• Companies Acts have been modelled on the English Acts

• the first Companies Act was passed in India in 1850 which was based
on Joint Stock Companies Act, 1844 of England, .
• The Companies Act, 1850
• the first law on ‘registration of joint stock companies’ was enacted in India.
• company was made a distinct legal entity
• The Joint Stock Companies Act, 1857
• Concept of Limited Liability introduced
• The Companies Act of 1866
• Consolidation of various laws
• The Indian Companies Act, 1882
• liability of Members limited but directors were with unlimited liability
• Registered Minutes and Special Resolutions to form part of MoA
• Power to appoint Arbitrator to settle its dispute with others
• Administrative powers with local Government
• The Companies Act, 1913
• Concept of Private Company
• Companies Not for Profit, Distribution Companies Introduced
• Annual General Meeting, Statutory Meetings and Extra Ordinary General
Meeting introduced
• Registration of Mortgage and Charges
• The Companies Act, 1956
• At the end of 1950, the Government of independent India appointed a Committee under the Chairmanship
of H.C. Bhaba to go into the entire question of the revision of the Indian Companies Act, 1913.
• consolidate and amend the earlier laws relating to companies and certain other associations.
• The Act came into force on 1st April, 1956.
• longest piece of legislation ever passed by our Parliament.
• Amendments have been made in this Act periodically.
• The Companies Act, 1956 consisted of 658 Sections and 15 Schedules.
• some of the main features of the Companies Act, 1956.
• Full and fair disclosure of various matters in prospectus;
• detailed information of the financial affairs of company to be disclosed in its account;
• provision for intervention and investigation by the Government into the affairs of a company;
• restrictions on the powers of managerial personnel;
• enforcement of proper performance of their duties by company management; and
• protection of minority shareholders
• were as many as 24 amendments had taken place since then.
• JJ Irani Report – Companies act, 2013
• To frame a law that enables companies to achieve global competitiveness in a
fast changing economy, the Government had taken up a fresh exercise for a
comprehensive revision of the Companies Act, 1956, albeit through a
consultative process.
• A Committee was constituted on 2nd December, 2004 under the
Chairmanship of Dr. J J Irani with the task of advising the Government on the
proposed revisions to the Companies Act, 1956
• the Committee submitted its report to the Government on 31st May 2005.
• The Companies Act, 2013 received the assent of the President on August 29,
2013 and was notified in the Gazette of India on 30.08.2013
• The Companies Act, 2013 has undergone amendments four times so far. The
Companies (Amendment) Act, 2015, The Insolvency and Bankruptcy Code, 2016, The
Companies (Amendment) Act, 2017, and The Companies (Amendment) Act, 2019
• The Companies Act 2013 introduced new concepts
• It includes associate company,
• one person company, small company, dormant company,
• independent director, women director, resident director,
• special court,
• secretarial standards, secretarial audit,
• class action,
• registered valuers, rotation of auditors, vigil mechanism,
• corporate social responsibility,
• E-voting etc.
 Characteristics
• Corporate Personality
• Salomon v. Salomon and Co. Ltd., (1897) A.C. 22
• Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12 (P.C.)
• Company as an artificial person
• Union Bank of India v. Khader International Construction and Other [(2001) 42
CLA 296 SC] – indigent person
• Company is not a citizen
• Company has nationality and residence
• Perpetual Succession
• Separate Property
• Transferability of Shares
• Limited Liability
• Capacity to sue and be sued
• Contractual Rights
• Limitation of Action – cannot go beyond moa
• Separate Management
• Voluntary Association for Profit
• Termination of Existence – winding up
 Lifting of Corporate Veil
• commission of fraud.
• Jones v lipman – property case
• Corporate facade is really only an agency instrumentality
• Public Policy
• Evade taxes
• Re. Sir Dinshaw Maneckjee Petit, A.I.R. 1927 Bombay 371 – 4 companies
• Avoidance of welfare legislation – avoid bonus to workmen
• company has abused its corporate personality for an unjust and
inequitable purpose
 Types of companies
• on the basis of number of members,
• one Person Company,
• private company 2 (68) and
• public company 2(71)

• Number of members – 2 to 200, 7 to unlimited

• Number of directors – 2, 3
• Transfer of shares
• Paidup capital – No minimum capital required,
• Prospectus
• Name
• On the basis of incorporation
• Statutory Companies e.g. lic, rbi
• Registered Companies.
• On the basis of liability
• Companies limited by shares
• guarantee and
• unlimited liability companies.
• On the basis of control,
• holding company,
• subsidiary company
• Section 2 (87)
• subsidiary company in means a company in which the holding
company— (i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital
the composition of a company‘s Board of Directors shall be deemed
to be controlled by another company if that other company by
exercise of some power exercisable by it at its discretion can appoint
or remove all or a majority of the directors
 Incorporation of company
• Digital Signature Certificate for all the proposed directors and subscribers to MOA
and AOA
• Apply for name approval - Reserved name shall be valid for 20 days from the date
of approval of Name
• After approval of name of proposed Company, applicant has to prepare the
following below mentioned documents;
• Declaration by first subscriber(s) and first director(s).
• Memorandum of Association
• Articles of Association
• Declaration by advocate/ CA/ Cost Accountant/ CS in practice in Form INC-8.
• NOC from the owner of the property.
• Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent
receipts)
• Once all the above mentioned documents/ information are available,
applicant has to file the e-form INC-32. This form can be used for the
following purposes:
• Application of DIN (upto 3 Directors)
• Application for Availability of Name
• No need to file separate form for first Director (DIR-12)
• No need to file separate form for address of registered office (INC-22)

After proper filing of SPICE form applicant has to download the e-form INC-33 (MOA)
and IN-34 (AOA) form the MCA site. After downloading of form fill all the information
in the forms as per requirement of Table A to J of Schedule I. After completely filing of
the form affix DSC of all the subscribers and professional on subscriber sheet of the
MOA & AOA.
• once all the 3 forms (32, 33, 34) ready with the applicant, upload all
three documents Linked form on MCA website and make the payment
of the same.
• Certificate of Incorporation
• Registrar on the basis of documents and information filed shall issue a
certificate of incorporation in the prescribed form to the effect that the
proposed company is incorporated under this Act.
• Conclusive Evidence
 Promoters
• Promoters are the persons, who conceive the idea or visualise a project and then take steps to
transform the idea into a reality. They convey their idea to friends, relatives or business associates,
make arrangements for collecting equity and loan capital for the company, prepare a team of
persons who would act as its directors and take all other steps for compliance with the
requirements of the Companies Act, 2013 in respect of registration of the company. Promotion is a
term of wide import denoting the preliminary steps taken for the purpose of registration and
floatation of the company. The persons who assume the task of promotion are called promoters. A
promoter may be an individual, association, partner or company
Section 2(69) ―
• promoter means a person—
• (a) who has been named as such in a prospectus or is identified by the company in the annual return or
• (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or
otherwise; or
• (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is
accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;
• As per section 2(27), “control” shall include the right to appoint
majority of the directors or to control the management or policy
decisions exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of their shareholding
or management rights or shareholders agreements or voting
agreements or in any other manner.
Legal position
• - Erlanger v. New Sombrero Phosphate Co.
• promoter is neither an agent of, nor a trustee for, the company because it is not
in existence.
• he occupies a fiduciary position in relation to the company and therefore
requires to make full disclosure of the relevant facts, including any profit made
by him.
• the above provision is based on the principle that a promoter cannot make
either directly or indirectly, any profit at the expense of the company he
promotes, without the knowledge and consent of the company and that if he
does so, in disregard of this rule, the company can compel him to account for it.
• In relation to disclosure it may be noted that part disclosure will also attract the
same consequences. A promoter is not forbidden to make profit but he is barred
from making any secret profit.
Legal position
If a promoter makes a secret profit or does not disclose it, the company has got a remedy against him. This varies according to the
circumstances, which can be divided into two possible situations.
1. promoter not in a fiduciary position when he acquired the property which he is selling to the company, but only when he sold it to
the company.
1. If a person acquires property or has had it before he takes any active steps in the promotion of a company and sells it to the company at a profit,
he is entitled to retain that profit.
2. As long as he makes a full disclosure of the fact that the property is his and he is the real vendor, he may sell it to the company at a profit. If,
however, he fails to disclose this fact the company is entitled either to rescind the contract or claim damages for breach of duty of disclosure.
2. Where the promoter was in fiduciary position when he acquired the property and when he sold it to the company. This may happen
in any of the following circumstances: (a) Where the promoter bought property with a view to sell it to the company which he intends
to promote, he occupies fiduciary position vis-a-vis the company. He must disclose all the facts to the company. (b) Where the
promoter resells property to the company at an increased price, the property which he purchased after he has commenced to act in
the capacity of a promoter, he cannot retain the profit which he has not disclosed to the company. (c) Where a person is a promoter
for acquiring the property for the company, the rules of agency will apply, so that any profit he makes will belong to the company.
3. Where, the promoter bought the property with a view to sell it to the company he promotes, the company may either—
(a) rescind the contract and if he has made a profit on some ancillary transaction that may also be recovered; or
(b) retain the property, paying no more for it than what the promoter has paid, depriving him of his profit; or
(c) where the above remedies would be inappropriate, such as when the property has been altered so as to render recession impossible
and the promoter has already received his inflated price, the company may sue him for misfeasance (breach of duty to disclose). The
measure of damages will be the difference between the market value of the property and the contract price.
Liability
• Liability
• Section 7(6)
• Section 35 – civil liability for misstatement in prospectus
• Section 34 – criminal liability for misstatement in prospectus
• Section 284
• Section 300 of the Act
• Section 447 – Furnishing false information while incorporation, liable for fraud
Rights of promoters
• Right to receive Preliminary Expenses – should be there in AOA
Preincorporation contracts

• Contracts made on behalf of the company before its incorporation by promoters

• Hence, a contract by a promoter purporting to act on behalf of a company prior
to its incorporation never binds the company because at the time the contract
was concluded the company was not in existence. Therefore it has no legal
existence.
• Kelner v. Baxter LR (1886) 2 CP 174 that the company could not ratify contract
made by a promoter before its incorporation.
• Even if the company takes some benefit from a contract purported to have been
made before its formation, the contract is not binding on the company. The
promoters alone, therefore, remain personally liable for any contract they
purport to make on behalf of the company, unless the company enters into the
contract in terms of such agreement after incorporation.
• In India, however, Sections 15 and 19 of the Specific Relief Act, 1963,
have considerably alleviated the difficulty.
• Section 15(h) provides that where the promoters of a company have,
before its incorporation, entered into a contract for the purposes of
the company,
• and such contract is warranted by the terms of incorporation,
• the company has accepted the contract,
• and has communicated such acceptance to the other party to the contract,
obtain specific performance of the contract.
• Under Section 19(e) under similar circumstances, specific performance may
be enforced against the company by the other party to the contract.
 Memorandum of Association
• Section 4
• Name clause – private or public
• Situation clause – State in which situated
• Objects clause – main, ancillary and others not required, ultra vires if beyond
• Liability clause – limited or unlimited
• Capital clause - “The capital of the company is `10,00,000 divided into
1,00,000 equity shares of Rs. 10 each”, nominal”, “authorised” or “registered
• Doctrine of Ultra Vires
• The rule is meant to protect shareholders and the creditors of the company
• Ashbury Railway Carriage and Iron Company Ltd v. Riche [(1875) L. R.7HL 653] - Any
act ultra vires to the object clause, shall be null and void. An ultra vires act is void
and cannot be ratified even if all the directors wish to ratify it.
• Attorney General v. Great Eastern Railway Co. [4[1880]5 AC 473 - House of Lords
affirmed the principle laid down in Ashbury Railway Carriage and Iron Company Ltd
v. Riche but held that Whatever may fairly be regarded as incidental or
consequential upon those things specified in the memorandum of association as
object ought not to be held ultra vires unless expressly prohibited.
• Therefore, even when the matters considered necessary in furtherance of the
objects are not stated, they would be allowed by the principle of reasonable
construction of the memorandum.
Effect of Ultra vIres transactions
• Void ab initio – The ultra vires acts are null and void ab initio. The company is not bound by
these acts. Even the company cannot sue or be sued upon [Ashbury Railway Carriage and Iron
Company v. Riche ]. Ultra vires contracts are void ab initio and hence cannot become intra vires
by reason of estoppel or ratification.
• Personal liability of Directors: It is one of the duties of directors to ensure that the corporate
capital is used only for the legitimate business of the company and hence if such capital is
diverted to purposes alien to the company’s memorandum, the directors will be personally liable
to replace it. In case of deliberate misapplication, criminal action can also be taken for fraud.
• Where a company’s money has been used ultra vires to acquire some property, the company’s
right over such property is held secure and the company will be the right party to protect the
property. This is because, though the property has been acquired for some ultra vires object, it
represents the money of the company.
• Ultra vires borrowing does not create the relationship of creditor and debtor [In Re. Madras
Native Permanent Fund Ltd., (1931) 1 Com Cases 256 (Mad.)].
Alteration of Memorandum
 Article of Association
• Articles of Association which contains the rules and regulations
relating to the internal management of a company.
• It deals with the rights of the members of the company inter se
• They are subordinate to and are controlled by the memorandum of
association
• The articles of a company are subordinate to and subject to the
memorandum of association and any clause in the Articles going
beyond the memorandum will be ultra vires.
 Distinction
• Memorandum of association is the charter of the company and defines the fundamental conditions and
objects for which the company is granted incorporation. Articles of association are the rules and
regulations framed to govern this internal management of the company.
• Clauses of the memorandum cannot be easily altered. They can only be altered in accordance with the
mode prescribed by the Act. In some of the cases, alteration requires the permission of the Central
Government or the Court. In the case of articles of association, members have a right to alter the articles
by a special resolution. Generally there is no need to obtain the permission of the Court or the Central
Government for alteration of the articles.
• Memorandum of association cannot include any clause contrary to the provisions of the Companies Act.
The articles of association are subsidiary both to the Companies Act and the memorandum of association.
• The memorandum generally defines the relation between the company and the outsiders, while the
articles regulate the relationship between the company and its members and between the members inter
se
• Acts done by a company beyond the scope of the memorandum are absolutely void and ultra vires and
cannot be ratified even by unanimous vote of all the shareholders. But the acts of the directors beyond
the articles can be ratified by the shareholders.
 Contents
• Number and value of shares.
• Allotment of shares.
• Calls on shares.
• Transfer and transmission of shares.
• Forfeiture of shares.
• Alteration of capital.
• Share certificates.
• Conversion of shares into stock.
• Voting rights and proxies
• Meetings and rules regarding committees
• Directors, their appointment and delegations of powers.
• Managing director, Whole-time director, Manager, Secretary.
• Remuneration of directors
• General meetings.
• Directors meetings.
• Dividends and reserves.
• Accounts and audit.
• Winding up.
 Constructive Notice of Memorandum and
Articles
• The memorandum and articles, when registered, become public documents and can be inspected by anyone on payment of nominal
fee.
• Therefore, every person who contemplates entering into a contract with a company has the means of ascertaining and is consequently
presumed to know, not only the exact powers of the company but also the extent to which these powers have been delegated to the
directors, and of any limitations placed upon the exercise of these powers.
• In other words, every person dealing with the company is deemed to have a “constructive notice” of the contents of its memorandum
and articles. In fact, he is regarded not only as having read those documents but also as having understood them according to their
proper meaning
• Consequently, if a person enters into a contract which is beyond the powers of the company, as defined in the memorandum, or
outside the limits set on the authority of the directors, he cannot, as a general rule, acquire any rights under the contract against the
company
• example, if the articles provide that a bill of exchange to be effective must be signed by two directors, a person dealing with the
company must see that it is so signed; otherwise he cannot claim under it.
• In another case, the articles required that all documents should be signed by the managing director, secretary and the working director
on behalf of the company. A deed of mortgage was executed by the secretary and the working director only and the Court held that no
claim would lie under such a deed. The Court said that the mortgagee should have consulted the articles before the deed was
executed. Therefore, even though the mortgagee may have acted in good faith and the money borrowed applied for the purpose of the
company, the mortgage was nevertheless invalid
• Outsiders dealing with incorporated bodies are bound to take notice of limits imposed on the corporation by the memorandum or
other documents of constitution.
 Doctrine of Indoor Management
• the principal of indoor management operates to protect the outsiders
against the company.
• as laid down in Royal British Bank v. Turquand, (1856) 119 E.R. 886, persons
dealing with a company having satisfied themselves that the proposed
transaction is not in its nature inconsistent with the memorandum and
articles, are not bound to inquire the regularity of any internal proceedings.
• In other words, while persons contracting with a company are presumed to
know the provisions of the contents of the memorandum and articles, they
are entitled to assume that the provisions of the articles have been
observed by the officers of the company. It is no part of the duty of an
outsider to see that the company carries out its own internal regulations.
 Exceptions
• Where the outsider had knowledge of irregularity
• No knowledge of memorandum and articles
• Forgery - illegal
• Negligence
• Ultra-vires the company itself that the company itself donot have the
power
 Prospectus
• In general parlance prospectus refers to an information booklet or
offer document on the basis of which an investor invests in the
securities of an issuer company.
• It has been defined under section 2(70) so as to mean any document
described or issued as a prospectus and includes a red herring
prospectus referred to in section 32 or shelf prospectus referred to in
section 31 or any notice, circular, advertisement or other document
inviting offers from the public for the subscription or purchase of any
securities of a body corporate.
• On the basis of aforesaid definition, it may be said that a document
should have following ingredients to constitute a prospectus:
• (a) There must be an invitation to the public;
• (b) The invitation must be made “by or on behalf of the company or in
relation to an intended company”;
• (c) The invitation must be “to subscribe or purchase”;
• (d) The invitation must relate to any securities of the company.
• Explain public offer and private placement
• Matters to be stated in prospectus – Section 26
 Abridged prospectus
• According to section 2(1) of the Act “abridged prospectus” means a memorandum
containing such salient features of a prospectus as may be specified by the Securities
and Exchange Board by making regulations in this behalf.
• The concept is discussed in Section 33(1) of the CA 2013. A prospectus is a
long and voluminous document. The essential parts of the prospectus
memorandum are contained in an abridged prospectus. A synopsis of a
prospectus that has been filed with the registrar. It is an abridged
prospectus that has all of the contents of a full prospectus. An abridged
prospectus condenses all of the material in the prospectus so that a buyer
may get all of the crucial data in a short amount of time. Its main purpose is
to safeguard investor's interests. It lowers the cost of a public capital
offering because it is smaller than a prospectus. It saves a lot of time for
buyers by allowing them to quickly extract the most critical information
from the entire prospectus.
 Deemed Prospectus
• According to 25(1) of CA 2013, When a corporation allots or
accepts to allot shares/debentures with the intention of
selling them to the public, any document used to make the
public offering is deemed to be a prospectus issued by a
corporation for all circumstances. The main goal is to inform
the audience that a new firm has been formed, to keep an
accurate record of the aspects and allocation on which the
public has been welcomed to buy the company's
shares/debentures, and to ensure that the company's
directors take accountability for the declarations in the
prospectus.
 Kinds of Prospectus – Shelf
• Shelf Prospectus means a prospectus in respect of which the securities or class of securities included
therein are issued for subscription in one or more issues over a certain period without the issue of a
further prospectus.
• In simple terms Shelf Prospectus is a single prospectus for multiple public offerings. Issuer is permitted
to offer and sell securities to the public without a separate prospectus for each act of offering for a
certain period.
• Under the Act any class or classes of companies, as the Securities and Exchange Board (SEBI) may
provide by regulations in this behalf, may file a shelf prospectus with the Registrar. Such prospectus is
to be submitted at the stage of the first offer of securities which shall indicate a period not exceeding
one year as the period of validity of such prospectus. The validity period shall commence from the
date of opening of the first offer of securities under that prospectus, and in respect of a second or
subsequent offer of such securities issued during the period of validity of that prospectus, no further
prospectus is required.
• Shelf Prospectus under Explanation to section 31 has been referred to mean a prospectus in respect of
which the securities or class of securities included therein are issued for subscription in one or more
issues over a certain period without the issue of a further prospectus.
 Red herring Prospectus
• A red herring prospectus is a document that contains information on a prospective offering that is
currently being developed by a corporation.
• Red herring Prospectus means a prospectus which does not include complete particulars of the quantum or price
of the securities included therein.
• In simple terms a red herring prospectus contains most of the information pertaining to the company’s operations
and prospects, but does not include key details of the issue such as its price and the number of shares offered.
• According to section 32 a company proposing to make an offer of securities may issue a red herring prospectus
prior to the issue of a prospectus. Such company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and the offer. A red herring prospectus
shall carry the same obligations as are applicable to prospectus and any variation between the red herring
prospectus and a prospectus shall be highlighted as variations in the prospectus. Upon the closing of the offer of
securities under this section, the prospectus stating therein the total capital raised, whether by way of debt or
share capital, and the closing price of the securities and any other details as are not included in the red herring
prospectus shall be filed with the Registrar and the Securities and Exchange Board.

• Red herring Prospectus under Explanation to section 32 has been referred to mean a prospectus which does not
include complete particulars of the quantum or price of the securities included therein.
Misstatement in prospectus
• Golden Rule or Golden Legacy
• New Brunswick, etc., Co. v. Muggeridge, (1860) 3 LT 651, and has come to be known as the “golden
legacy”.
• “Those who issue a prospectus hold out to the public great advantages which will accrue to the
persons who will take shares in the proposed undertaking. Public is invited to take shares on the
faith of the representation contained in the prospectus. The public is at the mercy of company
promoters. Everything must, therefore, be stated with strict and scrupulous accuracy. Nothing
should be stated as a fact which is not so and no fact should be omitted, the existence of which
might in any degree affect the nature or quality of the privileges and advantages which the
prospectus holds out as inducement to take shares. In short, the true nature of the company’s
venture should be ‘disclosed’. If concealment of any material fact has prevented an adequate
appreciation of what was stated, it would amount to misrepresentation. Thus, even if every specific
statement is literally true, the prospectus may be false if by reason of the suppression of other
material facts, it conveys a false impression”
• It is now clear that a prospectus must be complete and perfect in all details or in other words
nothing should be omitted and nothing must be untrue in a prospectus.
What is an untrue statement
• To protect the interests of prospective investors in the securities of a
company, the law prescribes a wider meaning to this term.
• Whether a statement is untrue or not is to be judged by the context in which
it appears and the totality of impression it would create.
• A statement included in a prospectus shall be deemed to be untrue, if the
statement is misleading in the form and context in which it is included.
• Further, where any inclusion or omission of any matter in a prospectus is likely
to mislead, the prospectus shall be deemed, in respect of such omission, to
be a prospectus in which an untrue statement is included.
• Even if every word included in the prospectus is true, the suppression of
material facts may cause the prospectus to be fraudulent.
Onus for proof of misstatement
• The burden of proof in a suit by an allottee that he has been misled by
the mis-statement in the prospectus lies on the allottee.
• He must prove the following:
• (i) The misrepresentation was of a fact;
• (ii) It was in respect of a material fact. What is a material statement of fact
will depend upon the circumstances of each case.
• (iii) He acted on the misrepresentation; and
• (iv) He suffered damages in consequence
Liability for misstatement in prospectus
• Section 34 – Criminal Liability – six months which may extend to 10
years
• Section 35 – Civil liability
Statement in lieu of prospectus
• When sometimes public company doesnot want to issue prospectus then they can
issue this statement. For example company may not want to issue shares to public but
do it privately
• Matters contained:
• Company Name.
• The company’s share capital is divided into ordinary shares and the nominal
value of one share.
• Description of the proposed activity and prospectus.
• Name, address, description and duties of proposed or appointed directors,
officers, delegated counsel and company secretaries.
• Provisions for the appointment and remuneration of the foregoing corporate
representatives.
• Voting rights at company meetings.
• Number and amount of shares and debentures agreed to be issued.
• Difference between prospectus and statement in lieu of prospectus
• Object
A prospectus provides for the It is used in some particular
information regarding the securities situation when the other prospectus
of a company. cannot be used.

• Matters contained
A prospectus provides with a
It contains less detailed information
detailed information related to the
as compared to the prospectus.
company.
• Distribution
It is generally distributed to the
It is not distributed very widely
potential investors.

• Use
It is used to gather investment It is used for purposes which are not
through securities. so formal.
 Meaning and types of share capital
• Share
• Capital - In relation to a company limited by shares, the word “capital” means the share
capital i.e., the capital in terms of rupees divided into specified number of shares of a
fixed amount each. For e.g. share capital of a company is `1,00,000 which can be divided
into 10,000 shares of `10 each or 1,000 shares of `100 each, whichever is feasible to the
company.
• Nominal or Authorized Capital
• Issued Capital
• Subscribed Capital
• Called –up capital
• Paid-up share capital
• Equity and Preference Share Capital
Nature of share
• a) A share is a right to a specified amount of the share capital of a company, carrying with it
certain rights and liabilities while the company is a going concern and in its winding up.
(Halsbury’s Laws of England)
• (b) A share is a right to participate in the profits made by a company, while it is a going concern.
• (c) Section 44 of the Companies Act, 2013 provides that a share or debentures or other interest
of any member in a company is a movable property transferable in the manner provided by the
articles of the company.
• (d) In India, a share is regarded as goods. According to the Sale of Goods Act, 1930, “Goods”
means any kind of movable property other than actionable claim and money, and includes stock
and shares.
• (e) According to Section 45 of the Companies Act, 2013 every share in a company having a share
capital shall be distinguished by its distinctive number but this provision shall not apply to a
share held by a person whose name is entered as holder of beneficial interest in such share in
the records of a depository.
Concept of issue and allotment
• A company decides to issue securities for different reasons; the main
reason being raising capital to meet its financial requirements may be
for starting a venture, repaying debts, expansion and diversification.
• Section 23 of the Companies Act, 2013 provides that a company
whether public or private may issue securities.
• Prospectus
• Private placement
Allotment
• Section 39 of companies act, 2013 deal with allotment – Return of allotment to Registrar
• “Allotment” of shares means the act of appropriation by the Board of directors of the company out of the previously un-appropriated
capital of a company of a certain number of shares to persons who have made applications for shares (In Re Calcutta Stock Exchange
Association, AIR 1957 Cal. 438). It is on allotment that shares come into existence. The following general principles should be
observed with regard to allotment of securities:
• (1) The allotment should be made by proper authority. The proper authority may be the Board Directors of the company, or a
committee authorised to allot securities on behalf of the Board.
• (2) Allotment of securities must be made within a reasonable time (As per Section 6 of the Indian Contract Act, 1872, an offer must be
accepted within a reasonable time). What is reasonable time is a question of fact in each case. An applicant may refuse to take
securities if the allotment is made after a long time. (As per Section 56 within a period of two months from the date of allotment in
the case of allotment of any of its shares.)
• (3) The allotment should be absolute and unconditional. Securities must be allotted on same terms on which they were applied for
and as they are stated in the application for securities. Allotment of securities subject to certain conditions is also not valid. Similarly,
if the number of securities alloted is less than those applied for, it cannot be termed as absolute allotment.
• (4) The allotment must be communicated. As mentioned earlier posting of letter of allotment or allotment advice will be taken as a
valid communication even if the letter is lost in transit.
• (5) Allotment against application only. Section 2(55) of the Act requires that a person should agree in writing to become a member.
• (6) Allotment should not be in contravention of any other law. If securities are allotted on an application of a minor, the allotment will
be void.
 Issue of shares at premium and at discount
• A company may issue securities at a premium when it is able to sell them at a price above
par or above nominal value. The Companies Act, 2013, does not stipulate any conditions
or restrictions regulating the issue of securities by a company at a premium. However,
the Companies Act does impose conditions regulating the utilization of the amount of
premium collected on securities.
• Firstly, the premium cannot be treated as profit and as such the amount of premium is
not available for distribution as dividend.
• Secondly, the amount of premium whether received in cash or in kind must be kept in a
separate account, known as the “Securities Premium Account”.
• Thirdly, the amount of premium is to be maintained with the same sanctity as the share
capital.
• Section 52 and
• Section 53 (except sweat equity shares – section 54)
 Share Certificate
• share certificate is a certificate issued to the members by the company, specifying the number of shares held by him and the
amount paid on each share.
• Signed by 2 directors or 1 director and 1 company secretary
• Section 45 and Section 46
• Board resolution required for issuance of share certificate and duplicate share certificate
• Significance of share certificate - prime facie evidence of title to the shares in the possession of shareholders
• Purpose of share certificate – pledge, sale
• Legal effect of share certificate
• a share certificate is prima facie evidence to the title of the person whose name is entered on it. It means that the share certificate is a
statement by the company that the moment when it was issued, the person named in it was the legal owner of the shares specified in it, and
those shares were paidup to the extent stated. It does not constitute title but it is merely evidence of title. It is, however a statement of
considerable importance, for it is made with the knowledge that other persons may act upon it in the belief that it is true and this fact brings
into operation the doctrine of estoppel. As a result, a share certificate once issued by the company binds it in two ways, namely:
• (a) by estoppel as to title, and
• (b) by estoppel as to payment.
• Estoppel as to Title: A share certificate once issued binds the company in two ways. In the first place, it is a declaration by the company to the
entire world that the person in whose name the certificate is made out and to whom it is given is a shareholder in the company. In other words
the company is estopped from denying his title to the shares.
• Estoppel as to Payment: If the certificate states that on each of the shares full amount has been paid, the company is estopped as against a bona
fide purchaser of the shares, from alleging that they are not fully paid.
 Forfeiture and surrender of Shares

• Surrender of shares — “Surrender of shares” means the surrender to the company on the part of the registered holder
of shares already issued. Where shares are surrendered to the company, whether by way of settlement of a dispute or
for any other reason, it will have the same effect as a transfer in favour of the company and amount to a reduction of
capital. Surrender may be accepted by the company under the same circumstances where forfeiture is justified. It has
the effect of releasing the shareholder whose surrender is accepted from further liability on shares. The Companies Act
contains no provision for surrender of shares. Thus, surrender of shares is valid only when Articles of Association
provide for the same and: (a) Where forfeiture of such shares is justified; or (b) When shares are surrendered in
exchange for new shares of same nominal value. Both forfeiture and surrender lead to termination of membership. But
in the former case, it is at the initiative of company and in the latter case at the initiative of member or shareholder.
• Forfeiture of shares — A company may if authorised by its articles, forfeit shares for non-payment of calls and the same
will not require confirmation of the Tribunal. Where power is given in the articles, it must be exercised strictly in
accordance with the regulations regarding notice, procedure and manner stated therein, otherwise the forfeiture will
be void. Forfeiture will be effected by means of Board resolution. The power of forfeiture must be exercised bona fide
and in the interest of the company.
• Effect of Forfeiture: When the shares have been forfeited, the defaulting shareholder ceases to be member of the
company and he loses all rights or interests in his shares. But notwithstanding the forfeiture he remains liable to pay to
the company all moneys which at the date of forfeiture were payable by him to the company in respect of the shares.
 Transfer & Transmission of shares
• Private company restriction – right of preemption
• Section 56, 58
 Transfer & Transmission of shares

Transfer takes place by a voluntary or deliberate act of Transmission is the result of the operation of law.
the parties by way of a contract For example, due to death, insolvency or lunacy of a
member.
instrument of transfer is required in case of transfer. no instrument of transfer is required in case of
transmission.
Transfer of securities is generally made for some Transmission of securities is generally made without
consideration. any consideration.
Stamp duty is payable on transfer of securities by a No stamp duty is payable on transmission of
holder of securities securities.
As soon as transfer is complete, the liability of the Shares continue to be subject to the original
transferor ceases. liabilities.
Buy back of shares
• Section 68
 Payment of Dividend
• Difference between interest and dividend
• Final Dividend and Interim Dividend
• final dividend so as to mean the dividend recommended by the Board of Directors and declared by the Members at an Annual General
Meeting.
• Dividend is said to be an interim dividend, if it is declared by the Board of Directors between two Annual General Meetings of the company.
• Cumulative Preference Shares: A cumulative Preference Share is one that carries right to a fixed amount of dividend or dividend at a fixed rate.
Such a dividend is payable even out of future profit if current year’s profits are insufficient for the purpose. This means that dividend on these
shares accumulates unless it is paid in full and, therefore, the shares are called Cumulative Preference Shares.
• Non-Cumulative Preference Shares: A non-cumulative Preference Share carries with it the right to a fixed amount of dividend .In case no
dividend is declared in a year due to any reason, the right to receive such dividend for that year expires. It implies that the holder of such a
share is not entitled to arrears of dividend in future.

• Section 123 and 124

 Directors
• Minimum and maximum number of directors
• Number of directorships
• DIN
• Kinds
• First Directors
• Indian resident director – minimum 182 days
• Woman director – listed company, public company with (a) paid–up share capital of one hundred crore
rupees or more; or (b) turnover of three hundred crore rupees or more .
• Independent director -
• Director elected by small shareholder – listed company, nominal value of Rs. 20000
• Additional Director – Till last date of next annual general meeting
• Alternate Director - to act in the absence of a original director during his absence for a period of not
less than three months from India.
• Nominee director – Nominated by creditor company
 Directors
• Disqualification for director – section 164
• Duties of director – section 166
• Powers – Section 179
• Position – sometimes as agent sometimes as trustee. In the
landmark case of Ferguson v. Wilson, it was clearly
recognised that the directors are the agents of a
company in the eyes of law.
• in the case of Peskin v. Anderson that the directors are not
trustees for shareholders and hold no fiduciary duty to them.
 Corporate Social Responsibility
• Section 135
Meetings
• Meetings – Section 96 to Section 122
• Meetings of Board – Section 173 and 174
 Majority Rule and Minority Rights
• the majority of the members enjoy the supreme authority to exercise
the powers of the company and generally to control its affairs. But
this is subject to two very important limitations.
• Firstly, the powers of the majority of members is subject to the provisions of
the Company’s memorandum and articles of association. A company cannot
legally authorise or ratify any act which being outside the ambit of the
memorandum, is ultra vires of the company [Ashbury Rly. Carriage and Iron
Co. v. Riche, (1875) L.R. 7 H.L. 653
• Secondly, the resolution of a majority must not be inconsistent with the
provisions of the Act or any other statute, or constitute a fraud on minority
depriving it of its legitimate rights.
• Principle of non-interference
• Foss v Harbottle (1843)
• Court will not ordinarily intervene in case of internal irregularity if the matter is one which can be ratified by its own
internal procedure
• Where it is alleged that a wrong has been done to a company, the proper plaintiff is company itself

• The main advantages that flow from the Rule in Foss v. Harbottle are of a purely practical nature and are
as follows:
• 1. Recognition of the separate legal personality of company: If a company has suffered some injury, and not the
individual members, it is the company itself that should seek to redress.
• 2. Need to preserve right of majority to decide: The principle in Foss v. Harbottle preserves the right of majority to
decide how the affairs of the company shall be conducted. It is fair that the wishes of the majority should prevail.
• 3. Multiplicity of futile suits avoided: Clearly, if every individual member were permitted to sue anyone who had injured
the company through a breach of duty, there could be as many suits as there are shareholders. Legal proceedings would
never cease, and there would be enormous wastage of time and money.
• 4. Litigation at suit of a minority futile if majority does not wish it: If the irregularity complained of is one which can be
subsequently ratified by the majority it is futile to have litigation about it except with the consent of the majority in a
general meeting.
• The rule in Foss v. Harbottle is not absolute but is subject to certain
exceptions.
• Ultravires acts
• Fraud on minority
• Resolution requiring Special Majority but is passed by a simple majority
• Breach of duty
• Prevention of Oppression and mismanagement
 Winding Up
• Section 270 to Section 365
• (1) The winding up of a company may be either— (a) by the Tribunal; or (b) voluntary
• . Circumstances in which company may be wound up by Tribunal - Section 271 to Section 303

• (b) if the company has, by special resolution, resolved that the company be wound up by the Tribunal;
• (c) if the company has acted against the interests of the sovereignty and integrity of India, the security of the
State, friendly relations with foreign States, public order, decency or morality;
• (d) if the Tribunal has ordered the winding up;
• (e) if on an application made by the Registrar or any other person authorised by the Central Government by
notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a
fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in
the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection
therewith and that it is proper that the company be wound up;
• (f) if the company has made a default in filing with the Registrar its financial statements or annual returns for
immediately preceding five consecutive financial years; or
• (g) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.
• a petition to the Tribunal for the winding up of a company shall be
presented by—
• (a) the company;
• (b) any creditor or creditors, including any contingent or prospective creditor
or creditors;
• (c) any contributory or contributories;
• (d) all or any of the persons specified in clauses (a), (b) and (c) together;
• (e) the Registrar;
• (f) any person authorised by the Central Government in that behalf
• Tribunal may pass following orders
• (a) dismiss it, with or without costs;
• (b) make any interim order as it thinks fit;
• (c) appoint a provisional liquidator of the company till the making of a
winding up order;
• (d) make an order for the winding up of the company with or without
costs; or
• (e) any other order as it thinks fit:
order shall be made within ninety days from the date of presentation of
the petition:
• Where a petition for winding up is filed before the Tribunal by any person other than the company, the
Tribunal shall, if satisfied that a prima facie case for winding up of the company is made out, by an order
direct the company to file its objections along with a statement of its affairs within thirty days of the order.
• Company Liquidators
• The Liquidator shall be appointed from a panel maintained by the Central Government consisting of the names of
chartered accountants, advocates, company secretaries, cost accountants or firms or bodies corporate having such
chartered accountants, advocates, company secretaries, cost accountants and such other professionals as may be notified
by the Central Government or from a firm or a body corporate of persons having a combination of such professionals as
may be prescribed and having at least ten years‘ experience in company matters.
• Removal - (a) misconduct; (b) fraud or misfeasance; (c) professional incompetence or failure to exercise due care and
diligence in performance of the powers and functions; (d) inability to act as provisional liquidator or as the case may be,
Company Liquidator; (e) conflict of interest or lack of independence during the term of his appointment that would justify
removal.
• Functions (i) taking over assets; (ii) examination of the statement of affairs; (iii) recovery of property, cash or any other
assets of the company including benefits derived therefrom; (iv) review of audit reports and accounts of the company; (v)
sale of assets; (vi) finalisation of list of creditors and contributories; (vii) compromise, abandonment and settlement of
claims; (viii) payment of dividends, if any; and (ix) any other function, as the Tribunal may direct from time to time.
 Powers of Liquidator
• (a) to carry on the business of the company so far as may be necessary for the beneficial winding up of the company;
• (b) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other documents, and for that purpose, to use, when necessary, the
company‘s seal;
• (c) to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer such property to any
person or body corporate, or to sell the same in parcels;
• (d) to sell the whole of the undertaking of the company as a going concern;
• (e) to raise any money required on the security of the assets of the company;
• (f) to institute or defend any suit, prosecution or other legal proceeding, civil or criminal, in the name and on behalf of the company;
• (g) to invite and settle claim of creditors, employees or any other claimant and distribute sale proceeds in accordance with priorities established under this Act;
• (h) to inspect the records and returns of the company on the files of the Registrar or any other authority;
• (i) to prove rank and claim in the insolvency of any contributory for any balance against his estate, and to receive dividends in the insolvency, in respect of that balance,
as a separate debt due from the insolvent, and rateably with the other separate creditors;
• (j) to draw, accept, make and endorse any negotiable instruments including cheque, bill of exchange, hundi or promissory note in the name and on behalf of the
company, with the same effect with respect to the liability of the company as if such instruments had been drawn, accepted, made or endorsed by or on behalf of the
company in the course of its business;
• (k) to take out, in his official name, letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment
of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases, the money due shall, for the
purpose of enabling the Company Liquidator to take out the letters of administration or recover the money, be deemed to be due to the Company Liquidator himself;
• (l) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities and for protection of the
assets of the company, appoint an agent to do any business which the Company Liquidator is unable to do himself;
• (m) to take all such actions, steps, or to sign, execute and verify any paper, deed, document, application, petition, affidavit, bond or instrument as may be necessary,— (i)
for winding up of the company; (ii) for distribution of assets; (iii) in discharge of his duties and obligations and functions as Company Liquidator; and (n) to apply to the
Tribunal for such orders or directions as may be necessary for the winding up of the company.
• a Company Liquidator, shall, within sixty days from the order, submit to the Tribunal, a report
containing the following particulars, namely
• (a) the nature and details of the assets of the company including their location and value, stating separately the
cash balance in hand and in the bank, if any, and the negotiable securities, if any, held by the company
• (b) amount of capital issued, subscribed and paid-up;
• (c) the existing and contingent liabilities of the company including names, addresses and occupations of its
creditors, stating separately the amount of secured and unsecured debts, and in the case of secured debts,
particulars of the securities given, whether by the company or an officer thereof, their value and the dates on
which they were given;
• (d) the debts due to the company and the names, addresses and occupations of the persons from whom they are
due and the amount likely to be realised on account thereof;
• (e) guarantees, if any, extended by the company;
• (f) list of contributories and dues, if any, payable by them and details of any unpaid call;
• (g) details of trade marks and intellectual properties, if any, owned by the company;
• (h) details of subsisting contracts, joint ventures and collaborations, if any;
• (i) details of holding and subsidiary companies, if any;
• (j) details of legal cases filed by or against the company;
• The Tribunal shall, on consideration of the report of the Company Liquidator, fix a time limit
within which the entire proceedings shall be completed and the company be dissolved.
• Dissolution of company by Tribunal.— (1) When the affairs of a company have been
completely wound up, the Company Liquidator shall make an application to the Tribunal for
dissolution of such company.
• (2) The Tribunal shall on an application filed by the Company Liquidator under sub-section
(1) or when the Tribunal is of the opinion that it is just and reasonable in the circumstances
of the case that an order for the dissolution of the company should be made, make an
order that the company be dissolved from the date of the order, and the company shall be
dissolved accordingly.
• (3) A copy of the order shall, within thirty days from the date thereof, be forwarded by the
Company Liquidator to the Registrar who shall record in the register relating to the
company a minute of the dissolution of the company.
Voluntary winding up under companies act,
2013
• Section 304, 305, 306, 307, 308, 309, 310, 313, 314, 318
Voluntary winding up under IBC
• 59. (1) A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary
liquidation proceedings under the provisions of this Chapter.
• (2) The voluntary liquidation of a corporate person under sub-section (1) shall meet such conditions and procedural requirements as
may be specified by the Board.
• (3) Without prejudice to sub-section (2), voluntary liquidation proceedings of a corporate person registered as a company shall meet
the following conditions, namely:—
• (a) a declaration from majority of the directors of the company verified by an affidavit stating that— (i) they have made a full inquiry
into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its
debts in full from the proceeds of assets to be sold in the voluntary liquidation; and (ii) the company is not being liquidated to defraud
any person;
• (b) the declaration under sub-clause (a) shall be accompanied with the following documents, namely:— (i) audited financial
statements and record of business operations of the company for the previous two years or for the period since its incorporation,
whichever is later; (ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer;
• (c) within four weeks of a declaration under sub-clause (a), there shall be— (i) a special resolution of the members of the company in
a general meeting requiring the company to be liquidated voluntarily and appointing an insolvency professional to act as the
liquidator; or (ii) a resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily
as a result of expiry of the period of its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the
articles provide that the company shall be dissolved, as the case may be and appointing an insolvency professional to act as the
liquidator: Provided that the company owes any debt to any person, creditors representing twothirds in value of the debt of the
company shall approve the resolution passed under sub-clause (c) within seven days of such resolution.
• (4) The company shall notify the Registrar of Companies and the Board about the resolution under sub-
section (3) to liquidate the company within seven days of such resolution or the subsequent approval by the
creditors, as the case may be.
• (5) Subject to approval of the creditors under sub-section (3), the voluntary liquidation proceedings in
respect of a company shall be deemed to have commenced from the date of passing of the resolution under
sub-clause (c) of sub-section (3).
• (6) The provisions of sections 35 to 53 of Chapter III and Chapter VII shall apply to voluntary liquidation
proceedings for corporate persons with such modifications as may be necessary.
• (7) Where the affairs of the corporate person have been completely wound up, and its assets completely
liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such
corporate person.
• (8) The Adjudicating Authority shall on an application filed by the liquidator under sub-section (7), pass an
order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall
be dissolved accordingly.
• (9) A copy of an order under sub-section (8) shall within fourteen days from the date of such order, be
forwarded to the authority with which the corporate person is registered
 IBC
• Insolvency Resolution Process – It is the stage during which financial creditors
assess whether the debtor’s business is viable to continue and the options for
its reorganisation and re-structuring;
• Order for Initiation of Insolvency Process: The Tribunal shall, within 14 days of
the receipt of the application of the creditor ascertain the existence of a default
from the records or on the basis of other evidence furnished by the creditor.
Where the Tribunal is satisfied that a default has occurred and the application is
complete, the Tribunal shall pass the order for initiation of corporate insolvency
process.
• Time Limit for Completion of Insolvency Resolution Process: The corporate
insolvency resolution process shall be completed within a period of 180 days
from the date of admission of the application to initiate such process.
• The resolution professional shall conduct the entire corporate insolvency
resolution process and manage the operations of the company during the
corporate insolvency resolution process period.
• The resolution professional shall present to the committee of creditors for its
approval such resolution plans which confirm the conditions which are laid
down by the Code. The committee of creditors may approve a resolution plan
by a vote of not less than 75% of voting share of the financial creditors.
• The approved resolution plan shall be submitted by the resolution professional
to the Tribunal. If the Tribunal is satisfied with the resolution plan as approved
by the committee of creditors, it shall by order approve the resolution plan
which shall be binding on the company and its employees, members, creditors,
guarantors and other stakeholders involved in the resolution plan.
• Liquidation– In case the insolvency resolution process fails, the
liquidation process shall commence in which the assets of the
company are realized to pay to the creditors.
• - failure to submit the resolution plan to the Tribunal within the prescribed
period, or
• - rejection of resolution plan for non-compliance with the requirements of the
Code, or
• - decision of creditors’ committee based on vote of majority, or
• - contravention of resolution plan by the company.
 Powers and duties of liquidator
• (a) to verify claims of all the creditors; (b) to take into his custody or control all the
assets, property, effects and claims of the company; (c) to evaluate the assets and
property of the company in the manner as may be specified by the Board and
prepare a report; (d) to take such measures to protect and preserve the assets and
properties of the company as he considers necessary; (e) to carry on the business of
the company for its beneficial liquidation as he considers necessary; (f) to sell the
immovable and movable property and actionable claims of the company; (g) to
invite and settle claims of creditors and claimants and distribute proceeds in
accordance with the provisions of this Code; (h) to take all such actions, steps, or to
sign, execute and verify any paper, deed, receipt document, application, petition,
affidavit, bond or instrument as may be necessary for liquidation, distribution of
assets and in discharge of his duties and obligations and functions as liquidator; and
(i) to perform such other functions as may be specified by the Board.
Reconstruction and Amalgamation
• Section 230 to Section 240