Company Law Archives - BBA|mantra https://bbamantra.com/category/company-law/ Notes for Management Students Sat, 27 Jan 2018 15:14:57 +0000 en-GB hourly 1 https://wordpress.org/?v=6.5.4 https://bbamantra.com/wp-content/uploads/2015/08/final-favicon-55c1e5d1v1_site_icon-45x45.png Company Law Archives - BBA|mantra https://bbamantra.com/category/company-law/ 32 32 Directors – Appointment, Duties, Rights, Liabilities – Company Law https://bbamantra.com/directors-appointment-duties-powers/ https://bbamantra.com/directors-appointment-duties-powers/#comments Sat, 10 Sep 2016 09:04:04 +0000 https://bbamantra.com/?p=2289 A director is the member of the Board of Directors. “Director means a director appointed to the board of a company” sec 2(34) According to the companies act states the board of directors in relation to a company refers to a collective body of the directors of the company. Sec

The post Directors – Appointment, Duties, Rights, Liabilities – Company Law appeared first on BBA|mantra.

]]>
A director is the member of the Board of Directors.

“Director means a director appointed to the board of a company” sec 2(34)

According to the companies act states the board of directors in relation to a company refers to a collective body of the directors of the company. Sec 2(10)

Meaning of Director

 

A director is one of those persons, who are responsible for directing, governing and controlling the policy or management of a company. All directors collectively are called as Board of Directors or Board.  They are the top administrative organ and the company can operate only through them. They are the brain of the organization responsible for all policy making and decision making activities.

 

Appointment of Directors

 

The following guidelines have been established by the companies act regarding the appointment of directors. 

  • The articles of a company may list the names of the first directors in its articles of association, if no names are mentioned in the articles, the subscribers of the memorandum become the first directors.
  • Directors can be appointed by the initial members of the company at its first general meeting.
  • A company may appoint an additional director if it needs.
  • An Alternate Director may be appointed by the board during the absence of a director for a period not less than 3 months
  • A vacant position of director can be filled by the members of the board on temporary terms.
  • Nominee Director – It refers to any person nominated as director by a financial institution or a government body who holds shares in the company. He must be appointed by the company.
  • On complaint against oppression or mismanagement in a company, the tribunal may order the company to appoint the required number of directors as directed by the Tribunal.
  • A director may be appointed by the central government under certain circumstances.
  • A director may be appointed by a single transferable vote system or cumulative transferable vote system

 

Powers of Directors

 

Statutory Powers of Directors

Powers must be exercised by Board of Directors in the general meeting of the company by passing a resolution.

  • The power to make call on shares in respect of unpaid money.
  • The power to authorize lack of shares
  • The power to issue debentures, whether in or outside india.
  • The power to invest in funds
  • The power to borrow money otherwise than on debentures
  • The power to make loans or give guarantee in respect of loans. But a banking company does not require any resolution by the board.
  • The power to approve the financial statement and board’s report.
  • The power to diversify the business of the company.
  • The power to approve amalgamation, merger or reconstruction.
  • The power to take over a company or acquire a company or substantial stake in another company.

Other powers –

  • Power to fill casual vacancy 9sec 161)       
  • Power to appoint the first auditor of the company
  • Power to make political contribution.
  • Power to appoint alternate directors. (sec 161)
  • Power to appoint additional directors. (sec 161)
  • Power to declare interim dividend. ( 123(3))
  • Power to appoint or remove key managerial personnel (KMP)
  • Power to declare solvency , where the company winds up voluntarily.
  • Power to recommend the rate of dividend on the shares of the company subjected to approval by shareholder of the company

Powers only with a resolution – 

  • To sell or lease any asset of the company
  • To allow time to the director for the repayment of the loan
  • To borrow money in excess of paid up capital and free reserves
  • To appoint a sole agent for more than 5 years
  • To issue bonus shares and for reorganization of share capital
  • To contribute money for charitable purposes exceeding Rs. 50,000 or 5% of the average profits of 3 years whichever is greater

Managerial powers of Directors

The Board acts in the interest of shareholders with the following powers – 

  • Power to contract with the third party
  • Power to recommend dividend
  • Power to allot, forfeit or transfer shares of company
  • Power to take decision regarding terms and conditions for the issue of debentures
  • Power to form policy and to issue instructions for the efficient running of the business
  • Power to appoint Managing Director, Manager, Secretary of the company.
  • Power of control and supervision of work of subordinates

 

Duties of Directors

 

General Duties of Directors.

  • To form policy and determine objectives of a company
  • To delegate power to any committee if the Articles permit
  • To issue instructions to subordinates for the implementation of policy to review company’s progress
  • To appoint their subordinate officer, managing director, Manager, Secretary, other employees
  • To act in accordance with the Articles of the company providing that articles are subject to the provisions of this Act. (sec 166(1))
  • To act in Good faith in order to promote the objects of the company. However the promotion of the objects should be for the benefit of the company.
  • To perform duties with Due and reasonable care and Diligence.
  • Duty to not to achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives.

 

Specific Duties of Directors

  • Must disclose his shareholding in a company.
  • Must disclose his interest in contracts of the company
  • Must disclose their name, address and occupation
  • Duty to take up qualification shares within 2 months after his appointment
  • Decide the minimum subscription and issue prospectus. It must not contain any false or misleading statement
  • The Board of Directors or requisition must be ready to call on an extraordinary general meeting       
  • Duty to call statutory and annual general meeting of the company
  • To ensure full and correct disclosure in prospectus of all matters as required by law.
  • To sign the prospectus before it has been delivered to the Registrar.(sec 26)
  • To deliver the prospectus to the Registrar before the prospectus is issued to the public.
  • To deposit application money in a scheduled Bank. They shall not utilize money other than purposes mentioned in the Act.
  • To file Return of Allotment of securities with the Registrar.
  • To declare dividend and arrange for the payment
  • To file with registrar the reports and resolutions as required by the act.
  • To issue forfeit and transfer shares
  • To perform all other duties as assigned by the Act

Liabilities of a Director

 

Liability against Company

The directors will have to make good for any loss on account of –

  • an ultra vires act where the directors have entered into a contract beyond their powers. In such case directors are personally liable for the loss caused to the company.
  • breach of trust where the directors make a secret profit out of the business
  • for negligence or for not performing his duties honestly and carefully
  • For dishonest act to make personal profits
  • For the activity of the co-directors

 

Liability toward 3rd parties

The directors will be personally liable towards the 3rd parties –

  • For any mis-statement in the prospectus for acting fraudulently, the directors shall be liable to pay compensation to every person who subscribe for shares on the faith of such prospectus.
  • For the failure to repay application money on non- receipt of minimum subscription.
  • Failure to repay Application money on refusal to list shares by the stock exchange.
  • For acting in their own name without mentioning the name of the company
  • For acting beyond the powers of the company
  • When the liability has been made unlimited by the Memorandum
  • For any liability at the company at the time of winding up

 

Criminal liability of Directors

Will be liable with a fine and imprisonment or both for fraud of non-compliance of any statutory provision.

  • For mis-statement in prospectus
  • Failure to file return on allotment with the registrar
  • Failure to give the notice to the registrar for conversion of share into stock
  • Failure to issue share certificate and debenture certificate
  • Failure to maintain register of the members and register of debenture holders
  • Default is holding Annual General Meeting
  • Failure to provide Annual accounts and Balance Sheet
  • For holding the office of director in more than 15 companies

The post Directors – Appointment, Duties, Rights, Liabilities – Company Law appeared first on BBA|mantra.

]]>
https://bbamantra.com/directors-appointment-duties-powers/feed/ 8
Company Secretary – Appointment, Duties, Rights, Liabilities, Restrictions https://bbamantra.com/company-secretary-introduction/ https://bbamantra.com/company-secretary-introduction/#comments Tue, 06 Sep 2016 17:23:53 +0000 https://bbamantra.com/?p=1954 Meaning of Company Secretary According to  the Companies Act, a company secretary means a company secretary as defined in sec 2(1)(c) of the company secretaries Act, 1980, who is appointed by a company to perform the functions of a company secretary under this Act (sec 2(24)). According to sec 2(1)(c)

The post Company Secretary – Appointment, Duties, Rights, Liabilities, Restrictions appeared first on BBA|mantra.

]]>
Meaning of Company Secretary

According to  the Companies Act, a company secretary means a company secretary as defined in sec 2(1)(c) of the company secretaries Act, 1980, who is appointed by a company to perform the functions of a company secretary under this Act (sec 2(24)).

According to sec 2(1)(c) of the companies secretaries Act 1980 “company secretary means a person who is a member of the Institute of company secretaries of India”

Thus, company secretary means an individual who is a member of the institute of company secretaries of India/ICSI and is appointed to perform the function of a company secretary under the companies Act.

A company secretary is an important organ of a company who performs various ministerial and administrative duties. It is mandatory for every company having a paid up share capital of 5 crore or more to appoint full-time company secretary who is member of Institute of company secretaries of India.

Appointment of Company Secretary

Section 2(24), 203, 204 of the companies act state the provisions regarding appointment of company secretary, which are as follows:

  • Only a individual who is a member of Institute of company secretaries of India can be appointed as a company secretary.
  • Every listed company under the companies act must have a full-time company secretary. 
  • Every Unlisted Company having a paid-up capital of 5 crore or more must also have a full-time secretary.
  • Every Private company having a paid-up capital of 5 crore or more must also have a full-time secretary.
  • A company Secretary is appointed by the resolution of the board.
  • A company secretary is entitled to become the director of the company with the prior permission of the board.
  • A company secretary is not allowed to hold office in more than one company.
  • The position of Company Secretary must not be vacant for more than 6 months.
  • In case of Default in complying with the above provisions the company shall be  fined ranging from Rs. 1 – 5 Lakh  

Duties of Company Secretary

The Company Secretary is an employee of a company and he must perform his duties with reasonable care.  He may be dismissed on the grounds of disobeying, misconduct or permanent disability.

Statutory Duties of Company Secretary

According to company Act –

  • To sign documents and proceedings requiring authentication by the company. 
  • To deliver registration and return of allotment to the Registrar
  • To give notice to registrar for increase in the share capital 
  • To deliver share certificate of allotment on within 2 months after transfer
  • To make entry for register of members  of the share warrant
  • To send annual return 
  • To make a statutory declaration for receiving certificate of commencement of business
  • To send notice of general meeting to every member of the company
  • To make statutory books
  • To sign every balance sheet and P/L account in case of a non-banking financial company
  • To prepare minutes of every General Meeting and Board Meeting within 30 days
  • To file a resolution with the registrar

 

According to I T Act –

  • To ensure proper income tax is deducted at source from the salary of employees
  • To see that the certificate of TDS is issued
  • To ensure that the tax deducted is deposited to government treasury
  • To submit and verify various forms and returns

 

Under Indian Stamp Act –

To see that the documents like letter of allotment and share certificate etc. are properly stamped.

 

Under other Acts –

To Comply with other acts such as: FEMA, minimum Wages Act, Industrial dispute, Employee State Insurance Act etc.

General Duties of Company Secretary

  • To comply with internal regulations and legislation
  • Duty to disclose all information for inclusion in register of directors and secretary
  • Duty to exercise due care and diligence
  • To draft directors report
  • Maintaining the statutory registers of the company
  • Ensuring Board decisions are properly communicated
  • Registration of share transfers and issuance of related share certificates
  • Communicating with company shareholders
  • Safe custody of company seal
  • Certifying documents such as Certificate of Incorporation, Memorandum and Articles of Association
  • Giving legal advice to Directors
  • To act as an Information link

Liability of Company Secretary

It means that the Company Secretary will be liable as the officer in default for the non-compliance with the provisions of the company Act.

Liabilities of a company secretary can be classified into two categories-

1) Liabilities under the companies Act (Statutory Liabilities)

2) Contractual liabilities

Statutory liabilities of a Company Secretary

  • Default in Complying with name requirements – Fine of Rs. 1000 every day during which the default continues that cannot exceed Rs. 1 Lakh.
  • Default is filing the return on allotment – Fine Rs. 1000 every day during which the default continues or Rs. 1 lakh whichever is less
  • Default in delivering Share Certificates/Debenture Certificates on time – Fine up to Rs. 5 lakh
  • Default in filing annual return – Fine ranging from Rs. 50,000 to Rs. 5 lakh
  • Default in holding Annual General Meeting – Fine up to Rs. 5000/- during which the default continues extending to Rs. 1 lakh
  • Failure to record minutes of the meeting – Fine upto Rs. 500/-
  • Default in providing the P/L and B/S at AGM – Fine  of Rs. 25,00 extending up to Rs. 1 lakh or imprisonment up to 6 months or both
  • Failure to provide notice about Board meeting – Fine upto Rs. 1000
  • Failure to maintain the register of members –  Fine Ranging from Rs. 50,000 to Rs. 3 Lakh

Contractual Liabilities of Company Secretary

  • He is liable for any negligence on part of his duty. He may be dismissed.
  • He must not do anything beyond his authority, if he does he will be personally liable for the loss
  • He is under the obligation to not disclose any secret information about the company to outsiders
  • He is liable for any secret profits made by him on account of his position
  • If the Company Secretary commits any fraud, he must indemnify to the company for any loss occurred

Rights and Powers of Company Secretary

  • He has the right to supervise and control the secretarial department of the company
  • He has the right to issue share certificate of the company
  • Being the principal officer he also has the right to sign official documents of the company
  • He is empowered to perform all activities under various acts
  • He has the right to be indemnified for any loss suffered by him in discharging his duties

Restrictions of Company Secretary

  • He cannot enter into a contract on behalf of the company unless specifically authorised by the directors of the company
  • He cannot borrow money in the name of the company
  • He cannot call meetings which are related to 3rd parties
  • He cannot acknowledge a debt against a suit against company
  • He cannot register, transfer shares without the authority of Board of Directors

 

The post Company Secretary – Appointment, Duties, Rights, Liabilities, Restrictions appeared first on BBA|mantra.

]]>
https://bbamantra.com/company-secretary-introduction/feed/ 5
Doctrine of Constructive Notice & Indoor Management https://bbamantra.com/constructive-notice-indoor-management/ https://bbamantra.com/constructive-notice-indoor-management/#respond Wed, 31 Aug 2016 16:24:17 +0000 https://bbamantra.com/?p=2247 Doctrine of Constructive Notice – After a company is registered, its memorandum and articles of association become “public documents”. The memorandum and articles of association of a company are public documents and are open to inspection by anyone by payment of a nominal fee. Hence it is presumed that every

The post Doctrine of Constructive Notice & Indoor Management appeared first on BBA|mantra.

]]>
Doctrine of Constructive Notice –

After a company is registered, its memorandum and articles of association become “public documents”. The memorandum and articles of association of a company are public documents and are open to inspection by anyone by payment of a nominal fee. Hence it is presumed that every person dealing with the company has read these documents and understood them before entering a contract with the company. This is known as Doctrine of constructive notice.

The effect of this doctrine is that a person dealing with a company cannot hold the company liable for any dealings inconsistent with the memorandum due to default on his part or due to his negligence.

Exception to Doctrine of Constructive Notice

  • Forgery cases
  • In case the outsiders had prior knowledge of the irregularities of the company.
  • In case the outsiders are negligent.

Doctrine of Indoor Management

The doctrine of constructive notice provides that, people while dealing with a company are presumed to have read “public documents” and understood its contents and therefore cannot hold the company liable for any irregularities in dealing due to their negligence. The doctrine of Indoor management is an exception to this. This rule provides that people while dealing with a company are entitled to assume that the internal requirements and regulations prescribed by the public documents have been met by the officials of the company and they are not bound to enquire about regularities of internal proceedings of the company.

However people dealing with the company must see that the proposed dealings are consistent with the memorandum and articles. The effect is that the company can be held liable for any dealings conducted by it in an unfair or irregular manner i.e. if the internal formalities have not been completed.

Exceptions to Doctrine of Indoor Management

  • This rule does not protect a person if he/she has prior knowledge of the irregularity
  • The rule cannot protect any person who did not study the company’s memorandum and articles before entering into a contract i.e. on part of his negligence
  • This rule does not apply in case of forgery i.e. in case the outsider relies on forged documents to claim protection under the rule.
  • This rule also does not apply to transactions which are illegal and void.
  • A person must make proper enquiries about the person who is dealing on behalf of the company. If he fails to make enquiry he cannot rely on the rule.

The post Doctrine of Constructive Notice & Indoor Management appeared first on BBA|mantra.

]]>
https://bbamantra.com/constructive-notice-indoor-management/feed/ 0
Doctrine of Ultra Vires – Comapany Law https://bbamantra.com/doctrine-of-ultra-vires/ https://bbamantra.com/doctrine-of-ultra-vires/#comments Tue, 30 Aug 2016 17:29:39 +0000 https://bbamantra.com/?p=2238 Meaning of Doctrine of Ultra Vires The doctrine of ultra vires applies to the memorandum of association of a company. The memorandum of association contains the permitted range of activities in its objects clause and a company cannot practice any other activity which is not defined under the scope of objectives mentioned

The post Doctrine of Ultra Vires – Comapany Law appeared first on BBA|mantra.

]]>
Meaning of Doctrine of Ultra Vires

The doctrine of ultra vires applies to the memorandum of association of a company. The memorandum of association contains the permitted range of activities in its objects clause and a company cannot practice any other activity which is not defined under the scope of objectives mentioned in the memorandum. Any activity done out of the purview of the memorandum is considered as an ultra vires activity. Such activities are null or void and all ultra vires transactions can never be subsequently ratified or validated, not even by the consent of the shareholders.

This rule is meant to protect the interests of the shareholders and creditors of the company.

Effects of Doctrine of Ultra Vires

The effects or the consequences of the Doctrine of Ultra vires are –

 

PERSONAL LIABILITY OF THE DIRECTORS – The funds of the company can only be used for authorised objectives. In case if any director makes an unauthorised payment, he will be compelled to refund the money to the company. The director will be personally liable for any loss suffered by the company due to him.

 

ULTRA VIRES ACQUIRED PROPERTY- If the money has been spent on purchasing ultra vires property, the company will have the secured right over the property. If the property is legally and formally transferred, it will become the asset of the corporation, even though the company was not entitled to acquire such property.

 

ULTRA VIRES CONTRACT- Any contract by the company officials outside its scope is completely void and it has no legal effect.

 

ULTRA VIRES LENDING – When the company makes any ultra vires lending or when a person borrows money from the company under an ultra vires contract, he can be sued by the company to recover the amount. The promise to get back the money on the borrowed amount is not illegal.

 

ULTRA VIRES TORT- A company cannot be liable for any tort committed by its officers in connection with the business outside its scope of objectives. If officers have performed a tort which is intra-vires, the company will be held liable.

 

Exceptions of Doctrine of Ultra Vires 

Following are the exceptions to the doctrine of ultra vires –

  • If the company has made any ultra vires lending, it has the right to recover the amount from the borrower.
  • If the company has acquired any property under ultra vires contract, the amount can be recovered from company by the order of the court.
  • If the director makes payment which is ultra vires the company, the director can be compelled to refund the amount and he also has the right to be indemnified.
  • An act which ultra vires the articles but intra vires the memorandum of the company, it may be altered and included in the acts of the company.
  • An act which is intra vires the company but ultra vires the director, the director is liable and but if it is out of the authority of the directors the company can ratify it in proper form.
  • If the act is ultra vires the company but it is done in an irregular manner, it can be validated by the consent of the shareholders.

The post Doctrine of Ultra Vires – Comapany Law appeared first on BBA|mantra.

]]>
https://bbamantra.com/doctrine-of-ultra-vires/feed/ 3
Bills of Exchange & Types of Bills https://bbamantra.com/bills-of-exchange/ https://bbamantra.com/bills-of-exchange/#respond Fri, 26 Aug 2016 09:23:14 +0000 https://bbamantra.com/?p=2201 A bill is a negotiable money market instrument used to finance trade related transactions.   According to the Indian Negotiable Instruments Act, 1881, “It is an instrument in writing containing an unconditional order, signed by the maker of the bill, directing a certain person to pay a certain sum of

The post Bills of Exchange & Types of Bills appeared first on BBA|mantra.

]]>
A bill is a negotiable money market instrument used to finance trade related transactions.  

According to the Indian Negotiable Instruments Act, 1881, “It is an instrument in writing containing an unconditional order, signed by the maker of the bill, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of that instrument.”

Bills of Exchange are used for financing a transaction in goods therefore they are essentially trade-related instruments. The holder of a bill can either hold on to a bill till its maturity or discount the endorsed bill with a discounting agency to obtain cash. The difference between in between the face value of a bill and the actual money received by a seller is called a discount.

Essentials of Bills of Exchange –

  • It must be in writing.
  • It must contain an unconditional order to pay
  • The parties and the sum payable must be certain
  • It must be signed by the drawer
  • It must comply with all other formalities like stamp, date, place, consideration etc.

Specimen of bills of exchange

Bills of Exchange

Parties involved in Bills of Exchange 

Essentially there are three parties involved; the Drawer, the Drawee and the Payee.

  • Drawer – The person who draws the bill.
  • Drawee – The person on whom the bill is drawn.
  • Payee – The one who pays. It may be the drawee or someone on his behalf.

Other parties may also become the part of the bill after it is drawn. Few terms you should  be familiar with are:

  • Acceptor – The person who accepts the bill. It may be the drawee or someone on behalf of the drawee.
  • Holder – The person on whom the bill is endorsed. It may be the payee or the bearer of the bill.
  • Endorser – If the holder of the bill endorses it to someone else, he becomes the endorser.
  • Endorsee – The person to whom the bill is endorsed.

Drawee in case of need – A person may be introduced at the option of the drawee as a last resort, in case the bill is dishonoured by non-acceptance or non-payment.

Acceptor for Honour – When a person voluntarily accepts the bill and becomes a party to it in order to safeguard the honour of the drawee or any other endorser, he becomes the acceptor for honour.  

Types of Bills of exchange 

 

(1) Demand Bill – A bill of exchange that is payable on demand or at sight or when presented is a demand bill. In a demand bill the time of payment and due date is not specified and hence it can made payable on presentment.

(2) Usance Bill – A bill which specifies the time period for the payment is a usance bill. It is also known as a time bill.

(3) Documentary bills – It is a bill which is accompanied by documents confirming genuineness of trade transaction that took place between the buyer and seller. These documents include invoices, railway receipts, lorry receipts, bills of ladding etc. They may be further classified into :

  • D/A (Documents against acceptance) Bills – If the documents are delivered to the drawee against acceptance of a bill, it is a D/A bill. The bill become a clean bill after delivery of documents
  • D/P (Documents against payment) Bills – If the documents are delivered to drawee against payment of the bill, it is a D/P bill. After delivery the documents are held by drawee’s banker till the maturity of the bill.

(4) Clean bills – A clean bill does not accompany any documents of proof. The interest rate charged on clean bills is usually higher than documentary bills

(5) Inland Bills – It is a bill of exchange that is drawn in India and payable in India or a bill drawn on an Indian resident, either payable in India or any other country.

(6) Foreign bills – All bills of exchange payable outside India are foreign bills. Bills which are not inland bills are foreign bills.

  • Export bill – A bill drawn by an exporter on party outside India
  • Import bill – A bill drawn by exporter outside India on Indian importers.

(7) Trade Bill – A bill drawn and accepted for the purpose of a genuine trade transaction.

(8) Accommodation bills – A bill drawn, accepted or endorsed without any consideration is called an accommodation bill.

(9) Fictitious bill – A bill in which the name of the drawee or payee or both is fictitious is a fictitious bill.

(10) Hundis – These are indigenous bills of exchange and promissory notes that are usually used for financing agriculture and inland trade.

(11) Supply bills – A bill drawn by a supplier or contractor on a government department for supplies made to them is a supply bill. It is drawn to obtain cash advances from financial institutions to meet financial needs due to pending payment from government departments. These bills are not accepted by government department but are eligible for obtaining cash loans from commercial banks due to its non-negotiable characteristic.

Bills in Sets

When a bill drawn in parts in order to avoid losing the bill in transit and to ensure that at least one part of the bill reaches the drawee, it is known as bills in set. A bill may be drawn in two, three or four parts and all the parts together make one bill, each part of the bill is known as a ‘via’ and as soon as one part of the bill is accepted the other parts become ineffective. It usually takes place in case of cross-border transactions.

The post Bills of Exchange & Types of Bills appeared first on BBA|mantra.

]]>
https://bbamantra.com/bills-of-exchange/feed/ 0
Formation and Incorporation of a Company – Company Law https://bbamantra.com/incorporation-of-a-comapany/ https://bbamantra.com/incorporation-of-a-comapany/#respond Fri, 19 Aug 2016 10:53:40 +0000 https://bbamantra.com/?p=2103 The procedure for the incorporation of a company can be understood through the following steps – Selection of the type of a company- The first step for incorporation of a company is to select the type of company the promoters or owners wish to form i.e. one person company, private

The post Formation and Incorporation of a Company – Company Law appeared first on BBA|mantra.

]]>
The procedure for the incorporation of a company can be understood through the following steps –

Incorporation of a company

Selection of the type of a company-

The first step for incorporation of a company is to select the type of company the promoters or owners wish to form i.e. one person company, private company, public company, non-profit company etc.

 

Preliminary Requirements –

In order to file the application for incorporation of a company all the directors of the proposed company must have a director identification number (DIN). Out of all the directors, at least one director must have a digital signature to sign the incorporation and other official documents digitally.

 

Reservation of Name-

The next step for incorporation of a company is the reservation of company name. The promoters must apply to the registrar of companies (ROC) for the reservation of the name of the proposed company. While applying for the reservation of the company name, the following points must be kept in mind –

  1. The Application in e-Form No. INC.1 along with the fees of Rs. 1.000/- must be filed as prescribed in the companies act, 2014.
  2. Maximum six proposed names must be given in order of preference.

The registrar of companies, upon the receipt of the application form INC.1 for the reservation of name verifies all the criteria and guidelines under sec 4 and related rules. After the verification, the registrar of companies, approves any one name which is valid for a period of sixty days from the date of intimation by the registrar/MCA. After 60 days, if the documents of incorporation of the company are not filed with the registrar, the reservation of the name for the proposed company shall lapse automatically.

 

Preparation of the Memorandum of Association and Articles of Association-

Memorandum of Association and Articles of Association are prepared or drafted after the reservation of name. Memorandum of Association and Articles of Association shall be in the forms as specified in schedule-1. It should be noted that main objects of Memorandum of Association and Articles of Association must be matched with the objects shown in e-form INC.1. These two documents are the charter of the company and contain all the internal rules and regulations of the company, therefore it should be drafted with utmost care and should be prepared with the advice of experts.

Number of copies of memorandum and articles of association should be printed and made available with the company. One copy of the Memorandum and Articles must be duly stamped by the collector of stamps and submitted to the registrar of companies.

 

Filing of the documents with the Registrar of companies –

It involves the task of submitting the following documents to the registrar of companies along with the fees as provided in the companies act (registration offices and fees rules, 2014) within 60 days from the date of intimation regarding the reservation of name:

  1. A duly stamped, signed and witnessed copy of Memorandum of Association and Articles of Association signed by all the suscribers.
  2. A statutory declaration in the prescribed format signed by a Charted Accountant or Company Secretary
  3. An affidavit containing details and particulars of all the directors, managers, secretaries
  4. A written consent of the person named as the first director to act in that capacity along with an undertaking that he has taken up the qualification shares
  5. Proof of the address and location of the registered office of the company.
  6. A statutory declaration signed by Advocate of High Court or Supreme Court etc. stating all above requirement have been complied with.
  7. A public company with share capital must follow the guidelines laid out by SEBI, to obtain the required capital for the company.

 

Certificate of Incorporation and allotment of Corporate Identity Number –

The registrar of companies issues the certificate of incorporation within 7 days of the receipt of documents, if he is satisfied that everything has been complied according to the companies act.

The validity of registration cannot be challenged after the certificate of incorporation has been issued but that does not mean that the certificate of incorporation legalizes the illegal objects mentioned in the memorandum.

Registrars allot a corporate identity number on or from the date mentioned in the certificate of incorporation which acts as a unique identity number for the company.

 

Effect of Registration –

After receiving the certificate of Incorporation the company becomes be a body corporate with a name, perpetual succession, common seal, capable of exercising all the functions of a company, with the power to hold and dispose property, to contract, to sue and be sued. The subscribers of the articles become the members of the company.

A private company can begin its business operations on receiving the Certificate of Incorporation, while a public company can begin its business activities on after receiving the Certificate of Commencement of Business.

 

Commencement of business – 

A Statutory declaration must be signed by director or company secretary and submitted to the registrar. If the registrar is satisfied, a trading certificate will be issued which provides authority to the company to begin its business operations.

 

The post Formation and Incorporation of a Company – Company Law appeared first on BBA|mantra.

]]>
https://bbamantra.com/incorporation-of-a-comapany/feed/ 0
Articles of association – Company Law https://bbamantra.com/articles-of-association/ https://bbamantra.com/articles-of-association/#comments Mon, 15 Aug 2016 13:25:59 +0000 https://bbamantra.com/?p=2039 Meaning of Articles of Association Articles of association is a secondary document (primary document – memorandum) containing the laws regarding internal management of the company. According to sec 2(5) of the Companies Act, 2013 ‘Articles’ means the “Articles Of Association of a company as originally framed or as altered from time

The post Articles of association – Company Law appeared first on BBA|mantra.

]]>
Meaning of Articles of Association

Articles of association is a secondary document (primary document – memorandum) containing the laws regarding internal management of the company.

According to sec 2(5) of the Companies Act, 2013 ‘Articles’ means the “Articles Of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act.”

Articles of Association is a public document which can be examined from the registered office of the company. Articles help to establish the relationship between the company and internal management.

According to companies Act 2013, it is compulsory for every company to have its own Articles of Association and file the same with Registered Office for registration.

 

Form and Contents of Articles of Association

According to sec 5 of the companies Act, the Articles of Association of a company can be in respective Forms specified in Table F, G, H, I and J of Schedule 1 of the Act.

  • Form in Table F is applicable to companies limited by shares;
  • Form in Table G is applicable to companies limited by guarantee and having share capital
  • Form in Table H is applicable to the companies limited by guarantee and not having a share capital
  • Form in Table I is applicable to unlimited companies and having a share capital
  • Form in Table J is applicable to unlimited companies and not having a share capital

 

Contents of Articles of Association

  • Share Capital and different classes of shares
  • Procedure for Issue of share capital
  • Procedure of making share allotment
  • Forfeiture of share and procedure for re-issue
  • Procedure for Transfer and Transmission of shares
  • Voting rights of members
  • Alternation of Share capital and Lien on Shares
  • Use of common seal of company
  • Payment of dividend
  • Qualification, appointment, removal of Directors
  • Rules for adopting preliminary contracts
  • Alteration in share capital
  • Procedure regarding call on share
  • Procedure regarding passing of resolution
  • Appointment, Duties, Powers, Remuneration of the Director, Manager, Secretary
  • Appointment, Duties, Powers, Remuneration of the auditors
  • Underwriting commission and Arbitration provisions
  • Board meetings and the proceedings
  • Winding up
  • Capitalisation of profits

 

In addition to the above the articles also contain details about the number of members with which the company is formed. However, it must not contain any provision against the company’s Act or public policy. It must be prepared in true and fair manner and must not contain any provision against the memorandum.

 

Alteration of Articles of Association 

According to sec 14 of the companies Act 2013, a company may, by passing a special resolution in the general meeting can alter its Articles of Association.

Every alteration in the articles and a copy of the order of the National Company Law Tribunal (NCLT), approving the alteration shall be filed with the Registrar within a period of 15 days with a printed copy of the altered articles.

 

Binding force of Memorandum and Articles of Association –

Both memorandum and articles of association contains provisions which have legal effect on the company. The provisions can bind the company and its members also, however there are certain exceptions.

The binding force can be studied from the following heads –

COMPANY IS BOUND TO ITS MEMBERS – The Articles of Association and memorandum provides that the company is bound to its members. The individual members can enforce his membership rights on the company (eg. Rights to vote, right to receive dividend)

MEMBER IS BOUND TO THE COMPANY – The members have to follow the provisions of memorandum and articles of association. Any money payable by any member to the company shall be a debt to the company and therefore the company can also sue the member for any breach of contract.

EACH MEMBER IS BOUND TO THE OTHER MEMBERS BUT IN EXCEPTIONAL CASES – Usually the memorandum and articles of association do not create or express agreements between the members. But in exceptional cases the individual member can sue the other person when majority of shareholders are against the other person.

THE COMPANY AND THE MEMBERS ARE BOUND TO THE OUTSIDE WORLD – The company and its members have no contract with the outsiders. Even a member of the company will be treated as an outsider if the matter in question is not related to his membership rights and obligations as mentioned in the articles of the company.

The post Articles of association – Company Law appeared first on BBA|mantra.

]]>
https://bbamantra.com/articles-of-association/feed/ 2
Difference between Public Company and Private Company https://bbamantra.com/difference-public-company-private-company/ https://bbamantra.com/difference-public-company-private-company/#comments Sun, 14 Aug 2016 12:41:49 +0000 https://bbamantra.com/?p=2027 In order to understand the key difference between Public Company and Private Company, one must know the main features both. A private company means a company, which has a minimum paid up share capital of Rs. 1 lakh or such higher capital as may be prescribed and which by its

The post Difference between Public Company and Private Company appeared first on BBA|mantra.

]]>
In order to understand the key difference between Public Company and Private Company, one must know the main features both.

A private company means a company, which has a minimum paid up share capital of Rs. 1 lakh or such higher capital as may be prescribed and which by its articles provides the following-

  • restricts the transfer of shares by its members
  • limits the maximum number of members to 200

A public company refers to a company which has a minimum paid up share capital of Rs. 5 lakh or higher as prescribed by its memorandum and articles and which is not a private company.

 

Difference between Public Company and Private Company

 

The key difference between a public company and a private company can be understood with help of the following chart:

PRIVATE COMPANY PUBLIC COMPANY
It can be started with a Minimum Paid up Capital of Rs. 1 lakhs Its Minimum Paid up Capital requirement is Rs. 5 lakhs
Minimum number of Members – 2 members Minimum number of Members – 7 members
Max. number of members – 200 members excluding employed members Max. number of members – No limit
Min. number of directors – At least 2 At least 3
Transferablity of Shares – The right to transfer is restricted by Articles of Association, it requires prior permission of the Board Of Directors of the company. Shares can be transferred freely
Public subscription is restricted They can invite public for subscription
Acceptance of public deposits – The articles prohibit a private company from accepting deposits. A public company can accept deposits from public
Commencement of business – It can Commence its business immediately after getting the certificate of incorporation It can only commence business after getting certificate of commencement of business
Issue of prospectus – Not compulsory Compulsory
Statutory meeting – Not required It must hold a statutory meeting after one month or before 6 months from the date of obtained certificate of commencement of business
Managerial remuneration not fixed Fixed at 11% of annual net profits
Index of members is not required It is required
Provisions regarding directors – It is free to appoint directors It requires the prior approval of Central Govt. to appoint directors

The post Difference between Public Company and Private Company appeared first on BBA|mantra.

]]>
https://bbamantra.com/difference-public-company-private-company/feed/ 1
Introduction to Companies Act 2013 – Company Law https://bbamantra.com/introduction-companies-act-2013/ https://bbamantra.com/introduction-companies-act-2013/#comments Sat, 13 Aug 2016 15:28:50 +0000 https://bbamantra.com/?p=2020   Background of the Companies Act 2013 The Companies Bill 2012 was passed by the Lok Sabha on 18th, December, 2012 and by the Rajya sabha on 8th, August, 2013. On receiving the assent of the honi’ble President of India on 29th, August, 2013 it was notified on 30th, August,

The post Introduction to Companies Act 2013 – Company Law appeared first on BBA|mantra.

]]>
 

Background of the Companies Act 2013

The Companies Bill 2012 was passed by the Lok Sabha on 18th, December, 2012 and by the Rajya sabha on 8th, August, 2013. On receiving the assent of the honi’ble President of India on 29th, August, 2013 it was notified on 30th, August, 2013 as the Companies Act 2013.

 

Purpose/ Objectives of the Companies Act 2013 

Following are the objectives of the Companies Act 2013 –

  • To develop the economy by encouraging entrepreneurship
  • Creating flexibility and simplicity in the formation and maintenance of companies.
  • To encourage transparency and high standards of corporate governance.
  • To recognize new concepts and procedures to facilitate ease of doing business while protecting interests of all the stakeholders
  • To enforce strict action against fraud
  • To set up institutional structure in the form of various authorities, bodies and panels.
  • To cater to the need for more effective and time bound approvals and compliance requirements

 

Structure of the Companies Act 2013 

   The Companies Act 2013 consists of 470 sections (covered in 29 chapters) and 7 schedules as against 658 sections (covered in 13 parts) and 15 schedules of the Companies Act 2013.

 

Definition of a Company

A company simply means a group of persons associated for any common object such as business, charity, research etc.

According to Haney, “A company is an incorporated association, which is an artificial person created by the law, having a separate entity, with a perpetual succession and a common seal.

According to sec 2(20) of the Companies Act 2013, ‘a company is a company formed under companies Act 2013or under any of the previous law relating to companies’

Therefore, 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 and a common capital compromised of transferable shares and limited liability”

 

Characteristics of a Company 

 

1. Artificial Legal Person – A company is an artificial person and will be treated as a legal person just like a natural person and possess all the rights and duties of a natural person. However a company does not have any physical attributes of a natural person and is intangible. It only exists in the eyes of the law.

2. Separate Legal Entity – A company can sue and be sued, it has the right to own and transfer the title to property as it is a legal person in the eyes of the law.

3. Limited Liability – A Company which is limited by shares, has liability up to the unpaid amount on shares held by its members.

4. Perpetual Succession – The life of a company does not depend upon the death, insolvency, or retirement of any or all the shareholders. There a company is an immortal entity.

5. Separate property – No member of the company can claim himself to be the owner of the company’s properties either during its existence or during its winding up.

6. Transferability of shares – The shares are said to be a movable property and transferability of shares are subjected to certain conditions provided by the act.

7. Common Seal – A company has no physical existence; it must act through its agents. The common seal of the company acts as the official signature of the company which can be used by the agents of the company to authorize official documents.

8. Capacity to sue and be sued – A company, being a body corporate, can sue and be sued in its own name.

9. Contractual Rights – A company being a legal entity different from its members can enter into contracts with third parties for conducting business in its own name.

10. Limitation of Actions – A Company registered under the companies act cannot go beyond the powers of its charter i.e. the Memorandum of Association. The actions and objects of the company are limited by its memorandum and articles.

11. Separate management – The members of the company can derive profits out of the company without being burdened with the management of the company.

12. Voluntary Association for profit – The Company which is incorporated under the companies Act 2013 is formed for the accomplishment of some public goals and whatsoever profit is gained is being divided between the shareholders.

13. Termination of existence – It has the existence only in contemplation of law. It is created by law, carries on its affairs according to law.

 

Lifting of the Corporate Veil

When the law disregards the corporate entity of a company and instead pays regards to the individual members with respect to the legal affairs of the company, it is known as lifting the veil of corporate personality. After the Lifting of the corporate veil the legal entity of the company ceases to exist and the ownership of the assets of the company transfers to all its members in accordance with the Act.

 

Illegal Association

Sec 464 of the companies act provides that not more than 50 persons can combine together for carrying on any business, the object of which is acquisition of profit, unless the association is registered under the Companies act or is formed under any other

 

 

The post Introduction to Companies Act 2013 – Company Law appeared first on BBA|mantra.

]]>
https://bbamantra.com/introduction-companies-act-2013/feed/ 1
Memorandum of Association – Company Law https://bbamantra.com/memorandum-of-association/ https://bbamantra.com/memorandum-of-association/#comments Fri, 12 Aug 2016 10:57:07 +0000 https://bbamantra.com/?p=1985 Memorandum of Association is simply the constitution or charter of a company. According to the companies Act, 2013, “memorandum” means “memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.” The memorandum of association

The post Memorandum of Association – Company Law appeared first on BBA|mantra.

]]>
Memorandum of Association is simply the constitution or charter of a company.

According to the companies Act, 2013, “memorandum” means “memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.”

The memorandum of association contains the fundamental provisions of the company’s constitution and all those essential conditions upon which the company can be incorporated. It determines the powers and limitations of the company and determines the scope beyond which company`s operations cannot go.

It consists of the following:

  • Name of the company
  • Address of Registered Head Office
  • Capital structure of the company
  • Objects of the company
  • Scope of its Operations
  • Liability of its members

 

Purpose/Importance of Memorandum of Association –

  • The memorandum enables all those who deal with the company be it shareholder or creditors to know the purpose of company and its range of activities.
  • The document of memorandum limits the company`s capacity to contract, thereby restricting it to the activities mentioned in the memorandum of association at the time of its formation. 

 

Form of Memorandum –

Memorandum of a company should is prepared according to the respective forms specified in Tables A,B,C,D and E of the Schedule 1, Section 4 of the Companies Act. 

  • Form in Table A is applicable to companies limited by shares
  • Form in Table B is applicable to companies limited by guarantee and not having a share capital
  • Form in Table C is applicable to the companies limited by guarantee and having a share capital
  • Form in Table D is applicable to unlimited companies, not having a share capital
  • Form in Table E is applicable to unlimited companies

 

Printing and Signing of Memorandum of Association

The memorandum of association must be printed and signed by each member (7 members in case of Public Company and 2 in case of Private Company and 1 in case of One Person Company). The memorandum should be signed in the presence of at least one witness who will attest the signatures of the subscribers of memorandum.

In case of one person company (OPC), the name of the nominee must be mentioned in the Memorandum of Association. In case of death or incapability the nominee shall become the member of the company.

The address, occupation and the No. of shares held by each subscriber must also be mentioned in the Memorandum of Association.

 

Contents of Memorandum of Association –

Section 4 of the Companies Act states that the memorandum of association of every company must contain the following clauses –

 

1. Name Clause – According to the first clause the memorandum must state the name of the company by which it wants to be known subjected to the following restrictions:

  • The name of the company must not be identical with an existing company.
  • No company will have the name which is undesirable in the opinion of the government.
  • The name must not mislead the public. For example, a company will not be allowed to use a name, which is prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950.
  • The company must not use any names which suggest any connection with the government or state Patronage without the prior approval of the government.
  • The name of a private company limited by shares, must end with ‘Private Limited’

 

2. Situation or Registered Office Clause – This clause requires the memorandum to mention the name of the state in which the registered office of the company is to be situated. A company must have its registered office ready within 15 days from its incorporation and within 30 days of its incorporation, the verification of its registered office should be done. This is done in order to fix the domicile of the company. It must be noted that the domicile is the place of registration of the company and may or may not be the residence of the company. Residence of the company will be the place from where the management and control of the business is carried out.

 

3. Objects Clause – The object clause determines the purpose for which the company has been set up and it determines the capacity of the company. A company is not legally entitled to conduct any business activity that is not specifically mentioned in its object clause. The objects are classified into three categories: main object, ancillary object, and other objects that will be pursued to accomplish the main object. However the following points must be noted while preparing Objects clause:

  • The objects of the company must be stated specifically and must not be ambiguous statements.
  • The objects of the company must not be illegal
  • They must not be against the provisions of the companies act
  • They must not be against the public policy of the country

 

4. Liability Clause – The fourth clause of memorandum of every company states the liability of its members, i.e. whether the liability of its members is limited by shares, or limited by guarantee or is unlimited.

  • In case of company limited by shares, members cannot be called upon to pay more than what remains unpaid. If his shares are fully paid, the liability of shareholders is nil.
  • In case of company limited by guarantee, the liability clause must state the amount each member has to pay at the time of the liquidation of the company.
  • In case of unlimited company, the liability of members is unlimited and personal assets of the members can be used.

 

5. Capital Clause (only in case of a company having share capital)- This clause requires all companies limited by liability to mention the amount of capital with which the company is formed. The capital of the company must be divided into smaller fixed value units which are known as shares. There is no legal limit on the amount of share capital. A company cannot issue share capital exceeding the amount mentioned in the capital clause.

 

6. Association and Subscription Clause – According to this clause the memorandum must mention the amount of authorised share capital and the amount of shares taken by each subscriber/member. The following are the statutory requirements regarding subscription-

  • The memorandum must be signed by each subscriber in the presence of at least one witness who attest the signatures.
  • Each subscriber must take at least one share; and
  • Each subscriber must write the number of shares held by him

 

7. Succession Clause (only in the case of OPC) – According to this clause the memorandum must state the name of the person who shall become the member of the company in the event of death of the subscriber.

 

The above clauses are compulsory and are designated by companies Act as ‘conditions”, on the basis of which alone a company can be incorporated.

The post Memorandum of Association – Company Law appeared first on BBA|mantra.

]]>
https://bbamantra.com/memorandum-of-association/feed/ 1