UNIT II

COMPANY LAW AND COMPETITION ACT

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 COMPANY
Introduction:
A company means a group of persons associated
voluntarily together for the attainment of a common
goal either, social or economic.
A company is an association of individuals formed for
some common purpose.
It is a voluntary association of persons.
 It has capital divisible in to parts, known as shares.
At the same time it is an artificial person created by
a process of law.
 It has a perpetual succession and a common seal.
Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
DEFINITION OF A COMPANY

 According to section 3(1) (i) of The Companies

Act, 1956, “Company means a company formed and
registered under this Act or an existing company. An
existing company means a company formed and
registered under any of the previous company’s law.

 Company is “ an incorporated association

which is an artificial person created by law, having
separate legal entity with a perpetual succession and
common seal ”
-Haney

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 NATURE CHARACTERISTICS OF A
COMPANY

Separate legal entity

Limited liability
Perpectual succession
Common seal
Transferability of shares
Separate property
Capacity to sue
Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 Types of Companies
1.Classification on the basis of incorporation
Statutory companies
Registered companies
2. Classification on the basis of liability
Limited Company ( Limited by share or by guarantee)
Unlimited company
3.Classification on the basis of ownership
Government Company
Foreign Company
4.Classification on the basis of number of members
Private Company
Public Company
5.Classification on the basis of control
Holding companyDr.S.SathyaSundari,Prof& Head,MBA
Subsidiary company Department,SVHEC,Gobi
 FORMATION OF COMPANY

Formation
of
Company

Capital Commencem
Registration Subscription ent of
Promotion Or Or Flotation Business
Incorporation
Permission from Copy Of
Discovery SEBI prospectus
Memorandum
of Idea Appointment of Return of
Articles Brokers,Agents,under Allotment
Detailed
writers.,
Investigation Minimum
Subscription
List of Directors
Assembling Issue of Prospectus Qualification
Consent Of Share
Directors Application for
Permission for
Listing
Incorporation Undertaking to take – Listing
up qualification
Allotment Statutory
Statutory declaration
Dr.S.SathyaSundari,Prof& Head,MBA Depar
Declaration
tment,SVHEC,Gobi
MEMORANDUM OF ASSOCIATION
It contains the fundamental conditions
upon which the company is allowed to be
incorporated.
It lays down the area of operation of
the company

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 CONTENTS OF MEMORANDUM
• The name clause
• The registered office clause
• The objects clause
• The capital clause
• The liability clause
• The association clause

Dr.S.SathyaSundari,Prof& Head,MBA Depar

tment,SVHEC,Gobi
 ALTERATION OF MEMORANDUM
• Change of name
• Change of registered office
• Alteration of objects
• Change in liability clause
• Change in capital clause

Dr.S.SathyaSundari,Prof& Head,MBA Depar

tment,SVHEC,Gobi
 DOCTRINE OF ULTRAVIRES
• Ultra means beyond
• Vires means powers
• The term ultravires for a company means
that the doing of the act is beyond the
legal power and authority of the
company.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 ARTICLES OF ASSOCIATION
• They are the rules, regulations and bye-laws
for the internal management of the affairs of a
company.
• They contain the fundamental conditions
upon which alone a company is allowed to be
incorporated.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 CONTENTS OF ARTICLES
• Share capital, rights of shareholders
• Lien on shares
• Calls on shares
• Transfer of shares
• Transmission of shares
• Forfeiture of shares
• Conversion of shares in to stock
• Share warrants
• Alteration of capital
• General meetings and proceedings
• Voting rights of members
• Directors – their appointment, remuneration, powers
• Manager
• Secretary
• Dividends and reserves
• Accounts, audits and borrowing powers
• Capitalization of profits Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
• Winding up
ARTICLES AND MEMORANDUM- THEIR RELATION

• The articles are subordinate to memorandum

• The memorandum must be read in
conjunction with the articles
• The terms of the memorandum cannot be
modified or controlled by the article.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 ARTICLES AND MEMORANDUM - DISTINCTION
MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION

Charter of the company Regulations for internal

management
Defines scope of the activities of Rules for carrying out the objects
the company of the company
Supreme document Subordinate to memorandum

Every company must have Company limited by shares need

memorandum not have articles of its own
Strict restrictions on alterations Can be altered by special
resolution
Any act of the company which is Any act of the company which is
ultravires the memorandum is ultravires the articles can be
wholly void confirmed by shareholders
Dr.S.SathyaSundari,Prof& Head,MBA Depar
tment,SVHEC,Gobi
 PROSPECTUS
Any document described or issued as
prospectus and including any notice, circular,
advertisement or other document inviting
deposits from the public or inviting offers from
the public for the subscription or purchase of
any shares in or debentures of a body
incorporate.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 CONTENTS/DISCLOSURES IN
PROSPECTUS
AS PER COMPANIES ACT, 1956
PART – I OF SCHEDULE – I
 general information
 capital structure of the company
 terms of the present issue
 particulars of the issue
 company, management and project
 particulars in regard to the company and other listed
companies of the same management
 Outstanding litigation
 management perception of risk factors
PART – II OF SCHEDULE – II
1 General information
2 Financial information
3 Statutory and other information
Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 MISSTATEMENTS IN PROSPECTUS AND THEIR
CONSEQUENCES

If there is any misstatement of a material

fact in a prospectus or if the prospectus is
wanting in any material, there may arise,
1.Civil (public or general) Liability
2.Criminal Liability (Illegal or against the law
or unlawful)

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 1.CIVIL LIABILITY
a)Remedies against the company
1 rescind the contract
2 claim damages from the company whether
the statement is fraudulent or an innocent one
b)Remedies against the directors, promoters and experts
1 directors at the time of the issue of prospectus
2 persons who have authorized themselves to be
named in the prospectus
3 promoters
4 persons who have authorized the issue of the
prospectus
Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
2.CRIMINAL LIABILITY

• Penalty for fraudulently inducing persons to

invest money
• Issue and allotment of shares in fictitious names

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 DIRECTOR
Director includes any person
occupying the position of director, by
whatever name called.
A person having direction, conduct,
management or superintendence of
the affairs of the company.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 APPOINTMENT OF DIRECTORS

Every public company (other than a

deemed public company) shall have be at
least 3 directors and every other company
(e.g., a private company, a deemed public
company) at least 2 directors. [Sec.
252(1)].

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 APPOINTMENT OF
DIRECTORS

Appointment Appointmen
Appointment of directors t of directors
First directors of directors by by third by directors
the company parties

Appointment Appointment
by of directors by
proportional the central
representation government

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 POSITION OF DIRECTORS
• Directors as agents
• Directors as employees
• Directors as officers
• Directors as trustees

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 DISQUALIFICATIONS OF DIRECTORS
• A person of unsound mind
• Undischarged insolvent
• Person convicted by court
• Person who is disqualified for appointment as
director
• A person whose calls in respect of shares of the
company held for more than 6 months have been
in arrear.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 REMOVAL OF DIRECTORS
• Shareholders
• Central government
• Removal by company law board

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 POWERS OF DIRECTORS
• General powers of the board
• Powers to be exercised at board meetings
• Powers to be exercised with the approval of
company in general meeting

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 DUTIES OF DIRECTORS
• Fiduciary duties
• Duties of care, skill and diligence

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 LIABILITIES OF DIRECTORS
• Liability to third parties
• Liability to the company
• Liability for breach of statutory duties
• Liability for acts of his co-directors

Dr.S.SathyaSundari,Prof& Head,MBA Depar

tment,SVHEC,Gobi
 WINDING UP/ LIQUIDATION
• Winding up or liquidation of a company represents the
last stage in its life. It means a proceeding by which a
company is dissolved.
• According to Prof. Gower,
Winding up of a company is a process whereby its
life is ended and its property administered for the
benefit of its creditors and members. An administrator,
called liquidator, is appointed and he takes control of
the company, collects its assets, pays its debts and
finally distributes any surplus among the members in
accordance with their rights.
Dr.S.SathyaSundari,Prof& Head,MBA Depar
tment,SVHEC,Gobi
 MODES OF WINDING UP
• Winding up by the court
• Voluntary winding up
• Winding up subject to supervision of court

Dr.S.SathyaSundari,Prof& Head,MBA Depar

tment,SVHEC,Gobi
 WINDING UP BY COURT/COMPULSORY
WINDING UP
• Special resolution of the company
• Default in delivering the statutory report to
the Registrar or in holding statutory meeting
• Failure to commence or suspension of
business
• Reduction in membership
• Inability to pay its debts

Dr.S.SathyaSundari,Prof& Head,MBA Depar

tment,SVHEC,Gobi
 PROCEDURE OF WINDING UP BY THE
COURT
• Official liquidator
• Provisional liquidator

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 VOLUNTARY WINDING UP -
CIRCUMSTANCES
• By passing an ordinary resolution
• By passing a special resolution

Dr.S.SathyaSundari,Prof& Head,MBA Depar

tment,SVHEC,Gobi
 TYPES OF VOLUNTARY WINDING UP
• Member’s voluntary winding up
• Creditors voluntary winding up

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 MEMBERS VOLUNTARY WINDING UP-
APPLICABLE PROVISIONS
• Appointment and remuneration of liquidators
• Board’s powers to cease on appointment of a liquidator
• Power to fill vacancy in office of liquidator
• Notice of appointment of liquidator to be given to Registrar
• Power of liquidator to accept shares
• Duty of liquidator to call creditors’ meeting in case of
insolvency
• Duty to call general meeting at the end of each year
• Financial meeting and discussion
• Provisions as to manual and final meeting in case of
insolvency Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 CREDITORS’ VOLUNTARY WINDING UP –
APPLICABLE PROVISIONS
• Meeting of creditors
• Notice of resolution
• Appointment of liquidator
• Appointment of committee of inspection
• Liquidator’s remuneration
• Board’s powers to cease on appointment of liquidator
• Power to fill vacancy in office of liquidator
• Power of liquidator to accept shares
• Duty of liquidator to call meeting at the end of each
year
• Final meeting and Dr.S.SathyaSundari,Prof&
dissolution Head,MBA
Department,SVHEC,Gobi
 CONSEQUENCES OF WINDING UP
• Consequences as to shareholders/ members
• Consequences as to creditors
1 where the company is solvent
2 where the company is insolvent
• Consequences as to servants and officers
• Consequences as to proceedings against the
company
• Consequences as to costs
Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 DEFUNCT COMPANY
• A company is said to be defunct when it is not
carrying on business or when it is not in
operation.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 Corporate Governance
• Corporate governance is the set of processes, customs,
policies, laws, and institutions affecting the way a
corporation (or company) is directed, administered or
controlled.
• Corporate governance also includes the relationships
among the many stakeholders involved and the goals for
which the corporation is governed.
• The principal stakeholders are the shareholders, the
board of directors, employees, customers, creditors,
suppliers, and the community at large.

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
Parties to corporate governance

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi
 Principles of corporate governance

 Rights and equitable treatment of

shareholders
 Interests of other stakeholders
 Role and responsibilities of the board
 Integrity and ethical behavior
 Disclosure and transparency

Dr.S.SathyaSundari,Prof& Head,MBA
Department,SVHEC,Gobi