Mod 5 Companies Act, 1956

7/23/2019 Mod 5 Companies Act, 1956

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Amity School of Business

Companies Act, 1956




“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 "olomon #s"olomon

! A company may be a company limited by shares or limited by guarantee

! $t has a perpetual succession %irrespective of change in the composition of its

membership&

! Common seal' since no physical e(istence

! $ts shares are freely transferable

! $t has a separate property in its own name

! $t has the capacity to sue in its own name




Lifting the Corporate Veil:

)he company has a separate legal identity, distinct from

its members * Salomon vs Salomon & Co. Ltd.+ this

is the veil of incorporation-

.owever, the directors of the company brea/ing this

trust 0 committing fraud or improper conduct )hus,

it-s necessary to brea/ through the corporate veil 0loo/ at the persons behind the company



Amity School of BusinessExceptions:

! rotection of revenue

! revention of fraud or improper conduct

! 2etermination of character of a companywhether it is enemy

! 3here the company is a sham

! Company avoiding legal obligation! Company acting as agent or trustee of the

shareholders



Amity School of BusinessClassification of Companies:



Amity School of BusinessFormation of a Company

Incorporation of a Company (Sec. 12):

Any 4 or more % or more in private company& associated for any lawful purpose may form an incorporatedcompany, with or without limited liability A company so formed may be 7imited by shares, limited by

guarantee, unlimited company

oc!ments to "e fille# $ith the %egistrar:

! Approve the proposed name of the company with 8egistrar of companies

! ollowing documents duly stamped together with fees are filled with:

! ;<A duly signed

! A<A, if any, duly signed by the subscribers to the ;<A

! )he agreement related to director appointment

! 7ist of the directors who have agreed to become first directors of the company %applied to public co ltd =y

shares& and their consent in written

! 2eclaration duly complying formalities of Companies Act shall be signed by'

! An advocate of "C or .C! Attorney or pleader to appear before .C

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

! erson named as a director, manager or secretary

3ithin >? days of the date of incorporation, a notice of the situation of the registered office of the companyshall be given to the 8egistrar




Certificate of Incorporation:

! $f the 8egistrar is satisfied as to the compliance of statutory

re@uirements, scrutinies the submitted documents then the

8egistrar will register and issue a Certificate of

$ncorporation-

! =y issuing certificate, the members mentioned in ;<A

e(ercise all the functions of an incorporated company having

perpetual succession and a common seal

&romoter:

A promoter is a person who does the necessary preliminary wor/

incidental to the formation of a company



Amity School of Business;emorandum of Association:

! $t is the charter of the company and defines its raison d-etre %ie reason for its e(istence& $t

lays down its area of operation and regulates the e(ternal affairs of the company

&!rpose of ':

! "hareholder to /now, where there money is used by the company

! 3hat ris/ they are underta/ing in ma/ing investment

! <utsiders shall /now what obBects of the company areContents of ':

! *he +ame Cla!se: ' stablishes its identity

' "ymbol of its e(istence

8ules to select a suitable name:

! Dndesirable name to be avoided: "imilar to another company-s name, misleading to connect to

a certain business

! $nBunction if identical names adopted

! “7imited” or private limited- as last word of the name

! rohibition of use of certain names



Amity School of BusinessContents of ':*he registere# office cla!se:

very company shall have a registered office from the day of inception or as from >? th day after

the date of its incorporation

! 'all communication and notices are to be addressed to that registered office

! ' Eotice of change shall be given to the 8egistrar within >? days

! ' $f failed, punishable with a fine which may e(tend to 8s 5?

*he ",ect Cla!se:

)he obBects of a company shall be clearly set forth in the memorandum, for a company can do

what is within or incidental to, the obBects stated in the memorandum

*he p!rpose is:

! )o enable subscribers to the memorandum to /now the uses to which their money may be put

and,! )o enable creditors and persons dealing with the company to /now what its permitted range of

enterprise or activities

! )he obBects has to state' ;ain <bBect 0 <ther <bBects




*he Capital Cla!se:

)he ;<A 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

fi(ed amount 8egistration is called registered-, authoried- capital

*he Lia"ility cla!se:

)he memorandum of a company limited by shares or by guarantee shall by also state that

the liability of its members is limited*he association cla!se:

)his clause states, “3e, the several persons whose names and addresses are subscribed,

are desirous of being formed into a company in pursuance of this ;<A, and we

respectively agree to ta/e the number of shares in the capital of the company set

opposite our respective names”

! ollowed by names, addresses 0 descriptions of the subscribers

! ;<A shall be signed by at least 4 subscribers in case public company 0 by at least

subscribers in case of private company



Amity School of Businessoctrine of -ltra Vires:

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

! Authoried to be done by the Companies Act, 1956

! ssential to the attainment of its obBects specified in the ;emorandum

! 8easonably 0 fairly incidental to its obBects

verything else is Dltra #ires- Dltra- means beyond- and #ires- means ower- )hus, it meansdoing of the act is beyond the legal power 0 authority of the company

*he p!rpose of these restrictions is to protect:

! $nvestors in the company so that they may /now the obBects in which their money is to be

employed

! Creditors by ensuring that the company-s funds are not wasted in unauthoried activities



Amity School of Businessrticles of association:

A<A are the rules, regulations 0 bye'laws for the internal management of the

affairs of the company framed with the obBect of carrying out the aims 0

obBects as set out in ;<A

Contents of rticles:

! Common seal

! =orrowing power of the 2irector

! Allotment by shares

! Calls on shares

! 2irectors 0 their powers

! ;eetings 0 resolutions! Fuorum, pro(y, minute

! )ransfer 0 transmission of shares

! Accounts 0 audit

! "hare certificate



Amity School of BusinessLegal effect of 'emoran#!m rticles

)he legal implications of these documents are:

! 'em"ers to the company: ach member is bound to the

company for memorandum 0 articles of association

! Company to the mem"ers: A company is bound to the

individual members in terms of their ordinary rights as

members

! 'em"ers inter se: Among the members, the ;emorandum 0

Articles constitute the contract between the them

! Company to o!tsi#ers: )he Articles do not bind the outsider

as there is no contract between them



Amity School of Business&rospect!s:

! Acc to sec %>6&, “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&




Feat!res:

! ;ust be in writing oral invitation to subscribe for shares or debentures is

not prospectus

! $nvitation to public

! 2ating of prospectus: must be dated' ta/en as date of publication of

prospectus! "igning of prospectus: "igned by proposed director or by their agents

authoried in writing

",ects of %egistration of &rospect!s:

! )o /eep an authenticated record of the terms 0 conditions of issue of shares

or debentures! )o pinpoint the responsibility of the persons issuing the prospectus for

statement made by them in the prospectus




%egistration of &rospect!s (Sec. /0):

! Can be issued only after the copy is delivered to registrar for registration

! 8egistration must be made before the date of publication

! )he copy must be signed by every person named as director

! ;ust be issued within 9? days after the registration copy is delivered

&enalty for nonregistration:

! $f issued without a copy to the registrar, or without the consent, every

person /nowingly a part punishable with a fine of 5?,??? 8s



Amity School of BusinessContents of &rospect!s:

rospectus is window through which investor can loo/ the soundness of a company-s venture )hus, its disclosure is:

1. s per Companies ct 134/

! "tate the matters specified in part $ of schedule $$

! "et out repor specified in part $$ of schedule $$

&art I of sche#!le II:

! General $nformation

! Capital structure of the company! )erms of the present issue

! articulars of the issue

! Company management 0 roBect

! articulars in regard to the company and other listed company-s under the same management

&art II of sche#!le II:

! General $nformation

! inancial information

! "tatutory and <ther $nformation

2. isclos!re as per SE5I 6!i#elines



Amity School of BusinessStatement in lie! of prospect!s (Sec. 70):

! 3here a public company doesn-t invite public to subscribe for its shares, but

arranges to get money from private sources it needs not issue a prospectus to the

public $n such a case, the promoters are re@uired to prepare a draft prospectus

/nown as statement in lieu of prospectus- which should contain the information

re@uired to be disclosed by schedule $$ of the act

! A company having a share capital, which doesn-t issue a prospectus, shall not allowany of its shares or debentures unless at least > days before the allotment of shares

or debentures there has been delivered to the registrar for registration a statement in

lieu of prospectus



Amity School of Businessirector

irector 8Sec. 2(19):

2irector 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

! <nly individuals can be directors not the body corporate association or firm

;!alification:

! Eo @ualification education otherwise

! "hould not suffer from the following dis@ualifications:

Dn'discharged insolvent

Dnsound mind

Dnpaid calls, due from the last si( months

! "entenced for 6 months for an offence involving moral turpitude




Share ;!alification:

! Eo compulsion under the act

! $f articles provides for share @ualification then'

rocurement by each director within months from the date of appointment

Eominal value of shares not e@ual to 5,???

enalty in case shares are not ac@uired within months:'

! <ffice shall be deemed vacant

! enalty of 5?H' each day

+!m"er of irectors:

! ublic Co >

! rivate Co ! )he Articles may prescribe the ma(imum and minimum no of directors for its

=<2-s Eo may be increased by the Articles by an ordinary resolution of the

company in General ;eeting




ppointment of irectors:

irst directors

"ubse@uent directors:

! 2irectors in general meeting

! Appointment by =<2

! Central Govt

First irector (Sec.24<):

! A<A usually name their first 2irector or method of appointment

! $f not named, shall be determined in writing by subscriber of ;emorandum

! $f not appointed, in above manner, the subscribers of the ;emorandum become 2irectors

S!"se=!ent #irectors:

! ppointment in 6eneral 'eeting (Sec. 244):! $n case of public Co 1H> can be appointed permanently, H> shall be subBect to retirement by

rotation

! At the AG;: in the private Co or a public co 1H> of rotational directors shall retire from office

! 8etired directors are eligible for re'election




ppointment "y 5 (Sec. 2/0):

s ##itional irector (Sec. 2/0):

! "hall hold office till ne(t AG; %tenure of appointment&

! ;a(imum strength is fi(ed for the =oard by Article

! $f additional director as managing director, the moment he ceases to be an additional director he

will cease to be a ;2 s lternati>e irector (Sec. 919):

! 2irector to act in a place of original 2irector absent for > months from the state in which

=oard ;eetings are ordinarily held

! Can be appointed if authoried by: Articles of the Co, resolution passed by the co in general

meting

In Cas!al >acancy (Sec. 2/2):! <ffice is vacated before the term e(piry, the casual vacancy can be filled by the =<2-s at the

meeting

! "ubBect to the regulations in the Articles

! 8eason death, resignation, dis@ualification, retirement by rotation %has to be filled by AG;&




ppointment "y Central 6o>t. (Sec. <0?):

! mpowered by company law =oard, by order in writing, to effectively safeguard the

interest of Co, or its shareholders H ublic interest

! )erms of directors ;a( eriod > yrs

! Eot re@uired to hold @ualification shares

! Eot liable for termination by retirement by rotation

%emo>al of irectors:

5y the sharehol#ers (Sec. 2?<):

! Can remove before the e(piry by passing an ordinary resolution

! 2oesn-t apply to directors appointed by central Govt

! 2oesn-t apply to %pvt co& removal of directorsholding office for life on April 1, 195

5y the Central go>t. (Sec. 9??5 to 9??E):

! <n the recommendation of the tribunal




'anagerial %em!neration: 8efers to: ;anaging 2irector,! art'time 2irector,

! ;anager

! (cludes who are not members of =<2

! 8emuneration not to e(ceed 11 I of the net profit

! ;onthly remuneration to its provision of "ec >?9 0 "ec >J4

'eetings of #irectors (Sec. 2?4 to 2??):

! <nce in every > months

! Eotice of meeting to every director

! Fuorum for meeting 1H> of total strength or directors



Amity School of Business&o$ers of irectors:

6eneral po$ers of the 5oar# (Sec. 231):

! =<2 is entitled to all powers as the company is authoried! "ubBect to two conditions:

=oard shall not do any act which is to be done by the company in the

General ;eeting

=oard shall e(ercise its powers subBect to the provisions contained in the

Companies Act&o$ers to "e exercise# at 5oar# 'eetings (Sec. 232):

! ower to ma/e calls on shareholders in respect of money unpaid on their shares

! $ssue debentures

! =orrow money otherwise than on debentures

! $nvest the funds of the company

! ;a/e loan




&o$ers to "e exercise# $ith the appro>al of company in 6eneral 'eeting

(Sec. 239):

! )o sell, lease or otherwise dispose of the whole of the underta/ing of the

company

! )o remit or give time for repayment of any debt due to the company by adirector

! )o invest the amount of compensation received by the company in respect

of the compulsory ac@uisition



Amity School of Business!ties of irectors:

! iduciary 2uties:

(ercise their powers honestly 0 bonafide for the benefit of the companyas a whole and,

Eot place themselves in the position in which there is a conflict between

their duties to the company and their personal interest %;ust not ma/e any

personal profit out of their position&

! 2uties of s/ill, care 0 diligence: Carry out duties with reasonable care s/ill 0 diligence

Eot bound to bring any special @ualifications to his office

"tandard of care depends upon:

)ype 0 nature of wor/

2ivision of powers between 2irectors 0 other officers General usage 0 their customs in business

<ther duties:

)o attend =oard ;eetings

Eot to delegate his functions e(cept authoried by Act

2isclose his interest



Amity School of BusinessMeetings:I. Stat!tory meeting (Sec. 1/4):

' very company limited by sharesH guarantee, within a period of not less than onemonth nor more than si( months from the date of its commencement, hold a

general meeting

' irst meeting of the shareholders 0 held only once in lifetime

' $t is not applicable to a rivate company or a company having unlimited liability

&!rpose@ o",ect:

! )o fulfill the statutory re@uirements of the act %"ec 165&

! )o familiarie 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

! )o provide an opportunity to the members to discuss matters relating to theformation of the company 0 arising out of statutory report




&enalty:

! $f default is made in complying with the provisions of "ec 165, everydefaulting 2irector of the company will be punishable with a fine of 5??H'

! $f default is made in holding the statutory meeting, after 1K days from the

date on which ought to be held, as per "ec K>9, 8<CH a member may

apply for the winding up of the company

II. nn!al 6eneral 'eeting (Sec. 1// 1/7):

' very company shall hold in each year

' )here shall not be an interval of more than 15 months between one AG; of

the company 0 the ne(t

' irst AG; to be held within a period of 1J months from the date of its

incorporation, no other AG; is necessary in the year of its incorporation

or ne(t year




*ime &lace of 'eeting:

very meeting shall be during business hours of a day not a public holiday .eld at registered office or any place within city, town or village

21 #ayAs +otice: ;ay be called by giving not less than 1 days notice $t can

be called at a shorter notice

Conse=!ences of fail!re to hol# 6': $f a company fails to hold meeting:

Any member can apply uHs 164, to the Co 7aw =oard for calling the

meeting

)he company 0 every officer shall be punishable with the fine

Importance:

"hareholders can e(ercise any control over the affairs of the company Get opportunity to discuss the affairs 0 review the wor/ing

Appointment of Auditors

Annual AHCs presented for consideration of shareholder-s dividends is

declared in AG;




III. Extra r#inary 6eneral 'eeting (Sec. 1/3):

Any meeting other than a statutory and an annual general meeting is called ane(tra ordinary meeting

&!rpose:

"ome urgent or special business which cannot be postponed till ne(t AG;

Can be convened by =<2-s or on the re@uisition of its members

1. Extraor#inary meeting con>ene# "y the 5As:

n its o$n:

$ssue of share capital

$ncrease in remuneration of ;2

n re=!isition of mem"ers:

$n case, a company having a share capital, by holders not less than 1H1?th of the paid

up capital of the company having voting rights

$n case, company not having a share capital, by members representing not less than

1H1?th of the total voting power




2. Extraor#inary meeting con>ene# "y the re=!isitionist:

$f =<2-s fail to call a meeting as re@uired by re@uisition, the meeting may be

called :

=y the re@uisitionist themselves

$n case a company has a share capital re@uisition by members holdingnot less than 1H1?th of the paid up capital

$n case of a company not having a share capital members not less than

1H1?th of the total voting power in regard to that matter

&o$er of Co. La$ 5oar# to or#er meeting (Sec. 1?/):

C7= may call an (tra'ordinary meeting either on its own or on the

application of any 2irector of the Co




%e=!isites of a Vali# 'eeting:

&roper !thority:

! =<2-s %statutory, AG;, or e(tra'ordinary&

! C7=

+otice of meeting:

! Eot less than 1 days notice in writing

! "hall be given to all members of company entitled to vote

! 2eliberate omission to give notice may invalidate the meeting

! Accidental omission doesn-t invalidate

! ;ust specify the place, date, day 0 hour of the meeting

! "tatement to be transacted

! )ime of holding General ;eeting: 2uring =usiness hours

! lace: either registered office,

! 2ate: not a ublic .oliday-




;!or!m of meeting:

$t means minimum number of members who must be present in order to

constitute a valid meeting 0 transact business threat

Chairperson of meeting:

residing officer of the meeting;entioned in the Articles, otherwise members present shall elect one

'in!tes of meeting:

8ecord of what the company0 2irectors do in the meeting



Amity School of BusinessResolutions: r#inary resol!tion: assed at General ;eeting by maBority of votes

! 8e@uired for: issue of shares at discount

! Appointment of Auditors 0 their remuneration

! Appointment of irst 2irectors liable to retire by rotation

! 8emoval of 2irector

! 3inding of Company Special resol!tion: $t satisfies the following conditions:

! $ntentions to propose the resolution as a special resolution specified in

notice

! 2uly given for General ;eeting

! #otes cast in favour are not less than > times the number of votes castagainst the resolution %pro(ies allowed, if any&

! A copy of resolution submitted to the 8egistrar within >? days of passing

the resolution




%e=!irement of Special %esol!tion:

! Alteration of ;emorandum of Association %8egistered office 0 <bBect Clause&

! Changing the name of company with the consent of central Govt

! Alteration of A<A

! #ariation of shareholder-s rights

! Allowing 2irector to hold office of profit under Co

! Applying to the court to wind up a company

Bin#ing -p (Li=!i#ation) :! $t means a proceeding by which a company is dissolved



Amity School of Business'o#es of Bin#ing -p:

1 3inding up by the Court ie Compulsory 3inding

#oluntary 3inding Dp

! ;ember-s #oluntary 3inding Dp

! Creditor-s #oluntary 3inding Dp

I. Bin#ing -p 5y the Co!rt (Sec. <99 to <?9):

! "pecial resolution of the company

! 2efault in delivering the statutory report to the 8egistrar or in

holding "tatutory ;eeting

! ailure to commence, suspension of business

! 8eduction in membership

! $nability to pay its debts




&etition (Sec. <93):

! An application to the court for winding up of a company is made by a petition

Bho may file petition:

! =y the company %after passing special resolution&

! =y creditor %person having a pecuniary claim against the company&

! =y 8egistrar

! 2efault in submitting statutory report

! 2oesn-t commence business within a year from its incorporation

! Eumber of members reduced

! =y Central Govt! =usiness conducted with the intention to defraud creditors, members

! raudulent purpose




II. Vol!ntary Bin#ing -p:3inding up by the Creditor-s or ;ember-s of a company, without

interference by the court

! =y passing <rdinary 8esolution

! =y passing "pecial 8esolution*ypes of Vol!ntary Bin#ing -p:

'em"erAs Vol!ntary Bin#ing -p:

eclaration of Sol>ency: $f a declaration is made acc to sec KJJ

! "hall be made by a maBority of 2irectors at a meeting that thecompany has no debt or will be able to pay in full within > yrs

rom the commencement of winding up




! Appointment 0 remuneration of li@uidator' %<fficial 7i@uidator is the person appointed by

the court for the winding up of the company&

! =oard-s powers ceased after the appointment of li@uidator

! Eotice of appointment f li@uidator given to 8egistrar

! ower of li@uidator to accept shares

! 2uty to call General ;eeting at the end of each year Cre#itorAs Vol!ntary Bin#ing -p:

$n which a declaration of its solvency is not made

&ro>isions:

! ;eeting of creditors $n General ;eeting resolution can be passed for voluntary winding

up

! Eotice of resolution to be given to 8egistrar within 1? days

! Appointment of committee of $nspector

! 7i@uidator-s remuneration

Mod 5 Companies Act, 1956

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Transcript of Mod 5 Companies Act, 1956