Company Law 1956

An association of persons who contribute money or moneys worth to a common stock and employ it in some trade or business; and who share profit and loss arising there from
By Prof.(Dr.) A. K. Samantaray

Feature of a Company
Incorporated

association Artificial person Separate legal entity Limited liability Transfer of shares Perpetual existence Common seal

Lifting the corporate veil

The law lifts the corporate veil to know the persons behind in the following cases. For collection of revenue Where the company is formed for some fraudulent purpose Where a company formed is against public policy Where the number of members fall below the statutory minimum Where prospectus includes a fraudulent statement When a company files for winding up

Classification of company
1. Chartered Company. These companies were established by

special sanctions from royal chartered. They were enjoying special powers and privileges. For example, the East India Company was established by the royal charter of the Queen of England. 2. Statutory Company. These companies are formed by special Acts of Parliament or State legislature. These companies are regulated by special laws formulated by Government. The examples are IDBI, RBI, IFCI, UTI, etc. 3. Unlimited Company. The liabilities of members of this company are unlimited. So the personal assets of members are also liable to meet the claims of company.

Classification of company
4. Limited Company. It is of two types: a) Companies limited by shares. In this company the liabilities of shareholders are limited to the face value of shares held by them b) Companies limited by guarantee. In this company the liabilities of shareholders are limited to the amount of guarantee given by them. These companies may or may not have share capital.

Classification of company
5. Registered Company. These companies are registered under the Companies Act 1956. i) Private Company. A private company means a company which by its articles: a) restricts the right to transfer its shares, if any; b) limits the number of its shareholders to 50; and c) prohibits invitation to the public to subscribe for any share or debenture of the company. Examples are Jet Airways, Godrej and Boyce Manufacturing Co., Hero Cycles, Bennett Coleman and Co., LG Electronic, City Bank, etc.

Classification of company
ii) Public Company. A company, which does not fulfil the qualifications of a private company, is known as public company. Thus, membership of a public company is open to the general public. There is no maximum limit on the number of its members, but minimum number should be seven. Examples ACC Ltd, Bajaj Auto Ltd., TISCO, etc. iii) Government Company. A company is called a Government Company if at least 51% of its paid-up share capital is held by the Central Government, or State Government or jointly by the Central Government and State Government, and includes a company, which is subsidiary of a Government Company.

Memorandum of Association Sec. 14

It is a Charter which contains fundamental conditions on which the company is incorporated It contains:
Name Clause Registered Office Clause Object Clause Liability Clause Capital Clause Association / Subscription Clause

Alteration of Memorandum Sec. 16

Change of name: Sp. Resolution and approval of Central Govt. Change of Registered office: Approval of the Registrar of Companies Change of Object Clause: Sp. Resolution and approval of Central Govt. Change of Liability Clause: Sp. Resolution Change of Capital Clause: Ordinary resolution and approval of Registrar.

Articles of Association

It is the bye law of a company and defines the duties, rights, powers and authorities of shareholders and directors. It must be printed. Divided into paragraphs and signed by each subscriber to memorandum. It contains:
Business of the company Amount of capital and classes of share Rights of each class of shareholder Allotment of shares Transfer of shares Meeting, notice, proxies, quorum, etc. accounts, audit and book keeping Appointment and powers of directors

Memorandum and Articles of Association

Constructive notice of memorandum and Articles a party dealing with the company is presumed to have the knowledge of Articles an Memorandum of Association. Doctrine of Indoor management an outsider is not bound to enquire whether internal regulations are carried out or not. The exceptions are:
Knowledge of irregularity No knowledge of Articles Void or illegal transaction negligence

Share

Stock

It has nominal value and a distinctive number It is issued originally to public It is sold in even lots It is issued by both public and private companies

It has no nominal value no number Only fully paid shares can be converted to stock It can be transferred in fractional value It is issued by only public companies

Shares

Share warrants: it is a negotiable instrument which entitles the bearer to shares specified in it. The owner can transfer ownership by mere delivery of share warrant. Rights Share: shares issued to existing shareholders. It can be issued by a company who has completed two years of incorporation. Bonus share: issue of additional shares to existing shareholders free of charge. The company must follow the guidelines of SEBI to issue such shares Lien on shares: it is an equitable charge on shares to get some debt. Proxy: member entitled to attend and vote can appoint another person to exercise his rights. The person so appointed is Proxy

Meetings

Statutory meeting: conducted by public companies having share capital. It must be held once in every 6months. 21 days notice is required. Statutory report is sent along with the notice to the Board of Directors Annual General meeting: this is held once in every year. 21 days notice is required. Directors report and Auditors report and proxy form must accompany the notice. Extra-ordinary meeting: it is convened to transact some special or urgent matter. The agenda must accompany an Explanatory Statement. 21 days notice is required. Agenda: it is the business to be transacted in a meeting Quorum: minimum no. of members required to transact business in a meeting. Motion: a proposition made by a member at the meeting.

Resolution

Decisions taken in a meeting Ordinary resolution: (Sec. 189)passed by simple majority (50%). Special resolution: (Sec.189)passed by 2/3rd majority (75%). 21 days notice. Resolution requiring special notice: (Sec.190)14 days notice. Minutes: it is the record of business transacted at the meeting. It must be recorded within 30 days of a meeting. It is kept with the Secretary of the company.

Membership in Company
Member

is a person who agrees in writing to become a member and whose name is entered in companys Register of members A person can be a member by:
A. B. C. D. E.

Subscribing to Memorandum of Association Agreeing in writing to become a member Application and allotment of shares Transfer of share Transmission of share

Appointment of Directors of a company

Director includes any person occupying the position of Director, by whatever name called. There must be three director for a Public Limited company and two director for a Private Limited company. The first director is named in the Articles of the company and is appointed by promoters. 2/3rd of the total directors of a public company are appointed in the Annual General Meeting. They also retire by rotation. Appointment can be made by ordinary resolution at AGM 1/3rd of directors of a public company are appointed by the provisions of Articles Directors may be appointed by Central Govt. Nominee directors may be appointed by third parties. Alternate directors are appointed in place of a director who is absent

Qualifications and Retirement of Directors

1. 2. 3. 4.

A director must be: An individual Hold qualifying share Person of sound mind Not disqualified by Articles A director must hold the qualifying share in his own right within two month of this appointment. 1/3rd of the directors are liable to retire by rotation at the 1st AGM of a public company Those who have been longest in the office are liable to retire first Retiring directors are eligible for re-appointment.

Powers of Directors

1. 2. 3. 4.

General powers these powers are vested by Articles of Association and Memorandum. Specific powers ( Sec. 292) these are given by Companies Act.
Power to make calls in respect of money unpaid Power to borrow money by issuing debentures Power to invest funds of the company Power to make loans The following powers can be exercised in consent with shareholders in AGM Power to sell, lease or dispose of the company Power to contribute to charitable and other such funds Power to borrow money in excess of the paid up capitalof the company

Duties of Directors
Duty

of good faith they must honestly in the interest of the company Duty of reasonable care standard care, skill and diligence is expected Duty to attend the board meeting Duty not to delegate perform all functions personally and not to delegate them. Duty to disclose personal interest