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2(d) "company" means a company formed and registered under this Act or an existing
company;
It s an artificial person which has rights and duties at law. Being an artificial legal
person possesses similar rights and owes similar obligations like natural person.
Characteristics of a Company:
1.It has separate legal entity- capable of rights and duties.
a.
Natural Persons
b.
Artificial Persons-corporations- can purchase and
sell goods, hold property, file and defend suits and other litigations, incur debts, lend money.
2.It has perpetual succession-continuous existence.
3. It has a different personality- it is at law a different person altogether from the subscribers
to the memo
Solomon V Solomon Company Ltd
3. It has a separate property.
4.It has capacity to sue and being sued. 5.It has a common seal.
6.Its shares are freely transferable.
Kinds of companies:
1.
chartered companies, i.e. East-India Company
2.
Statutory companies: is one which is incorporated by a Special Act of the legislature
(i.e. Parliament)
3.
Registered companies: is one which is formed and registered under the Companies
Act, 1994
a) Companies limited by shares: A company limited by shares is one in which the liability
of the members is limited to the extent of nominal value of shares held by them. If the shares
are fully paid i.e. all amount of share has already been paid, then the liability of the member s
is nil. And if the shares are partly paid then the liability of the members is limited to the
extent of
the amount which remains unpaid. The companies limited by shares may be either private or
public
b)Companies limited by Guarantee: A company
limited by guarantee is one in which the liability of the members is limited to such amount as
he undertakes to contribute to the assets of the company in the event of its being wound up.
This liability can only be enforced at the time of winding up of the company.
4. Unlimited Companies: An unlimited company is one in which the liability of the
members is unlimited i.e. the members are also personally liable for the payment of company
s liabilities.
(i)
5. Private Companies: Sec.2 (k) "private company" means a company which by its articles-restricts the right to transfer its shares, if any;
(ii) prohibits any invitation to the public to subscribe for its shares or debenture, if any; i.e. the issue
of prospectus should be prohibited.
(iii) Limits the number of its members to fifty (and minimum two) not including persons who are in
its employment;
Provided that where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this definition be treated as a single member.
In case a private company is a limited company, then, it must add the words private limited
at the end of its
name.
A private company need not necessarily be a company having share capital. Thus, in case of a
private company
having no share capital, there is no question of restrictions on member s right to transfer
their shares.
The legal positions of a private company is similar to that of a public company i.e. it is a
separate legal entity.
In case of private companies, it is only the number of members that is limited to 50, and not the
number of debenture-holders. Thus, a private company may issue debentures to any number of
persons. However, the debentures can be issued privately i.e. without inviting the public to
subscribe for the same.
1.
2.
3.
Maximum number- Private company- not more than 50- public company-unlimited
Minimum number- private co. 2- public co. 7
Restricted right of transfer of shares- unrestricted right of transfer
4.
As to public invitation
5.
6.
7. Government companies:
Government company is one in which 51% or more of the paid up share capital is held by the
government.
Share-Section 2(s)- means a share in the capital of the company, and includes stock except
when a distinction between stock and shares is expressed or implied
A definite portion of the capital of a company is called a share
Debenture- Section 2 (f)- includes debenture stock, bonds and any other securities of a
company, whether constituting a charge on the assets of a company or not.
A debenture is a document by which a company acknowledges the debt to the holder thereof
under certain terms and conditions contained therein. Thus it is an acknowledgement of a
debt by a company. It is a form of bond given by the company with a view to borrow money
from the public.
Formation of a Company
Stages of Formation:
1.
Promotion of a company-promoter
2.
A company gets registered by filing an application with the Registrar of companies of the area in
which registered office of the company is to be situated. Before the company got registered the
promoters must have proposed name for the company from the Registrar of Companies.
Following document and papers should be submitted to the Registrar of Companies:
1.the memorandum of association 2.the articles of association
3.The agreement which the company proposes to enter into with any individual for
appointment as company s
managing director, or whole time directors or manager.
4.The declaration that all the requirements of the Companies Act relating to the registration
of the company have been complied with.
5.A written consent of such directors to act as director of the company.
6.A written undertaking by such directors to take and pay for their qualification shares, if any.
7.A list of persons who have agreed to become the first directors of the company.
1. Name Clause:
1. Should not be undesirable in the opinion of the Government.
2.
1. By Share.
2.
By Guarantee
5. Capital Clause:
It contains the amount of share capital with which the company is to be registered. It also
states the number and value of shares into which the capital of the company is divided. The
effect of this clause is that the company cannot issue more shares than are authorized by its
memorandum of association.
6. Association or Subscription clause:
This clause contains the names of the persons who sign the memorandum and states that they
are willing to
form themselves into a company. These persons are called subscribers . They will sign a
declaration in the
presence of at least one witness who must attest the signatures. Every subscriber will write
his name, designation, address, occupation etc. and also the number of shares which he takes.
Every subscriber must take at least one share. In case of a Public company, the memorandum
must be signed by at least seven subscribers and in case of a Private company by at least two
subscribers.
Articles of Association
This is the second document which has to be filed with the Registrar at the time of registration
of the company. This document contains the rules, regulations and bye laws for the internal
management of the company. These rules and regulations are framed for the purpose of carrying
out the objects of the company as stated in the Memorandum of association. This is subordinate
to and controlled by the memorandum of association.
The articles of association constitute a contract between the company in the one hand and the
share-holders individually on the other, and also between the members inter se.
The articles of association bind the company and its share-holders as if these had been accepted
by each of them. These also bind the share-holders of the company, both in existing and future
This document lays down the modes in which the objects of the company are to be carried out
by the members as stated in the memo. The articles of association contain the rules and
regulations which are
framed for the internal management of the company. An Article of association is obligatory
for the following types of companies:
Private limited companies.
Unlimited companies.
Public companies limited by guarantee.
Contents of Articles of Association
1.
The memo contains the conditions upon which a company is granted, whereas the articles
contain the internal regulations of the internal administration of the company
2.
Memo limits the activities which the company can undertake whereas the articles set forth
the rules or by-laws wherewith those activities can best be carried out from the very birth of
the company till its death
3.
The memo is an unalterable document except in so far as is provided by the section 12 of the
Act, whereas the articles can be changed as many times as the share-holders may choose by
special resolution
4.
A company must provide itself with its memo which are usually framed in a statutory way,
whereas a company may provide with its articles by fully adopting Schedule 1 of the Act.
Prospectus
A prospectus means any document described or issued as Prospectus and includes any notice or
circular, advertisement or other document inviting deposits from the public or inviting offers
from the public for the subscription or purchase of any shares in, or debentures of, a body
corporate.
Prospectus is issued by the Public Company to the Public for the purpose of raising sufficient
money for initiation or conducting business.
Management
Directors: for carrying the business properly members elect some persons from among
themselves to look after
the general administration of the company. These persons are known as Directors and
collectively Board of
Directors .
The directors manage and control the overall affairs of the company. They generally confine
themselves to the general business policies and overall supervision of the management of the
company. The day to day working of the company is left to the other managerial personnel.
Number of directors:
1.Private-2 2.Public-3
Appointment of Directors:
Section-91 1. Appointment of first directors by the promoters- the first directors are
usually named in company s articles of association and are appointed by promoters in the
manner laid down in the articles of association . In case the articles of association are silent,
the subscribers of the
memorandum of association shall be considered as directors until the directors are appointed
in the first annual general meeting.
2. Appointment of directors at general meeting:2/3 will be
appointed as temporary directors, 1/3 will be appointed as permanent directors. 2/3 of the
total number of directors shall be liable to retire by rotation.
3.Appointment of directors by the Board of Directors:
4.Appointment of directors by the third party: articles of association -loan
5.Appointment of directors by government:
Section-94 Disqualifications of Directors:
1. Unsound mind
2. Undischarged insolvent
3. Declared by court as insolvent
4.
5.
6.
7.
8.
9.
1.
2.
3.
4.
six months imprisonments for an offence involving moral turpitude and five years have not been
elapsed from the date of the expiry of the sentence.
Has not paid for six months any calls on his shares.
Declared as incompetent by the court.
Cannot hold the post of directors of 20 companies at a time.
Minor
Additional grounds mentioned in articles
Section-97 Qualifications of Directors:
Individual
Share qualification
Sound mind
Must not suffer any Disqualifications.
5. Obtains qualifications within 60 days or such shorter time fixed by the articles
Section-106 Removal:
1.
Removal by the company: extraordinary resolution at general meeting of the share holders- by
ordinary resolution appoint another one.
2.
3.
4.
Resignation
Secretary
A secretary is an officer of the company who is appointed to perform the ministerial or
administrative duties. His duty is not to manage the affairs of the company, but, to ensure
that the affairs of the company are conducted in accordance with the provisions of the
Companies Act and Articles of Association of the company i.e. he should ensure that
company s affairs are conducted according to law.
Meetings and Resolutions
Meetings:
the directors take decisions by calling their meetings. There are also share holders of the
company. The shareholders also decide the matters by calling their meetings from time to
time. The matters are decided by passing resolutions.
Kinds of Meetings:
Broadly 2 kinds1.Meetings of members (shareholders) 2.Other meetings.
Meetings of members (shareholders):
4 kinds1.Statutory meeting. 2.Annual general meeting
3.Extra- ordinary general meeting. 4.Class meeting
Statutory Meeting: it is the first meeting of the members of the company after its
incorporation.
It must be held within a period of not less than 1 month and not more than 6 months from the
date at which the company is entitled to start business. This meeting is
held only once in the life time of the company.
The purpose of this meeting is to acquaint the members with all the important facts relating to
the company to enable them to know the position and future prospectus of the company.
4.
5.
It must be held once in each year in addition to any other meetings and gap between the
meeting and the next should not be more than 15 months. Registrar of companies may
extend this time for another 3 months.
It must be held within 18 months from the incorporation and this time cannot be extended
even by the registrar.
14 days notice is necessary for calling this meeting.
Must be held during the business hours and on a day which is not a public holiday.
Must be held at the registered office of the company
Extra-Ordinary General Meeting:
This meeting is called for dealing with some urgent special business which cannot be
postponed till the next annual general meeting.
Legal provisions relating to Extra-ordinary General Meeting:
May be called by the directors at any time on their own motion.
It becomes necessary on the requisition of members. Then, directors are bound to call this
meeting.
The requisition for calling this meeting must be signed by 1/10 member who has voting
right or who hold the 1/10 paid up capital of the company.
The requisition must set out the matters for the consideration of which the meeting is to be
called.
The directors then must move to call a meeting within 21 days and the meeting must be held
within 45 days from the date of deposition of requisition
Class Meeting:
It is the meeting of a particular class of shareholders. In this meeting only the particular class of
shareholders are entitled to present.
Other meetings:
Meetings of directors: once in every 3 month, 4 in a year.
Meetings of creditors Meetings of debenture-holders
Essentials and Legal Rules for a Valid Meeting:
Proper Authority- board of directors. Shall pass a resolution in directors meeting for calling a
meeting.
Proper notice- before 21 days and in written.
Contents of notice Quorum of meetingPublic-5
Private-2
Only who presents, not the Proxies
Chairman of the meetingVoting at Meetings
The business of the meeting is conducted in the form of resolution pass at the meeting. And the
resolutions proposed in the meeting are decided on the votes of the members of the company.
Every member has the right to vote. The members also have the right to discuss the proposed
resolution.
The voting may take place3 in either of the following 2 ways Voting by show of hands Voting by poll Voting by show of hands:
The voting at the general meeting takes place by show of hands and the resolutions are
decided by counting the hands held up in favor of the resolution. On a voting by show of
hands one member has one vote and a proxy cannot vote unless the articles of association
provide otherwise. After counting the hands for or against the resolution, the chairman
declares the result and it conclusive.
Voting by poll:
Sometimes, there is dissatisfaction about the result of voting by show of hands. In such cases,
a poll can be demanded. Such poll can also be demanded before voting by show of hands. On
a poll, voting right of a member shall be in proportion to his shares of the
paid up capital of the company.
Resolutions Ordinary Resolution:
It is the resolution which is passed, at a validly called general meeting, by simple
majority of the members i.e. where the votes cast in favor of the resolution exceed the
votes cast against it. The
voting may be either by show of hands or by polls. In
determining the simple majority, all the votes cast
by the members whether personally or by proxy are considered. The casting vote of the
chairman is also taken into account. The casting vote means the deciding vote in the
members are equally divided.
Special Resolution:
It is the resolution which is passed, at a validly called general
meeting, by special majority of the members i.e. by the support of 3/4 th majority of the
members present and entitled to vote at thethmeeting. The voting may be either by show of
hands or by polls. In determining the 3/4 majority, all the votes cast by the members,
whether personally or by proxy, are considered.
1.
2.
3.
4.
5.
6.
7.
8.
9.
The term winding up of a company may be defined as the proceedings by which a company is
dissolved.
According to Prof. Gower- winding up is the process whereby its life is ended and its property
is administered for the benefit of its creditors and members. And an administrator, called a
liquidator, is appointed and he takes control of the company, collects
its assets, pays its debts and finally distributes any surplus among the members with their
rights.
The winding up of the company called the liquidation of the company.
Modes of Winding up: Sec 234
1. Compulsory winding up by the court. 241-254
2. Voluntary winding up without the intervention of the court (by the members themselves and
voluntary winding up by the creditors). 286-315
3. Voluntary winding up with the intervention of the court i.e. under the supervision of the
court. 315-321
Section-241-Compulsory Winding Up by the Court: The winding up of a company by an
order of the court is called the compulsory winding up.
The court may wound up the company on a petition submitted to it on any of the following
grounds.
Special resolution by the company
Default in holding statutory meeting or in filing the statutory report
Failure to commence business within a year or suspends for a whole year
Reduction in members
Inability to pay debt
Just and equitable
appears desirable. Under this clause, the court may order winding up on any ground.
However, there must be strong ground for winding up of the company. The court may give
due weight to the interest of the company, its employees, creditors and shareholders. The
interest of general public should also be considered.
A winding up petition, under this clause, can be presented by the Registrar of companies,
by a person appointed by the Govt. or Contributories.
Commencement of winding up: the winding up of the company shall be deemed to commence
from the time of the presentation of the petition and not from the date of the winding up order
by the court.
Powers of the court on the presentation of the petition: the court has the following powers:
A. Stay of proceedings against the company.
B. Making order on the petition 1. May dismiss
2. May adjourn
3. May make any interim order
4. May make an order for winding up
5. May make any order as it thinks fit.
4. Procedure for Compulsory winding up: The winding up proceedings are conducted by an
official to be known as the official Liquidator. Thereafter, the procedure involves the
appointment of Official Liquidator, and the conduct of proceedings by him.
5. Appointment of official liquidator: an official liquidator is an officer who helps the court in
conducting and completing the winding up proceedings.
6. Statement of Affairs: on the making of the winding up order by the court or on appointment
of the official liquidator as the provisional liquidator, a statement as to the affairs of the
company must be made out and submitted to the official liquidator. The statement of affairs
should contain the following matters a) The assets of the company
b) The debts and liabilities of the company
c) The names, residence and occupations of company s creditors
d) The debts due to the company
e) Such further or other information as may be required by the official liquidator.
7. Report by official liquidator: after receiving the statement of affairs, as soon as practicable,
the official
liquidator is required to submit a preliminary report to the court stating the following
information s a) The amount of issued, subscribed and paid up capital of the company. And the estimated
amount of the assets and liabilities.
b) Where the company has failed, the causes of the failure.
c) Whether in his opinion, further enquiry is desirable as to any matter relating to the promotion,
formation or failure of the company or the conduct of its business.
1.
2.
3.
Delivery of property: court may order to transfer the property in possession to the
liquidator.
Payment of money by the contributory and allowing set off: sometimes, after the making of a
winding up order, some money is due from a contributory to the company apart from his liability
as a shareholder (i.e. other than the money payable by way of calls of shares). In such cases, the
court may order the contributory to pay the money due to the company.
Making the calls i.e. calling the money due on shares: the court may order the contributories
to pay the due amount to the extent of their liability.
Adjustment of rights of contributories: the court has the power to adjust the rights of the
contributories among themselves, and to distribute any surplus among the persons who are
entitled to it.
Arrest of absconding contributories
Voluntary winding up without the
intervention of the court:
the voluntary winding up means the winding up by the members or creditors themselves
without the intervention of the court. Thus, the members and the creditors are left free to settle
their affairs without going to the court of law.
By ordinary resolution: sometimes, the article of the company fixes the period for the duration
of the company, or provides that the company shall be dissolved on the occurrence of some
event. In such cases, when that time expires of that event occurs, the company may pass an
ordinary resolution in its general meeting for its voluntary winding up.
By special resolution: the company may, at any time pass a special resolution that the company
be wound up voluntarily. In that case, no reason is necessary.
Kinds of voluntary winding up:
1. Members voluntary winding up
2. Creditors voluntary winding up
Members voluntary winding up: It is the winding up in the case of which a declaration of
solvency is
made and delivered to the Registrar in accordance with the provision of Companies Act.
The declaration of solvency is the declaration made by the directors stating that the company
has no debts, or that it will be in a position to pay its debts in full.
Legal Rules1.
The declaration of solvency has to be made by the majority of directors at a meeting of the
board of directors, and verified by an affidavit.
2.
The directors have to declare in it that they have made a full enquiry into the affairs of the
company and have formed the opinion about the following-
3. The declaration must be made within 5 weeks immediately before the passing of the
resolution for winding up and must be delivered to the registrar for Registration before that
date.
4.
The declaration must be accompanied by a copy of the report of companys auditors on the
profit and
loss account. And the balance sheet of the company prepared up to the latest practicable date
before the making of the declaration.
5. The declaration must also contain a statement of the
assets and liabilities of the company as at the latest
practicable date before the making of the declaration.
Creditors
oluntary
inding up:
It is the winding up in the case of which a declaration of solvency has not been made and
delivered to the registrar. Thus, the question of creditors voluntary winding up arises where the
company is unable to pay its debts in full.
Voluntary winding up with the
intervention of the court:
It is the voluntary winding up, but under the supervision of the court. At any time after a
company has passed a resolution for voluntary winding up, the court may make an order that
the voluntary winding up shall continue but, subject to the supervision of the court. The order
may be made by the court on such terms and conditions as it thinks fit and the court may also
determine the extent of the supervision. The application for courts supervision may be made by
creditors, contributories, or by the others as the court think just.
Conversion of private company
into public company
Have at least 7 members Alteration of articles of association
Ceasing to be a private company
filing with the Registrar either a prospectus or a statement in lieu of prospectus containing
the particulars required.
Conversion of public company into
private company
Have not more than 50 members
Pass a special resolution altering its articles excluding provisions applicable to public
company and including therein provisions applicable to a private company
Minority Protection
Any member or debenture holder individually or jointly bring to the notice of the court that Affairs of the company prejudicial to one or more of them
Discriminatory action of the company
Resolution passed is discriminatory
The court may pass necessary order including a direction
cancel or modify any resolution or transaction
regulate the conduct of the company in such manner as is specified therein
amend any provisions of the memo or articles