Amity School of Business

Companies Act, 1956

Amity School of Business

A company is an artificial person created by law having separate entity with a

perpetual succession and common seal.
Characteristics:
A company has a separate legal entity from its members. . Solomon Vs
Solomon
A company may be a company limited by shares or limited by guarantee.
It has a perpetual succession (irrespective of change in the composition of its
membership)
Common seal- since no physical existence.
Its shares are freely transferable.
It has a separate property in its own name
It has the capacity to sue in its own name

Amity School of Business

Lifting the Corporate Veil:

The company has a separate legal identity, distinct from
its members {Salomon vs Salomon & Co. Ltd.} this
is the veil of incorporation.
However, the directors of the company breaking this
trust & committing fraud or improper conduct. Thus,
its necessary to break through the corporate veil &
look at the persons behind the company.

Exceptions:

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Protection of revenue
Prevention of fraud or improper conduct
Determination of character of a company
whether it is enemy
Where the company is a sham
Company avoiding legal obligation
Company acting as agent or trustee of the
shareholders.

Classification of Companies:

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Classification of Companies:

Amity School of Business

Classification of Companies:

Amity School of Business

Classification of Companies:

Amity School of Business

Amity School of Business

Formation of a Company
Incorporation of a Company (Sec. 12):
Any 7 or more (2 or more in private company) associated for any lawful purpose may form an incorporated
company, with or without limited liability. A company so formed may be Limited by shares, limited by
guarantee, unlimited company.
Documents to be filled with the Registrar:

Approve the proposed name of the company with Registrar of companies.

Following documents duly stamped together with fees are filled with:

MOA duly signed

AOA, if any, duly signed by the subscribers to the MOA.

The agreement related to director appointment.

List of the directors who have agreed to become first directors of the company (applied to public co. ltd. By
shares) and their consent in written.

Declaration duly complying formalities of Companies Act shall be signed by

An advocate of SC or HC

Attorney or pleader to appear before HC

A secretary or a CA engaged in the formation of a company.

Person named as a director, manager or secretary.

Within 30 days of the date of incorporation, a notice of the situation of the registered office of the company
shall be given to the Registrar.

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Certificate of Incorporation:
If the Registrar is satisfied as to the compliance of statutory
requirements, scrutinizes the submitted documents then the
Registrar will register and issue a Certificate of
Incorporation.
By issuing certificate, the members mentioned in MOA
exercise all the functions of an incorporated company having
perpetual succession and a common seal.
Promoter:
A promoter is a person who does the necessary preliminary work
incidental to the formation of a company.

Memorandum of Association:

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It is the charter of the company and defines its raison detre (i.e reason for its existence). It
lays down its area of operation and regulates the external affairs of the company.
Purpose of MOA:
Shareholder to know, where there money is used by the company.
What risk they are undertaking in making investment
Outsiders shall know what objects of the company are.
Contents of MOA:
The Name Clause: - Establishes its identity
- Symbol of its existence.
Rules to select a suitable name:
Undesirable name to be avoided: Similar to another companys name, misleading to connect to
a certain business.
Injunction if identical names adopted.
Limited or private limited as last word of the name.
Prohibition of use of certain names.

Contents of MOA:

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The registered office clause:

Every company shall have a registered office from the day of inception or as from 30 th day after
the date of its incorporation.
-all communication and notices are to be addressed to that registered office.
- Notice of change shall be given to the Registrar within 30 days.
- If failed, punishable with a fine which may extend to Rs 50.
The Object Clause:
The objects of a company shall be clearly set forth in the memorandum, for a company can do
what is within or incidental to, the objects stated in the memorandum.
The purpose is:
To enable subscribers to the memorandum to know the uses to which their money may be put
and,
To enable creditors and persons dealing with the company to know what its permitted range of
enterprise or activities.
The objects has to state- Main Object & Other Objects

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The Capital Clause:

The MOA of a company having a share capital, shall state the amount of the share capital
with which the company is to be registered and the division thereof into shares of a
fixed amount. Registration is called registered, authorized capital.
The Liability clause:
The memorandum of a company limited by shares or by guarantee shall by also state that
the liability of its members is limited.
The association clause:
This clause states, We, the several persons whose names and addresses are subscribed,
are desirous of being formed into a company in pursuance of this MOA, and we
respectively agree to take the number of shares in the capital of the company set
opposite our respective names.
Followed by names, addresses & descriptions of the subscribers.
MOA shall be signed by at least 7 subscribers in case public company & by at least 2
subscribers in case of private company

Doctrine of Ultra Vires:

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A company has the power to do all such things as are:

Authorized to be done by the Companies Act, 1956.
Essential to the attainment of its objects specified in the Memorandum.
Reasonably & fairly incidental to its objects.
Everything else is Ultra Vires. Ultra means beyond and Vires means Power. Thus, it means
doing of the act is beyond the legal power & authority of the company.
The purpose of these restrictions is to protect:
Investors in the company so that they may know the objects in which their money is to be
employed.
Creditors by ensuring that the companys funds are not wasted in unauthorized activities.

Articles of association:

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AOA are the rules, regulations & bye-laws for the internal management of the
affairs of the company framed with the object of carrying out the aims &
objects as set out in MOA.
Contents of Articles:

Common seal
Borrowing power of the Director
Allotment by shares
Calls on shares
Directors & their powers
Meetings & resolutions
Quorum, proxy, minute
Transfer & transmission of shares
Accounts & audit
Share certificate

Legal effect of Memorandum Amity

& Articles
School of Business
The legal implications of these documents are:
Members to the company: Each member is bound to the
company for memorandum & articles of association.
Company to the members: A company is bound to the
individual members in terms of their ordinary rights as
members.
Members inter se: Among the members, the Memorandum &
Articles constitute the contract between the them.
Company to outsiders: The Articles do not bind the outsider
as there is no contract between them.

Prospectus:

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Acc. to sec. 2(36), any document described or issued as a prospectus and

includes any notice, 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.
(Any documents inviting deposits from the public or inviting offers from
the public for subscription of shares or debentures of a company is
prospectus).

Amity School of Business

Features:
Must be in writing oral invitation to subscribe for shares or debentures is
not prospectus.
Invitation to public.
Dating of prospectus: must be dated- taken as date of publication of
prospectus.
Signing of prospectus: Signed by proposed director or by their agents
authorized in writing.
Objects of Registration of Prospectus:
To keep an authenticated record of the terms & conditions of issue of shares
or debentures
To pinpoint the responsibility of the persons issuing the prospectus for
statement made by them in the prospectus.

Amity School of Business

Registration of Prospectus (Sec. 60):

Can be issued only after the copy is delivered to registrar for registration.
Registration must be made before the date of publication.
The copy must be signed by every person named as director.
Must be issued within 90 days after the registration copy is delivered.
Penalty for non-registration:
If issued without a copy to the registrar, or without the consent, every
person knowingly a part punishable with a fine of 50,000 Rs.

Contents of Prospectus:

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Prospectus is window through which investor can look the soundness of a companys venture. Thus, its disclosure is:
1. As per Companies Act, 1956

State the matters specified in part I of schedule II

Set out repor specified in part II of schedule II.

Part I of schedule II:

General Information

Capital structure of the company

Terms of the present issue

Particulars of the issue

Company management & Project

Particulars in regard to the company and other listed companys under the same management.
Part II of schedule II:

General Information

Financial information

Statutory and Other Information

2. Disclosure as per SEBI Guidelines

Statement in lieu of prospectus

(Sec.
70):
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Where a public company doesnt invite public to subscribe for its shares, but
arranges to get money from private sources it needs not issue a prospectus to the
public. In such a case, the promoters are required to prepare a draft prospectus
known as statement in lieu of prospectus which should contain the information
required to be disclosed by schedule II of the act.
A company having a share capital, which doesnt issue a prospectus, shall not allow
any of its shares or debentures unless at least 3 days before the allotment of shares
or debentures there has been delivered to the registrar for registration a statement in
lieu of prospectus.

Director

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Director [Sec. 2(13)]:

Director includes any person occupying the position of director. A director is a person
having control over the direction, accordance whose instructions the act is done.
Only individuals can be directors not the body corporate association or firm.
Qualification:
No qualification education otherwise
Should not suffer from the following disqualifications:
Un-discharged insolvent
Unsound mind
Unpaid calls, due from the last six months

Sentenced for 6 months for an offence involving moral turpitude

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Share Qualification:
No compulsion under the act.
If articles provides for share qualification then Procurement by each director within 2 months from the date of appointment.
Nominal value of shares not equal to 5,000
Penalty in case shares are not acquired within 2 months: Office shall be deemed vacant
Penalty of 50/- each day.

Number of Directors:
Public Co. 3
Private Co. 2
The Articles may prescribe the maximum and minimum no. of directors for its
BODs. No. may be increased by the Articles by an ordinary resolution of the
company in General Meeting.

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Appointment of Directors:

First directors
Subsequent directors:

Directors in general meeting

Appointment by BOD
Central Govt.
First Director (Sec.254):
AOA usually name their first Director or method of appointment.
If not named, shall be determined in writing by subscriber of Memorandum.
If not appointed, in above manner, the subscribers of the Memorandum become Directors.
Subsequent directors:
Appointment in General Meeting (Sec. 255):
In case of public Co. 1/3 can be appointed permanently, 2/3 shall be subject to retirement by
rotation
At the AGM: in the private Co. or a public co. 1/3 of rotational directors shall retire from office
Retired directors are eligible for re-election

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Appointment by BOD (Sec. 260):

As Additional Director (Sec. 260):

Shall hold office till next AGM (tenure of appointment)

Maximum strength is fixed for the Board by Article.
If additional director as managing director, the moment he ceases to be an additional director he
will cease to be a MD.
As Alternative Director (Sec. 313):
Director to act in a place of original Director absent for 3 months from the state in which
Board Meetings are ordinarily held.
Can be appointed if authorized by: Articles of the Co., resolution passed by the co. in general
meting.
In Casual vacancy (Sec. 262):
Office is vacated before the term expiry, the casual vacancy can be filled by the BODs at the
meeting.
Subject to the regulations in the Articles.
Reason death, resignation, disqualification, retirement by rotation (has to be filled by AGM)

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Appointment by Central Govt. (Sec. 408):

Empowered by company law Board, by order in writing, to effectively safeguard the
interest of Co., or its shareholders / Public interest.
Terms of directors Max. Period 3 yrs.
Not required to hold qualification shares.
Not liable for termination by retirement by rotation.
Removal of Directors:
By the shareholders (Sec. 284):
Can remove before the expiry by passing an ordinary resolution.
Doesnt apply to directors appointed by central Govt.
Doesnt apply to (pvt co.) removal of directorsholding office for life on April 1, 1952
By the Central govt. (Sec. 388-B to 388-E):
On the recommendation of the tribunal.

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Managerial Remuneration: Refers to:

Managing Director,

Part-time Director,
Manager

Excludes who are not members of BOD

Remuneration not to exceed 11 % of the net profit
Monthly remuneration to its provision of Sec. 309 & Sec. 387
Meetings of directors (Sec. 285 to 288):
Once in every 3 months.
Notice of meeting to every director.
Quorum for meeting 1/3 of total strength or 2 directors.

Powers of Directors:
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General powers of the Board (Sec. 291):
BOD is entitled to all powers as the company is authorized
Subject to two conditions:
Board shall not do any act which is to be done by the company in the
General Meeting.
Board shall exercise its powers subject to the provisions contained in the
Companies Act.
Powers to be exercised at Board Meetings (Sec. 292):
Power to make calls on shareholders in respect of money unpaid on their shares.
Issue debentures
Borrow money otherwise than on debentures.
Invest the funds of the company
Make loan

Amity School of Business

Powers to be exercised with the approval of company in General Meeting

(Sec. 293):
To sell, lease or otherwise dispose of the whole of the undertaking of the
company.
To remit or give time for repayment of any debt due to the company by a
director.
To invest the amount of compensation received by the company in respect
of the compulsory acquisition.

Duties of Directors

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Fiduciary Duties:
Exercise their powers honestly & bonafide for the benefit of the company
as a whole and,
Not place themselves in the position in which there is a conflict between
their duties to the company and their personal interest (Must not make any
personal profit out of their position)

Duties of skill, care & diligence:

Carry out duties with reasonable care skill & diligence.

Not bound to bring any special qualifications to his office.
Standard of care depends upon:
Type & nature of work
Division of powers between Directors & other officers.
General usage & their customs in business.
Other duties:
To attend Board Meetings
Not to delegate his functions except authorized by Act.
Disclose his interest.

Meetings:

Amity School of Business

I. Statutory meeting (Sec. 165):

- Every company limited by shares/ guarantee, within a period of not less than one
month nor more than six months from the date of its commencement, hold a
general meeting.
- First meeting of the shareholders & held only once in lifetime.
- It is not applicable to a Private company or a company having unlimited liability.
Purpose/ object:
To fulfill the statutory requirements of the act (Sec. 165)
To familiarize the members with information relating to formation of the
company, the progress made since its incorporation, its success in raising capital
by issue of shares, particulars regarding managerial personnel of the company.
To provide an opportunity to the members to discuss matters relating to the
formation of the company & arising out of statutory report.

Amity School of Business

Penalty:

If default is made in complying with the provisions of Sec. 165, every

defaulting Director of the company will be punishable with a fine of 500/-

If default is made in holding the statutory meeting, after 14 days from the
date on which ought to be held, as per Sec. 439, ROC/ a member may
apply for the winding up of the company.

II. Annual General Meeting (Sec. 166 & 167):

- Every company shall hold in each year.
- There shall not be an interval of more than 15 months between one AGM of
the company & the next.
- First AGM to be held within a period of 18 months from the date of its
incorporation, no other AGM is necessary in the year of its incorporation
or next year.

Amity School of Business

Time & Place of Meeting:

Every meeting shall be during business hours of a day not a public holiday.
Held at registered office or any place within city, town or village.
21 days Notice: May be called by giving not less than 21 days notice. It can
be called at a shorter notice.
Consequences of failure to hold AGM: If a company fails to hold meeting:
Any member can apply u/s 167, to the Co. Law Board for calling the
meeting.
The company & every officer shall be punishable with the fine.
Importance:
Shareholders can exercise any control over the affairs of the company.
Get opportunity to discuss the affairs & review the working.
Appointment of Auditors.
Annual A/Cs presented for consideration of shareholders dividends is
declared in AGM.

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III. Extra Ordinary General Meeting (Sec. 169):

Any meeting other than a statutory and an annual general meeting is called an
extra ordinary meeting.
Purpose:
Some urgent or special business which cannot be postponed till next AGM.
Can be convened by BODs or on the requisition of its members.
1. Extra-ordinary meeting convened by the BODs:
On its own:
Issue of share capital
Increase in remuneration of MD
On requisition of members:
In case, a company having a share capital, by holders not less than 1/10 th of the paid
up capital of the company having voting rights.
In case, company not having a share capital, by members representing not less than
1/10th of the total voting power.

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2. Extra-ordinary meeting convened by the requisitionist:

If BODs fail to call a meeting as required by requisition, the meeting may be
called :
By the requisitionist themselves.
In case a company has a share capital requisition by members holding
not less than 1/10th of the paid up capital.
In case of a company not having a share capital members not less than
1/10th of the total voting power in regard to that matter.
Power of Co. Law Board to order meeting (Sec. 186):
CLB may call an Extra-ordinary meeting either on its own or on the
application of any Director of the Co.

Amity School of Business

Requisites of a Valid Meeting:

Proper Authority:
BODs (statutory, AGM, or extra-ordinary)
CLB
Notice of meeting:
Not less than 21 days notice in writing.
Shall be given to all members of company entitled to vote.
Deliberate omission to give notice may invalidate the meeting.
Accidental omission doesnt invalidate.
Must specify the place, date, day & hour of the meeting.
Statement to be transacted.
Time of holding General Meeting: During Business hours
Place: either registered office,
Date: not a Public Holiday

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Quorum of meeting:
It means minimum number of members who must be present in order to
constitute a valid meeting & transact business threat.
Chairperson of meeting:
Presiding officer of the meeting
Mentioned in the Articles, otherwise members present shall elect one.
Minutes of meeting:
Record of what the company& Directors do in the meeting.

Resolutions:

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Ordinary resolution: Passed at General Meeting by majority of votes.

Required for: issue of shares at discount
Appointment of Auditors & their remuneration
Appointment of First Directors liable to retire by rotation.
Removal of Director
Winding of Company
Special resolution: It satisfies the following conditions:
Intentions to propose the resolution as a special resolution specified in
notice.
Duly given for General Meeting.
Votes cast in favour are not less than 3 times the number of votes cast
against the resolution (proxies allowed, if any)
A copy of resolution submitted to the Registrar within 30 days of passing
the resolution.

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Requirement of Special Resolution:

Alteration of Memorandum of Association (Registered office & Object Clause)
Changing the name of company with the consent of central Govt.
Alteration of AOA.
Variation of shareholders rights
Allowing Director to hold office of profit under Co.
Applying to the court to wind up a company.

Winding Up (Liquidation) :

It means a proceeding by which a company is dissolved.

Modes of Winding Up:

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1. Winding up by the Court i.e. Compulsory Winding

2. Voluntary Winding Up
Members Voluntary Winding Up
Creditors Voluntary Winding Up
I. Winding Up By the Court (Sec. 433 to 483):
Special resolution of the company
Default in delivering the statutory report to the Registrar or in
holding Statutory Meeting.
Failure to commence, suspension of business.
Reduction in membership
Inability to pay its debts.

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Petition (Sec. 439):

An application to the court for winding up of a company is made by a petition.
Who may file petition:
By the company (after passing special resolution)
By creditor (person having a pecuniary claim against the company)
By Registrar
Default in submitting statutory report
Doesnt commence business within a year from its incorporation.
Number of members reduced.
By Central Govt.
Business conducted with the intention to defraud creditors, members.
Fraudulent purpose.

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II. Voluntary Winding Up:

Winding up by the Creditors or Members of a company, without
interference by the court.
By passing Ordinary Resolution
By passing Special Resolution
Types of Voluntary Winding Up:
Members Voluntary Winding Up:
Declaration of Solvency: If a declaration is made acc. to sec. 488
Shall be made by a majority of Directors at a meeting that the
company has no debt or will be able to pay in full within 3 yrs.
From the commencement of winding up.

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Appointment & remuneration of liquidator- (Official Liquidator is the person appointed by

the court for the winding up of the company.)
Boards powers ceased after the appointment of liquidator
Notice of appointment f liquidator given to Registrar
Power of liquidator to accept shares.
Duty to call General Meeting at the end of each year.
Creditors Voluntary Winding Up:
In which a declaration of its solvency is not made.
Provisions:
Meeting of creditors In General Meeting resolution can be passed for voluntary winding
up.
Notice of resolution to be given to Registrar within 10 days
Appointment of committee of Inspector
Liquidators remuneration.