2. LEGISLATIVE BACKDROP OF COMPANIES ACT
The law relating to companies in INDIA is based on British
model.
The first piece of legislation relating to INDIAN companies
in 1850 is based on Joint Stock Companies Act, 1844 of
England.
Companies Amendment Act 1857 provided for registration
of companies with or without liability.
Companies Act,1866 replaced the Amendment Act 1857
After a series of Amendments Companies Act 1956 was
passed
Since 1956 -1988 13 amendments have been made
3. MEANING AND DEFINITION OF A COMPANY
Sec 3 (1) of the companies act 1956 defines that “ a
company means a company formed and registered under
this act or an existing company ”
A company refers to an “ association of many persons who
contribute money or moneys worth to a common stock and
employ it in some trade or business and who share the
profit and loss arising there from ”
- Lord Justice Lindlay
Company is “ an incorporated association which is an
artificial person created by law, having separate legal entity
with a perpetual succession and common seal ”
- Henry
4. Features of a Company
1. Registration / Incorporated association
2. Separate legal entity
3. Common Seal
4. Perpetuity
5. Limited Liability
6. Separation of ownership and mgt
7. Transferability of shares
8. Separate property
9. Capacity to sue and to be sued
5. LIFTING THE CORPORATE VEIL
Circumstances under which the courts may lift the
corporate veil
A. Common law exceptions
1. Determination of character
2. Where company is a sham
3. Prevention of fraud or improper conduct
4. Where the company is acting as the agent of the
s.holders
5. Protection of revenue
6. Avoidance of welfare legislation
6. B. Statutory exceptions
1. Number of members fall below statutory minimum
2. Failure to refund application money
3. Company not mentioned on a bill of exchange
4. Group accounts
5. Investigation into related activities
6. Fraudulent trading
7. Company & Partnership distinguished
On the basis of ……….
1. Registration
2. Separate legal entity
3. Right on property
4. Liability
5. Shares transferability
6. Perpetuity
7. Agent
8. Interference in affairs
9. Entering into contact
10. Powers
11. Members
12. Dissolution
8. Company & HUF distinguished
On the basis of ……….
1. Authority
2. Number of members
3. Basis of membership
4. Position of females
5. Homogeneous / Heterogeneous
9. Kinds of companies
Company
Registered co. Statutory co. Chartered co.
Companies ltd by shares Public
Companies ltd by guarantee &
Unlimited ltd companies Private
conti……
10. Classification of Registered companies
On the Basis of the Number of Members
a) Private Companies
b) Public Companies
On the Basis of ownership
a) Government Companies
b) Non Government Companies
On the Basis of Nationality
a) Domestic Company and
b) Foreign Company
On the Basis of Control
a) Holding Companies
b) Subsidiary Companies
11. PUBLIC AND PVT. CO. DISTINGUISHED
On the basis of ……..
1. Formation
2. End words of the name
3. Membership
4. Prospectus
5. Allotment of shares
6. MOA and AOA
7. Preparation of Articles
8. Public issue of capital
9. Transfer of shares
10. Statutory meeting
11. Share warrant
12. Formation of a Company
Incorporation
Documents to be filed with the Registrar
1. Memorandum of Association
2. Articles of Association
3. Agreement if any for appointment of M.D
4. Statement of nominal capital
5. Address of the Registered Office
6. List of directors and sign
7. Undertaking in writing to take and pay for his qualification shares
8. Declaration
13. Memorandum of Association-MOA
It is document which sets out the constitution of the
company and is the foundation of the company. It
contains the fundamental conditions upon which the
company is allowed to be incorporated
Various Clauses in MOA-
1. Name clause
2. Registered office clause
3. Objects clause
4. Liability clause
5. Capital clause
14. Alteration of MOA
1. Change of name
2. Change of Registered office
3. Change of Liability clause
4. Change in Capital clause
5. Change in Objects clause substantive limits
procedural limits
DOCTRINE OF ULTRA VIRES
15. Articles of Association-AOA
AOA refers to the rules and regulations of a
company framed for the purpose of internal
management of its affairs.The AOA of a company
are sub-ordinate to and are controlled by the MOA.
Companies which must have their own articles-
1. Private companies limited by shares
2. Companies limited by guarantee
3. Unlimited companies
16. Contents of AOA
1. Number and value of 9. Conversion of shares
shares into stock
2. Allotment of shares 10. Voting rights and
3. Calls on shares proxies
4. Lien on shares 11. Meetings
5. Transfer and 12. Directors and their
transmission of shares appointment
6. Forfeiture of shares 13. Borrowing powers
7. Alteration of capital 14. Dividends and
reserves
8. Share certificates
15. Accounts and audit
16. Winding up
17. MOA & AOA distinguished
1. MOA is a charter of the company defines scope and
activities
AOA regulates internal mgt
2. MOA defines relation to the outside world
AOA deals with rights of the members
3. MOA is the supreme document of the company
AOA is the subordinate to the memorandum
4. MOA is necessary for all the companies
AOA is not required for the company limited by shares
5. MOA cannot be altered except in the manner and extent
provided by the Act
AOA can be altered through a special resolution
18. PROSPECTUS
Definition –
Sec 2(36) defines prospectus as “ 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 ”
Ingredients to be called prospectus -
1. There must be an invitation offering to the public
2. The invitation must be made by or on behalf of the
company
3. The invitation must be to subscribe or purchase
4. The invitation must relate to shares or debentures
19. Objective of Prospectus –
• To inform the public about the formation of the company
• To induce the investors to invest in its shares and
debentures
• To preserve the authentic record of the terms on which the
investors have been invited and to make the directors
responsible for the statements in the prospectus
Statement in Lieu of PROSPECTUS
20. SHARE CAPITAL
The term share capital refers to the amount of
capital raised by a company through the issue of
shares
Features of Share capital:
1. Share capital can be raised only by companies
limited by shares and registered with share capital.
2. Share capital can be raised by a company either at
the time of its formation for starting its operations
or later on for further expansion
3. Share Capital (Except in the case of redeemable
preference shares), once raised , cannot be
returned by the company to the shareholders as
long as it continues to exist.It can be returned only
at the time of the winding up of the company.
21. Classes of Capital
1. Nominal,Registered or Authorized Capital
2. Issued capital
3. Subscribed capital
4. Called up capital
5. Paid up capital
6. Uncalled capital
7. Reserve capital
22. SHARES
Section 2(46) of the companies Act of 1956 defines a
share as “ a share in the share capital of a company
and includes stock except where a distinction
between stock and share is expressed or implied ”
According to this definition a share is a fractional part
or unit of the capital of a company.
23. Capital Structure of Shares
Equity Preference Deferred/Founders
Cumulative Non-Cumulative
Participating
Non-participating
Redeemable
Non-redeemable
24. Preference & Equity shares distinguished
On the basis of ………
1. Right of receiving dividend
2. Right of receiving back their capital
3. Return
4. Voting rights
5. Control of management
6. Face value
7. Redeemability
8. Period of finance
9. Capital appreciation
10. Nature of capital
11. Interest in company
25. Debentures
The term debenture is derived from Latin term ‘deber’
meaning ‘to owe’ So literally, debenture means a
document acknowledging a debt.
Debenture is an instrument issued by a company
under seal, acknowledging a debt to some person,
and containing an undertaking to repay the debt after
a specified date or on a particular date or at the
option of the company, and in the meantime , to pay
interest at a fixed rate and at regular intervals.
In short, a debenture is an instrument of credit, a
bond of indebtedness, a certificate of loan or an
acknowledgement of debts issued by a company.
26. Kinds of Debentures
Transferability Security Redemption Convertibility Priority
•Registered •Simple or •Redeemable Convertible First
unsecured
•Bearer or •Irredeemable Non-Convertible Second
Unregistered •Mortgage or
Secured
27. Stock and Shares
Rights shares
Bonus shares
Share Certificate
Share Warrant
Forfeiture of shares
Lien of shares
Transfer of shares
Transmission of shares
28. MEETINGS
General Meetings Board Meetings Creditors’ Meetings
•Statutory meeting
•Annual general • Board meetings •Debenture holders’
•Extraordinary • Committee •Creditors [during
general meetings winding up]
•Class meeting
29. Provisions of a valid meeting
Proper authority to convene a meeting.
Proper notice of the meeting
Quoram for the meeting
For General meeting US 174
2 members personally present in the case of a private
Co,& 5 members personally present in the case of
public co.
For Board meeting
In the absence of specific provisions in the articles
regarding the
quoram. 13 rd of the total strength of the directors or at
least 2 directors whichever is higher.
30. Proxy – It refers to a person who is authorized by a
member of a co to attend and vote at a meeting of the
co on his behalf.
In other words, a proxy is an agent of a share holder
authorized to attend & vote at a meeting of the co.
• Proper person in the Chair
• Agenda of the meeting
• Motion :-
A proposition or proposal put before a meeting for
consideration & decision.
Method of Voting:-
a) By show of hands
b) by poll
31. Resolutions
When motion is passed in a meeting, it becomes a
resolution.
In other words it is the recorded decision of a
meeting.
In short, it is the decision of a meeting on a motion.
Ordinary Resolution:- As per Sec 189(1) of co Act an
ordinary ordinary resolution is one which is passed by
a simple majority of votes of members present in
person or by proxy at a properly constituted &
convened general meeting.
Special Resolution:- Sec 189 (2) of the Co. Act, a
special Resolution is one which is passed by at least
3/4 th majority of votes of members present in person
or proxy at a properly constituted & convened G.M.
32. Minutes of Meetings
Literally, minutes refer to a note to preserve the
memory of anything.
The minutes of a meeting are the written record of the
business transacted and decisions arrived at a
meeting.
U/S 193 of Co Act provides that every company must
keep minutes containing a fair and correct summary
of the proceedings.
33. Objectives ,Uses or Value of Minutes
1. Clear, concise and accurate record
2. Permanent record of the proceedings and the
decisions reached at a meeting.
3. Reminder of The subjects previously dealt with and
the conclusion reached.
4. They are accepted in a court of law as a evidence
of the proceedings of a meeting.
5. Information to the absentee members.
34. Statutory Meeting
Statutory meeting is the first official general Meeting of
the shareholders of public co ltd by shares or a public co
ltd by guarantee & having share capital.
Provisions
1. Notice.
2. Statutory Report.
3. A certified copy of the Statutory report must be filed with
the registrar of companies.
4. At the meeting , a list showing the names, addresses &
occupations of the members & the number of share held
by them must be placed by the board of directors.
5. Default.
35. Statutory Report
This is a report drafted by directors and certified as
correct by at least 2 of them including the managing
director.
U/S 165 (3) of the Companies Act of 1956, the
statutory report must contain the following matters:
1. Total no of shares allotted.
2. An abstract of Receipts and payments.
3. Particulars of directors, managing directors etc.
4. Underwriting contracts.
5. Calls in arrears.
6. Commission or brokerage.
36. Objects of Statutory meeting.
1. To know the progress of the Co.
2. To discuss the finances of the Co.
3. To help the members to know one another .
37. Annual General Meeting
Annual General meeting is a meeting of the share holders
which is held every year.
Provisions
1. U/S 166 every co public or private , must hold an annual
G.M of shareholders every year.
2. The first A.G.M. of a co. must be held within 18 months
from the date of its incorporation.
3. Every subsequent A.G.M must be held each year within 6
months after the closing of the financial year. Of the co &
within 15 months from the date of the previous A.G.M.
4. The meeting must be held on a working day during the
business hours at the Registered office of the co.
5. Notice.
38. WINDING UP OF COMPANIES
Modes of Winding Up
1. By the Court – Compulsory winding up
i. Special resolution
ii. Default in filing statutory report or holding statutory
meeting
iii. Failure to commence business with in time
iv. Reduction of membership
v. Inability to pay debts
vi. Just and equitable clause of the court
39. 2. Voluntary winding up –
i. Members voluntary w. up (declaration of solvency)
ii. Creditors voluntary winding up
3. Winding up under the supervision of the court
40. Petition for Winding Up
1. The company
2. Any creditor or creditors including any contingent
or prospective creditor or creditors
3. Any contributor or contributories
4. The Registrar
5. Any person authorized by the central government
41. The Largest Public Company Bankruptcies - 2002
Company
Bankruptcy Date Assets
WorldCom,Inc. 7/21/2002 $103,900,000,000
Conseco, Inc. 12/18/2002 $61,392,300,000
Global Crossing, Ltd. 1/28/2002 $30,185,000,000
UAL Corp. (United Airlines, Inc. parent) 12/9/2002 $25,197,000,000
Adelphia Communications Corp. 6/25/2002 $21,499,480,000
Kmart Corp. 1/22/2002 $14,630,000,000
NTL, Inc. 5/8/2002 $13,026,100,000
U.S. Airways, Inc. 8/11/2002 $7,941,000,000
XO Communications, Inc. 6/17/2002 $7,930,470,000
Williams Communications Group, Inc. 4/22/2002 $5,992,030,000
McLeodUSA, Inc. 1/30/2002 $4,755,100,000
Budget Group, Inc. 7/29/2002 $4,469,500,000
National Century Financial Enterprises, Inc. 11/18/2002 $3,800,000,000
Asia Global Crossing, Ltd. 11/18/2002 $3,632,540,000
Kaiser Aluminum Corp. 2/12/2002 $3,364,300,000
Source: www.bankruptcydata.com
