COMPANY LAW

NOTES

BY
P.K.PANDEY
Asst. Professor

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 UNIT IV

I CORPORATE PERSONALITY

 Introduction
 Definition of company
 Characteristics of a company
 Distinguish between company and Partnership
 Difference between Hindu Undivided Family Business and Company

II KINDS OF COMPANIES

 ON THE BASIS OF INCORPORATION

1. Statutory Companies
2. Registered Companies

 ON THE BASIS OF LIABILITY

1. Companies limited by shares

2. Companies limited by guarantee

3. Unlimited Liability Companies

 ON THE BASIS OF NUMBER OF MEMBERS

1. Public company

2. Private company:

3. One person company (o p c)

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  INTRODUCTION

Industrial has revolution led to the emergence of large-scale business organizations. These
organization require big investments and the risk involved is very high. Limited resources
and unlimited liability of partners are two important limitations of partnerships of
partnerships in undertaking big business. Joint Stock Company form of business organization
has become extremely popular as it provides a solution to overcome the limitations of
partnership business. The Multinational companies like Coca-Cola and, General Motors have
their investors and customers spread throughout the world. The giant Indian Companies may
include the names like Reliance, Talco Bajaj Auto, Infosys Technologies, Hindustan
Lever Ltd., Ranbaxy Laboratories Ltd., and Larsen and Turbo etc.

 DEFINITION OF COMPANY:

 Lord Justice Lindley, “A company is meant an association of many persons who

contribute money or money’s worth to a common stock and employ it in some trade
or business, and who share the profit and loss (as the case may be) arising there from.
The common stock contributed is denoted in money and is the capital of the company.
The persons who contribute it, or to whom it belongs, are members. The proportion of
capital to which each member is entitled is his share. Shares are always transferable
although the right to transfer them is often more or less restricted”.

As per section 2(20) of the CA, 2013

“Company” means a company incorporated under this act or under any previous company
law.
Commonly a company may be defined as “an incorporated association which is an
artificial person, having a separate legal entity, with a perpetual succession, a common seal
(if any), and a common capital compromised of transferable shares and limited liability.”

 CHARACTERISTICS OF A COMPANY

The main characteristics of a company are :

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 INTRODUCTION

Industrial has revolution led to the emergence of large-scale business organizations. These
organization require big investments and the risk involved is very high. Limited resources
and unlimited liability of partners are two important limitations of partnerships of
partnerships in undertaking big business. Joint Stock Company form of business organization
has become extremely popular as it provides a solution to overcome the limitations of
partnership business. The Multinational companies like Coca-Cola and, General Motors have
their investors and customers spread throughout the world. The giant Indian Companies may
include the names like Reliance, Talco Bajaj Auto, Infosys Technologies, Hindustan
Lever Ltd., Ranbaxy Laboratories Ltd., and Larsen and Turbo etc.

 DEFINITION OF COMPANY:

 Lord Justice Lindley, “A company is meant an association of many persons who

contribute money or money’s worth to a common stock and employ it in some trade
or business, and who share the profit and loss (as the case may be) arising there from.
The common stock contributed is denoted in money and is the capital of the company.
The persons who contribute it, or to whom it belongs, are members. The proportion of
capital to which each member is entitled is his share. Shares are always transferable
although the right to transfer them is often more or less restricted”.

As per section 2(20) of the CA, 2013

“Company” means a company incorporated under this act or under any previous company
law.
Commonly a company may be defined as “an incorporated association which is an
artificial person, having a separate legal entity, with a perpetual succession, a common seal
(if any), and a common capital compromised of transferable shares and limited liability.”

 CHARACTERISTICS OF A COMPANY

The main characteristics of a company are :

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1. Incorporated Association.

A company is created when it is registered under the Companies Act. It comes into being
from the date mentioned in the certificate of incorporation. It may be noted in this
connection that Section 11 provides that an association of more than ten persons carrying
on business in banking or an association or more than twenty persons carrying on any
other type of business must be registered under the Companies Act and is deemed to be
an illegal association, if it is not so registered

2 Artificial legal person.

A company is an artificial person. Negatively speaking, it is not a natural person. It exists

in the eyes of the law and cannot act on its own. It has to act through a board of directors
elected by shareholders. It was rightly pointed out in Bates V Standard Land Co. :

“The board of directors are the brains and the only brains of the company, which is the
body and the company can and does act only through them”. But for many purposes, a
company is a legal person like a natural person. It has the right to acquire and dispose of
the property, to enter into contract with third parties in its own name, and can sue and be
sued in its own name.

3. Separate Entity:

The law recognizes the independent status of the company. A company has got an
identity of its own which is quite different from its members. This implies that a company
cannot be held liable for the actions of its members and vice versa. The distinct entity of a
company from its members was upheld in the famous Salomon Vs. Salomon & Co case.
It may contract, sue and be sued in its own name. It has no physical body and exists only
in the eyes of law.

4. Perpetual Succession:

A company enjoys a continuous existence. Retirement, death, insolvency and insanity of its
members do not affect the continuity of the company. The shares of the company may change

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millions of hands, but the life of the company remains unaffected. In an accident all the
members of a company died but the company continued its operations.

5. Common Seal:
A company being an artificial person cannot sign for itself. A seal with the name of the
company embossed on it acts as a substitute for the company’s signatures. The company
gives its assent to any contract or document by the common seal. A document which does not
bear the common seal of the company is not binding on it.

6. Transferability of Shares:
The capital of the company is contributed by its members. It is divided into shares of
predetermined value. The members of a public company are free to transfer their shares to
anyone else without any restriction. The private companies, however, do impose some
restrictions on the transfer of shares by their members.

7. Limited Liability:
The liability of the members of a company is invariably limited to the extent of the face value
of shares held by them. This means that if the assets of a company fall short of its liabilities,
the members cannot be asked to contribute anything more than the unpaid amount on the
shares held by them. Unlike the partnership firms, the private property of the members cannot
be utilized to satisfy the claims of company’s creditors.

 DISTINGUISH BETWEEN COMPANY AND PARTNERSHIP. :

1. A company is a separate legal person.

A partnership firm is not seperate from the several persons who form the
partnership.
2. In a company, property of the belongs to the company and not to the individuals who
are its members.
In a partnership, the property of the firm is the property of the individuals comprising
it. The creditors of a company can proceed only against the company and not against
its members..
3. Members of a company are not its agents, but partners are the agents.

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 A partner can get rid of the property and incur liabilities as long as he acts in the
course of the firm’s business. A member of a company has no such power.
4. A member of a company can contracts with his company whereas a partner cannot
with his firm.
A partner cannot transfer his share and make the transferee a member of the firm
without the consent of the other partners, whereas a member of the company can
transfer his company’s share ordinarily.
In company, the death or insolvency of a shareholder or all of them does not affect
the life of the company, i.e. perpetual succession, whereas the death or insolvency of a
partner dissolves the firm, unless otherwise provided.

5. A company may have any number of members except in the case of a private
company which cannot have more than 200 members (excluding past and present
employee members). In a public company there must not be less than seven persons in
a private company not less than two. Further, a new concept of one person company
has been introduced which may be incorporated with only one person.
6. A company is required to have its accounts audited annually by a chartered
accountant, whereas the accounts of a firm are audited at the free will of the partners.
7. A company, being a creation of law, can only be dissolved as laid down by law. A
partnership firm, on the other hand, is the result of an agreement and can be dissolved
at any time by agreement among the partners.

 Difference between Hindu Undivided Family Business and Company

1. Hindu Undivided Family Business consists of homogenous (unvarying) members since it

consists of members of the joint family itself whereas . A company consists of heterogeneous
(varied or diverse) members.
2. In a Hindu Undivided Family business the Karta (manager) has the sole authority to
contract debts for the purpose of the business, other coparceners cannot do so. There is no
such system in a company.
3. A person becomes a member of a Hindu Undivided Family business by virtue of birth.
There is no provision to that effect in the company.

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4. No registration is compulsory for carrying on business for gain by a Hindu Undivided
Family even if the number of members exceeds twenty. Registration of a company is
compulsory.

KINDS OF COMPANIES

 ON THE BASIS OF INCORPORATION

1. Statutory Companies :

These companies are constituted by a special Act of Parliament or State Legislature. These
companies are formed mainly with an intention to provide the public services.

Though primarily they are governed under that Special Act, still the CA, 2013 will be
applicable to them except where the said provisions are inconsistent with the provisions of
the Act creating them (as Special Act prevails over General Act).

Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation
of India, etc.

2. Registered Companies:

Companies registered under the CA, 2013 or under any previous Company Law are called
registered companies. Such companies comes into existence when they are registered under
the Companies Act and a certificate of incorporation is granted to it by the Registrar.

B. ON THE BASIS OF LIABILITY

1. Companies limited by shares:

A company that has the liability of its members limited by the memorandum to the amount, if
any, unpaid on the shares respectively held by them is termed as a company limited by
shares.

The liability can be enforced during existence of the company as well as during the winding
up. Where the shares are fully paid up, no further liability rests on them.

For example, a shareholder who has paid 75 on a share of face value 100 can be called upon
to pay the balance of 25 only. Companies limited by shares are by far the most common and
may be either public or private.

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2. Companies limited by guarantee:

Company limited by guarantee is a company that has the liability of its members limited to
such amount as the members may respectively undertake, by the memorandum, to contribute
to the assets of the company in the event of its being wound-up. In case of such companies
the liability of its members is limited to the amount of guarantee undertaken by them.

The members of such company are placed in the position of guarantors of the company’s
debts up to the agreed amount.

Clubs, trade associations, research associations and societies for promoting various objects
are various examples of guarantee companies.

3. Unlimited Liability Companies:

A company not having a limit on the liability of its members is termed as unlimited company.
Here the members are liable for the company’s debts in proportion to their respective
interests in the company and their liability is unlimited.

Such companies may or may not have share capital. They may be either a public company or
a private company.

C. ON THE BASIS OF NUMBER OF MEMBERS

1. Public company:

Defined u/s 2(71) of the ca, 2013 – a public company means a company which is not a private
company.
Section 3(1) of the ca, 2013– public company may be formed for any lawful purpose by 7 or
more persons.
Section 149(1) of the ca, 2013 – every public company shall have minimum 3 director in its
board.
Section 4(1)(a) of the ca, 2013 – a public company is required to add the words “limited” at
the end of its name.
It is the essence of a public company that its shares and debentures can be transferable freely
to the public unlike private company. Only the shares of a public company are capable of
being dealt in on a stock exchange.
A private company that is a subsidiary of a public company, will be considered a public
company.
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 2. Private company:

 Defined u/s 2(68) of the ca, 2013 –

A private company means a company which by its articles—

A. Restricts the right to transfer its shares.

B. Limits the number of its members to 200 hundred (except in case of opc)

Note:

1. Persons who are in the employment of the company; and persons who, having been
formerly in the employment of the company, were members of the company while in
that employment and have continued to be members after the employment ceased,
shall be excluded.
2. Where 2 or more persons hold 1 or more shares in a company jointly, they shall be
treated as a single member.

Prohibits any invitation to the public to subscribe for any securities of the company.
Section 3(1) of the ca, 2013 – private company may be formed for any lawful purpose by 2
or more persons.
 Section 149(1) of the ca, 2013 – every private company shall have minimum 2director
in its board.
 Section 4(1)(a) of the ca, 2013 – a private company is required to add the
words “private ltd” at the end of its name.
 Special privileges – private companies enjoys several privileges and exemptions
under the companies act.

3. One person company(opc):

 With the enactment of the companies act, 2013 several new concepts was introduced
that was not in existence in companies act, 1956 which completely revolutionized corporate
laws in India. One of such was the introduction of orc concept.

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 This led to the avenue for starting businesses giving flexibility which a company form of
entity can offer, while also offering limited liability that sole proprietorship or partnerships
does not offers.
 Defined u/s 2(62) of the ca, 2013 – one person company means a company which has only
one person as a member.

D. Types of company on the basis of domicile:

1. Foreign company:

 Defined u/s 2(42) of the Company Act, 2013 – “foreign company” means any
company or body corporate incorporated outside India which,—

1. Has a place of business in india whether by itself or through an agent, physically or

through electronic mode; and

2. Conducts any business activity in india in any other manner.

 Section 379 to section 393 of the ca, 2013 prescribes the provisions which are
applicable on such companies.

2. Indian company:

 A company formed and registered in India is known as an Indian company.

E. Other types of company:

1. Section 8 company:

A section 8 company is registered as a limited company under section 8 of the ca, 2013 and
holds the licence from central government (cg) and
1. Has in its objects the promotion of commerce, art, science, sports, education, research,
social welfare, religion, charity, protection of environment or any such other object;

2. Intends to apply its profits, if any, or other income in promoting its objects; and

3. Intends to prohibit the payment of any dividend to its members.

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 Proviso to section 4(1)(a) of the ca, 2013 – section 8 company is exempted from
clause (a) of section 4(1) which means section 8 company is neither required to add the word
“ltd” nor words “private ltd” at the end of its name.
 Section 8 of the ca, 2013 also laid down the provision related to incorporation,
application for licence as section 8 company, grant of licence by cg and revocation of license
by cg.
 Special privileges: section 8 company enjoys several privileges and exemptions under
the companies act.

 Government company:

 Defined u/s 2(45) of the ca, 2013 – “Government company” means any company in
which not less than 51 % of the paid-up share capital is held by the central government, or by
any state government or governments, or partly by the central government and partly by one
or more state governments, and includes a company which is a subsidiary company of such a
government company. Explanation – “paid-up share capital” shall be construed as “total
voting power”, where shares with differential voting rights have been issued.
 Special privileges: government company enjoys several privileges and exemptions
under the companies act.

 Small company:

 Defined u/s 2(85) of the ca, 2013 – “small company” means a company, other than a
public company
1. Paid-up share capital of which does not exceed 50 lakh rupees or such higher amount as
may be prescribed which shall not be more than 10 crore rupees; and

2. Turnover of which as per profit and loss account for the immediately preceding financial
year does not exceed 2 crore rupees or such higher amount as may be prescribed which shall
not be more than 100 crore rupees

Provided that nothing in this clause shall apply to—

A holding company or a subsidiary company;

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 A company registered under section 8; or
A company or body corporate governed by any special act;
Special privileges: small company enjoys several privileges and exemptions under the
companies act.

 Subsidiary company:

 Defined u/s 2(87) of the ca, 2013 – “subsidiary company” or “subsidiary”, in relation
to any other company (that is to say the holding company), means a company in which the
holding company—
1. Controls the composition of the board of directors; or

2. Exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have
layers of subsidiaries beyond such numbers as may be prescribed.

Explanation: for the purposes of this clause-

1. A company shall be deemed to be a subsidiary company of the holding company even if

the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of
the holding company.

2. The composition of a company’s board of directors shall be deemed to be controlled by

another company if that other company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the directors;

3. The expression “company” includes anybody corporate.

4. “layer” in relation to a holding company means its subsidiary or subsidiaries.

 Holding company:

 Defined u/s 2(46) of the ca, 2013 –“Holding company”, in relation to one or more
other companies, means a company of which such companies are subsidiary companies;
Explanation: for the purposes of this clause, the expression “company” includes any body
corporate.

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  Associate company:

 Defined u/s 2(6) of the ca, 2013 – “Associate company”, in relation to another
company, means a company in which that other company has a significant influence, but
which is not a subsidiary company of the company having such influence and includes a joint
venture company.
Explanation: for the purpose of this clause:

1. The expression “significant influence” means control of at least 20% of total voting power,
or control of or participation in business decisions under an agreement;

2. The expression “joint venture” means a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the arrangement;

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 II
INCORPORATION OF A COMPANY

Promoters

 Definition of Promoter

Section 2(69) of the Companies Act, 2013, defines promoters as an individual who:-

 Is named as a promoter in the prospectus or in the annual returns of the company.

 Controls the affairs of a company, directly or indirectly.

 Advises, directs, or instructs the Board of Directors.

Hence, we can say that promoters are people who originally come up with the idea of the
company, form it and register it. However, solicitors, accountants, etc. who act in their
professional capacity are NOT promoters of the company.

 DUTIES OF THE PROMOTER

The relation of promoter with the company cannot be described as a principal-agent relation
as during pre-incorporation stage, the company has not even come into existence Duties of
the Promoter shall be discussed herewith:

1. Duty to disclose secret profit

As mentioned earlier the promoters stand in a fiduciary relationship with the company which
will be incorporated. The duty of a promoter is to disclose the secret profit made by him if
any to the company. The Promoter has a right to claim expenses if any made during the
incorporation stage from the company.

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2. Duty to keep the company informed about the transactions

A promoter may intend to sell, lease or rent any property of the company. But if such a
transaction is made without informing the company, the company may repudiate such
contract of sale, lease or rent, the company may even claim the profit made by the promoter
from the transaction by allowing such a contract made by the promoter.

3. Fiduciary duty towards the future Shareholders

The promoter is bound by a fiduciary relationship with the company, signatories of

memorandum of association and also show the future allottees of share of the company.
Relation of trust between promoter and future shareholders goes to show that the promoter
shall uphold all the values expected of him by the Company.

4. Duty to disclose profits gained during promotion

The promoter during the promotion of the company may certain times be subjected to certain
private arrangements leading to his personal profit, given the promoter stands in fiduciary
relationship with the company he must disclose the profits gain during promotion as
explained about to the company.

5. Duty to pay the company whatever received as trustee

The promoter stands in a fiduciary relationship with the company, and it is the duty of the
promoter to make good to the company whatever he has obtained as the Trustee of the
company.

 Liabilities of the Promoter

A Promoter is subjected to liabilities under the various provisions of the Companies Act,
2013. The liabilities of the promoter are:

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1. Liability to justify the transactions to the company

The promoter stands in a fiduciary relationship with the company, therefore the company has
all rights to enquire into the transactions made by the promoter without the consent of the
company. The company while dealing with such a transaction may either repudiate such an
agreement made by the promoter with the third party or may even sue the promoter to recover
the money along with profits so made by him behind the back of the company.

2. Liability against the misstatement made in the prospectus

Section 26 of the Companies Act, 2013 lists down the matters that are to be stated in the
prospectus. The promoter may be held liable for not having complied with the
provision. Section 63 of the Companies Act, 1956 also provided criminal liability for
misstatement in prospectus and Promoter maybe made liable under this section. Section 63
prescribed imprisonment that may be extended to two years and fine that may be extended to
5000 Rs. for making untrue statements in the prospectus.

Under Section 34 and Section 35 of the Companies Act, 2013 promoter maybe held liable
for any untrue statement made in the prospectus because of which a person subscribed for
shares and debentures believing the prospectus statements to be true. However, the liability of
the promoter is capped towards only the original allottees of the shares and not the
subsequent ones.

3. Personal liability towards the contracts

All the contracts entered upon by the promoter during pre-incorporation stage of the
Company, the promoter may be held personally liable for the aforementioned contracts till
it’s discharged according to contract terms or when the company takes up the liability from
the promoter after it is incorporated.

4. Liability of the promoter during the winding-up process of the company

In the process of winding up, the official liquidator under Section 340 of the Companies Act,
2013 may by application request the court to make the promoter liable for the misfeasance or
breach of trust towards the Company.

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  FORMATION OF A COMPANY

Section 3 of the Companies Act, 2013, details the basic requirements of forming a company as
follows:

 Formation of a public company involves 7 or more people who subscribe their

names to the memorandum and register the company for any lawful purpose.

 Similarly, 2 or more people can form a private company.

 One person can form a One-person company.

 Registration or Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for incorporation of a
company. Here is the procedure:

 Filing of company registration papers with the registrar

To incorporate a company, the subscriber has to file the following company registration
papers with the registrar within whose jurisdiction the location of the registered office of the
proposed company falls.

1. The Memorandum and Articles of the company. All subscribers have to sign on
the memorandum.

2. The person who is engaged in the formation of the company has to give a declaration
regarding compliance of all the requirements and rules of the Act. A person named in
the Articles also has to sign the declaration.

3. Each subscriber to the Memorandum and individuals named as first directors in

the Articles should submit an affidavit with the following details:

i. Declaration regarding non-conviction of any offence with respect to the

formation, promotion, or management of any company.

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 ii. He has not been found guilty of fraud or any breach of duty to any company in the
last five years.

iii. The documents filed with the registrar are complete and true to the best of his
knowledge.
4. Address for correspondence until the registered office is set-up.

5. If the subscriber to the Memorandum is an individual, then he needs to provide his

full name, residential address, and nationality along with a proof of identity. If the
subscriber is a body corporate, then prescribed documents need to be provided.

6. Individuals mentioned as subscribers to the Memorandum in the Articles need to

provide the details specified in the point above along with the Director
Identification Number.

7. The individuals mentioned as first directors of the company in the Articles must
provide particulars of interests in other firms or bodies corporate along with their
consent to act as directors of the company as per the prescribed form and manner.

 Issuing the Certificate of Incorporation

Once the Registrar receives the information and company registration papers, he registers all
information and documents and issues a Certificate of Incorporation in the prescribed form.

 Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to the company which is a
distinct identity for the company. The allotment of CIN is on and from the company’s
incorporation date. The certificate carries this date.

 Maintaining copies of Company registration papers

The company must maintain copies of all information and documents until dissolution.

 Furnishing false information at the time of incorporation

During the formation of a company, an individual can:

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  Furnish incorrect or false information

 Suppress any material information in the documents provided to the Registrar for
the incorporation, on purpose

In such cases, the individual is liable for action for fraud under section 447.

 The company is already incorporated based on false information

If a company is already incorporated but it is found at a later date that the information or
documents submitted were false or incorrect, then the promoters, first directors, and persons
making a declaration is liable for action for fraud under section 447.

 Order of the National Company Law Tribunal (NCLT)

If a company is incorporated by furnishing false or incorrect information or representation or

suppressing material facts or information in the documents furnished, the Tribunal can pass the
following orders (if an application is made and the Tribunal is satisfied with it):

 Pass an order to regulate the management of the company. It can include changes in its
Memorandum and Articles if required. This order is either in public interest or in the
interest of the company and its members and creditors.

 Make the liability of its members unlimited

 Order removal of the name of the company from the Registrar of Companies

 Order the company to wind-up

 Pass any other order as it deems fit.

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 III
MEMORANDUM OF ASSOCIATION
SYNOPSIS

 Meaning and Definition of Memorandum of Association.

 Essentials of Memorandum of Association.

 Contents of Memorandum of Association.

 Doctrine of ultravires

 Meaning and Definition of Memorandum of Association

A Memorandum of Association (MOA) represents the charter of the company. It is a legal

document prepared during the formation and registration process of a company to define its
relationship with shareholders and it specifies the objectives for which the company has been
formed.

The memorandum of association of a company is an important corporate document in India.

It is often simply referred to as the memorandum. In the India, it has to be filed with
the Registrar of Companies during the process of incorporating a company. It is the document
that regulates the company’s external affairs, and complements the articles of
association which cover the company’s internal constitution. It contains the fundamental
conditions under which the company is allowed to operate. Until recently it had to include the
“objects clause” which let the shareholders, creditors and those dealing with the company
know what its permitted range of operation is, although this was usually drafted very broadly.

 Essentials of Memorandum of Association

 A memo should always start by representing the reason for the communication.
 Focus one key topic or subject.
 Explain total subject in short, simple, direct sentences.
 Use language that is clear and unambiguous with a polite tone.

 Contents of Memorandum of Association

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 Memorandum of Association (MOA) is an important document which outlines the company
laws under which a company will work and function.

It has several clauses which defines some pertinent aspects under provision of The
Companies Act, 2013 which are as follows:-

1. Name Clause

2. Situation/ Registered State Clause

3. Object clause

4. Liability clause

5. Capital Clause

6.SubscriberClause

i. Name Clause of Memorandum of Association The name of the company should be stated
in this clause. A company name should be which is not identical in any manner to any
existing company also, there are some words which are strictly prohibited to be used in
names of company in any manner. The Word “Private/PVT Limited” should be in end of
any private company. And the word “Limited” should be in the end of every public limited
Company.

ii. Situation Clause of Memorandum of Association In this clause the state name of
company’s registered office is mentioned. The Company should intimate the location of
registered office to the registrar within thirty days from the date of incorporation

iii. Objects Clause of Memorandum of Association Every company have specific business
which they will run after a company is incorporated. This clause states all the business which
this proposed company will commence after incorporation that to in detail. Now as per The
Companies Act, 2013 only Main objects and other objects which are ancillary to main
objects are covered.

iv. Liability Clause of Memorandum of Association This clause states the liability of the
members of the company. The Liability can be limited or unlimited which means at the
time of winding up of company, a company with limited liability, members are required to
pay amount upto the value of nominal value of shares taken by them but in case of
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unlimited

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members are required to pay without any limit for the debt or payment which a company is
required to pay.

v. Capital Clause of Memorandum of Association This clause states the authorized Capital
of the company and total number of shares along with value of per share. This is the limit a
company can raise its capital maximum amount. For example, if company authorized capital
is 10 Lakhs and paid up at the time of incorporation is 1 Lakh, company can raise its capital
up to 9 lakhs

vi. Subscription Clause of Memorandum of Association It contains the names and addresses
of the first subscribers. The subscribers to the Memorandum must take at least one share. The
minimum number of members is two (2) in case of a private company, seven (7) in case of
a public company and one (1) in case of One Person Company as per The Companies Act,
2013.

 What are the forms to be filed for alteration/changes of

Memorandum of Association (MOA)?

Different forms are filed to Registrar according the changed MOA clause and all
have to be filled within the time prescribed under the required forms and sections.

 What if company failed to comply the alter/change in Memorandum

of Association (MOA) as per law?

As per section 13 of The Companies Act, 2013 until / unless all provisions and forms/ returns
are not filled as per law, the alteration in Memorandum of Association stands nullified.

 ALTERNATION OF MEMORANDUM OF ASSOCIATION

The expression “alter” means to modify/change or vary; to make or become different in some
respect. As per Section 2(3) of the Companies Act, 2013 (the Act) “alter” and “alteration”
shall include the making of additions, omissions and substitutions.

Following are the cases where a company has to alter its Memorandum of Association
(MOA) as per provisions of Section 13 of the Act read with Companies (Incorporation)
Rules, 2014 (the Rules)

24
  Change of Name;

 Alteration of Authorized Capital

 Change in Objects, and

 Shift of Registered Office

A company desiring to change its name may do so in accordance with the provisions of
Section 13 read with Section 4 of the Act by passing Special Resolution and the name
approved by the Ministry of Corporate Affairs (MCA) on prescribed application.

The power of the Central Government under Section 13(2) to approve change in name
has been delegated to Registrar of Companies (ROC).

 CHANGE IN NAME

A company desiring to change its name may do so in accordance with the provisions of
Section 13 read with Section 4 of the Act by passing Special Resolution and the name
approved by the Ministry of Corporate Affairs (MCA) on prescribed application. The
power of the Central Government under Section 13(2) to approve change in name has
been delegated to Registrar of Companies

 ALTERATION OF AUTHORIZED CAPITAL

A Company seeking to issue shares by way of Private Placement or Rights Issue or by any
other prescribed methods, has to check the Authorized Capital, as the issue cannot exceed
the amount of Authorized Capital.

 CHANGE IN OBJECTS
A company may change its objects as enshrined in its MOA in accordance with the
provisions of Section 13 of the Act. Accordingly, any alteration of MOA with respect to the
objects of the company is permitted through Special Resolution.

25
 DOCTRINE OF ULTRA VIRES

 Introduction
Section 2 (20) of Companies Act, 2013 “Company’’ means a company incorporated under
companies Act. The company has different and distinct personality from its members. It also has no
strictly technical or legal meaning. A body corporate or corporation includes a company incorporated
outside India, but does not include a co-operative society registered under the law relating to co-
operative societies, and anybody corporate which the Central Government may, by notification, specify
for this purpose. “Company” word derived from two words: “com”- group and “panies”- bread.
Therefore, it means group that eat their bread together. Company has two important documents and they
are memorandum and Articles of Association. In memorandum of association of the company, there is a
object clause. If company goes beyond its object then the act is Ultra Vires in eyes of law.

 Origin of Doctrine of Ultra vires

Doctrine of ultra vires has provides protection to the investors and creditors o the company. The
doctrine of ultra vires could not established its roots. It established its roots in 1875 when the Directors,
and Company, of the Ashbury Railway Carriage and Iron Company (Limited) v Hector Riche, (1874-
75) L.R. 7 H.L. 653 as decided by the House of Lords. A company called “The Ashbury Railway
Carriage and Iron Company,” incorporated under the Companies Act, 1862.
 Ashbury Railway Carriage and Iron Company (Limited)  v Hector Riche, (1874-75) L.R. 7
H.L. 653
A company called “The Ashbury Railway Carriage and Iron Company,” incorporated under the
Companies Act, 1862. The objects listed in the object clause of memorandum of association were :
1. to make, and sell, or lend on hire, railway carriages and waggons,
2. and all kinds of railway plant, fittings, machinery, and rolling-stock;
3. to carry on the business of mechanical engineers and general contractors ;
4. purchase, lease, work, and sell mines, minerals, land, and buildings;
5. to purchase and sell, as merchants, timber, coal, metals, or other materials,
6. and also to buy and sell any such materials on commission or as agents.
The directors agreed to enter into contract to construct a railway line in Belgium. The
contract was between The Ashbury Railway Carriage and Iron Company and Hector Riche. The
contract was for supplying the materials required for construction of Railway lines.

26
The objects under the object clause of this company were to supply and sell the materials required to
construct railways. It does not cover construction of railway lines. The contract here was to construct a
railway. That was contrary to the memorandum of association. So the contract was Ultra Vires to the
company.
As held by House of Lords that this contract was ultra vires not only of the director but also of whole
company. Even if majority of shareholder ratify it, then to it can not change. It will still remain ultra
vires of the whole company.

 Doctrine of Ultra Vires

The object clause of the Memorandum of the company contains list of the object for which the company
formed. Company must not act beyond the object clause of memorandum of association. If company
acts beyond the object clause then its ultra vires. If the contract entered into is a ultra vires contract,
then it becomes void and cannot ratified by shareholders also. This known as Doctrine of Ultra Vires.
This doctrine got its roots firm in 1875 in case of  Ashbury Railway Carriage and Iron company ltd. v.
Riche. Thus the expression ultra vires means an act beyond the powers. An ultra vires act is void and
cannot ratified even by majority of shareholders. Even if special resolution passed by shareholder with
majority of votes, then also its ratification cannot happen. Where a company exceeds its power as
conferred by objects clause, its not bound by it because it lacks legal capacity to incur responsibility for
the action.

 Basic principles included the following:

1. An ultra vires transaction cannot be ratified by all the shareholders, even if they wish it to
be ratified.
2. The doctrine of estoppel usually precluded reliance on the defense of ultra vires where the
transaction fully performed by one party
3. A fortiori, a transaction fully performed by both parties could not attacked.
4. The contract fully executory, the defense of ultra vires might also raised by either party.
5. If the contract partially performed, and the performance held insufficient to bring the
doctrine of estoppel into play, a suit for quasi contract for recovery of benefits conferred
available.
6. If an agent of the corporation committed a tort within the scope of his or her employment,
the corporation could not defend on the ground the act was ultra vires.

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  EXCEPTIONS TO THE DOCTRINE OF ULTRA VIRES
Following are the exceptions to Doctrine of Ultra Vires:
1. An act intra vires of the company but outside the authority of the directors may ratified by
the shareholders.
2. An act intra vires of the company but done in an irregular manner. It can turn into valid by
shareholders consent.
3. If the company has acquired any property through an investment, ultra vires of the contract,
the company’s right over such a property shall still secured.
4. While applying doctrine of ultra vires, the effects incidental or consequential to the act
shall not invalid unless they expressly prohibited by the Company’s Act.
5. There are certain acts under the company law, which though not expressly stated in the
memorandum, are deemed impliedly within the authority of the company and therefore
they are not deemed ultra vires. For example, a business company can raise its capital by
borrowing.
6. If an act of the company is ultra vires the articles of association, the company can alter its
articles in order to validate the act.
 

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 IV
ARTICLES OF ASSOCIATIONS
SYNOPSIS

 Meaning and Definition of Articles of associations

 Essentials of Articles of associations

 Contents of Articles of associations
 Relationship between Memorandum of association and Articles of association.

 Meaning and Definition of Articles of Associations

An article of Association refers to a document that defines the purpose of the company and specifies
the regulations for its operations. It also contains the company’s by-laws and rules and regulations
governing the management. 

It is essential for a company to have the articles of association as Section 7(1) of the Companies Act,
2013 states that at the time of incorporation of the company, the articles of association must be filed
with the registrar in whose jurisdiction the registered office of the company. The document outlines
how tasks should be accomplished within an organization, including the preparation and management
of financial records, and the process of director appointments.

 The articles of association (AOA) can be considered the “constitution of a company.” It outlines
the rules and regulations that stipulate a company’s internal affairs.
 The articles of association are also considered a user’s manual for an organization that states the
purpose of the organization and its strategies to accomplish its short-term and long-term goals.
 Generally, the AOA includes a company’s legal name, address, purpose, equity capital,
organization of the company, financial provisions, and provisions regarding the shareholder
meetings.

 Essentials of Articles of Association

Section 5 of Companies Act, 2013 lays down certain essential elements that must be
present in the Articles of Association and also provides rules for its drafting. This section
clearly specifies that nothing in this section prevents a company to include additional

29
 matters which are necessary for the company’s management.

 Company’s Name

 The company’s name must include the word “limited liability company” or
the abbreviation “ltd.”

 If the company intends to use its name in more languages than 1, this clause
must contain the name in other languages as well.

 Issue of shares and the rights of Shareholders

 This clause must contain the amount of capital to be raised as shares, as well as the number
of shares the company proposes to issue.

 The specific class of shares must also be mentioned, along with the value for which each is
being issued.

 The number of different kinds of share capital like preference share capital and equity
share capital etc must be mentioned, along with the value.

 The rights that a shareholder acquires must also be mentioned in this clause.

 Lien of Shares

This clause defines the company’s right to retain the shares of any member of the company,
in case he/she defaults and fails to pay the debt amount to the company.

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  Transfer and Transmission of shares

This clause explains the procedure for the transfer of shares between the transferee and
the shareholders, in situations of death, insolvency, succession etc.

 Forfeiture and Surrender of shares

This clause in the Articles of Association provides the rules for forfeiture of shares by the
company in case a shareholder fails to make the purchase payments for shares. For instance,
in case he/she fails to pay the allotment money (money to be paid on the allocation of shares)
or call money (money to be paid by shareholders holding partly paid shares when the
company demands) on shares etc.

 Conversion of shares into stock

Stock refers to the collection of the shares of a member. These shares are fully paid up.
Section 61 of the Companies Act, 2013 allows a company to allow conversion of fully paid-
up shares into stock and vice-versa. This clause explains the management and the resolution
process through which the shareholders can convert their shares into stock.

 Alteration of capital

The company may be required to increase, decrease or rearrange the capital in the duration of its
operations. This clause in the Articles of Association provides the rules and procedures for
altering capital as per the company’s interest.

 Issue of Debentures

This clause must explain how the debentures can be issued. Whether they can be issued at a
premium, discount or otherwise must be mentioned here. It should also tell whether and how
the issued debentures can be converted into shares.

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 Dividend and Reserves

32
 This clause in the Articles of Association of the company explains when and how the
dividends would be distributed amongst the shareholders of the company.

 Common Seal

Common Seal is a metallic seal of the company which can be affixed only with the approval of
the board of directors. It acts as the signature of the company and once signed on a document,
it binds the company with all obligations under that document. This clause explains the use
and custody rules of the common seal.

 Contents of Articles of Association

The articles generally deal with the following

1. Classes of shares, their values and the rights attached to each of them.

2. Calls on shares, transfer of shares, forfeiture, conversion of shares and alteration of

capital.

3. Directors, their appointment, powers, duties etc.

4. Meetings and minutes, notices etc.

5. Accounts and Audit

6. Appointment of and remuneration to Auditors.

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  Relationship between Memorandum of association and Articles of
association.

The memorandum of association and articles of association are the two charter documents,
for the setting up of the company and its operations thereon. ‘Memorandum of Association
‘abbreviated as MOA, is the root document of the company, which contains all the basic
details about the company. On the other hand, ‘Articles of Association ‘shortly known as
AOA, is a document containing all the rules and regulations designed by the company.

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  COMPARISON CHART

BASIS FOR MEMORANDUM OF

COMPARISON ARTICLES OF ASSOCIATION
ASSOCIATION

 Meaning Memorandum of Articles of Association is a

Association is a document containing all the
document that contains rules and regulations that
all the fundamental governs the company.
information which are
required for the
incorporation of the
company.

 Type of Powers and objects of Rules of the company.

Information the company.
contained

 Status Companies Act. It is subordinate to the

memorandum.

 Retrospective The memorandum of The articles of association

Effect association of the can be amended
company cannot be retrospectively.
amended
retrospectively.

 Major contents A memorandum must The articles can be drafted

contain six clauses. as per the choice of the
company.

 Obligatory Yes, for all companies. Only a private company is

required to frame its

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 BASIS FOR MEMORANDUM OF
ARTICLES OF ASSOCIATION
COMPARISON ASSOCIATION

articles while a public

company limited by shares
can adopt Table F in place
of articles.

 Compulsory Required Not required at all.

filing at the time
of Registration

 Alteration Alteration can be done, Alteration can be done in

after passing Special the Articles by passing
Resolution (SR) in Special Resolution (SR) at
Annual General Annual General Meeting
Meeting (AGM) and (AGM)
previous approval of
Central Government
(CG) or Company Law
Board (CLB) is
required.

 Relation Defines the relation Regulates the relationship

between company and between company and its
outsider. members and also between
the members inter se.

 Acts done Absolutely void Can be ratified by

beyond the scope shareholders.

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 PROSPECTUS.

 Meaning of Prospectus
 Definition of Prospectus
 Prospectus and its importance
 Types of prospectus

 Meaning of Prospectus

1. The prospectus is a legal document, which outlines the company’s financial securities
for sale to the investors.
2. According to The companies act 2013, there are four types of the prospectus,
abridged prospectus, deemed prospectus, red herring prospectus, and shelf prospectus.

 Definition of Prospectus

The prospectus is a legal document for market participants and investors to pursue, detailing
the features, prospects, and promise of a financial product. It is mandated by the law to be
supplied to prospective customers. Example In an IPO, the prospectus tells potential
shareholders about the company’s plans and business model. For insurance and
investment fund customers, a prospectus lists out the objective of the product, inclusions,
and exclusions, fees, etc.

 Prospectus and its importance

The company provides prospectus with capital raising intention. Prospectus helps the
investors to make a well-informed decision because of the prospectus all the required
information of the securities which are offered to the public for sale.

Whenever the company issues the prospectus, the company must file it with the regulator.
The prospectus includes the details of the company’s business, financial statements.

1. To notify the public of the issue

37
2. To put the company on record with regards to the terms of the issue and allotment
process
3. To establish accountability on the part of the directors and promoters of the company

 TYPES OF PROSPECTUS

According to Companies Act 2013, there are four types of prospectus.

 Deemed Prospectus – Deemed prospectus has mentioned under Companies Act,

2013 Section 25 (1). When a company allows or agrees to allot any securities of the
company, the document is considered as a deemed prospectus via which the offer is
made to investors. Any document which offers the sale of securities to the public is
deemed to be a prospectus by implication of law.

 Red Herring Prospectus – Red herring prospectus does not contain all
information about the prices of securities offered and the number of securities to be
issued. According to the act, the firm should issue this prospectus to the registrar at
least three before the opening of the offer and subscription list.

 Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies

Act, 2013. Shelf prospectus is issued when a company or any public financial
institution offers one or more securities to the public. A company shall provide a
validity period of the prospectus, which should not be more than one year. The
validity period starts with the commencement of the first offer. There is no need for a
prospectus on further offers. The organization must provide an information
memorandum when filing the shelf prospectus.

 Abridged Prospectus – Abridged prospectus is a memorandum, containing

all salient features of the prospectus as specified by SEBI.
This type of prospectus includes all the information in brief, which gives a summary to the
investor to make further decisions. A company cannot issue an application form for the
purchase of securities unless an abridged prospectus accompanies such a form

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 V

 Directors
 Positions of Director.
 Appointment of Director.
 Powers of Director.
 Managing Director,
 whole time director
 Directors

The term director is a title given to the senior management staff of businesses and other
large organizations. .A person from a group of managers who leads or supervises a
particular area of a company, Directors refer to the part of the collective body known as the
Board of Directors, that is responsible for controlling, managing and directing the affairs
of a company. Directors are considered the trustees of the company’s property and money,
and they also act as the agents in transactions that are entered into by them on behalf of the
company. Directors are expected to perform their duties and obligations as rationally diligent
persons with skill, knowledge, and experience as the person carrying out functions of a
director and of that himself. Directors are responsible for controlling, managing and directing
the affairs of a company. He/She plays multiple roles in the company. Hence, a director plays
several roles in a company, as an agent, as an employee, as an officer and as a trustee of the
company.

 Minimum and Maximum number of directors in a company

The law requires that every company must have at least 3 directors in the case of public
limited companies, minimum 2 directors in the case of private limited companies and a
minimum 1 director in the case of one-person companies. A company can have a maximum
of 15 directors. The company could appoint more directors bypassing the special resolution
in its general meeting.

39
  POSITIONS OF DIRECTOR

The position of a director of any corporate enterprise is a tough subject to explain

(Ram Chand & Sons Sugar Mills Pvt. Ltd.v. KanhayalalBhargavaAIR (1996) Cal).
The position of a director has been given by L.J. Bowen in the case of Imperial
Hydropathic Hotel Co Blackpool v. Hampson ((1883) 23 Ch D 1) the director has a
versatile position in a corporate body. Directors are described as trustees, or as
agents and sometimes even as managing partners.

 Directors as agents

It has been held that directors are agents of the company as the company is an artificial
person it can act through directors only (Ferguson v. Wilson(1904) SLR 41 601).The
relation of a director and the company is like an ordinary relation of principal and agent.

 Directors as Trustees

Directors are not the trustees of the company, but they are treated as trustees where money
and properties are involved as it is under their control. In the case of Ramaswamy Iyer v.
Brahamayya& Co. (AIR (1965) Mad 176), it was held that in terms of their power of
applying funds of the company and for misuse of power, the directors are liable as trustees
and even after their death the liability remains as a cause of action survives against their legal
representative.

 Appointment of Director

There are several types of directors in companies and there are several types of companies
and then there are certain mandatory rules for companies to appoint certain kind of directors
in certain companies.
According to Section 2(34) of Companies Act, 2013 a director is a person who is appointed
as director in the company. A person who is appointed but not designated as a director will
not be considered as a director under the meaning of this Act. Only an individual shall be
eligible to be appointed as director because in case of corporates and firms it will be difficult
to fix duties and responsibilities.

40
 Minor cannot be a director because of the ineligibility to obtain DIN (Section 152(3)). As
per Section 149(3), at least one director has to be an Indian resident.

 Minimum number of directors: In case of public company it is 3, private company

2 and one person company Though articles of the company might specify for a
higher number of minimality. Maximum number of directors– It is 15 but more can
be appointed by passing a special resolution Requirement of special resolution is not
needed in government company and company licenced under section 8 subject to
condition.

 POWERS OF DIRECTORS

According to Companies Act 2013, the Board of Directors of a Company has

the following powers in the Company.

 Power to make calls in respect of money unpaid on shares

 Call meetings on suo moto basis.
 Issue shares, debentures, or any other instruments in respect of the Company.
 Borrow and invest funds for the Company
 Approve Financial Statements and Board Report
 Approve bonus to employees
 Declare dividend in the Company
 Power to grant loans or give guarantee in respect of loans
 Authorize buy back of securities
 Approve Amalgamation/Merger/ Takeover
 Diversify the business of the Company

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  DUTIES OF DIRECTORS

Board of Directors acts as agent of the Company. However while acting

for Company, Director needs to take care of his duties which are as follows: -

 To act in good faith

 Act in accordance with the Articles of Association of the Company
 To act so as to promote the objects of the Company
 Act in best interest of the Company and its stakeholders
 Exercise duties with due and reasonable care
 To exercise independent judgement
 Not to get involved in a situation where his interest conflicts with the interest of the
Company
 He cannot assign his office to any other person.
 Not to achieve undue gain or advantage

 Managing Director of Company

A Managing Director is a director who is trusted with substantial powers of management.

Managing director is a part of the Board of Directors and a whole-time director committed to
the certain rights and responsibilities.

 Disqualifications of Managing Director

The following are reasons and causes for disqualification of a Managing Director:

 The Director is below the age of 21 years or has attained the age of 70 years –
granted that appointment of a person who has attained the age of 70 years may be
made by transferring a special resolution in which case the explanatory statement
annexed to the notice for such motion shall indicate the justification for selecting such
person.

42
  The Director is undischarged bankrupt or has at any time been adjudged as an
insolvent.
 The Director has been sentenced by a court and convicted for more than six months.

 Appointment of Managing Director

Managing director of a company can be appointed for a maximum term of five years and re-
appointed for an additional term of 5 years, one year before the expiry of original term. A
company may appoint a managing director or a whole-time director in any one of five ways
unless the articles of the company specify a particular mode of appointment mentioned
below:

 By an agreement with the company.

 By a resolution passed by the company in general meeting.
 By the resolution passed by the Board of directors.
 By the Memorandum of Association.
 By the Articles of Association.

 Filing Return of Appointment

A company must file a return of appointment of a Managing Director, Whole Time Director
or Manager, Chief Executive Officer (CEO), Company Secretary and Chief Financial officer
(CFO) within sixty days of the appointment. The filing must be done online using Form MR-
1.

 Responsibilities of Managing Directors

A private limited company can appoint or employ only one person as its Managing
Director. Some of the major responsibilities of a Managing Director are :

 Exercise his duties with due and reasonable care, skill and diligence and exercise
independent judgment.
 Not involved in a situation in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the company.

43
 Not achieve or attempt to achieve any undue gain or advantage either to himself or to
his relatives, partners, or associates and if such director is found guilty of making any
undue gain, he shall be liable to pay an amount equal to that gain to the company.
 Not assign his office and any assignment so made shall be void.

 Whole-time Director
 Whole-time Director’ u/s 2(94) and ‘Company Secretary’ u/s 2(24) of the
Companies Act, 2013. Whole-time Director [Sec 2(94)]
1. Meaning of the term ‘whole-time director’
“Whole-time Director” has been defined to include a director in the whole-
time employment of the company. The definition of ‘whole-time director’ is
an inclusive definition. A whole-time director refers to a director who has
been in employment of the company on a fulltime basis and is also entitled
to receive remuneration. Section 269 of the Companies Act, 1956 contained
the definition of the term “whole-time director” appended as an explanation to
section 269 which corresponds to the definition under this Act. A whole-time
director is a director rendering his services on whole time basis to the
company. Further, a whole-time employee, when appointed as a director of the
company, will be occupying the position as the whole-time director.
2. Position of a whole-time director the position of a whole-time director
is a position of significance under the Act. A whole-time director is considered
and recognized as ‘key managerial personnel’ in clause (51) of section 2 of the
Act. Further, he is an officer in default (as defined in clause (60) of section 2)
for any violation or noncompliance of the provisions of Act.

44
 V
Synopsis
 Company meetings
 Its Kinds,
 Quorum,
 Voting,
 Resolutions,
 Minutes.

Meeting is not defined under any provisions of Companies Act of 2013, but taking
references from common business and market parlance and also from some of the
decided case laws like Sharp vs. Dawes, as decided in 1971, and through citations of
various renowned authors, we can gather that a ‘Company Meeting’ is basically
coming together of at least two persons to either transact any ordinary or special
business for lawful purposes.

Therefore they are broadly classifies as follows:

A company is considered as a legal entity separate from its members in the eyes of law. All
the affairs of the company are practically carried out by the board of directors. The board of
directors of a company carries out these affairs within the limitations of their powers, as
invoked by the articles of association of the company. The directors also exercise certain
powers of their own with the consent of other members of the company.

45
The consent of the other members is ensured at the general meetings held by the company.
Any mistakes committed by the board are rectified by the shareholders (who are also
considered as owners of the company) at the meetings of the company.

 The shareholders’ meetings are conducted for the shareholders to give their verdict
on the decisions and steps taken by the board of directors.

 Meetings are a crucial part of the management of a company as mentioned in the

Companies Act, 1956.

 Meetings enable the shareholders to know the ongoing proceedings of the company
and allow the shareholders to deliberate on certain issues.

 There are various types of meetings held by a company.

 Various criteria must be fulfilled for the calling, convening and conduct of the
meetings.

 Statutory Meeting

A statutory meeting is held once during the life of a company. Generally, it is held just after
a company is incorporated. Every public company, limited either by shares or by guarantee,
must positively hold a statutory meeting as soon as the company is incorporated.

 A statutory meeting should be held between a minimum period of one month and a
maximum period of six months after the commencement of business of the company.

 A meeting before a period of one month cannot be considered as a statutory meeting

of the company.

 The notice for a statutory meeting should mention that a statutory meeting is going to
be held on a specific date.

 Private companies and government companies are not bound to hold any statutory
meetings.

 Only public limited companies are bound to hold statutory meetings within the
specified period of time.

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  Procedure of the Statutory Meeting

The board of directors must forward a statutory report to every member of the company.
This report must be sent at least 21 days before the meeting. Members attending the meeting
may discuss topics regarding the formation of the company or topics related to the statutory
report.

 No resolutions can be taken in the statutory meeting of the company.

 The main objective of the statutory meeting is to make the members familiar with the
matters regarding the promotion and formation of the company.

 The shareholders receive particulars related to shares taken up, moneys received,
contracts entered into, preliminary expenses incurred, etc.

 The shareholders also get a chance to discuss business ideas and methods and the
future prospects of the company.

 An adjourned meeting is called if the statutory meeting does not meet a conclusion.

 According to section 433 of the Companies Act, 1956, a company may be subjected
to winding up if it fails to submit a statutory report or fails to conduct a statutory
meeting within the aforementioned period.

 However, the court may order the company to submit the statutory report and to
conduct the statutory meeting and impose a fine on the persons responsible for the
default instead of directly winding up the company.

 Adjournment of Statutory Meeting

According to section 165(8) of the Companies Act, a statutory meeting may be adjourned
from time to time. Any resolution on which notice has been given according to the provision
of the Companies Act may be passed whether the resolution was taken up before or after the
last meeting.

 The adjourning meeting has the same power as the original statutory meeting.

 The power to adjourn depends on the decision of the meeting.

 The meeting cannot be adjourned by the chairman without the consent of the
members of the meeting.

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  The chairman is expected to adjourn the meeting if the members wish to do so,
without invoking any discriminatory powers given to the chairman by the articles of
association of the company.

 Usually, the chairman is not bound to adjourn a meeting even if majority of the
members wish for the adjournment.

 The statuary meeting provides an exception in the rule that only unfinished business
at the original meeting must be carried out at the adjourned meeting.

 Members have the right to initiate new topics of discussion in the adjourned meeting.

 The advantage of adjourned meetings over statutory meetings is that a resolution can
be passed in an adjourned meeting, which is not possible in the case of the latter.

 If any resolution is needed to be passed based on the topics discussed in the statutory
meeting, it must be passed at an adjourning meeting to go in accordance with the
law.

 Default

In case of any default made in filing the statutory report or in conduct of the statutory
meeting, the members responsible will be liable to fine according to section 165(9) of the
Companies Act. The fine may extend to INR 5000.

The court can also order compulsory winding up of the company in accordance to section
433(b) of the Companies Act if the statutory meeting is not held within the prescribed time.

 Statutory Report

The board of directors must forward a statutory report to every member of the company.
This report must be sent at least 21 days before the meeting.

 Annual General Meeting

An Annual General Meeting, as the name suggests, is a general meeting, which is held on a
yearly basis. According to section 166 of the Companies Act, all companies must hold
Annual General Meetings at stipulated time intervals. The notice for an Annual General
Meeting must contain all the particulars of the meeting. However, the time to hold the first
Annual General Meeting for a company is relaxed to 18 months from the date of
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incorporation.

 Extraordinary General Meeting

Any general meeting of a company is considered to be an extraordinary general meeting,

except the statutory meeting, an Annual General Meeting or any adjournment meeting. Such
types of meetings can be fixed by the directors at any time that seems appropriate to the
directors. However, the meetings must be held in accordance with the guidelines mentioned
in the articles of association of the company.

An extraordinary general meeting can be convened −

 By the board of directors or on the requisitions of members.

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 By the Board of Directors

If some business of special importance requires an approval of the members of the company,
the board of directors may call for an extraordinary general meeting of the company. Going
in accordance with the articles of association of the company, the board of directors of a
company may call for an extraordinary general meeting whenever they feel appropriate.

The power of a director to convene an extraordinary general meeting must be exercised at a

board of directors’ meeting as in the case of all the powers exercised by the director.

According to the provision of the articles, if a resolution is signed by all the members of the
board and is as effective as a passed resolution, a general meeting may be convened on the
context of the resolution. The articles also provide the facility that there may not be
sufficient number of directors to call for a general meeting.

Thus in case of insufficient number of directors, any director or any two members of the
company can call for the general meeting in the same way as called by the board of
directors.

 On Requisition of Members

The members of the company may also request for an extraordinary general meeting to be
conducted. A request for holding an extraordinary general meeting can be made by the
members

 Holding at least 10% of the company’s paid up share capital and having the right to
vote on the context of the matter to be discussed at the meeting.

 Holding 10% of voting powers of the members in case the company has no capital.

 Preference shareholders can also call for a general meeting if the proposed resolution
is going to affect their interest.

 If a member ceases to withdraw after the requisition is made, the withdrawal will not
invalidate the requisition.

 The appointment of shares does not affect the rights of a member to make
requisitions or vote at a meeting.

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  By the Requisitionists Themselves
In case the directors fail to call for the meeting within 21 days of a requisition for a meeting
to be held within 45 days after the submission of the requisition, the following consequences
may be called −

 In context of a company having a share capital, by the requisitionists who represent

either a major value of the paid up share capital or not less than one tenth of the
company’s total share capital.

 For a company not having a share capital, by the requisitionists holding at least one-
tenth of the total voting power

 This kind of meetings must be called within three months from the date when the
requisition is filed.

 These kinds of meetings should be held similar to board meetings.

 It is not necessary for the requisitionists to disclose the reasons for the resolution to
be proposed at the meeting.

 By the Company Law Board

If it is practically impossible to call a meeting other than an Annual General Meeting for any
arbitrary reasons, the Company Law Board, under section 186, may order a meeting to be
called, either of its own accord or by an application of any director of the company to the
Company Law Board.

A petition needs to be filed under section 186 of the Companies Act for the Company Law
Board to call for a meeting.

 Meeting of BoD

The meeting held by the Board of Directors is an important aspect for the smooth
functioning and working of a company. For ensuring that the actions approved by the board
are in the interest of the company, the Companies Act, 1956, incorporates several statutory
prescriptions.

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  Periodicity of the Board Meetings

According to section 285 of the Companies Act, the board meetings should be held every
three months. The board of directors can meet any day between the 1st January and the 31st
of March. Accordingly, the next meeting should be held between 1st April and 30th June.
There is no scope in the section 285 of the companies act for backward calculation.

 Notice of Board Meeting

According to section 286 of the Companies Act, appropriate notice should be given to all the
directors about the meeting. The meeting can be held only after the notice is given. The
notice should be delivered to every director of the board.
The notice should be delivered at least seven days before the meeting. It is not mandatory to
give notice to a foreign director staying outside India. However, it is advised to deliver
notices to all the directors whether inside India or outside.
 Day of Holding Meeting
Generally, board meetings are held during the day within business hours. However, board
meetings can also be held on a public holiday.
 Time of Holding Board Meeting
The Companies Act, 1956, does not impose any restrictions on the timing of board meetings.
They can be held during or outside business hours, as per the convenience of the board.
 Place for Holding Board Meetings
Board meetings can be held anywhere as per the convenience of the board. The board is not
bound to select a venue for the meeting in the same city where the company’s registered
office is situated as in the case of general and statutory meetings. Board meetings can also
be held abroad.

 Quorum of the Board Meeting

According to the provisions given by the Companies Act, at least one-third of the directors
or two directors (whichever is higher) must be present to conduct a board meeting. If a
fraction arises during the counting of one-third, the fraction is counted as one. These rules
also apply to a private company. According to section 287(2) of the Companies Act, the
company can raise the number of quorum through its articles of association.

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 VI

WINDING UP OF COMPANY

 INTRODUCTION

The provisions related to winding up of a company are governed by the Insolvency and
Bankruptcy Code. Apart from this, winding up of a company is governed by the provisions
of the Companies Act, 2013.When a company opts for the process of winding up , either the
company can go for the procedure of voluntary winding up or there is another procedure
related to compulsory winding up. The Ministry of Corporate Affairs have brought out
notifications in the year 2020 regarding the winding up of small companies. Non-
Compliance with the above provisions would lead to several criminal and civil liabilities.
 What is winding up?
Winding up is the process of dissolving a company. While winding up, a company ceases to
do business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any
remaining assets to partners or shareholders. The term is used primarily in Great Britain,
where it is synonymous with liquidation, which is the process of converting assets to cash.

 A company that is winding up ceases to do business as usual.

 Its sole purpose is to sell off assets, pay off creditors, and distribute any remaining
assets.
 Winding up a business is not the same as bankruptcy, although it is usually an end
result of bankruptcy.
 Benefits of Winding Up of a Company
By following the above procedure related to winding up of a company, there would
be compliance with the respective laws and acts.

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 There is no Legal Action on the Company

Through this process, directors would have a chance to provide their own opinions
and recommendations related to saving the company. If the recommendations are
proper procedure would be followed, and the company and its directors can avoid
any legal action from the tribunal or the court. Through this the company can change
its focus on taking up business opportunities.

 Very Less Cost is required in the process of liquidation

The prices followed for the above process is not expensive.

 Creditors Protection

Creditors would be safeguarded if proper procedures are allowed to be utilized. Through this
process of winding up of a company, proper procedures are followed. Creditors are ranked
based on the method of priority which is utilised by a particular company or a business.
Hence the statements which are provided by creditors in advance would be safeguarded.
Their collective rights through such processes would be safeguarded.

 Any form of Lease Agreements would be cancelled

If there are any forms of lease agreements entered into by the company, then all such
agreements and contracts would be cancelled as a result of the liquidation.

 Types of Winding Up of a Company

There are two types of winding up of a Company

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  Winding up by Way of Tribunal- Winding up by a creditor is when external
members are involved in the process of winding up. Creditor’s voluntary winding up
can be transformed into winding up by way of a tribunal u/s 270 and 271 of the CA
2013.

 Voluntary Winding Up- This is considered when the company wants to carry out the
process through resolution of the board and members. Voluntary winding is divided
in to member’s voluntary winding up and creditor’s voluntary winding up.

 COMPULSORY WINDING UP
A company can be legally forced to wind up by a court order. In such cases, the company is
ordered to appoint a liquidator to manage the sale of assets and distribution of the proceeds
to creditors.

The court order is often triggered by a suit brought by the company's creditors. They are
often the first to realize that a company is insolvent because their bills have remained
unpaid. In other cases, the winding-up is the final conclusion of a bankruptcy proceeding,
which can involve creditors trying to recoup money owed by the company. In any case, a
company may not have sufficient assets to satisfy all of its debtors entirely, and the creditors
will face an economic loss.

 VOLUNTARY WINDING UP
A company's shareholders or partners may trigger a voluntary winding up, usually by the
passage of a resolution. If the company is insolvent, the shareholders may trigger a winding-

55
up to avoid bankruptcy and, in some cases, personal liability for the company's debts. Even
if it is solvent, the shareholders may feel their objectives have been met, and it is time to
cease operations and distribute company assets.

 Grounds for Winding up a Company

There are specific grounds for winding up a company:

 If the tribunal thinks that the company is unable to pay debts. Inability to pay debts is
construed in s 271(2) of the CA 2013.
 If the company has taken a special resolution to wind up the affairs of the company.
 If the company has acted against the sovereignty and integrity of India and goes
against the state, friendly relations with foreign countries.
 If the tribunal has considered to wind up the company because it is a sick company
under chapter 19.
 If the tribunal is of the opinion that the company has done something fraudulently or
unlawful purpose for which the company. This clause can be activated by the
registrar or any person who is going to complain regarding the affairs of the
company.If the company has regularly defrauded and faulted in filing the annual
returns.
 If the tribunal is of the opinion that it is just and equitable for the company to wind
up.

 Procedure For Winding up of a Company

Petition filed for Winding up of a Company

First interested individuals should file a petition for winding up of the company. The
following can file the petition on behalf of the company:

Trade Creditors of the Company

• The Company Itself

• Any form of contributories of the company

• Any of the three mentioned categories

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• Government Authority such as the Central Government or the State Government

• Registrar of Companies

The petition must be submitted in Form WIN 1 or WIN 2. Such petition must be submitted
in Triplicate. An affidavit must be accompanied along with the petition in Form WIN 3.

 Winding up a Company through Voluntary Winding Up

The below procedure would provide winding up of a company thorough the voluntary
method:

Passing of Resolution and Special Resolution

First the company must have a general meeting to pass the resolution. However, the
company would have to check the memorandum of association and articles of association
such provision related to dissolution is present. After this is carried out then the company would have
to arrange for a general meeting. A special resolution has to be passed by the members in the general
meeting. A special resolution would require 75% or three forth of the majority of the members. After
such resolutions are passed, the company would have to appoint a liquidator for carrying out the
procedure for voluntary winding up.
Majority of the creditors must provide their representation during voluntary winding up

 Declaration of Solvency

In the next step, the company has to declare the solvency status. This would show
information on finances available with the company. Such solvency status has to be shown
to the trade creditors also.

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  Preparation of Winding Up Report

The liquidator appointed would prepare a report related to winding of the company.
Such report would have information on the assets, liabilities and other form of trade
liabilities which are associated with the company. Such report must be placed before
the general meeting of the company. Once this is approved the liquidator, will provide
a copy of the accounts which are final to the ROC.

 Application to Tribunal

The company liquidator would also apply to the tribunal for dissolution of the
company. If the tribunal finds out that the accounts are in order then it would pass an
order for dissolution or dissolving the company. This has to occur within 60 days of
receiving such application. Such information has to be filed with the ROC.

 What Documents are required for Winding up a Company

The following documents are required for winding up a Company:

 Certificate of Incorporation of the company
 Memorandum of association and Articles of Association of the company
 Certificate related to the closure of bank account of the company
 Copy of the Board Resolution

 Copy of the resolution of the creditors stating that three-fourth of members

have accepted
 Statement of Accounts of the Company
 Winding Up Petition Form WIN 1 or WIN 2
 Statement of Affairs of the Company in the Format of Form WIN 4
 Affidavit of Concurrence in Format of Form WIN 5
 Advertisement in the Vernacular Newspaper Form WIN 6
 Appointment of Provisional Liquidator in the Format WIN 7 and 8

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