COMPANIES ACT

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HISTORY UPTO 1956

FIRST ACT - Passed in 1850 Reg. Of joint stock companies , separate legal entity for a company.
SECOND ACT Passed in 1857 Focus on limited liability.

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1913 Indian companies act was passed . it was based on English companies act 1908. Focus on introduction of private companies in corporate sector.

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COMPANIES ACT 1956

Law related to company 1april 1956 658 sections and 15 schedules. Improvement on the act of 1913.

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OBJECTIVES

Maintenance of minimum standard of good behavior and business honesty in company promotion and management. Fair and full disclosure of the affairs of companies and annual accounts. Recognition of the rights of the shareholders.

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COMPANY
Group of persons associated together for the purpose of carrying on a business. Acc. To sec.3 (1) i company means a company formed and registered under this act or an existing company.

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COMPREHENSIVE DEFINITION

An incorporated association which is an artificial person having a separate legal entity with a perpetual succession , a common seal and a common capital comprised of transferable shares carrying a limited liability.

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CHARACTERISTICS

Separate legal entity Limited liability Perpetual succession Common seal Transferability of shares Separate property Capacity to sue.
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COMPANIES AND PARTNERSHIPS COMPARED

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FORMATION

A company is created by registration under the Companies Act. A partnership is created by agreement which may be express or implied from the conduct of the partners and is subject to the Indian Contract Act and the Indian Partnership Act.

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STATUS AT LAW

A company is an artificial legal person with perpetual succession. Thus a company may MAKE property , make contracts and sue and be sued. It is an entity distinct from its members. A partnership is not a legal though it may sue and be sued in the firms name. Thus the partners own the property of the firm and are liable for the contracts of the firm jointly as well as severally.
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TRANSFER OF SHARES

Shares in a company are freely transferable unless the companys constitution otherwise provides; restrictions may , of course , appear in the articles of a private company. A partner can transfer his shares in the firm , but the assignee does not thereby become a partner and is merely entitled to the assigning partners share of the profits.
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NUMBER OF MEMBERS

A private company must have at least two members and maximum 50 members. A partnership cannot consist of more than 20 persons (10 persons in case of banking business).

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MANAGEMENT:
Members of a company are not entitled to take part in the management of the company unless they become directors. Partners are entitled to share in the management of the firm unless the articles provide otherwise.

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AGENCY:

A member of a company is not an agent of the company or that of other members , and he cannot bind a company by his acts. Each partner is an agent of the firm and his partners, and nay bind the firm by his acts.

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LIABILITY OF MEMBERS:

The liability of a member of a company may be limited by shares or by guarantee. The liability of a partner is unlimited.

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POWERS:

The affairs of accompany are closely controlled by the Companies Act, 1956 and the company can only operate within the objects laid down in the memorandum of association, though these can be altered to some extent by special resolution. Partners may carry on any business as they please so long as it is not illegal and make whatever arrangements they wish with regard to the running of the firm from time to time.
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TERMINATION:

No one member of a company can wind up the company, and the death, bankruptcy or insanity of a member does not mean that the company must be wound up. A partnership may be dissolved by any partner at any time unless the partnership is entered into for a fixed period of time. A partnership is also dissolved by the death or bankruptcy of a partner.
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CONCLUSION

Hence from the above it can be seen that there are vast differences between the two and hence any one should study in detail the pros and cons of both company as well as partnership before taking any decision on whether to enter into partnership or incorporate a company.

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Types of companies

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KINDS OF COMPANIES

NATURE OF INCORPORATION STATUTORY COMPANIES REGISTERED COMPANIES, TYPE OF LIABILITY NATURE OF CONTROL NUMBER OF MEMBERS

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TYPES OF LIABILITY,

Company limited by shares Company limited by guarantee Companies with unlimited liability and nature of control.

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NATURE OF CONTROL.

Holding companies Subsidiary companies government company, foreign company,

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FORMATION OF COMPANY

PROMOTION INCORPORATION OR REGISTERATION CAPITAL SUBSCIPTION COMMENCEMENT OF BUSINESS

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Promotion :

Refers to the entire process by which a company is brought into existence. It starts with the conceptualization of the birth a a company and determination of the purpose for which it is to be formed. The persons who conceive the company and invest the initial funds are known as the promoters of the company. The promoters enter into preliminary contracts with vendors and make arrangements for the preparation, advertisement and the circulation of prospectus and placement of capital. However, a person who merely acts in his professional capacity on behalf of the promoter (eg lawyer, CA, etc) for drawing up the agreement or other documents or prepares the figures on behalf of the promoter and who is paid by the promoter is not a promoter.
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DUTIES OF THE PROMOTER

He must not make any secret profit out of the promotion of the company. He must make full disclosure to the company of all relevant facts including to any profit made by him in transaction with the company.

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REWARDS OF THE PROMOTER

The company may pay some remuneration for the services rendered. The promoter may make profits on transactions entered by him with the company after making full disclosure to the company and its members. The promoter may sell his property for fully paid shares in the company after making full disclosures. The promoter may be given an option to buy further shares in the company. The promoter may be given commission on shares sold. The articles of the Company may provide for fixed sum to be paid by the company to him. However, such provision has no legal effect and the promoter cannot sue to enforce it but if the company makes such payment, it cannot recover it back.
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Incorporation by Registration :

The promoters must make a decision regarding the type of company i.e a pulic company or a private company or an unlimited company, etc and accordingly prepare the documents for incorporation of the company. In this connection the Memorandum and Articles of Association (MA & AA) are crucial documents to be prepared.
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Memorandum of Association of a company

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Memorandum of Association of a company

Is the constitution or charter of the company and contains the powers of the company. No company can be registered under the Companies Act, 1956 without the memorandum of association. Under Section 2(28) of the Companies Act, 1956 the memorandum means the memorandum of association of the company as originally framed or as altered from time to time in pursuance with any of the previous companies law or the Companies Act, 1956.

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Contents of Memorandum :

Name clause Domicile clause Objects clause Liability clause Capital clause Association clause
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Name clause

The name of the company is mentioned in the name clause. A public limited company must end with the word 'Limited' and a private limited company must end with the words 'Private Limited'. The company cannot have a name which in the opinion of the Central Government is undesirable. A name which is identical with or the nearly resembles the name of another company in existence will not be allowed. A company cannot use a name which is prohibited under the Names and Emblems (Prevntion of Misuse Act, 1950 or use a name suggestive of connection to government or State patronage.

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Domicile clause

The state in which the registered office of company is to be situated is mentioned in this clause. If it is not possible to state the exact location of the registered office, the company must state it provide the exact address either on the day on which commences to carry on its business or within 30 days from the date of incorporation of the company, whichever is earlier. The registered office of the company is the official address of the company where the statutory books and records must be normally be kept. Every company must affix or paint its name and address of its registered office on the outside of the every office or place at which its activities are carried on in. The name must be written in one of the local languages and in English.
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Objects clause

This clause is the most important clause of the company. It specifies the activities which a company can carry on and which activities it cannot carry on. The company cannot carry on any activity which is not authorized by its MA. This clause must specify :Main objects of the company to be pursued by the company on its incorporation In case of the companies other than trading corporations whose objects are not confined to one state, the states to whose territories the objects of the company extend must be specified

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Liability clause

A declaration that the liability of the members is limited in case of the company limited by the shares or guarantee must be given. The MA of a company limited by guarantee must also state that each member undertakes to contribute to the assets of the company. A declaration that the liability of the members is unlimited in case of the unlimted companies must be given.

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Capital clause

The amount of share capital with which the company is to be registered divided into shares must be specified giving details of the number of shares and types of shares. A company cannot issue share capital greater than the maximum amount of share capital mentioned in this clause without altering the memorandum.
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Association clause

A declaration by the persons for subscribing to the Memorandum that they desire to form into a company and agree to take the shares place against their respective name must be given by the promoters.

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Doctrine of the ultra-vires

Any transaction which is outside the scope of the powers specified in the objects clause of the MA and are not reasonable incidentally or necessary to the attainment of objects is ultra-vires the company and therefore void. No rights and liabilities on the part of the company arise out of such transactions and it is a nullity even if every member agrees to it.

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Consequences of an ultravires transaction

The company cannot sue any person for enforcement of any of its rights. No person can sue the company for enforcement of its rights. The directors of the company may be held personally liable to outsiders for an ultra vires

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the doctrine of ultra-vires does not apply in the following cases

If an act is ultra-vires of powers the directors but intra-vires of company, the company is liable. If an act is ultra-vires the articles of the company but it is intra-vires of the memorandum, the articles can be altered to rectify the error. If an act is within the powers of the company but is irregualarly done, consent of the shareholders will validate it.

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Where there is ultra-vires borrowing by the company or it obtains deliver of the property under an ultravires contract, then the third party has no claim against the company on the basis of the loan but he has right to follow his money or property if it exist as it is and obtain an injunction from the Court restraining the company from parting with it provided that he intervenes before is money spent on or the identity of the property is lost.

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The lender of the money to a company under the ultra-vires contract has a right to make director personally liable.

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4 situations Within the same city Decision of the Board-notice to registrar-within 30 days-section 146 Within the same state Special resolution- notice to registrar-within 30 days-section 146(2) Within the same state but under a different registrar Section 17A - Special resolution- Confirmation of Regional Director Beyond the State Requires Alteration-Section 17(1)-special resolution-Confirmation of Central Government-17(2)

Alteration Of Registered Office Clause

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Special resolution and confirmation by Central Government required for alteration of memorandum.
A company may, by special resolution, alter the provisions of its memorandum so as to change the place of its registered office from one State to another.
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2) The alteration of the provisions of memorandum relating to the change of the place of its registered office from one State to another shall not take effect unless it is confirmed by the Central Government on petition. (3) Before confirming the alteration, the Central Government must be satisfied-(a) that sufficient notice has been given to every holder of the debentures of the company, and to every other person or class of persons whose interests will, in the opinion of the Central Government, be affected by the alteration; and

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(b) that, with respect to every creditor who, in the opinion of the Central Government, is entitled to object to the alteration, and who signifies his objection in the manner directed by the Central Government, either his consent to the alteration has been obtained or his debt or claim has been discharged or has been determined, or has been secured: Provided that the Central Government may, in the case of any person or class of persons, for special reasons, dispense with the notice required by clause
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4) The Central Government shall cause notice of the petition for confirmation of the alteration to be served on the Registrar who shall also be given a reasonable opportunity of appearing before the Central Government and state his objections and suggestions, if any, with respect to the confirmation of the alteration. (5) The Central Government may make an order confirming the alteration on such terms and conditions, if any, as it thinks fit, and may make such order as to costs as it thinks proper.
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 Articles

of Association

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DEFINITION

The Articles of Association (AA) contain the rules and regulations of the internal management of the company. The AA is nothing but a contract between the company and its members and also between the members themselves that they shall abide by the rules and regulations of internal management of the company specified in the AA. It specifies the rights and duties of the members and directors.

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The provisions of the AA must not be in conflict with the provisions of the MA. In case such a conflict arises, the MA will prevail. a private company must have its own AA.

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Articles of Association

Companies which require AOA for registration Unlimited Companies Companies Limited by Guarantee Private Companies Limited by Shares Optional for public company limited by shares See SEC 26

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CONTENTS OF AA

Powers, duties, rights and liabilities of Directors Powers, duties, rights and liabilities of members Rules for Meetings of the Company Alteration and reduction of capital Borrowing power Appointment of managers ,MD,secretary.
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Declaration of dividend Maintenance of books of accounts and their audit. Seal of the company Winding up.

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ALTERATION OF ARTICLES OF ASSOCIATION

A company can alter any of the provisions of its AA, subject to provisions of the Companies Act and subject to the conditions contained in the Memorandum of association of the company. A company, by special resolution at a general meeting of members, alter its articles provided that such alteration does not have the effect of converting a public limited company into a private company unless it has been approved by the Central Government.
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The articles must be printed, divided into paragraphs and numbered consequently and must be signed by each subscriber to the Memorandum of Association who shall add his address, description and occupation in presence of at least one witness who must attest the signature and likewise add his address, description and occupation.
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The articles of association of the company when registered bind the company and the members thereof to the same extent as if it was signed by the company and by each member.

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Co relation between MOA & AOA

Articles subordinate to Memorandum In case of inconsistency memorandum will prevail.

AOA Can be used to explain MOA and vice versa in case of ambiguity
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Doctrine of constructive notice

Every person dealing with the company was treated as having the knowledge of the contents of the memorandum. (Public documents of the company). It seeks to protect the company against the outsider.

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Doctrine of indoor management

The rule in Royal British bank.Turquand(1856) Persons dealing with the company are assumed to have read the public documents of the company and to have ascertained that the proposed transactions are not inconsistent there with, they are not required to no more ,they need not inquire into the regularity of the internal proceedings and may assume that all is being done regularly. It operates to protect outsiders against the company.

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The rule is beneficial for convenience in business relations. An outsider is presumed to know the constitution of a company, but not what may or may not have taken place within the doors that are closed to him.

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Exceptions to the rule in Turquands case

1)Persons

having knowledge of irregularity 2) Persons on inquiry 3) Forgery

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Prospectus

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Meaning and definition of prospectus

After the receipt of certificate of incorporation, if the promoters of a public limited company wishes to issue shares to the public, company will issue a document called prospectus. It is an invitation to the public to subscribe to the share capital of the company.

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 The

companies Act, 1956 defines prospectus as any document described or issued as a prospectus and include any notice, circular, advertisement or other documents inviting deposits from the public or inviting offer from the public for the subscription of shares.

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 It

is circulated among the public in printed pamphlets. It gives all necessary information about the company so that the prospective shareholders may fully understand the objectives and the plans of the company.

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CHARACTERSTICS

It should be in writing It should be an invitation to the public Offer to the public

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Objectives:

Prospectus is issued with the following broad objectives: It informs the company about the formation of a new company. It serves as a written evidence about the terms and conditions of issue of shares or debentures of a company. It induces the investors to invest in the shares and debentures of the company.
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It describes the nature, extent and future prospectus of the company. It maintains all authentic records on the issue and make the directors liable for the misstatement in the prospectus.

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REGISTRATION

It can be issued by or on behalf of company only when a copy has been delivered to the registrar for the registration . Reg. must be made on or before the date of publication . It must be signed by every person named as director in writing.
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CONTENTS OF PROSPECTUS
The prospectus contains the main objectives of the company, the name and addresses of the signatories of the memorandum of association and the number of shares held by them. The name, addresses and occupation of directors and managing directors.

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The qualification share of directors and the interest of directors for the promotion of company. The number and classes of shares and debentures issued. The number, description and the document of shares or debentures which within the two preceding years have been agreed to be issued other than cash. The name and addresses of the vendors of any property acquired by the company and the amount paid or to be paid.
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particulars about the directors, secretaries and the treasures and their remuneration. The amount for the minimum subscription. If the company carrying on business, the length of time of such businesses. The estimated amount of preliminary expenses.

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Name and address of the auditors, bankers and solicitors of the company. Time and place where copies of balance sheets, profits and loss account and the auditors report may be inspected. The auditor's report so submitted must deal with the profit and loss of the company for each year of five financial years immediately preceding the issue of prospectus.
If any profit or reserve has been capitalized, the particulars of such capitalization will be stated in the prospectus.
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Misleading prospectus

It is the one which contains the false statements ambiguous fraudulent statements of material fact and a misleads the investors to invest in the company.

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TWO TYPES OF LIABILITY

Civil liability Criminal liability

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liability Civil liability Against the company Criminal liability Against the directors, Promoters , experts Claim for damages damages compensation

fine

imprisonment

Recession of contract

Damages for non compliance

For fraudulent misrepresentation

For innocent misrepresentation

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Statement in lieu of prospectus

When a public company does not invite public to subscribe for its shares but arranges to get money from private sources it need not issue a prospectus to the public in such a case the promoters are required to prepare a draft prospectus called statement in lieu of prospectus. This does not applies to private companies.
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RED-HERRING PROSPECTUS

"Red-herring prospectus" Means a prospectus, which does not have complete particulars on the price of the securities offered and quantum of securities offered.

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Share and share capital

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SHARE

The capital of the company is divided into small parts called as shares. Acc. To companies act 1956 share mean share in the share capital of the company and includes stock except when a difference between stock and share is expressed or implied.
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Difference between share and stock

shares Partly paid or fully paid up. Can be issued originally or at any time. It has nominal value They are numbered consecutively. Always registered

Stock Always fully paid up. Cannot be issued directly to the public. It does not have. They are not numbered May or may not be registered.
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Types of shares

PREFERENCE SHARES Cumulative Non cumulative Participating Non participating Convertible Non convertible Redeemable
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EQUITY SHARES

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Equity shares
Equity shares means that part of the share capital of the company which are not preference shares.

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Preference Shares

Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share. It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the holders of the equity shares can be paid dividend.
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It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital.

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CUMULATIVE PREFERENCE SHARES give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution . In this case dividends which are not paid in any year are accumulated and are paid out when the profits are available.

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A NON-CUMULATIVE SHARES gives right to fixed percentage dividend of profit of each year. In case no dividend thereon is declared in any year because of absence of profit, the holders of preference shares get nothing nor can they claim unpaid dividend in the subsequent year or years in respect of that year.
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PARTICIPATING PREFERENCE SHARES are entitled to a preferential dividend at a fixed rate with the right to participate further in the profits either along with or after payment of certain rate of dividend on equity shares. A NON-PARTICIPATING SHARE is one which does not such right to participate in the profits of the company after the dividend and capital have been paid to the preference shareholders.

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REDEEMABLE PREFERENCE SHARES are preference shares which have to be repaid by the company after the term of which for which the preference shares have been issued. IRREDEEMABLE PREFERENCE SHARES means preference shares need not repaid by the company except on winding up of the company.

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under the Indian Companies Act, a company cannot issue irredeemable preference shares. In fact, a company limited by shares cannot issue preference shares which are redeemable after more than 10 years from the date of issue. In other words the maximum tenure of preference shares is 10 years.
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ALLOTMENT OF SHARES

An application for shares is an offer by a prospective shareholder to subscribe for the shares of the company. Allotment can be defined as acceptance by the company of that offer. it results in a binding contract between the company and the applicant.
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Share certificate

Once shares are allotted and the name of the person is entered in the registrar of the members the company will deliver the certificate of its shares within three months after the allotment and within two months after the application for registration of transfer is made. share certificate states the name , address etc. with the number of shares held and the amount paid up.
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Company administration

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DIRECTOR

Any person occupying the position of director by what ever name called . A director is a person who is responsible for direction ,control, management of the affairs of the company . Public company minimum 3 directors Any other company minimum 2 directors.
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BOARD OF DIRECTORS

The directors of a company collectively are referred to as the "Board of directors" or "Board". Only individuals can be appointed as directors. No body corporate, association or firm can be appointed director of a Company

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APPOINTMENT OF DIRECTORS

FIRST DIRECTORS In case the first directors are not appointed by the promoters of a company, subscribers of the memorandum who are individuals, shall be deemed to be the directors of the company, until the directors are duly appointed. Right of company to increase or reduce the number of directors A company, at a general meeting may, by ordinary resolution, increase or reduce the number of its directors within the limits fixed on that behalf by its articles.
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Appointment of directors by

Appointment of directors and proportion of those who are to be retire by rotation Unless that articles provide for the retirement of all directors at every annual general meeting, at least two-thirds of the total number of directors of a public company, or of a private company which is subsidiary of a public company, must :(a) retire by rotation (b) be appointed by the company in general meeting, except where otherwise provided by the Companies Act. The remaining directors in the case of any such company, and the directors generally in the case of a private company which is not a subsidiary of a public company, must also be appointed by the company in general meeting, unless otherwise provided in any regulations in the articles of the company.
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ASCERTAINMENT OF DIRECTORS RETIRING BY ROTATION AND FILLING OF VACANCIES At every annual general meeting of a public company, or a private company which is a subsidiary of a public company, onethird of the directors liable to retirement by rotation or if their number is not three or a multiple of three, then, the number nearest to one-third, shall retire from office. The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who will have to retire is to be determined by lot, unless otherwise agreed to among themselves. At the annual general meeting at which a director retires as aforesaid the company may fill up the vacancy by appointing the retiring director or some other person thereto. In other words, a retiring director is eligible for re-appointment at the same meeting.
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If the place of the retiring director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place. If at the adjourned meeting also, the place of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy the retiring director shall be deemed to have been re-appointed at the adjourned meeting.
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ADDITIONAL DIRECTORS The Board of directors may appoint additional directors if such power is conferred on it by the articles of the company. Such additional directors shall hold office only up to the date of the next annual general meeting of the company. Provided further that the number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the articles.

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Filling of casual vacancies among directors

In the case of a public company or a private company which is a subsidiary of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office will expire in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of directors at a meeting of the Board. Any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated as aforesaid.
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APPOINTMENT AND TERM OF OFFICE OF ALTERNATE DIRECTOR The Board of directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held. An alternate director so appointed shall not hold office for a period longer than the period for which the original director hold office and vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held 7/11/2012 102

By third parties

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Option to company to adopt proportional representation for the appointment of directors

If the articles of a company provide for the appointment of not less than two-thirds of the total number of the directors of a public company or of a private company which is a subsidiary of a public company, according to the principle of proportional, representation, whether by the single transferable vote or by a system of cumulative voting or otherwise. Such appointments may be made once in every three years and interim casual vacancies being filled by the Board of Directors as Casual Vacancies. This may enable minority shareholders to have a proportional representation on the Board of Directors of the company.

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CONSENT OF CANDIDATE FOR DIRECTORSHIP TO BE FILLED WITH REGISTRAR A person shall not act as director of a company unless he has, by himself or by his agent authorized in writing, signed and filed with the Registrar, a consent in writing to act as such director within 30 days of his appointment. This provision shall not apply to a private company unless it is a subsidiary of a public company.

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QUALIFICATION SHARES ARE THE MINIMUM NUMBER OF SHARES A PERSON MUST OWN,

as provided in the articles of the company, in order to qualify to become a director of the company. Qualification shares must be acquired by a director within 2 months of his appointment. The articles cannot require a director to acquire qualification shares within a shorter period. The face value of the qualification shares cannot exceed five thousand rupees, or if the face value of one share is more than five thousand rupees, then the qualification share will be one qualification share
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any person acts as a director of the company when he does not hold the qualification shares, he shall be punishable with the fine which may extend to fifty rupees for every day between such expiry and the last day on which he acted as a director. THE ABOVE PROVISIONS DO NOT APPLY TOa company not having a share capital; a private company; a company which was a private company before becoming a public company; or a prospectus issued by or on behalf of a company after the expiry of one year from the date on which the company was entitled to commence business.

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DUTIES

TO FILE RETURN OF ALLOTMENTS: a company must file with the Registrar, within a period of 30 days, a return of the allotments, stating the specified particulars. Failure to file such return shall make the Directors liable as 'officer in default'. A fine, up to Rs.500 per day, till the default continues may be levied.

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NOT TO ISSUE IRREDEEMABLE PREFERENCE SHARES or shares, redeemable after 20 years: A company cannot issue irredeemable preference shares or preference shares, redeemable beyond 20 years. Directors, making any such issue, may be held liable as 'officer in default' and, may be subject to a fine, up to Rs.1, 000. TO DISCLOSE INTEREST: A Director, who is interested in a transaction of the company, must disclose his interest to the Board. The disclosure must be made at the first meeting of the Board, held after he has become interested. This is because a Director stands in a fiduciary capacity with the company and, therefore, he must not place himself in a position in which his personal interest conflicts with his duty.
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A company is not debarred from entering into a contract in which a Director is interested. It only requires that such interest be disclosed. An interested Director should not take part in the discussion on the matter of his interest. His presence shall not be counted for the purpose of quorum for that item. He shall not vote on that matter. If he does vote, his vote shall be void. Non-disclosure of interest makes the contract avoidable and not void. However, the concerned Director may be subjected to fine, up to Rs. 5,000.
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DUTY TO ATTEND BOARD MEETINGS A number of powers of the company are exercised by the Board of Directors in their meetings, held from time to time. Although, a Director may not be able to attend all the meetings, but, if he fails to attend three consecutive meetings or, all meetings for a period of three months, whichever is longer, without permission of the Board, his office shall, automatically, fall vacant.

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A Director's duties also include the following: To convene Statutory, Annual General Meeting (AGM) and also Extraordinary General Meetings; To prepare and place at the AGM, along with the balance sheet and, profit and loss account, a report on the company's affairs, including the report of the Board of Directors; To authenticate and approve annual financial statement; To appoint first auditor of the company; To appoint cost auditor of the company; To make a declaration of solvency in the case of a Members' voluntary winding up
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Liabilities of the Directors of a company towards the company

The liability of a Director to the company may arise from: Breach of fiduciary duty: Where a Director acts dishonestly to the interest of the company, he will be held liable for breach of fiduciary duty. Most of the powers of Directors are powers in trust and, therefore, should be exercised in the interest of the company and, not in the interest of the Directors or, any section of members. Thus, in a case where the Directors, in order to forestall a take-over bid, transferred the unissued shares of the company to trustees, to be held for the benefit of the employees, and an interest-free loan from the company was advanced to the trustees to enable them to pay for the shares, it was held to be a wrongful exercise of the fiduciary powers of the Directors.
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Ultra vires acts: Directors are supposed to act within the parameters of the provisions of the Companies Act, Memorandum and Articles of Association, since these lay down the limits to the activities of the company and, consequently, to the powers of the Board of Directors. Further, the powers of the Directors may be limited in terms of specific restrictions, contained in the Articles of Association. The Directors shall be held, personally, liable for acts beyond the aforesaid limits, being ultra vires the company or the Directors. Thus, where the Directors pay dividends or interest out of capital, they will be liable to indemnify the company for any loss or damage, suffered due to such act.
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Negligence: As long as the Directors act within their powers with reasonable skill and care, as expected of them as prudent businessmen, they discharge their duties to the company. But, where they fail to exercise reasonable care, skill and diligence, they shall be deemed to have acted, negligently, in discharge of their duties and, consequently, shall be liable for any loss or damage, resulting there from. However, error of judgment will not be deemed as negligence. The Directors cannot be absolved of their liability for negligence by any provisions in the Articles of Association.
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Directors are the trustees for the money and property of the company, handled by them, as well as for exercise of the powers, vested in them. If they dishonestly or in a mala fide manner, exercise their powers and perform their duties, they will be liable for breach of trust and, may be required to make good the loss or damage, suffered by the company by reason of such mala fide acts. They are also accountable to the company for any secret profits they might have made in course of their performance of duties on behalf of the company. Directors can also be held liable for their acts of 'misfeasance', i.e., misconduct or willful misuse of powers. However, misconduct, which is not willful, shall not amount to 'misfeasance'.
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Where a Director misapplies or misappropriates the money or properties of the company or, has been guilty of breach of trust or misfeasance, the Court may order him to repay the money or, restore the property or, to pay compensation.

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General powers of Board

(1) Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorized to exercise and do : Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting :
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Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made there under, including regulations made by the company in general meeting. (2) No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.
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Certain powers to be exercised by Board only at meeting (1) The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board :(a) the power to make calls on shareholders in respect of money unpaid on their shares; (b) the power to issue debentures; (c) the power to borrow moneys otherwise than on debentures; (d) the power to invest the funds of the company; and (e) the power to make loans :
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MEETINGS
Meeting can be defined as an assembly of people for a lawful purpose or coming together of at least two persons for the same reason. Company meeting can be defined as coming together of at least a quorum of members in order to transact either the ordinary business or special business of the company.

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Types of meetings

Meetings of share holders Statutory meetings AGM EGM Class meeting

Meetings of directors BOD Committee of directors Creditors, debenture holders,contributaries

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General meetings

Statutory meetings A public company limited by shares or a guarantee company having share capital is required to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the company. Such a meeting must be held within a period of not less than one month or within a period not more than six months from the date on which it is entitled to commence business i.e. it obtains certificate of commencement of business. In a statutory meeting, the following matters only can be discussed :Floatation of shares / debentures by the company Modification to contracts mentioned in the prospectus
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The purpose of the meeting is to enable members to know all important matters pertaining to the formation of the company and its initial life history. The matters discussed include which shares have been taken up, what money has been received, what contracts have been entered into, what sums have been spent on preliminary expenses, etc. The members of the company present at the meeting may discuss any other matter relating to the formation of the Company or arising out of the statutory report also, even if no prior notice has been given for such other discussions but no resolution can be passed of which notice have not been given in accordance with the provisions of the Act.
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The Board of Directors must prepare and send to every member a report called the "Statutory Report" at least 21 days before the day on which the meeting is to be held. But if all the members entitled to attend and vote at the meeting agree, the report could be forwarded later also. The report should be certified as correct by at least two directors, one of whom must be the managing director, where there is one, and must also be certified as correct by the auditors of the company with respect to the shares allotted by the company, the cash received in respect of such shares and the receipts and payments of the company. A certified copy of the report must be sent to the Registrar for registration immediately after copies have been sent to the members of the company. A list of members showing their names, addresses and occupations together with the number shares held by each member must be kept in readiness and produced at the commencement of the meeting and kept open for inspection during the meeting.
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If default is made in complying with the above provisions, every director or other officer of the company who is in default shall be punishable with fine upto Rs. 500. The Registrar or a contributory may file a petition for the winding up of the company if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting on or after 14 days after the last date on which the statutory meeting ought to have been held.

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B. Annual General Meeting Must be held by every type of company, public or private, limited by shares or by guarantee, with or without share capital or unlimited company, once a year. Every company must in each year hold an annual general meeting. Not more than 15 months must elapse between two annual general meetings. However, a company may hold its first annual general meeting within 18 months from the date of its incorporation. In such a case, it need not hold any annual general meeting in the year of its incorporation as well as in the following year only.
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In the case there is any difficulty in holding any annual general meeting (except the first annual meeting), the Registrar may, for any special reasons shown, grant an extension of time for holding the meeting by a period not exceeding 3 months provided the application for the purpose is made before the due date of the annual general meeting. However, generally delay in the completion of the audit of the annual accounts of the company is not treated as "special reason" for granting extension of time for holding its annual general meeting. Generally, in such circumstances, an AGM is convened and held at the proper time . all matters other than the accounts are discussed. All other resolutions are passed and the meeting is adjourned to a later date for discussing the final accounts of the company. However, the adjourned meeting must be held before the last day of holding the AGM.
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A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members, holding not less than 95% of voting rights in the company. The notice must state that the meeting is an annual general meeting. The time, date and place of the meeting must be mentioned in the notice. The notice of the meeting must be accompanied by a copy of the annual accounts of the company, directors report on the position of the company for the year and auditors report on the accounts. Companies having share capital should also state in the notice that a member is entitled to attend and vote at the meeting and is also entitled to appoint proxies in his absence. A proxy need not be a member of that company. A proxy form should be enclosed with the notice. The proxy forms are required to be 7/11/2012 129 submitted to the company at least 48 hours before the

The AGM must be held on a working day during business hours at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated. The Central Government may, however, exempt any class of companies from the above provisions. If any day is declared by the Central government to be a public holiday after the issue of the notice convening such meeting, such a day will be treated as a working day. A company may, by appropriate provisions in its articles, fix the time for its annual general meeting and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings.
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Business to be Transacted at Annual General Meeting : At every AGM, the following matters must be discussed and decided. Since such matters are discussed at every AGM, they are known as ordinary business. All other matters and business to be discussed at the AGM are special business. The following matters constitute ordinary business at an AGM :Consideration of annual accounts, directors report and the auditors report Declaration of dividend Appointment of directors in the place of those retiring Appointment of and the fixing of the remuneration of the statutory auditors.
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C. Extraordinary General Meeting Every general meeting (i.e. meeting of members of the company) other than the statutory meeting and the annual general meeting or any adjournment thereof, is an extraordinary general meeting. Such meeting is usually called by the Board of Directors for some urgent business which cannot wait to be decided till the next AGM. Every business transacted at such a meeting is special business. An explanatory statement of the special business must also accompany the notice calling the meeting. The notice must should also give the nature and extent of the interest of the directors or manager in the special business, as also the extent of the shareholding interest in the company of every such person. In case approval of any document has to be done by the members at the meeting, the notice must also state that the document would be available for inspection at the Registered Office of the company during the specified dates and timings.
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D. Class Meeting
Class meetings are meetings which are held by holders of a particular class of shares, e.g., preference shareholders. Such meetings are normally called when it is proposed to vary the rights of that particular class of shares. At such meetings, these members dicuss the pros and cons of the proposal and vote accordingly. (See provisions on variations of shareholders rights). Class meetings are held to pass resolution which will bind only the members of the class concerned, and only members of that class can attend and vote. Unless the articles of the company or a contract binding on the persons concerned otherwise provides, all provisions pertaining to calling of a general meeting and its conduct apply to class meetings in like manner as they apply with respect to general meetings of the company.

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Meetings of the Board of Directors - Meeting of the Board of Directors - Meeting of a Committee of the Board

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A. Meeting of debenture holders A company issuing debentures may provide for the holding of meetings of the debenture holders. At such meetings, generally matters pertaining to the variation in terms of security or to alteration of their rights are discussed. All matters connected with the holding, conduct and proceedings of the meetings of the debenture holders are normally specified in the Debenture Trust Deed. The decisions at the meeting made by the prescribed majority are valid and lawful and binding upon the minority.

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B. Meeting of creditors Sometimes, a company, either as a running concern or in the event of winding up, has to make certain arrangements with its creditors. Meetings of creditors may be called for this purpose. Eg U/s 393, a company may enter into arrangements with creditors with the sanction of the Court for reconstruction or any arrangement with its creditors. The court, on application, may order the holding of a creditors' s meeting. If the scheme of arrangement is agreed to by majority in number of holding debts to value of the three-fourth of the total value of the debts, the court may sanction the scheme. A certified copy of the court's order is then filed with the Registrar and it is binding on all the creditors and the company only after it is filed with Registrar.
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Similarly, in case of winding up of a company, a meeting of creditors and of contributories is held to ascertain the total amount due by the company and also to appoint a liquidator to wind up the affairs of the company.

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Requisites of a Valid Meetings The following conditions must be satisfied for a meeting to be called a valid meeting :It must be properly convened. The persons calling the meeting must be authorised to do so. Proper and adequate notice must have been given to all those entitled to attend. The meeting must be legally constituted. There maust be a chairperson. The rules of quorum must be maintained and the provisions of the Companies Act, 1956 and the articles must be complied with. The business at the meeting must be validly transacted.. The meeting must be conducted in accordance with the regulations governing the meetings.
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Winding-up

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Winding-up in literal sense, means to bring to a conclusion or an end by putting in order.[1] It is defined as the process by which the life of a company is ended and its property is administered for the benefit of its members and creditors[2]. Winding-up is different from insolvency and dissolution[3].

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The Act provides for three kinds of winding up: 1. The winding-up by the court 2. Voluntary winding-up, which itself is of two kinds, namely, Members voluntary winding-up, Creditors voluntary winding-up.

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1. The winding-up by the Tribunal. [(Sec 433) of Companies Act, 1956] If the company has, by special resolution, resolved that the company may be wound-up by the tribunal; If default is made in delivering the statutory report to the registrar or in holding the statutory meeting; If the company does not commence its business within a year from its incorporation, or suspends its business for whole of a year; If the number of members are reduced then their required number; If the company is unable to pay its debts (specified in Sec 434)

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If the tribunal is of the opinion that it is just and equitable that the company should be wound up; If the company is in default in filing up with the Registrar its balance sheet and profit and loss account for five consecutive financial years[4]; If the company has acted against the interests of the sovereignty and integrity of India or security of any state, friendly relation with foreign States, public order, decency and morality; If the tribunal is under the opinion that the company should be wound up under the circumstances specified under the Sec. 424G.
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A company may be wound up voluntarily at any time after passing a special resolution. But where the articles provide for a period on expiry, which the company is to wound up and that period has expired, or for a contingency on the happening of which the company is to be dissolved and that contingency has happened, winding up may be commenced with an ordinary resolution [Sec 484]. Within 14 days the resolution should be advertised in the Official Gazette and in a newspaper circulating in the district of the registered office of the company [Sec 485]. Winding up commences from the date of resolution [Sec 486].

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The corporate status and power of the company shall continue till the company is completely dissolved, but it shall stop its business, except so far as may be necessary for beneficial winding up [Sec 488]. If a declaration of solvency is made in accordance with the provisions of the Act, it will be members winding up. If the directors are not able to pay the debts within the specified period, the liquidator shall call a meeting of the creditors and it then becomes the creditors winding up [sec.495&Sec.498].

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