum number of directors to two and
 filing a Copy of the Resolution with Registrar.
CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY
For a public company to become a private one, it shall (i) pass a special
resolution to alter its AOA to include restrictions applicable to private
company, (ii) take the approval of the Central Government by applying to
the Regional Director; and (iii) include the words ‘Private Ltd’ at the end
of its name.
 CLASSIFICATION OF COMPANIES ---4
C: One Person Company [OPC] Section 2(62)
 It is set up only by a natural person who must be a citizen of India having resided

in India for minimum of 182 days in the preceding calendar year.

 He must submit the name of a nominee with his written consent to take his place in

case of his death or contractual incapacity.

 A person can set up only one OPC and can be the nominee of only one OPC.

 The Last word in the name of company will be ‘OPC’

 No OPC cannot be set up to function as a ‘Not for profit company’, or a ‘NBFC’,

or an ‘investment company’
 OPC cannot be converted into any other type of company within 2 years of its

incorporation.
 OPC shall be converted into any other type of company if its Paid up Capital

exceeds Rs 50 lakh or Average turnover in preceding three years exceeds rupees

Two Crore.
CLASSIFICATION OF COMPANIES ---5
D: Small Company [Section 2(85)]
 It is other than a public company i.e., a private company;
 Its PUC does not exceed Rs 50 Lakh or a prescribed higher limit which shall not exceed
Rs 5 Crore, or
 Its Turnover does not exceed Rs 2 Crore or a prescribed higher limit which shall not
exceed Rs 20 Crore.
Exceptions: Small company will not include:
o Holding or subsidiary Company;
o Not for Profit Company under section 8;
o Body Corporate set up under a Special Act
Privilege of Small Company:
 Need not prepare cash flow statement;

 Must hold at least one Board Meeting in each half calendar year and gap between two

board meetings must not exceed 90 days;

 Merger and amalgamation does not need payment of court fee.
CLASSIFICATION OF COMPANIES --- 6
E: Dormant Company [Section 455]
It is set up (i) to hold some property or any IPR, or (ii) for some future project.
Since the past two years, it has not
 carried on any business;
 made any significant accounting transactions;
 filed its financial statements.
Procedure:
If company does not have any business since incorporation, it has to pass a Special Resolution and
apply to the Registrar who may grant status of ‘dormant company’ if:
 there is no dispute in the management or ownership;
 there are no outstanding dues to the government-central, state, or local;
 no default in payment of workers’ dues;
 not a listed company.
Period of Dormancy:
The status of a dormant company can continue for maximum of 5 years after which it may be
wound up and its name struck off the Register of Companies unless it applies to become an active
company.
CLASSIFICATION OF COMPANIES --- 7
According to Control:
A: Holding Company under Section 2(46) is one which has one or more other companies as its
subsidiaries
B: Subsidiary Company [Section 2 (87)] It is one which is controlled by another in the
following ways:
I. Control on Board:
(a) If majority or all directors of a company are appointed or removed by other;
(b) If a company can not appoint a director without consent of the other company;
(c ) If appointment of a person as director in a company follows his appointment in ex-officio
position in the other company;
(d) if appointment of a person is due to his nomination by the other company.
II: Control on Majority of Total share Capital of a company by another
III: Indirect Control in the sense of holding company of a company being the subsidiary of other
company then that other company will become the holding of the first mentioned company
Example:
Company A is the subsidiary of Company B .
Company B is the subsidiary of Company C.
Company A will become the subsidiary of company C also
 CLASSIFICATION OF COMPANIES --- 8
A: Restrictions on Holding and Subsidiary Companies:
(i) A subsidiary can not hold shares of its holding whether by itself or through a nominee nor
can a holding company allot its shares to any of its subsidiaries except where shares are
held:
 as legal representative of a deceased member of holding company,

 in a fiduciary capacity such as a trustee for the company, or

 before it became a subsidiary;

 as security for a loan.

(ii) A subsidiary cannot vote at the meetings of its holding company;

(iii) A subsidiary cannot be a member of its holding company except as a trustee or legal
representative of a deceased member.
B: Restrictions on Holding Company
Holding company shall prepare a Consolidated Financial Statement of itself and all its
subsidiaries and attach thereto copies of Directors’ Report, Auditors’ Report, Percentage
interest in each of the subsidiaries and place all of these before the AGM of the company;
 CLASSIFICATION OF COMPANIES --- 9
C: Associate Company [Section 2(6)]
(i). It is a company on which another company has a significant influence but
which is not a subsidiary of the company holding such significant influence;
(ii) Explanation to Section 2(6) states that significant influence means:
 Control over 20% of total share capital including preference capital thereof
except shares held in a fiduciary capacity, or
 Control over business decisions under an agreement, or
(ii) if there is a joint venture between two companies irrespective of
shareholding.
NOTE:
a. An associate company is not the subsidiary of the company holding
significant influence
b. For the purpose of preparation of financial consolidated financial statement,
the term ‘subsidiary’ shall include ‘associate company’ as well as ‘joint
venture.’
 CLASSIFICATION OF COMPANIES --- 10
5: According to Ownership
I: Government Company [Section 2(45)] is one in which “not less than 51% of paid up share
capital including preference share capital is held by Central or State Government, or partly by
either of them”.
A subsidiary of a government company shall also be a government company.
Special provision applicable to Government Company:
(a) Auditor of government company is appointed by the Comptroller and Auditor General of
India (CAGI) who can direct the manner of audit of its accounts.
(b) Auditor shall submit its audit report to CAG who can comment thereupon or supplement it
and then send it to all those entitled to receive copies and also place the same before the
AGM.
(c) Within 60 days of receipt of audit report, CAG may conduct test or supplementary audit of
financial statements
(d) Annual report on the working of company shall be placed before both Houses of Parliament.
(e) Such company may be construed as ‘instrumentality of state if (i) its entire share capital is
held by government or (ii) it is under pervasive control of state, or (iii) it is of considerable
public importance, or (iv) it is a state monopoly [Ajay Hasia v Khalid Majid AIR 1981 SC
496]
 CLASSIFICATION OF COMPANIES --- 11
II: Foreign Company [Section 2(42)]
Any company or body corporate incorporated outside India which:
(a) Has established a place of business in India in the sense of an identifiable place such as an office,
storehouse or godown, whether by itself or through an agent-physically or electronically, and
(b) Conducts any business activity in India in any other manner.
Applicable Provisions:
i. Must register its certified incorporation documents like MOA, AOA, Charter, relevant Act
transliterated in English if not so already with the Registrar of the State where it has established its
place of business,
ii. Full address of Registered Office,
iii. List of Directors with details of names, residential address, nationality, business/ occupation with
declaration that none of them has been convicted or debarred from formation / management of
companies in India / abroad,
iv. Name and address of one person resident in India authorized to accept service of legal process /
notice served on the company
v Display of name of company outside every office in English and vernacular language of the state
where office is established,
vi. On ceasing to carry on business, it shall be wound up as an unregistered company.
 CLASSIFICATION OF COMPANIES --- 12

6. ASSOCIATION NOT FOR PROFIT [Section 8]

A company licensed to register itself as a company without addition
of the words ‘Limited’ or ‘Private Limited’ at the end of its name on
fulfillment of following conditions:
i. It has the object of promotion of arts, commerce, science, sports,
education, research, social welfare, environmental protection,
charity;
ii. It intends to apply its income for promoting its objects;
iii. It prohibits the payment of dividend to its members;
iv. It cannot alter its MOA or AOA without prior approval of Central
Government nor can it convert itself into a company of any other
kind without passing Special Resolution and taking approval of
Regional Director
 CLASSIFICATION OF COMPANIES --- 13

7. One Man Company

o It must not be mixed up with One Person Company which is a special
category allowed to have only one shareholder besides his nominee.
o One Man Company is one in which substantially the whole of the capital
of the company - whether public or private, is held by one person with a
few other dummy members being given nominal shares for the sake of
compliance with law
o Salomon v Salomon & Co Ltd is an illustration of a typical One Man
Company in which one person held complete control over the company.
Difference between OPC and One Man
Company
OPC
 It has only one shareholder who holds
entire share capital of the company.
 It can be set up only by a natural
person who must be a citizen of India
 Last word in its name is ‘OPC.’
 There is restriction on its carrying on
certain types of business like NBFC,
investment, charitable activity.
 On its capital or average 3 years
turnover exceeding Rs 50 lakh & 2
Cr, it has to convert itself into any
other type of company.
One Man Company
 In it there may be more than one
shareholder depending on the type of
company to be set up.
 It may be set up by either natural or
artificial persons or both.
 Last words in the name may be “Ltd’
or “Pvt Ltd” depending on its nature.
 There is no restriction on carrying on
any type of business.
 No such requirement is applicable to
it.
Difference between OPC and One Man Company

OPC One Man Company

 It can not convert itself into any other  There is no such restriction on it.
kind of company within three years
of its incorporation.  It must hold AGM all through its
 It need not hold AGM. existence.

 On death of substantial shareholder,

 On death of subscriber, his place is
his shares shall vest in his legal heir.
taken up by the nominee whose name
had been sent to Registrar.
 BODY CORPORATE & CORPORATION
 In terms of Explanation (c) to Section 2(87), a company includes a body corporate or
corporation which means “an entity incorporated under some statute and having the
characteristics of a company.”
 Term “body corporate” and “corporation” are wider than the expression company and
may include public financial institutions, banks, corporations formed under an Act of
Parliament;
 Members of a body corporate need not necessarily be individuals only and may also
have other bodies corporate as its members;
 As stated, a body corporate includes a ‘corporation’ and a company incorporated
outside India;
 A ‘body corporate’ does not include the following:
 A Co-operative Society registered under any law relating to co-operative societies but
it may become a member of a company;
 Any other body corporate (not being a company) which may be specified in this behalf
by the Central Government;
 A Hindu Undivided Family
 CORPORATION
 A ‘corporation’ may be either a (i) Corporate Sole, or (ii) a Corporate
Aggregate;
 A Corporate Sole consists of an individual who besides enjoying a
“human personality” also has a ‘corporate personality’ by virtue of holding
some public office of a perpetual nature such as the President, Governor,
Public Trustee, etc;
 A corporate sole must never be confused with a One Person Company as
defined in section 2(20);
 A ‘Corporate Aggregate’ consists of a group of persons who have joined
hands to form an association for a defined purpose such as a limited
company, municipal committee, etc unified under a special denomination
having perpetual succession and artificial personality with the capacity to
sue and of being sued.
 CLASSIFICATION OF COMPANIES --- 14
Illegal Association
Under Section 464, no partnership or Association of Persons of more than 50 persons shall
be formed for conducting any business for gain unless it is registered as a company under
the Companies Act or other applicable Act.
Exceptions:
(i). Hindu Undivided family firms;
(ii) Association formed by professionals governed by special act;
(iii) Associations Not For profit;
(iv) Stock Exchange.
(v) Chit Funds
Consequences of Illegal Association
i. Non existent in the eyes of law;
ii. Personal liability of members for all liabilities;
iii. No right to bring any legal action in respect of contracts made by the association;
iv. Cannot be wound up under provisions relating to winding up of unregistered companies;
v. Reduction in membership cannot cure it of illegality;
vi. Members are liable to fine of one lakh rupees.
FORMATION OF A COMPANY
 FORMATION OF A COMPANY
The formation of a Company needs to go through the following THREE stages:
 Promotion;
 Incorporation; and
 Commencement of Business.

A: PROMOTION OF A COMPANY
 Promotion involves the undertaking of all steps which are necessary to bring about a company.
 These include, conception of business idea, investigation of feasibility of the idea, assembling

various business elements called ‘4Ms’ namely: Money, Men, Materials, and Management.
 Promoter is the person (s) who undertakes all these steps.
 Section 2(69) has defined promoter to mean a person who:
 has been named in the prospectus or identified by the company in its Annual Return as per

Section 92; or
 Has direct or indirect control over company affairs whether as a shareholder, director or

otherwise, or
 On whose advice, directions or instructions the Board of the company is accustomed to act.
 NOTE: Proviso to Section 2(69) excludes the following from the category of promoters: person

acting in a professional capacity like surveyors, engineers, advisors, other professionals.

 LEGAL POSITION OF PROMOTER
 Promoter is neither a Trustee nor an Agent since there is neither a Trust nor a Company
or a Principal in existence on the date on which incorporation begins.
 Promoter occupies a fiduciary position towards the company which is going to be
formed.
 Promoter holds a position of trust and confidence with regards to the company and
therefore has the following duties towards the company:
 Not to make Secret Profits at the expense of the company else he will be compelled to
restore those profits to the company [Gluckstein v Barnes 1900 AC];
 To disclose facts relating to property to be sold to the company to an independent Board
or whole body of persons invited to become shareholders in the company or in the
Articles of the Company;
 If any property is sold to the company without making disclosure, the company may
rescind the contract, recover the price along with damages to the extent of profits made;
 Disclosure must be made in full since partial disclosure is worse than blatant lie;
 To disclose all private arrangements made by him to make personal profits;
 Not to make unfair use of his position in the sense of undue influence or fraud;
 LIABILITIES OF PROMOTER
 Liability for making secret profits without disclosure since the company
may rescind the contract, recover the money and profits made along with
damages for breach of fiduciary duty;
 Civil liability to Compensate the Subscribers of shares u /s 35 and
Criminal liability u /s 34 for misstatements in the prospectus;
 Liability u/s 26 for failure to set out the prescribed matters or reports in
the prospectus;
 Liability for misfeasance or breach of trust u/s 543 in relation to
promotion and to make him liable for money or property acquired through
such misdemeanors on the application of Official Liquidator made during
winding up;
 Liability for Public Examination u/s 300 based on Liquidator’s report
that the promoter has committed fraud with the company since formation.
 PROMOTER’S REMUNERATION
 Since the company has no existence before its incorporation, it does not
have any contractual capacity to enter any kind of remuneration contract;
 Consequently, the Promoter is generally remunerated in the following
manner:
o Lump sum payment in cash or in the form of shares or debentures of the
company;
o Payment of Commission on purchase price paid to the company on taking
over of its business;
o Induction into the Board of Directors;
o Permission to sell his own property at an inflated price after making full
disclosure;
o Share Purchase Option at par where their market price is higher;
 PRE-INCORPORATION CONTRACTS
MEANING:
A pre-incorporation contract is one:
 made by a promoter,
 on behalf of a company,
 which is under incorporation,
 being a non-entity without any separate legal personality and contractual capacity,
and
 not binding on the company.
LEGAL POSITION OF PRE-INCORPORATION CONTRACTS
 Not binding on the company even if it has benefitted from the contract;
 No suit by or against the company for enforcement of these contracts;
 No ratification of contracts purported to have been made on its behalf;
 Personal liability of promoters unless a new contract adopting the terms of old
contract is made afresh by the company after its incorporation
HOW CAN PROMOTER AVOID PERSONAL LIABILITY
IN RESPECT OF PRE-INCORPORATION CONTRACTS ?

A promoter may avoid or limit his personal liability with regard to pre-
incorporation contracts by undertaking the following:
I. Reserving ‘right of assignment’ of contract in future by an appropriate
clause in the pre-incorporation contract;
II. Making the contract in the capacity of a trustee subject to the condition
that he will stand released on the making of a new contract (novation) by
the company;
III. Making a draft agreement which the company would adopt on
incorporation provided an express provision has been made to that effect
in the objects clause.
All the above are subject to Section 230 of the Contract Act 1872 which
provides that in the absence of contract to the contrary, an agent cannot
enforce the contracts made on behalf of the principal nor is he personally
bound by such contracts.
RATIFICATION OF PRE-INCORPRATION CONTRACTS
UNDER SPECIFIC RELIEF ACT 1963
 In terms of Sections 15(h) and 19(e) of Specific Relief Act 1963, a pre-
incorporation contract may be specifically enforced by or against the
company if following conditions are fulfilled:

i. Promoter has made the contract purportedly for the purpose of the
company;
ii. The Contract is warranted by the terms of incorporation i.e., included in
the Articles of Association;
iii. The Company has adopted the contract after incorporation and
communicated its acceptance to the promoter
INCORPORATION/REGISTRATION OF THE COMPANY

 As already described, there can be TWO major types of companies namely: Public
Company or Private Company which includes an OPC which has only one subscriber;
 Each of these types of companies may be limited by shares or by guarantee or be
unlimited liability companies;
 Activities preliminary to incorporation include: ascertaining the availability of the
proposed name by the company; getting the MOA and AOA prepared and printed,
getting these documents subscribed (signed) by requisite number of persons i.e., one,
two or seven depending on the type of the company in the presence of one witness for
each subscriber; DIN of each of the proposed directors, affidavit by each subscriber and
First Directors about there being no conviction on grounds of fraud, misfeasance, or
breach of duty connected with formation, promotion or management of any company;
 Address for Communication till company acquires a registered office within 15 days of
incorporation;
 Statutory Declaration about compliance with all the requirements of registration signed
by an advocate, practicing chartered or cost accountant / company secretary;
 Filing the documents with the Registrar of the relevant State accompanied by the
registration fees based on authorized capital of the proposed company;
ISSUE OF CERTIFICATE OF INCORPORATION [Section
7(2)] AND ITS LEGAL EFFECTS
 After scrutiny of the filed documents, the Registrar shall issue a
‘Certificate of Incorporation’ to the effect that the company has been
incorporated and allot a Corporate Identity Number which is noted on the
Certificate;
 The following shall be the legal effects of Certificate of Incorporation:
 From the date of incorporation, the subscribers to the MOA shall become
members of the Company;
 Company shall become a ‘body corporate’ known by the name contained
in the MOA;
 Body corporate can exercise all the functions of an incorporated company
with perpetual succession and power to acquire and dispose of property;
 Body Corporate can sue and be sued under the name allotted to it.
CONCLUSIVENESS OF CERTIFICATE OF
INCORPORATION [COI]
 COI is conclusive evidence that all legal requirements connected with incorporation
have been fulfilled;
 That the company has come into existence from the date mentioned in the certificate;
 COI is conclusive though it may be impossible for proper registration of the company
on account of all subscribers to MOA being minors [Rule in Peel’s Case 1867] or if
the company had allotted shares prior to the date of registration [Jubilee Cotton Mills
Ltd v. Lewis 1924 AC 958];
 Once the company has been incorporated the only method to extinguish it will be to
resort to winding up’
 If COI contains any mistakes, these cannot be rectified and the only recorse will be to
wind up the company
EXCEPTION TO CONCLUSIVENESS OF COI
COI cannot validate objects which are illegal [Bowman v. Secular Society Ltd 1917
AC , HL]

 COMMENCEMENT OF BUSINESS

 Under the Companies Act, there is no provision for the issuance of

‘Certificate of Commencement of Business’ which used to be the case
under previous law.
 Section 11 of the present Act simply restricts a public or a private company
from commencing business or exercising borrowing powers unless the
following conditions are complied with:
 Filing of Declaration by a Director verified by the PCA /PCS with the
Registrar in the prescribed form to the effect that (i) every subscriber to the
memorandum has paid for the shares agreed to be taken by him; and (ii)
that the paid-up capital of the company is not less than that prescribed for
the public and the private company as per Rule 24 of Companies
(Incorporation) Rules 2014;
 Filing of Verification of Registered Office with Registrar within 30 days of
its incorporation as per Section 12(2) of the Act.
CORPORATE VEIL AND ITS LIFTING
 CONCEPT OF CORPORATE VEIL

 The following two consequences follow the incorporation of a company:

 There comes about a ‘corporate entity’ with a ‘separate corporate
personality of its own’; and
 A ‘corporate veil’ is drawn between the persons forming the company and
the resultant ‘corporate entity;
 By virtue of the corporate veil, the company comes to enjoy a ‘corporate
personality’;
 Corporate veil entitles a company to enjoy several legal privileges which
are not available to other forms of business;
 Ordinarily, the law respects the corporate veil and will not look behind the
veil to trace the persons concerned with the entity;
 Therefore, the concept of corporate veil is born of a legal philosophy
which is adopted in all the countries of the world.
 LIFTING OF CORPORATE VEIL
 As stated earlier, the privilege of corporate veil gives many legal privileges
such a separate personality, limited liability of the company, perpetual
succession, etc;
 However, the privilege of corporate veil is liable to be abused for personal
gain by the unscrupulous;
 In such circumstances, it may be imperative for law to look behind the veil
to discover the persons taking shelter behind the façade of separate
personality;
 Circumstances when the veil is ignored to separate the substance from the
form, the phenomenon is known as lifting or piercing of the corporate veil;
 Object of lifting of veil is to discover the culprits who have exploited the
innocents under the guise of ‘corporate personality’;
 After lifting the veil, the specific acts are attributed to the concerned
natural persons who have committed the illegal acts hiding behind the veil.
CIRCUMSTANCES WHEN THE VEIL IS LIFTED
In following TWO circumstances, the corporate veil may be lifted to hold certain persons
personally liable for certain offences:
 Under the Companies Act 2013; and
 By judicial Authorities in Specific Circumstances.
I: LIFTING OF VEIL UNDER THE COMPANIES ACT 2013
 Non Publication of Name of the Company as directed by Law;
 To determine Civil (Section 35) & Criminal liability (Sec. 34) for Misstatements in the
Prospectus;
 Liability for failure to Refund Application Money on subscription within 15 days of
closure of issue [Sec 39 (1) & 40];
 Liability for failure to list shares on the Stock Exchange as mentioned in Offer Documents;
 Liability of directors for failure to provide Consolidate d Financial Statements of the
Holding and its Subsidiaries and Associate Companies [Sec 129(3)];
 Investigation into the affairs of Related Companies [Sec 219] and into ownership of
Company [Section 216];
 Liability of MD/ directors for Fraudulent Trading (Section 339) for which they are
prosecutable u/s 447.
 JUDICIAL LIFTING OF CORPORATE VEIL
 Determination of enemy character as in Daimler Co Ltd v. Continental Tyres &
Rubber Ltd (1916);
 Prevention of Fraud against Revenue i.e., evasion of taxes as in UOI v. Playworld
Electronics Pvt Ltd 1990 SC 202;
 Where company is a sham formed to avoid its contractual obligations as in Gilford
Motor Co Ltd v. Horne 1933; and Jones v. Lipman 1962 WLR where company was
formed to avoid a land deal;
 Where Company is acting as Agent to derive some illegal gain as in Merchandise
Transport Ltd v. British Transport Commission (1982) QB where subsidiary was
formed to obtain a license which the principal could not get;
 Company formed for fraudulent objective as in DDA v. Skipper Construction (P)
Ltd 1997;
 For determination of technical competence, the petitioner may seek reverse lifting
as in New Horizons Ltd v. UOI (1995);
 Where Company has been formed to avoid its legal obligation like payment of
bonus as in Workmen of Associated Rubber Industry Ltd v. Associated Rubber
Industry (1986) SC
MEMORANDUM OF ASSOCIATION
 NATURE OF MEMORANDUM OF ASSOCIATION

 It is the principal and mandatory document without which company cannot be

registered;
 It is the Constitution of the company since it contains the fundamental conditions
on which registration of company is based;
 It performs “defining” and “confining” function in the sense that it explains the
powers of the company and then limits the company within these boundaries;
 Any act of the company falling outside the purview of ‘Objects Clause’ of
Memorandum will be ‘ultra vires’ and not enforceable by or against the company;
 After its registration with the Registrar, it becomes a public document and regulates
the external relations of the company with third parties;
 Object of the memorandum is to enable the shareholders, creditors and those
dealing with the company to know the permitted range of business activities of the
company [Egyptian Salt & Soda Co. Ltd v. Port Said Salt Association AIR 1931 PC
162]
FORMAT AND SUBSCRIPTION OF MEMORANDUM OF
ASSOCIATION
 Tables A to Table E contained in Schedule I of the Act have prescribed
formats respectively for companies limited by shares; limited by guarantee
and not having share capital; limited by guarantee and having share
capital; unlimited liability company having share capital; and unlimited
liability company not having share capital.
 Memorandum has to be printed, divided in paragraphs, numbered
consecutively and signed by requisite number of subscribers in the
presence of at least one attesting witness;
 Subscribers must be persons-natural or artificial (e.g. a company) having
contractual capacity;
 Illiterate subscriber may put his thumb impression.
 CONTENTS OF MEMORANDUM OF ASSOCIATION-1
1: Name Clause
To establish identity of the company;
Name not to be identical or resembling other company’s name;
Not considered undesirable by the government or prohibited by Emblems and names (Prevention of

Improper Use Act);

Not to use words like Board, Commission, Undertaking, National etc without prior Central

Government approval;
Not to give impression as if it is connected with the government, etc,
 Last words in the name of One Person company; Private Company and a Public Company must

respectively be: OPC, Pvt. Ltd, and Limited or its abbreviated form;
Reservation of Name by the Company can be done for a total period of SIX Months after which it shall

be cancelled failing formation of the company;

Duty to publish its name outside every office / place of business, and to print it on all its officially used

stationery including negotiable instruments;

Where the name has been changed in the last two years, the new name shall be printed along with the

former name;
2: Registered Office Clause to specify the State in which it shall be situated, and
 Office must be had within 15 days of incorporation, and
 Verification of address shall be done by filing the same with Registrarwithin 30 days of
incorporation.
CONTENTS OF MEMORANDUM OF ASSOCIATION-2

3: Objects Clause sets out the vires of the company in two parts namely:
(i) Main Objects [There is no restriction on number of main objects], and
(ii) Other Objects considered necessary for furtherance of main objects.
4: Liability Clause:
 It states that liability of its members is limited to the unpaid amount on
their holdings;
 In case of a company limited by guarantee, it shall state the amount
which each member has undertaken to contribute towards assets in the
event of winding up
 An unlimited company shall state that the liability of its members is
unlimited.
5: Capital Clause in case of company limited by shares shall state the amount
of its capital called ‘authorized capital’, number of shares in which it is
divided and face value of each share.
6: Association Clause declares intention of subscribers to from the company.
DOCTRINE OF ULTRA VIRES
 DOCTRINE OF ULTRA VIRES
 The word ‘ultra’ means ‘beyond’ and the word ‘vires’ means ‘powers’;
 Ultra vires may relate to the acts beyond the scope of the Memorandum or
Articles or powers of the directors;
 In the context of Memorandum of Association, ultra vires refers to any
transaction of the company which is beyond the powers of the company i.e.
the objects clause of the company;
 Any ultra vires transaction of a company is void but not illegal;
 Ultra vires transactions cannot be ratified or validated even by the entire
majority of shareholders;
 Object of the doctrine is to protect the interests of the company as well as
the investors and creditors;
 Third parties cannot invoke the doctrine to avoid any voluntarily
undertaken obligations with full knowledge of the scope of company’s
powers;
 TYPES OF ULTRA VIRES
Ultra vires transaction may be of the following types:
(i) Ultra Vires the Directors i.e., the transactions or acts which are beyond
the powers of the directors as specified in the Act or the Articles;
(ii) Ultra Vires the Articles i.e., the transactions or acts which are beyond
the scope of Articles such as giving a higher interest on calls received in
advance than the rate specified in the Articles;
NOTE: Aforementioned transactions or acts are irregular but not ultra vires
so that the company may ratify those by passing a resolution in the
general meeting.
(iii) Ultra Vires Torts Committed by Employees of the Company: Torts of
employees which are within the scope of their employment are binding on
the company. However, the torts which are outside the scope of their
employment or unauthorized acts of employees, cannot be held binding on
the company.
CASE STUDY ON DOCTRINE OF ULTRA VIRES
CASE: ASHBURY RLY CARRIAGE CO LTD v. RICHE (1875) HL
FACTS:
 The Objects Clause of the company’s Memorandum provided that the company

can “make, sell, lend on hire railway carriages and wagons of all kinds …… and to
carry on the business of mechanical engineers and general contractors”.
 The directors however contracted to finance the construction of a railway line in
Belgium which was endorsed by the shareholders.
 One of the shareholders challenged the directors’ action on the ground of its being
‘ultra vires.’
ISSUE: Is the impugned transaction ultra vires the memorandum?
JUDGMENT: the court held the act to be ultra vires since the word ‘general
contractors cannot be interpreted to authorize the company to undertake contract of
every description.
CASE STUDY ON DOCTRINE OF ULTRA VIRES-
2
LASHMANASWAMI MUDALIAR v. LIC OF INDIA 1963 SC
FACTS: The company donated rupees 2 lakh from shareholders’ account to a Trust
formed for promoting technical or business education including knowledge in
insurance. There was no obligation on the trustees to use the funds for promoting
insurance education nor was there any assurance that the concerned persons will
take up employment with the insurance company.
ISSUE: Is the donation within the purview of Objects Clause of the Memorandum?
JUDGMENT:
 Held that the company can donate the funds only for the purpose of promoting
objects of the company and not otherwise;
 Donation of funds to the trust was therefore ultra vires the objects Clause;
 Trustees are liable to repay the money obtained from the company.
 LEGAL EFFECTS OF ULTRA VIRES
1. Null & Void:
Ultra vires transactions are null and void and unenforceable by the company as
also the other party.
2. Injunction
A shareholder of the company can seek injunction to prevent the company from
proceeding with an ultra vires act or transactions [Trevor v. Whitworth 1887].
3. Personal Liability of Directors for pursuing ultra vires on the ground of
breach of warranty of authority [Weeks v. Propert (1873)].
4. No Ratification of ultra vires transaction even by the whole majority of
shareholders though it may adopted by amending the ‘objects clause’.
5. No right to sue or of being sued on ultra vires contracts.
6. Right of the Parties to seek restitution of money or property involved in
ultra vires transaction.
7. Company’s Right on ultra vires acquired property or lending is protected.
ARTICLES OF ASSOCIATION
 CONCEPT OF ARTICLES OF ASSOCIATION
 Articles constitute the second most important mandatory document of a company
and ranks after the Memorandum;
 Articles contain the rules and regulations for internal management of a company;
 Facilitates the carrying out of Objects set out in the Memorandum;
 Alterable by the general meeting by passing special resolution;
 Their function is to define the rights and duties of the shareholders and those of
the Governing Board;
 These establish a contractual relation between the Company and the members as
well as the members inter se;
 Any provision in the Articles inconsistent with the memorandum or in conflict
with the Act shall be invalid;
 In V.B.Rangaraj v. V.B. Gopalkrishnan (1992) SC, the court held void the right of
directors to reject transfer of shares if these were not in a lot of less than fifty
shares on the ground of violation of Section 22A of the Securities Contract
Regulations Act 1956;
ENTRENCHMENT PROVISIONS IN ARTICLES
 These provisions the Articles may be altered by following conditions or
procedures that are more restrictive than those applicable to passing of a
special resolution e. g., giving some special right such as the right to veto a
Board decision may be given to the promoters;
 Entrenchment provision can be included in the Articles either at the time of
formation of the company or by means of amendment in the Articles;
 Amendment for including entrenchment provision in Articles will require
(i) a special resolution in case of a public company, and (ii) unanimous
approval of all members in case of a private company;
 Notice of entrenchment provisions must be given to the Registrar within
30 days of their making
RELATION BETWEEN MEMORANDUM &
ARTICLES
 Memorandum contains fundamental conditions based upon which a company
may be incorporated whereas the Articles define the rules of internal
management of affairs of the company while remaining within the boundaries set
by memorandum;
 Articles cannot exceed the powers of the company as laid down in the
memorandum else those will be held void and incapable of ratification;
 Memorandum is the supreme document just like constitution of the company
and lays the boundaries beyond which actions of the company cannot go so that the
Articles can frame rules within the boundaries circumscribed by the memorandum;
 Articles may be used to explain any ambiguity in the memorandum but these
cannot modify or extend the provisions of the memorandum;
 Any act of the company beyond the memorandum is ultra vires whereas the one
beyond Articles is merely irregular and therefore capable of ratification by the
general meeting
 LEGAL EFFECT OF MEMORANDUM & ARTICLES
 On registration, the Memorandum and Articles bind the company and its members as if
each clause has been signed by the company and each member separately;
 Bind Members to the Company such as in Borland Trustees v. Steel Bros Co Ltd
(1901), where sale by of shares of a member on his bankruptcy by trustees of a bankrupt
member without compliance with the provision of Articles was not allowed;
 Bind Company to the Members so that a member may restrain the company from
breaching his membership rights such as an attempt by the Board to pay dividend in the
form of debentures [Wood v. Odessa Waterworks Co (1889)];
 Bind Members inter se though there is no express contract between members and
hence a member cannot sue another for any wrongs or for enforcement of any rights that
the company may have against a member. Company alone can initiate action but a
member may join hands with the company in pursuing the remedy;
 Not binding on Company or Members in relation to Outsiders so that an outsider
cannot bring any action based on these documents being an outsider [Eley v. Positive
Security life Association Co Ltd (1876) such as where a person appointed for life as per
the Articles failed to base action on Articles when he was removed earlier. But
 But an outsider can sue where terms of the contract with him were based on the Articles
[Swabey v. Port Darwin Mining Co (1889)].

DOCTRINE OF CONSTRUCTIVE NOTICE OF
MEMORANDUM & ARTICLES [section 399]
 On registration of Company, the Memorandum and Articles become public
documents and are open to public inspection in the Registrar’s Office on payment of
prescribed fee;
 Company shall supply a member with a copy of these documents within 7 days of
request by him else the defaulting officer will be liable to pay the prescribed penalty;
 Every person dealing with the company is assumed to know the contents of these
documents so that if any of his act is inconsistent with the rules contained in these
documents, he cannot acquire any rights against the company;
 No outsider dealing with the company can take the plea that he was not aware of the
contents of these documents irrespective whether or not he has read them;
 It is a negative doctrine so that it cannot operate against the company but operates
only against the outside parties dealing with the company.
 In Rajendra Nath Dutta v. Shibendra Nath Mukerjee (1982), the Articles provided
for the signing of every document by the MD, Secretary and ED on behalf of the
company but a mortgage deed was not signed by the MD. Held the mortgagee
cannot enforce the mortgage against the company.
DOCTRINE OF INDOOR
MANAGEMENT
DOCTRINE OF INDOOR MANAGEMENT [TURQUAND’S
RULE”
 Turquand’s Rule is an exception to the Rule of Constructive Notice;
 It states that every person dealing with the company may presume that internal
formalities prescribed in the public documents must have been followed by the
company;
 In Royal British Bank v. Turquand (1856), the directors of the bank issued a bond
to the defendant without authority of a resolution which was requisite in terms of
Articles and the Bank refused to honour the bond on ground of non complaince with
the Articles. Held, that the bank is bound as Turquand could assume that the
necessary resolution must have been passed.
 Rule is based on reasons of public convenience else a company to refuse to abide by
its commitment on ground of its failure to follow a rule contained in the Articles;
 An outsider must know the documents but he need not probe whatever may have
happened indoors which are closed to him;
 Rule has great practical significance without which companies would have escaped
liability by pleading lack of authority on the part of concerned officials.
EXCEPTIONS TO DOCTRINE OF INDOOR
MANAGEMENT
 Actual or constructive knowledge of irregularity by the plaintiff such as
possession of information about the names of authorized signatories of the company
will be bar to invocation of doctrine as was the case in National Coal Co Ltd v. Gyan
Ranjan Bhatacharya AIR 1927 Cal; or lending by directors despite knowledge that
borrowing beyond one thousand pounds will need general body resolution but they
lent beyond that amount without such resolution. Held they cannot recover beyond
1000 pounds.
 Suspicion of Irregularity (Negligence) but not making any inquiry by the
concerned person will disqualify him from invoking the doctrine e.g., acceptance of
transfer of company property from an accountant of the Company [Anand Bihari Lal
v. Dinshaw & Co Ltd (1942].
 Reliance upon a Forged Document will not attract the doctrine [Ruben v. Great
Fingall Consoldated 1906].
 No Knowledge of Articles on a person’s part will disqualify from pleading the
principle of estoppel [Rama Corporation v. Proved Tin & General Investment Co
1952 in which a person took a cheque from a company director without any
delegation of such authority in favour of that director’ as specified in the Articles].
EXCEPTIONS TO DOCTRINE OF INDOOR
MANAGEMENT
 An act beyond the Scope of Apparent Authority of the concerned
Company Official (s) will not bind the company as in Freeman v.
Backhurst Park Properties1964 where agreement was signed by only
one director instead of four as provided in the Articles.
COMPANY MEETINGS
 CONCEPT OF MEETING

 In the context of a company, the term ‘meeting’ denotes: “the coming

together of a certain minimum number of members for transacting the
items of business included in the agenda, the previous notice of which has
been given.”
 The following Three types of Meetings are held in a company:
a. Meetings of Shareholders called ‘General Meetings’;
b. Board Meetings; and
c. Class Meetings.
 At each of these meetings the relevant members discuss, debate and
decide the matters put to them.
 The decision in almost all the aforesaid meetings are taken by majority
except where either a special majority or unanimous approval is
requisite.
REASON FOR SHAREHOLDERS’MEETINGS
 Shareholders are the owners of the company and have a right to elect
persons from among themselves or from outside to oversee the functioning
of the company;
 General meetings are the medium whereby shareholders get an opportunity
to review the working of the Board of the Company and to decide whether
or not to re-elect them;
 For transacting a valid business at the meeting, it is imperative to hold the
same in accordance with the legally prescribed rules;
 The provisions for holding a general meeting of shareholders are contained
in Sections 96 to 118 of the Companies Act;
 However, a private company may frame its own regulations in the Articles
to hold a meeting.
 ANNUAL GENERAL MEETING [Section 96]
 It is a regular meeting held every calendar year to transact company’s
ordinary business.
 The principal object of the meeting is to inform the members of the
progress made by the company during the year and to solicit their views
about company’s management.
 Its holding is a statutory requirement irrespective of whether accounts are
ready or not.
 The AGM must be held once in each Calendar Year [January –December].
 Except for a One Person Company, every other company- whether public
or private and whether with or without share capital shall hold a general
meeting as its annual general meeting.
 The Central Government may exempt any company from the provisions of
Section 96 subject to conditions as may be imposed.
 FIRST ANNUAL GENERAL MEETING
 According to Proviso I to Section 96 (1), the first AGM must be held
within a period of nine months from the date of close of financial year of
the company.
 Section 2(41) has defined the term ‘financial year’ in relation to a company
or body corporate to mean the period ending on the 31st day of March
every year;
 Where a company has been incorporated on or after the 1st day of January
of a year, the financial year shall be reckoned from the period ending on
the 31st day of March of the following year, in respect whereof the
financial statement of the company or body corporate is made up.
 No extension of time is allowed in holding the first annual general
meeting.
 If the first annual general meeting has been held within the prescribed
period, there is no need to hold any AGM in the year of incorporation
 SUBSEQUENT ANNUAL GENERAL MEETING
 Subsequent AGMs (after the First) must be held within 6 months of the close of
financial year;
 Interval between two AGMs must not exceed fifteen months;
 AGM must therefore be held on the earliest of the following dates:
a. Fifteen months from the date of the last AGM, or
b. Six months from the close of the Financial Year
 There must be at least one AGM every Calendar year [1st January to 31st
December];
 There must be as many AGMs as there are years in the life of a company.
 Registrar may for any special reason, extend the time for holding the AGM other
than the FIRST AGM, by not more than 3 months.
 However, delay in the completion of audit of accounts does not constitute a special
reason justifying extension of general meeting.
 Better course is to hold the meeting, transact the business other than accounts and
then adjourn the meeting for considering the accounts but the adjourned meeting
must be held within the maximum time limit allowed under section 96
 TIME AND PLACE OF HOLDING AGM

 The Annual General Meeting must be held at the registered

office of the company or at some other place in the same city,
town or village in which the registered office of the company is
located.
 The meeting shall be held during statutorily prescribed business
hours i.e. 9 am and 6 pm and on a day which is not a ‘national
holiday’.
 This prohibition is not applicable to Extraordinary General
Meeting.
 The Central Government may exempt any class of companies
from this provision subject to such conditions as it may impose.
 BUSINESS TRANSACTED AT THE AGM

 Two types of business may be transacted at the AGM namely:

 Ordinary Business;

 Special Business

Ordinary Business:
 Under Section 102 (2)(a), the following ordinary business may be

transacted at the AGM:

i. Consideration of financial statements and reports of the Board of
Directors and auditors;
ii. Declaration of Dividend, if any;
iii. Appointment of Directors in place of those Retiring;
iv. Appointment and the Fixation of Remuneration of Auditors.
SPECIALBUSINESS TRANSACTED AT THE
AGM
 When any business other than ordinary business is to be transacted at the AGM, it shall be
regarded as ‘special business’ and subject to the obligation to mandatory annexation of
explanatory Statement to the Notice of Meeting[Section 102(1)]
 CONTENTS OF EXPLANATORY STATEMENT ANNEXED TO NOTICE OG
MEETING
 Nature of concern / interest - financial or otherwise, if any, in respect of each item of :
a. every director and the manager, if any
b. every other key managerial personnel,
c. relatives of the persons mentioned in (i) and (ii);
 Any other information and facts that may be necessary to enable the members to understand
the meaning, scope and implications of the items of the business and to take decisions
thereon;
 Explanatory Statement is envisaged only when the meeting is convened by the company;
 No such Statement is needed where the meeting has been convened on requisition of the
requisitionists [LIC of India v. Escorts Ltd AIR 1986 SC 1370].
 Mention in the notice the right of a member to attend in person or by proxy
 EXTRAORDINARY GENERAL MEETING

 Article 42, Table F in Schedule I provides that ‘all general meetings

other than ‘annual general meeting’ of the company shall be called
‘extraordinary general meeting’.
 An EGM is convened to conduct some urgent or special business
which cannot be postponed till the next AGM such as alteration of
objects, or shifting of registered office, and removal of auditors.
 An EGM is, therefore, one which is held between two AGMs.
 All business transacted at the EGM is called ‘Special Business.’
 WHO MAY CALL EGM?
1: Board On Its Own
 The Board may convene an EGM, whenever it thinks fit, by passing a board resolution for
the purpose;
 If sufficient number of directors are not in India for taking action, any director or any two

members of the company may call an EGM in the same manner, as nearly as possible, in
which such a meeting is called by the Board [Section 100(1) & Article 43 of Table F];
 The power given to the Board in Section 100(1) is discretionary in nature.

2: Board on Requisition by specified number of members as follows:

 In the case of a company having share capital, on the requisition of members holding, not

less than 1/10th of the paid up share capital and having a right to vote at the meeting in
respect of that matter;
 In case of a company not having share capital, on the requisition of members holding 1/10th

of the total voting power and having the right to vote on the said date;
 The requisition deposited in the registered office 21 days before the meeting shall set out the

matters for which meeting has been called;

 It shall be signed by the requisitionists and be deposited at the registered office of the

company.
 WHO MAY CALL EGM? -2

3: By the Requisitionists
 On failure of the Board to convene the meeting within 45 days of receipt of
requisition, the requisitionists may themselves proceed to call the meeting within 3
months from the date of deposit of requisition.
 It has been held in LIC of India v. Escorts Ltd. AIR 1986 SC 1370 that every
shareholder has the right to requisition an EGM and he cannot be restrained by an
injunction from calling the meeting nor is he bound to disclose the reasons.
 The reasons for calling the EGM by the members are not subject to judicial review.
 The meeting shall be called in the same manner as meetings are called by the Board.
 If the registered office is not made available for holding the meeting, it may be held
elsewhere.
 Requisitionists may claim from the company, the reasonable expenses incurred by
them in calling the meeting.
 The sums so paid may be deducted by the company out of the fees or other
remuneration payable under section 197 to such of directors who were in default.
 WHO MAY CALL EGM? - 3

4: BY THE TRIBUNAL
 If for any reason, it is impracticable to call, hold or conduct an extraordinary general

meeting, the Tribunal may, either of its own motion, or on the application of any
director or member of the company who would be entitled to vote at the meeting, order
a meeting to be called, held and conducted in the manner as directed by the Tribunal.
 For instance, if a meeting already convened by the company has become disorderly or

it has otherwise become impossible, recourse to the Tribunal is justified [R.

Rangachari v. S. Suppiah AIR 1976 SC 73].
 The Tribunal may give such ancillary or consequential directions as it thinks expedient

including a direction that one member present in person or proxy shall be deemed to
constitute a meeting.
 A meeting held in pursuance of the Tribunal’s orders shall be considered to be a

meeting duly held and conducted.

 An extraordinary meeting may be convened on a public holiday and at a place other

than the registered office of the company.

CLASS MEETINGS
 CLASS MEETINGS

 Meetings of the different classes of shareholders are known as ‘class

meetings.’
 At these meeting, only the shareholders of the particular class have the right
to be present.
 Section 48 provides that where share capital of a company is divided into
different classes of shares, any variation in their rights attached shall require
the written consent of not less than ¾th of the issued shares of that class and
it shall conduce to the provision with respect to such variation contained in
the Memorandum or Articles of the company; or
 If the Memorandum or Articles do not contain any such provision, the
variation must not be prohibited by the terms of issue of that class of shares.
 Proviso to Section 48(1) ordains that in case the variation of rights one class
affects the rights of any other class, the consent of three-fourths of such other
class of shareholders shall also be obtained.
REQUISITES OF A VALID MEETING
 REQUISITES OF A VALID MEETING -1
1: Proper Authority: The Board of Directors is the proper authority to convene an AGM and it
must pass a resolution for this purpose. On default by the board, the members of the company or
the Central Government or the Tribunal may convene a meeting;
2: Proper Notice: Not less than 21 clear days’ written notice or notice through electronic mode is
essential though a notice shorter than 21 days may be given if so agreed in writing or by electronic
mode by not less than nine-five percent of the members entitled to vote at such meeting;
3: Contents of Notice shall include the place, date, day and time (hour) of the meeting and the
nature of business - ordinary or special, to be transacted at the meeting;
4: Notice to Whom? Notice shall be given to every member of the company, legal representative
of any deceased member, assignee of an insolvent member; auditors of the company; and every
director of the company;
5: Quorum are the minimum number of members required to be present at the meeting for
transacting legally binding business which in case of public companies is 5 members /15
members. 30 members personally present depending on total members of the company being 1000
/ up to 5000/ and more than 5000 but quorum for private company is 2 members;
 REQUISITES OF A VALID MEETING -2

6: Right of member to attend through Proxy provided instrument appointing proxy

has been duly deposited in the registered office 48 hours before the meeting and it
is competent for a member to inspect proxies by giving 3 days notice;
 A proxy has neither the right to speak at the meeting nor can vote except on poll

 A Representative of President/ Governor attending the meeting shall be regarded as

full fledged member and can exercise all rights of a member.

7: Time for Presence of the Quorum is at the beginning of the meeting and it need
not be present all throughout but if it is not present within ½ hour of the scheduled
time, the meeting called at the members’ requisition shall stand dissolved whereas
any other meeting shall stand adjourned till same day time and place in the next
week or as notified by the Board;
 If quorum at reconstituted meeting is again not present within ½ hour of scheduled

time, the member (s) shall be the quorum even if one;

 3 days’ notice shall be given in case there is any change in the timing etc of the

holding of adjourned meeting;

 REQUISITES OF A VALID MEETING -3

SINGLE MEMBER AS QUORUM

 When all the shares of a class are held by one person in the case of ‘class
meetings’:
 Where meeting is held at the direction of the Tribunal,it may direct that
one member present in person or by proxy shall be deemed to constitute a
meeting .
 In the case of an adjourned meeting, if the quorum is not present within
half-an-hour of the stipulated time, the member present, even if one, shall
constitute quorum.
 In the case of meetings of Board Committees, the committee may consist
of a single person.
 If there is only one creditor or debenture holder, he shall constitute quorum
for the meeting of creditors or debenture holders.
 REQUISITES OF A VALID MEETING -4

8: Chairperson of the Meeting is generally the Board Chairman unless he is

unwilling or is absent in which case the meeting shall elect one of them to
preside as chair of the meeting;
9: Voting at the Meeting can be either (i) by show of hands where a person
will hold one vote, or (ii) By Polling when demanded by requisite number
of members which are holding 1/10th of the total voting power and the
proportion of voting power is linked with proportion of capital held,
 RESOLUTIONS AT THE MEETING
 A “resolution” is a formal decision of the meeting and may be of three types:
 Ordinary Resolution is passed by simple majority of those attending and voting
whether by show of hands or on poll or electronically including the casting vote of
the Chairman if any but not counting those of the abstainers;
 Special Resolution is that passed by ¾th majority of those attending the meeting
and such resolution is generally needed for changing memorandum or articles or for
taking other significant decisions;
 Resolution Requiring Special Notice of not less than 14 days and not more than 3
months in case on matters specified in the Act or Articles shall be given by a person
holding not less than 1% of the total voting power or shares on which not less than 5
lakh rupees have been paid up and it shall be given in following cases:(a).
 Appointment as auditor of a person other than a retiring auditor [Section 140(4) (i)].
 Removal of a director before the expiry of his term [Section 169(2)] or appointing
another person to fill the vacancy caused by the dismissal of a director under section
169 at the same meeting [Section 169 (2) and 165(5)].
 Standing for directorship of a person other than the retiring director [Section 160(1)].

 MINUTES OF MEETING

 ‘Minutes’ are the written record of the proceedings, business transacted and
the decisions taken at company meetings;
 Section 118 requires every company to prepare, sign, and keep minutes of all
the proceedings of every type of meeting;
 Minutes are to be recorded in the “Minutes Book” the pages whereof have
been consecutively numbered and each page initialed by the Chair;
 Entries in the minutes book shall be made within 30 days of conclusion of
the meeting;
 Last page of the recording of the meeting proceedings shall be signed by the
Chair of the meeting, or by Chair of Board or Board Committee in case of
Board or a Board Committee meeting;
 Minutes shall contain fair summary of proceedings and it shall be kept at the
registered office for inspection by members for 2 hours daily during business
hours.
DIRECTORS AND BOARD
 DIRECTORS OF A COMPANY: NEED
Being an artificial person, a company does not have any of the physical
organs like ears, eyes, mind or hands, etc;
 For its proper functioning, it has to take the help of a human agency called
the ‘directors;
 Next to general body of shareholders who are purveyors of capital, the
directors are the persons skilled in governance of the company;
 Directors are the brains and hands of the company and work together as a
‘Board’ to take various decision affecting various management functions;
 Legally, the shareholders are the ‘owners’ of the company whereas the
directors are their ‘agents’ working for a remuneration;
 Directors are elected representatives of the shareholders exercising their
powers in accordance with the provisions contained in the Act.
 CONCEPT OF DIRECTOR
 Section 149 has made it mandatory for every company in India to have a Board of directors which
shall comprise a minimum of 2 directors in case of a private company and minimum 3 directors in
the case of a public company but only ONE director is required by a One Person Company;
 Maximum number of directors can be 15 though a higher number may be appointed by passing a
special resolution as per Proviso to Section 149;
 Despite the pivotal position occupied by the directors, the term has not been defined with the
degree of required precision;
 Under Section 2(13), a director means “a director appointed to the Board of a Company”.
 It implies that a person can become a director only if he has been appointed to the Board of a
company so that no person can occupy this position without any formal appointment to the Board;
 For proper understanding of the concept, it is imperative to look into a director in relation to a
foreign company;
 Under Section 386 (b), a director is one ‘with whose directions or instructions the Board of
Directors of a company is accustomed to acting’;
 Accordingly, it is possible for a person to be a director without being a member of the Board such
as is the case with ‘shadow director’ who will fall within the mischief of Section 185(1) (e).
 WHO MAY BE APPOINTED A DIRECTOR?
 Every company shall appoint only individuals as directors so that a body corporate,
association of persons or a firm cannot be appointed as a director;
 Reason behind appointment of individual is that the office of a director is an “office of
trust” and hence there must be a person who can be held liable for his actions beyond an
iota of doubt;
 Law has not prescribed any qualifications for being appointed a director except that he
must be competent to contract;
 Disqualifications for Appointment of director include;
 Conviction on ground of moral turpitude and minimum imprisonment for 6 months and
period of six months must not have elapsed since serving of the sentence;
 Person disqualified by a Court /Tribunal;
 Person not having paid calls on his shares for six moths from due date;
 Person convicted for ‘related party transactions’ in the past five years;
 Director of a company which has not (i) filed financial statements and annual returns for
last three FYs; (ii) repaid deposits or interest thereon or paid dividend or debentures that
have become redeemable for one year or more.

MANDATORY APPOINTMENT OF CERTAIN
CATEGORIES OF DIRECTORS
 MANDATORY CATEGORY OF DIRECTORS

The following three categories of directors need to be appointed in specified types of

companies:
A: Woman Director:
Rule 3 of Companies (Appointment and Qualifications of Directors) Rules 2014
mandates following categories of Companies to appoint a woman director on its
Board:
 Every Listed Company;
 Every Public Company having Paid Up capital of rupees 100 Crore or more or
turnover of rupees 300 Crore as on the last Audited Financial Statement;
The appointment shall be made before the immediately next Board meeting or within
3 months of the date of vacancy whichever is later.
B: Resident Director:
Every company shall appoint at least one director who has stayed in India for a
minimum period of 182 days in the previous calendar to ensure the avaiability of at
least one director to remain answerable for the Board.
INDEPENDENT DIRECTOR [Section 149 (4) & (6)]
WHO SHALL APPOINT ?
Mandatory appointment of independent directors is to be made by following
categories of companies:
(i) Every Listed Company;
(ii) Unlisted Public Company meeting either of the conditions given below:
 Paid Up Capital of rupees 10 Crore or more;
 Turnover of rupees 100 Crore or more;
 Aggregate outstanding loans or debentures of rupees 50 Crore or more.
The obligation to appoint independent directors shall continue to apply for
three consecutive years until it ceases to fulfil any of the three conditions.
NUMBER OF INDEPENDENT DIRECTORS:
Listed company shall have a minimum of 1/3rd independent directors of the
total size of the Board and the number of such IDs on Boards of other public
companies shall be as prescribed by the Central Government.
 CRITERIA OF INDEPENDENT DIRECTOR -1
 Must be a Non Executive Director i.e., other than a MD or a WTD;
 In Board’s opinion, must be a person of integrity and possess relevant expertise and
experience;
 Must possess qualifications as are prescribed under Rule 5 of Companies (Appointment
and Qualifications of Directors) Rules 2014 such as appropriate skills, experience, and
knowledge in one or more fields like finance, law, management, research, corporate
governance, technical operations, or other disciplines related to business;
 Must not be either a Promoter or Related to Promoters / Directors of the Company, its
Associate Companies, Subsidiaries and Holding Companies (CASH) or their directors
or promoters;
 Must not have any pecuniary relationship with CASH in the immediately preceding
two financial years or during current financial year;
 Any of his relatives must not have any pecuniary relationship with CASH or their
promoters /directors equal to 2% or more of their gross turnover or total income of Rs.
50 lakh or more whichever is lower in the immediately preceding two financial years or
during the current financial year
 The person himself or his relative must not have been the Key Managerial Person
(KMP) or an employee of CASH;
CRITERIA OF INDEPENDENT DIRECTOR -2
 Himself or his relative must not have been an employee, proprietor, partner
in a firm of auditors/ CSPs/ cost auditors or a law or consulting firm
having transactions equal to 10% of the gross turnover of the firm in the
past 3 years with CASH in which he is proposed to be appointed;
 Himself or his relative together must not hold 2% or more of the total
voting power of the company;
 Himself or his relative must no be the CEO or director of any Non Profit
Organization that receives 25% or more of its receipts from the CASH or
their promoters or directors.
OTHER OBLIGATIONS OF INDEPENDENT
DIRECTOR
 To obtain Director Identification Number (DIN) and furnish the same to company;
 To file consent to act as director & file the same with Registrar within 30 days of
appointment;
 To make declaration in every financial year or whenever there is a change in his status that
he meets the criteria of independence;
 His appointment shall be made in the general meeting as per Section 152(2) read with
Section 150 (2).
 To comply with the ‘Code of Conduct’ as laid down in Schedule IV of the Act;
 Appointment shall be made for a term of 5 consecutive years with another term of 5 years
after passing special resolution and disclosing the same in the Board of Directors’ Report;
 After two such consecutive terms, there shall be a cooling off of 3 years after which he
may get another opportunity provided he has not been associated with the company in any
direct or indirect capacity;
 ID is not liable to retirement by rotation [section 152 (6) & (7)];
 Only sitting fee and reimbursement of out of pocket expenses is payable to ID;
 His liability is only with regard to those acts of omission and commission by the company
which were within his knowledge or done with his consent or connivance.
 APPOINTMENT OF DIRECTORS-1
1: Appointment of First Directors
 It shall be done as prescribed in the Articles;
 In the absence of any provision in Articles, the subscribers to memorandum shall determine the

names of directors in writing;

 On failure of subscribers to appoint, those of them who are individuals shall become directors

to hold office till next Annual General Meeting,

2: Appointment of Subsequent Directors in the General Meeting
Excepting the first directors, all subsequent directors shall be appointed at the General
Meeting;
In case of Public Company, only one third of the total directors can be appointed on a
permanent basis.
Not less than 2/3rd of the total directors shall be subject to retirement by rotation at every
general meeting but this rule is not applicable to private companies and also to independent
directors;
1/3rd of the aforementioned shall retire at every AGM & those longest in office shall retire first
but in case of those appointed on same day, retirement shall be decided by draw of lots on
failure to arrive any agreement;
 REAPPOINTMENT OF RETIRING
DIRECTORS
 Vacancies arising from retirement shall be filled at the same general
meeting failing which the meeting shall be deemed as adjourned till same
day of next week;
 If at the adjourned meeting the vacancies are not filled, those retiring are
deemed to have bee re-appointed except in following cases:
 It has been resolved to not fill the vacancy;
 Resolution for re- election has been put to vote but lost;
 Retiring director has expressly notified his unwilling or is not qualified or
is disqualified for appointment;
 Where a ordinary or special resolution is required for reappointment.
APPOINTMENT OF OTHER THAN RETRING PERSONS AS DIRECTOR
[Section 160]

 A member of the company other than retiring director may give 14 days’
notice to company with One lakh rupees of security deposit proposing his
candidature as director,

 Company shall give 7 days notice to members by publishing notice in an

English and vernacular language paper circulating in the district of
registered office of the company;

 On getting elected or securing 25% of the total valid votes, the security
deposit is refunded or otherwise forfeited
APPOINTMENT OF DIRECTORS BY
BOARD
APPOINTMENT OF DIRECTORS BY BOARD

 Additional Directors:
Board can appoint additional directors only if so authorized by the
Articles but the person who lost election at general meeting cannot be so
appointed by the Board;
 Casual Vacancy if so authorized by Articles in the case of a Public
Company arising from resignation, death, disqualification other than
retirement;
 Alternate Director if so authorized by Articles if original director is
absent from India for a minimum period of 3 Months and such person shall
vacate office when original director returns to India.
APPOINTMENT OF SMALL SHAREHOLDERS’
DIRECTOR
 Such director can be appointed only in case of listed companies;
 Small shareholder means a shareholder holding shares of nominal value of
not more than Rs, 20,000;
 Company may appoint such director suo motu or on receipt of notice from
not less than 1000 shareholders or 1/10th of the total number of small
shareholders whichever number is less;
 14 days notice along with consent of the candidate with his DIN and a
declaration that he is not disqualified from directorship shall be submitted in
the company’s registered office;
 Tenure of such director is 3 years and he cannot become small shareholders’
director in more than one another company and that other company must not
be in business competing with that of the first;
 He shall not be eligible for reappointment as Small Shareholders Director
after demitting office as such director.
TOTAL NUMBER OF DIRECTORSHIPS
PER INDIVIDUAL
RESTRICTIONS ON TOTAL DIRECTORSHIPS

 Section 165 provides that an individual cannot hold directorships in more

than 20 companies at the same time;
 Of this number, not more than 10 directorships can be in public companies
including subsidiaries of public companies;
 If a director holds more than the stipulated limit, he shall decide in which
companies wants to continue and resign from the rest;
 Contravention is liable to fine of Rs 5000 for every day after the first but
which is extendable to Rs 25000 per day of continuance of default;
 Ceiling on directorships in listed companies is limited to total 7 such
companies;
POWERS OF DIRECTORS
 POWERS OF DIRECTORS -----1
 GENERAL POWERS OF THE BOARD [Section 179]
 Board powers are co-extensive with that of the company so that it can do every act
which the Company is authorized to do provided these are exercised in accordance with
provisions of the Act. Memorandum, and Articles;
 Board cannot exercise those powers which are reserved for the general meeting;
 Exercise of powers shall be subject to regulations made by the company at its General
Meeting.
 STATUTORY POWERS EXERCISABLE AT BOARD MEETINGS [Section 179(3)]
 Making calls on Shares;
 Buying back of Securities;
 Borrowing Money’
 Investment of Funds of the Company;
 Granting loans; giving guarantees; providing security;
 Approval of financial statements;
 Amalgamation, Merger, Acquisition or Takeover;
 Diversification of Business of the Company.
 POWERS OF DIRECTORS ----- 2
 BOARD POWERS EXERCISABLE SUBJECT TO CONSENT OF
SHAREHOLDERS IN GENERAL MEETINGS[Section 180]
 To sell, lease, dispose of the whole or substantially the whole of the undertaking
of the company;
 To invest compensation received by the company on merger or amalgamation
otherwise than in trust securities;
 To borrow money in excess of aggregate of paid up capital and free reserves;
 To remit or extend time for payment of debt payable by a director to the
company;
 To acquire any asset for consideration other than for cash.
 PROHIBITIONS ON BOARD
 No forward dealing in Securities of the company;
 No insider trading;
 No compensation to director for loss of whole or part of the undertaking of the
company or on transfer of all or any shares of the company.
INTERVENTION BY GENERAL BODY IN THE
POWERS OF THE BOARD
 Board acting malafide for their personal benefit;
 Board failing to take steps to redress the wrong done to the company;
 Where directors themselves are wrong doers;
 Where Board has become incompetent due to all being interested in a
particular transaction;
 Where directors constituting the Board have not been validly appointed;
 Where there is a deadlock in management due to infighting among board
members.
BOARD MEETINGS
 BOARD MEETINGS

 NUMBER OF BOARD MEETING IN A CALENDAR YEAR

• First Board Meeting of the Company shall be held within thirty days of
incorporation;
• Minimum four Board Meetings shall be held every calendar year;
• Gap between two Board meetings shall not exceed 120 days;
• OPC with one director, Small Company and Dormant Company shall hold a
meeting every six months with gap between the two being not less than 90 days;
• Meetings may be held through video conferencing, or other audio visual means
except for matters specified by the Central Government;
 7 DAYS’ NOTICE OF BOARD MEETING to be given to every director at his
usual address in India else any resolution passed by the Board shall be null and void
 Mandatory presence of minimum ONE INDEPENDENT DIRECTOR at the
Board Meeting and in its absence the decision shall be circulated to all directors
and ratified by at least one independent director
BOARD COMMITTEES
 NEED FOR BOARD COMMITTEES
 It is unreasonable to expect the full Board to hold detailed discussions for
deciding all types of corporate issues;
 Due to time constraints, in depth discussions in a large sized Board are not
possible;
 Only alternative is to constitute Board Committees to achieve effective Board
performance;
 Except for matters requiring direct attention of the Board, non-core matters
can be assigned to small sized Board Committees;
 Board Committees can undertake specific tasks which a small group alone
can effectively accomplish;
 Certain Board Committees are mandatory under the Companies Act, 2013 to
deliberate and decide specified matters;
 A word of caution is that too many committees may only create pockets of
power and lead to proverbial spoiling of broth.
 MANDATORY BOARD COMMITTEES
 Under the Companies Act, listed and specified categories of
companies are required to constitute the following Board
Committees:

 Audit Committee;

 Nomination and Remuneration Committee;

 Corporate Social Responsibility Committee;

 Stakeholders Relationship Committee

 AUDIT COMMITTEE
APPLICABILITY:
 Section 177 of the Act read with rule 6 of the Companies (Meetings of the

Board and is Powers) Rules, 2014, the following categories of Companies

are mandated to constitute Audit Committee of the Board:
 Every Listed Company;

 The following classes of companies:

 I. All public companies with a Paid up Capital of 10 crore rupees or more;

 II. all public companies having turnover of 100 crore rupees or more,

 III. all public companies, having in aggregate, outstanding loans or

borrowings or debentures or deposits exceeding 50y crore rupees or more.

For the purpose of reckoning the limit of PUC or turnover; or outstanding
loans or borrowings or debentures or deposits, as the case may be , as existing
on the date of last audited financial statements shall be taken into account .
COMPOSITION OF AUDIT COMMITTEE
 It should consist wholly or substantially of independent directors;
 It must consist of minimum of three directors with independent directors
forming a majority;
 Chairperson of the Committee must be an independent director;
 Majority of its members including the Chairperson shall be persons with
ability to read and understand the financial statements and at least one
member shall have accounting or related financial management expertise;
 Committee may invite such of the executives, as it considers appropriate
and particularly the head of the finance function to attend the meetings
of the committee;
 On occasions, the Committee may meet without the presence of any
executives of the company;
 Finance director, head of internal audit and a representative of the
statutory auditor may be present as invitees for the meetings of the audit
committee
 MEETINGS OF THE AUDIT COMMITTEE
 As per the revised listing obligations the Audit
Committee should meet at least four times in a year
and not more than four months shall elapse between
two meetings;
 Quorum for audit committees shall be either two

members or one third of the members of the audit

committee, whichever number is greater provided a
minimum of two independent members shall be
present
 ROLE OF AUDIT COMMITTEE
 Oversight Role: Committee shall oversee the statutory and internal audit,
internal control and financial reporting process to promote accurate, high
quality and timely disclosure of financial information to the stakeholders;
 Audit Report Credibility Enhancement Role: Since rivalry between audit
firms to secure professional work is likely to compromise the quality of
audit reports which may lead to credibility gap between stakeholders and
auditors. Role of Committee is to maintain the integrity of auditors by
detaching them from accountability to those who have appointed them;
 Investigative Role whenever loopholes are reported in the audit or
internal controls;
 Role of Shock Absorber when statutory auditors and management reach
crossroads in their internal relationship
 FUNCTIONS OF AUDIT COMMITTEE
 Oversight of the company’s financial reporting process and the
disclosure of its financial information to ensure that the financial
statement is correct, sufficient and credible;
 Recommend and approve the appointment, remuneration and
terms of appointment of statutory auditors of the company;
 Discuss with statutory auditors the scope, timing and problems in
completing the annual audit, adequacy of internal controls and any
derogation from established practices;
 Review and monitor the statutory and internal auditor’s
independence and performance, and effectiveness of audit process;
 Review the functioning of the Whistle Blower mechanism;
 POWERS OF AUDIT COMMITTEE-1
 To investigate any activity within the terms of reference and for that
purpose to seek information from any employee and to take legal/
professional advice;
 To secure attendance of outsiders with relevant expertise, if considered
necessary;
 To call for the comments of the auditors about internal control systems,
the scope of audit, including the observations of the auditors;
 To review with the management, the financial statements before
submission to the board for approval;
 To grant audience to the auditors when it considers the auditor’s report
but auditors shall not have the right to vote;
 To monitor the end use of funds raised through public offers and related
matters.
 POWERS OF AUDIT COMMITTEE-2
To review with the management the following items to submitted to the
Board for approval:
(a) Matters in the Director’s Responsibility Statement to be included in the
Board’s report in terms of Section 134 (3) (c ) of the Companies Act, 2013;
(b) Changes, if any, in accounting policies and practices and reasons for the
same;
(c) Major accounting entries involving estimates based on the exercise of
judgment by management;
(d) Significant adjustments made in the financial statements arising out of
audit findings
(e) Compliance with listing and other legal requirements relating to financial
statements;
(f) Disclosure of any related party transactions;
(g) Qualifications in the draft Audit Report
AUDIT COMMITTEE & VIGIL MECHANISM
 Under Section 177 (9) and (10) of the Act read with rule 7 of the
Companies (Meetings of Board and its Powers) Rules, 2014 the following
companies shall establish a vigil mechanism for their directors and
employees to report their genuine concerns or grievances:
 Listed Companies;
 Companies which accept deposits from the public;
 Companies which have borrowed money from banks and public financial
institutions in excess of Rs 50 crore.
 Audit Committee shall oversee the vigil mechanism;
 Vigil mechanism shall provide adequate safeguards against victimization
of persons using such mechanism;
 There shall be provision for direct access to the chairperson of the Audit
Committee in appropriate or exceptional cases.
 NOMINATION & REMUNERATION
COMMITTEE
APPLICABILITY
According to Section 178 of the Act read with rule 6 of the
Companies (Meetings of the Board and its Powers) Rules, 2014,
the following classes of companies are required to constitute a
Nomination and Remuneration Committee of the Board
i. Listed Companies
ii. All public companies with a PUC of 10 crore rupees or more iii.
All public companies having turnover of 100 crore rupees or more
iv. All public companies, having in aggregate, outstanding loans or
borrowings or debentures or deposits exceeding 50 crore rupees
or more
COMPOSITION OF NOMINATION &
REMUNERATION COMMITTEE
 The Committee shall consist of three or more non-executive directors out
of which not less than one-half shall be independent directors;
 Chairperson of the Company - whether executive or non-executive, may
be appointed as a member of the Nomination and Remuneration
Committee but he shall not chair such Committee;
 In case of a listed company, the Chairman of the Committee shall be an
independent director;
 the Chairman of the Committee shall be present at the Annual General
Meeting, to answer the shareholders’ queries. However, it would be up to
the Chairman to decide who should answer the queries;
ROLE OF NOMINATION & REMUNERATION
COMMITTEE
 Formulation of the criteria for determining qualifications, positive
attributes and independence of a director;
 To recommend to the Board a policy, relating to the remuneration
of the directors, key managerial personnel and other employees;
 To formulate the criteria for evaluation of Independent Directors
and the Board;
 To devise a policy on Board diversity;
 To identify persons who are qualified to become directors and
who may be appointed in senior management in accordance with
the stipulated criteria; and
 To recommend to the Board the appointment and removal of
directors.
 CSR COMMITTEE
APPLICABILITY
Section 135 (1) read with rule 3 of Companies (Corporate Social
Responsibility Policy) Rules, 2014, mandates every company (which
may include a holding company or a subsidiary company) meeting
following criteria to appoint a CSR committee of the Board:
I. Net worth of Rs 500 crore or more, or;
II. Turnover of Rs 1000 crore or more, or;
III. Net profit of Rs 5 crore or more.
For the purpose of appointment of CSR Committee, the term ‘financial
year’ shall mean “any of the three preceding financial years”;
A Company fulfilling the aforesaid norms shall spend 2% of it’s net
profits on carrying out CSR activities.
CESSATION OF LIABILITY TO APPOINT CSR
COMMITTEEE
 A company which ceases to satisfy the criteria mentioned
above for three consecutive financial years shall not be
required to:
(a) constitute a CSR Committee; and

(b) comply with the provisions contained in section 135, till

such time it meets the criteria specified in sub section (1) of
section 135
 COMPOSITION OF CSR COMMITTEE
 CSR committee shall be constituted with three or more directors,
out of which at least one director shall be an independent director;
 However, an unlisted public company or a private company covered
falling within the ambit of Section 135 (1) which is not required to
appoint an independent director, shall have its CSR Committee
without such director;
 Similarly, a private company having only two directors on its Board
shall constitute its CSR Committee with two such directors;
 Incase of a foreign company, the CSR Committee shall comprise of
at least two persons of which one person should be resident of
India and authorized to accept on behalf of the company, service of
process and any notices or other documents, and the other person
shall be nominated by the foreign company.
 ROLE OF CSR COMMITTEE
 To recommend the amount of expenditure to be incurred on the CSR
activities;
 To monitoring the Corporate Social Responsibility Policy of the company
from time to time;
 To ensure the setting up of a transparent monitoring mechanism for
implementation of the CSR projects or programs or activities undertaken
by the company;
 To indicate the activities to be undertaken by the company as specified in
Schedule VII.
 Board of the Company shall after consideration of recommendations of
CSR Committee, approve the CSR Policy for the company and disclose
contents of such policy in its report and the same shall be displayed on
the company’s website, if any
STAKEHOLDER RELATIONSHIP COMMITTEE
Applicability
Section 178 (5) of the Act provides that the Board of Directors
of a company consisting of more than one thousand
shareholders, debenture-holders, deposit-holders and any other
security holders at any time during a financial year shall
constitute a Stakeholders Relationship Committee
COMPOSITION OF STAKEHOLDER
RELATIONSHIP COMMITTEE
 Stakeholders Relationship Committee shall consist of
a Chairperson who shall be a non-executive director;
 It shall have such other members as may be decided

by the Board;
 Chairperson of the committees or, in his absence,

any other member of the committee authorized by

him in this behalf is required under the section to
attend the general meetings of the company.
FUNCTIONS OF STAKEHOLDER
RELATIONSHIP COMMITTEE
 To consider and resolve the grievances of security holders of
the company;
 To redress the grievances of security holders, it is mandated
by Clause 49 of the Listing Agreement that the Committee
shall be constituted to hear the complaints related to transfer
of shares, non-receipt of balance sheet, and non-receipt of
declared dividends;
 Its main function will be to expedite the process of share
transfers.