The Indian Companies Act, 1956

The companies of India are style Click to edit Master subtitle governed by Indian Companies Act, 1956.

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Definitions

Company: A voluntary association of persons. An association of persons who contribute money or moneys worth to a common stock and employ it in some common trade or business and who share the profit or loss arising therefrom. A group of persons registered under 3/13/13 companies act, 1956 of India is

Characteristics of a company

Separate legal entity (Salmon vs Salmon) Limited Liability Perpetual Succession Common Seal Transferability of Shares Separate property Capacity to sue 3/13/13

Lifting of Corporate Veil

Protection of revenue Prevention of fraud or improper conduct Determination of Character of a company whether it is enemy (Daimler Co. Ltd vs Continental Tyre and Rubber Co. Ltd) Prevention of fraud or improper conduct

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Types of Companies

Limited Liabilities Companies Unlimited Liability Companies Government Companies Foreign Companies Public Companies Private Companies Statutory Companies Holding Companies

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Incorporation and Procedure of a Company

Before forming a company it has to be decided whether it should be a public company or a private company Formation of a Public Company: Any 7 or more persons (2 or more in case of private company) may file the required documents with the registrar of the companies
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Required documents to be filed with

Incorporation of a Company

If the proposed name of the company is approved then the following documents duly stamped together with the necessary fees are to be filed with the registrar: 1. The MOA duly signed by the subscribers 2. The AOA if any signed by the subscribers to the MOA. A public 3/13/13 company limited by shares need not

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Incorporation of a Company

A list of directors who have agreed to become the first directors of the company and their written consent to act as a director and to take up a qualification of shares. A declaration stating that all the requirements of the Companies Act and other formalities relating to registration have been complied with. This declaration has to be 3/13/13

Incorporation of a Company

A person named in the AOA as a director, manager or secretary of the company. Within 30 days of the date of incorporation of the company a notice of the situation of the registered office of the company shall be given to the registrar who shall record the same. Certificate of Incorporation: When

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Incorporation of a Company

Satisfy means not conducting investigation He keeps himself the MOA and AOA and issues A Certificate of Incorporation. In case the company is limited then it becomes a limited company. COI(Certificate of Incorporation) is a conclusive proof of the existence of a 3/13/13 company.

Procedure of Conducting Annual General Meeting

A promoter is a person who does the necessary preliminary work incidental to the formation of a company. No remuneration for him. The meetings of a company can be classified into following: Statutory meeting AGM
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EGM

Meetings

Class meetings of share holders Meetings of creditors and debenture holders This will be held during the lifetime of the company At the time of winding up of a company Meetings of a directors.
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Procedure of a AGM

Every company Shall in each year hold in addition to any other meetings a general meeting as its AGM There shall not be an interval of more than 15 months between one AGM and another AGM A first time company may hold its first AGM within its 18 months from 3/13/13 date of incorporation the

Procedure of conducting a meeting

The registrar may for any special reason extend the time for holding any annual general meeting by a period not exceeding 3 months. But no extension for First AGM There should be at least one AGM per year and as many meetings as there are years. Time and place of meeting: During 3/13/13 business hours (not a public holiday.

Procedure of conducting a meeting

21 days notice to be given. Shorter notice can be given provided all the members entitled to vote in the meeting agree. If not conducted: Any member can apply for CLB The company and every officer who is default shall be punishable
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Share holders can exercise their

Procedure of conducting a meeting

21 days notice Agenda, Date, time and venue Conducting the meeting according to the agenda Chairmans powers If a member is not able to come and attend proxy. Proper authority
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Procedure of conducting a meeting

Board should pass a general resolution for conducting a general meeting. If some defect has been noticed after the meeting has been started then if not be fatal for voting purposes. Proper notice should be given to all the members that is 21 days If less than 21 days then all the 3/13/13 members entitled to vote there at to

Procedure of a meeting

In the case of any other meeting (SGM or EGM) a company having a share capital by members holding 95% of the paid up share capital as gives a right to vote No share capital then 95% of voting power Notice should be given to every member who is eligible to vote, after 3/13/13 deceased members or insolvent

Procedure of a conducting a meeting

Deliberate omission of sending a notice may amount to cancellation of meeting. Quorum: Minimum number of members who are eligible to attend the meeting If within hour if the quorum is not present the meeting stands cancelled, in any other case same 3/13/13 day, same place and time in the next

Resolutions

Questions which are generally put in the meeting are presented in the form of proposals called as motions. It should be seconded by some one. Ordinary Resolution: Simple majority Egg: Rectification of name or adoption of new name by the company, alteration of share capital, re-issue of redeemed debentures, 3/13/13 adoption of statutory report, passing

Resolutions

Special Resolution: Intention to be duly specified 3/4ths of the members who are entitled to vote . They can vote by person or by proxy Egg: Alteration of memorandum of association, Change of the name of the company with the permission of Central Govt
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Reduction of share capital

Statutory meeting

Every company limited by shares and every company limited by guarantee and having a share capital shall, within a period of not less than one month nor more than six months from the date at which the company is entitled to commence business hold a general meeting of the members of a company.
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This is the first meeting of the share

Statutory meeting

Statutory report: The board of directors shall at least 21 days before the day on which the meeting is to be held forward a report called the statutory report to every member of the company. If all the members eligible to attend the meeting agree to call that meeting as statutory meeting then it will be called as statutory meeting.
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Procedure of Statutory meeting

Agenda, List of members Discussion of matters relating to formational aspect Adjournment If any default every director or any other officer of the company who is in default shall be punishable with fine 3/13/13 which may extend to 5,000/-.

Extra Ordinary General Meeting

Any meeting other than AGM and SGM is called as EGM. It is for transacting some urgent business or special business. It may be convened by: The board of directors on its own or on the requisition of the members By the requisitionists themselves on the 3/13/13 failure of the Board of directors to

EGM

The board of directors may call an EGM: On its own Egg: Issue of right shares, Increase in the remuneration of MD or WTD On requisition of members (Share holders of not less than 1/10 th of paid up share capital, or by members representing not less than 1/10 th of 3/13/13 voting power)

EGM

Every holder of a company has a right to requisition an EGM. No need to disclose the reasons. If the board of directors fail to call a meeting as required by the requisition the meeting may be called: By the requisitionists themselves If the company is having a paid up 3/13/13 share capital 1/10th of it

EGM

It should not held more than 3 months from the date of requisition. A meeting held in that period can be postponed after the period of 3 months. Shares: A share is the interest of a share holder in a company.
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A share is evidenced by a share

Shares

Stocks can validly be issued only when the shares are fully paid up. The issue of partly paid up stock is a nullity. A company limited by shares may, if authorised by its articles, by ordinary resolution passed in general meeting, convert its fully paid up shares into stock.
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Types of Shares

Under the Companies Act, 1956 a company can issue two types of shares Preference Shares and Equity shares Preference Shares: With reference to company limited by shares are those which have 2 characteristics:
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They have preferential right to be

Types of Shares

Equity Shares: Equity shares with reference to any company limited by shares are those which are not preference shares. Sweat Equity shares: Equity shares issued at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value 3/13/13

Preference Shares

Cumulative Preference Shares: These are the shares on which dividend goes on accumulating till it is fully paid off. The arrears of any years dividend are carried forward as a charge upon the subsequent years profits. Non Cumulative preference shares: These are the shares on which the dividend does not go on 3/13/13

Preference Shares

Participating Preference Shares: These shares are not only entitled to a fixed rate of dividend but also to a share in the surplus profits which remain after the claims of the equity shares holders (up to a limit say 15%) have been met. Non Participating preference shares: These shares are entitled to only a fixed rate of dividend. The holders of 3/13/13

Preference Shares

Non Convertible Preference Shares: These are the shares which do not confer on their holder a right of conversion into equity shares. Redeemable Preference Shares: A company limited by shares may if so authorised by its articles issue preference shares which are to be redeemed.
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Directors

Director includes any person occupying the position of director by whatever name called. The important factor to determine whether a person is or is not a director is to refer to the nature of the office and its duties. Every public company (other than a deemed public company) shall have 3/13/13 at least 3 directors and every other

Directors

However a public company having: A paid up capital of Rs. 5 Crore or more One thousand or more small share holders shall have at least one director elected by such small share holders in the manner as may be prescribed. Small share holder means a share 3/13/13 holder holding shares of nominal

Types of Directors

Any increase in number of directors beyond the maximum permitted by the articles shall be approved by the central government but if it is below 12 then there is no need for approval of central government. First Directors: The articles of a company usually name the first directors by their respective names or prescribe the method of 3/13/13

Types of directors

Directors appointed by directors: Additional directors ( not to exceed the number prescribed by the articles [excess work]). Casual Director: Vacancy arising before the term expires because of death, resignation disqualification or failure of an elected director to accept the office for any reason other than retirement by rotation. 3/13/13

Types of directors

Alternate directors: If a director is absent for more than 3 months from the state in which board meetings are ordinarily held. Directors appointed by third parties: The articles under certain circumstances give power to the debenture holders or other creditors who have advanced loans to the company to appoint their nominees 3/13/13

Types of directors

Appointment by proportional representation: The articles of a company may provide for the appointment of not less than 2/3rds of the total number of directors of a public company or of a private company which is subsidiary of a public company according to proportional representation.
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Directors appointed by central

Types of directors
Number of members who have to give representation to confirm that there is oppression and mismanagement: 100 members of the company or more Members of the company holding not less than 1/10th of the total voting power therein.

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Removal of Directors

The office of a director shall be vacant in the following ways: 1. He fails to obtain within 2 months of his appointment or at any time there after ceases to hold the share qualification according to AOA 2. He is adjudged to be of unsound mind 3. He applies to be adjudicated an 3/13/13 insolvent

Removal of Directors

He absents himself from 3 consecutive meetings of the board of directors or from all meetings of the board for a consecutive period of 3 months whichever is longer without obtaining leave of absence from the board. He is a director of a company which has taken loan or a partner of a company or accepts a loan from the 3/13/13

Removal of Directors

He fails to make disclosures to the board of directors with regard to any contract with the company directly or indirectly He becomes disqualified by an order of the Tribunal from being a director on the ground of having been convicted of an offence in connection with the promotion, formation or management of the company or 3/13/13

Removal of Directors

He is removed before the expiry of his period of office by an ordinary resolution Having been appointed a director by virtue of his holding any office or other employment in the company he ceases to hold such office or other employment in the company. Directors may be removed by share 3/13/13 holders: By passing an ordinary

Removal of Directors

Removal by Central Government: The Central Government may, in certain circumstances, remove the managerial personnel from office on the recommendation of the tribunal. Resolutions: Ordinary resolutions: An ordinary resolution is a resolution is passed at a general meeting of a company by a 3/13/13 simple majority of votes. The votes

Resolutions

Egg: Rectification of name or adoption of new name by a company where it resembles the name of an existing company with the previous approval by the central government. Issue of shares at a discount RE-Issue of redeemed debentures Adoption of statutory report
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Passing of annual accounts and

Resolutions

Special Resolutions: A special resolution is one which satisfies the following conditions: The intention to propose the resolution as a special resolution has been dully specified in the notice calling the general meeting. The notice has been duly given of the general meeting
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The votes cast in favour of the

Resolutions

Egg: Alteration of MOA Change of name of a company with the consent of the Central Government Omission or addition of the word Private from or to the name of a company Alteration of AOA
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Payment of interest out of capital

Resolutions

Resolutions requiring special notice: A resolution requiring a special notice is not an independent class of resolutions it is a type of Ordinary Resolution. A notice of the resolution to be given by the proposer to the company. The notice should be given to the company not less than 14 days before the meeting.
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Company to give notice to members

Resolutions

Provision that a retiring auditor shall not be re appointed Removal of a director before the expiry of his period. Appointment of a director in place of one who is removed Auditors: A person is qualified as an auditor only if he/she is an Chartered Accountant according to Chartered 3/13/13 Accountants Act, 1949.

Auditors

Appointment of Auditors: Appointment in AGM from that AGM to next AGM. The company shall, within 7 days of the AGM give information thereof to every auditor so appointed. To get auditors consent that it is within his number of companies.
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Auditors

Removal of Auditors: A company shall not appoint or reappoint any person who is in full time employment else where or firm as its auditor is such person or firm is at the date of such appointment or reappointment holding appointment as auditor of more than specified number of companies. The specified number shall mean:
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Auditors

Compulsory reappointment: An auditor can be reappointed except in the following ways: If he is not qualified for reappointment If he has given to the company notice in writing of his unwillingness to be re-appointed If a resolution has been passed to the 3/13/13 effect appointing somebody instead

Auditors

Where notice has been given of an intended resolution to appoint some person or persons in the place of a retiring auditor and by reason of death, incapacity or disqualification of that person or of all those persons the resolution cannot be proceeded with. The first auditors of a company before the first AGM may be removed 3/13/13

Rights of an Auditor

Auditor is required to make a report to the members of the company on: The accounts examined by him Balance sheet and profit and loss account Every document annexed to the balance sheet and profit and loss account laid before the company in general meeting during his tenure in 3/13/13 office.

Rights of an auditor

The book entries of the company are not prejudicial to the company Whether the loans and advances made by the company have been shown as deposits Whether personal expenses have been charged to revenue account Where any shares has been transferred for cash if it is so then 3/13/13 whether cash has been transferred to

Rights of an auditor

Rights of access to books accounts and vouchers Right to obtain information and explanations Right to visit branch offices and right to access to books Right to receive notice of general meetings and to attend them
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Right to receive remuneration

Duties of an Auditor

Acquaintance with the articles and the companies act Report to members Duty of care and caution Preparation of statutory report Prospectus Assistance in investigation
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Borrowing Powers, Loans and Debentures

A company needs money to finance its activities from time to time. Every trading company unless prohibited by its MOA has implied power to borrow money for the purposes of its business. A non trading company has no implied power to borrow.
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Ultravires Borrowing:

Borrowings

Borrowings which is ultravires the company: If a company borrows money beyond its express or implied powers the borrowing is ultravires the company and is void. Lenders rights when the borrowing is ultravires: Injunction, Subrogation(If the money is borrowed has been used by the company in paying off its lawful debts, the lender will rank as a 3/13/13

Borrowings

Identification and Tracing, Recovery of Damages Borrowings which is intra vires the company but ultravires the directors: Then it can be ratified by the company, if the agent is exceeding the limits then the lender has to rely upon Royal British Bank vs Turquand and recover the loan amount from the company. 3/13/13

Debentures

Debenture: Includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. In other words it means a document which either creates a debt or acknowledges it. Characters: It is issued by the 3/13/13 company under seal, It is issued by a

Types of Debentures

Bearer Debentures( These debentures also known as unregistered debentures are payable to its bearer) Registered debentures: (These are payable to registered holders) Secured debentures (Charge on the property of the company) Unsecured or naked debentures, 3/13/13 Redeemable debentures, Irredemable

Winding up of a company

Winding up by a tribunal Voluntary winding up: Members voluntary winding up Creditors voluntary winding up.

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