corporate law (CL) Under company act 2013

corporate law
What is corporate law? The background of Companies Act 1956.
What is the importance of this Act?
Characteristics of a company, Landmark case - Salomon vs.
Salomon Co Ltd- Separate legal entity, Lifting the corporate veil.
Types of companies, Promoters, Formation and incorporation of
a company.
Memorandum of association. Doctrine of ultra vires. Articles of
association. Doctrine of indoor management.
Contents

What is corporate law
• Corporate law (also "company" or
"corporations" law) is the study of how
shareholders, directors, employees, creditors,
and other stakeholders such as consumers,
the community and the environment interact
with one another

COMPANIES ACT,2013
V/s
COMPANIES ACT,1956
• Structural Comparison
Companies Act 1956
13 Parts
658 Sections
And
15 Schedules
Companies Act 2013
29 Chapters
470 Sections
And
7 Schedules

WHAT IS COMPANY
A company is an artificial person created by law.
• A company means a group of persons associated together for the
attainment of a common end, social or economic.
• Section 3(1)(i) of the Companies Act, 1956 defines a company as:
“a company formed and registered under this Act or an existing
Company”.
• ‘Existing Company’ means a company formed and registered under
any of the earlier Company Laws.
•

Characteristics of a company
Separate legal entity
Limited liability
Perpetual succession
Common seal
Transferability of shares
Separate property
One Share-One Vote:

SEPARATE LEGAL ENTITY-
 A company is in law regarded as an entity separate
from its members. It has an independent corporate
existence.
• The company is different and distinct from its members
in law. It has its own name and its own seal, its assets
and liabilities are separate and distinct from those of
its members. It is capable of owning property, incurring
debt, borrowing money, having a bank account,
employing people, entering into contracts and suing
and being sued separately.

landmark case
• A landmark case is a court case that is studied because
it has historical and legal significance. The most
significant cases are those that have had a lasting
effect on the application of a certain law, often
concerning your individual rights and liberties.
Why Study Landmark Cases?
• To understand how the judicial branch works
• To see how past judicial decisions have affected the law
• To see how past court cases have affected your
everyday life, and your individual rights
• To predict how past decisions will be applied to current
cases and issues

Salomon v A Salomon and Co Ltd [1897] AC 22
• Corporate separate personality
• Salomon conducted his business as a sole trader. He sold it to a
company incorporated for the purpose called A Salomon and Co Ltd.
The only members were Mr Salomon, his wife, and their five children.
Each member took one £1 share each. The company bought the
business for £39,000. Mr Salomon subscribed for 20,000 further
shares. However, £10,000 was not paid by the company, which instead
issued Salomon with series of debentures and gave him a floating
charge on its assets. When the company failed the company's
liquidator contended that the floating charge should not be honoured,
and Salomon should be made responsible for the company's debts.
• Lord Halsbury LC stated (at 30-31):
“… it seems to me impossible to dispute that once the company is
legally incorporated it must be treated like any other independent
person with its rights and liabilities appropriate to itself, and that the
motives of those who took part in the promotion of the company are
absolutely irrelevant in discussing what those rights and liabilities
are.”
• From this case comes the fundamental concept that a company has a
legal personality or identity separate from its members. A company is
thus a legal ‘person'.

Limited Liability
:The liability of the members of the company is limited to
contribution to the assets of the company up to the face
value of shares held by him. A member is liable to pay
only the uncalled money due on shares held by him when
called upon to pay and nothing more, even if liabilities of
the company far exceeds its assets. On the other hand,
partners of a partnership firm have unlimited liability i.e.
if the assets of the firm are not adequate to pay the
liabilities of the firm, the creditors can force the partners
to make good the deficit from their personal assets. This
cannot be done in case of a company once the members
have paid all their dues towards the shares held by them
in the company.

PERPETUAL SUCCESSION-
• Being an artificial person a company never dies,
nor does its life depend on the life of its
members. Members may come and go but the
company can go on forever. It continues to exist
even if all its members are dead. The existence of
company can be terminated only by law
• A company does not die or cease to exist unless it
is specifically wound up or the task for which it
was formed has been completed
‫ابدي‬

• Separate Property:
A company is a distinct legal entity. The
company’s property is its own. A member cannot
claim to be owner of the company's property
during the existence of the company.
• COMMON SEAL-
• Since a company has no physical existence, it
must act through its agents and all such contracts
entered into by its agents must be under a seal of
the company. The common seal acts as the
official signature of the company.

Transferability of Shares:
Shares in a company are freely transferable,
subject to certain conditions, such that no
share-holder is permanently or necessarily
wedded to a company. When a member
transfers his shares to another person, the
transferee steps into the shoes of the transferor
and acquires all the rights of the transferor in
respect of those shares

One Share-One Vote:
The principle of voting in a company is one share-
one vote. I.e. if a person has 10 shares, he has 10
votes in the company. This is in direct contrast to
the voting principle of a co-operative society where
the "One Member - One Vote" principle applies i.e.
irrespective of the number of shares held, one
member has only one vote.
Capacity to sue and being sued:
A company can sue or be sued in its own name as
distinct from its members.

Disadvantages of incorporation
• LIFTING OF THE CORPORATE VEIL
• Formality and expense-
• Company not a citizen-

LIFTING OF THE CORPORATE VEIL
• In the eyes of law, a company is a legal person with a
separate entity distinct from its members of
shareholders. In essence it means that there is a veil or
curtain separating the legal entity of the company from
its members or shareholders.• When any fraudulent
and dishonest use is made of the legal entity, the
individuals concerned will not be allowed to take
shelter behind the corporate personality. The Courts
will break through the corporate shell and apply the
principle of ‘lifting or piercing the corporate veil’. The
Court will make the members or the controlling
persons liable for debts and obligations of the
company.

law will lift the corporate veil
A: Under statutory provisions
• Reduction of the number of members below
statutory minimum
• For establishing the relationship of holding and
subsidiary company
• For facilitating the task of an inspector to
investigate the affairs of the company
• For investigation of the ownership of the
company

law will lift the corporate veil
B: Under judicial interpretation
• Fraud Or Improper Conduct:
• For Benefit Of Revenue:
• Enemy Character: e.g. Daimler Co. Ltd. vs.
Continental Tyre and Rubber Co. (GreatBritain) L
• Company Avoiding Legal Obligations:
• Single Economic Entity:
• Agency Or Trust:
• Public Interest:

Formality and expense- Incorporation is a very
expensive affair. It requires a number of formalities
to be complied with both as to the formation and
administration of affairs.
Company not a citizen- In State Trading
Corporation of India v. CTO, the SC held that a
company though a legal person is not a citizen
neither under the provisions of the Constitution nor
under the Citizenship Act.
•

The Company
• Company basically means a group of persons
associated for any common object such as
business, charity, sports and research etc.
• Legally, Company is an incorporated association
which is an artificial person, having separate legal
entity, with perpetual succession, a common seal,
a common capital comprised of transferable
shares and carrying limited liability.
• Classification is required to define legal
guidelines clearly as per different objectives and
ownership patterns

Companies are classified on the basis
of
• Incorporation
• Liability of members
• Number of members
• Ownership/ control

ON THE BASIS OF INCORPORATION
1:Statutory company :These companies are those in
corporate under special act passed by the
parliament or the state legislature.
These are mostly concerned with public utilities.
Reserve Bank of India, LIC, GIC, Railways, Tramways,
NHAI.
2: Registered companies Those companies are
those formed and registered under the Indian
companies act.
BHEL, SAIL, GAIL, BEML, ONGC, OIL and RNRL.

ON THE BASIS OF LIABILITY
1. Companies with limited liability may two types :
(A). Companies limited by shares.
The liability of the members limited only up to
face value of the share. It may be public or a
private company.
The shareholders are not responsible for the
liabilities of the company and they cannot be
called upon to pay even a single paisa more than
that of the unpaid amount of the shares. These
types of companies are very popular in India.
The principles of limited liability attract
investors, to invest in the shares of the
company.

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B: Company Limited by Guarantee: The liability of members of
the company is limited up to specific amount guaranteed by
them. The purpose of such a guarantee is to enable the
company to have funds to meet its liability at the time of
winding up. The important features of such companies are:-
(a) Each member promises to pay a fixed amount in the event
of wind up.
(b) This amount is known as guarantee amount.
(c) The amount of guarantee is laid down in the Memorandum
of Association.
(d) The amount of guarantee is paid only in the case of
winding up of the company.
(e) Such a company may or may not have share capital

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• 2 :Unlimited companies
• A company not having any limit on the liability of its
members is termed as the unlimited companies.
• Unlimited companies – Section 12 specifically provides
that any 7 or more persons ( 2 or more in case of a
private company ) may form an incorporated company,
without limited liability. In case of such a company,
every member is liable for the debts of the company.
• It means in the case of winding up of the company, the
private property of the members can be taken over y
the creditors for the recovery of their dues i.e. debts.
Such companies are not popular in India.

ON THE BASIS OF NUMBER OF
MEMBERS
1: Private companies :
• A company whose ownership is private. A private
company which has minimum paid up capital of one lack
rupees.
• Can have a minimum of 2 and maximum of 200 members
• Has restricted the right to transfer its shares to any other
person
• The major ownership restrictions are:
• shareholders cannotsell or transfer their shares without
offering them first to other shareholders for purchase,
• shareholders cannot offer their shares to the general public
over a stock exchange,

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• Restrictions imposed on private Companies:
(1) A private limited company must include the words
"private limited" with its name.
(2) A private company must have its own Articles of
Association.
(3) The shares of private company are not transferable.
(4) A private company cannot invite public to subscribe its
shares or debentures.
(5) The maximum number of members in a private
company is restricted to 200.
(6) Every year private company must file three copies of
Balance Sheet and Profit and Loss Account together with
Auditors Report, to the Registrar of companies.
(7) A member of private company can appoint only one
proxy.

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2: Public companies:A public company is a company with
securities (equity and debt) owned and traded by the general
public through the public capital markets.
• Has a minimum paid-up capital of rupees five lakhs or more
• Does not restrict the right to transfer its shares to any other
person
• Can invite general public for the subscription of its shares or
debentures
• Can invite or accept
• Public Company has to file the documents like Memorandum
of Association, Articles of Association and Prospectus with the
Registrar of Companies.

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• Public company has following features:-
(a) Public company collects capital from general public by
way of issuing shares and debentures,
(b) The shares of Public company are freely transferable,
(c)The liability of the members of Public Limited Company
is limited up to the extent of face value of he shares
purchased by them,
(d) Public company must collect minimum subscription and
must obtain Trading Certificate i.e. Certificate of
Commencement of Business to start the business,
(e) Public company must start its business within one year
of getting Incorporation Certificate otherwise it will be
wound up by the court,
(f) It is also compulsory for a Public Company to hold
statutory meeting within six months of obtaining "Trading
Certificate".

Distinction Between Private Ltd. & Public Ltd.
Company
 Minimum capital required is
1,00,000
 Minimum 2 and maximum 200
members
 At least 2 directors
 No restriction on appointment of
directors
 Non-transferable shares
 Restriction on invitation to
subscribe for shares
 No restriction on managerial
remuneration
 Can start business without
obtaining certificate of
commencement
 Minimum capital required is
5,00,000
 Minimum 7 members. No limit
on maximum members
 At least 3 directors
 No restriction on appointment
of directors
 Transferable shares
 Invitation to subscribe for
shares is allowed
 Managerial remuneration
cannot exceed 11% of net
profit
 Can start business only after
obtaining certificate of
comencement
Private Ltd. Public Ltd.

Special Privileges of a Private Company
Over Public Company
1. Can be started with minimum 2 members
2. No provision regarding minimum subscription
3. No need to file a Prospectus or Statement in Lieu of Prospectus.
4. Further share issue
5. It can issue share capital of any kinds
6. Commence business immediately after getting certificate of
incorporation
7. Need not to keep index of members
8. Need not to hold a statutory meeting or file statutory report
9. Provision regarding maximum limit of Director’s or Manager’s
remuneration does not apply

ON THE BASIS OF OWNERSHIP
• 1: A government company is one in
which, 51% or more, paid-up capital of the
company is taken over either by Sate Government
or by Central Government or by both.
• The government companies are incorporated
under Indian Companies Act. It may be noted
that in a government company, government is
the major shareholder and majority of directors
are appointed by the government.

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2:Multinational Company:
• A multinational company is the company
which is registered in one country but
operated its business in multiple countries.
The multinational companies have huge
investments and huge profits. They build up
big Business Empire in many countries.

ON THE BASIS OF OWNERSHIP/
CONTROL3: Subsidiary company :
• It is the company which is holded by other is known as subsidiary of
other.
• Company whose more than half of the nominal value of share capital is
held by another company or another company controls the composition
of board of directors of such company.
• i.e. Holding Company is known as Subsidiary Company. The management
of Subsidiary Company is controlled by Holding Company. But Subsidiary
Company does not lose its identity.
4: Holding Company:
• Company which holds 50% or more paid up capital of another company
i.e. Subsidiary Company is known as the Holding Company. Holding
Company controls and manages the entire affairs of subsidiary company.
• Holding company is the company which holds and control the other
company
‫كونكي‬ ‫مرسته‬

One person company
One Person Company (OPC) is a newly introduced
type of company. OPC was introduced in the
Companies Act, 2013 to support entrepreneurs
who on their own are capable of starting a venture
by allowing them to create a single person
economic entity. One of the biggest advantages of
a OPC is that there can be only one member in a
OPC, while a minimum of two members are
required for incorporating and maintaining a
Private Limited Company or a Limited Liability
Partnership.

Formation of a Company
A Company comes into existence when a group of
people come together with a view of forming an
association t o exploit the business opportunities by
bringing to gather ;men, material, money and
management
STAGES OF FORMATION OF A COMPANY
• Promotion Stage
• Incorporation (Registration Stage).
• Capital Subscription
• Raising the Share Capital Stage.

STAGES IN FORMATION OF A
COMPANY
1:Promotion of a Company :
• The promotion of a company refers to all those
steps which are taken from the time of having an
idea of starting a company to the time of actual
starting of the company business.
Who is a promoter
• 1. People who think of forming a company and
take necessary steps in its formation are known
as “Promoters” or “Company Promoters”.
• 2. The person who conceives such an idea is
called “Company Promoter”

promoters
• Before a company can be formed, there must
be some persons who have an intention to
form a company and who take the necessary
steps to carry that intention into operation.
Such persons are called ‘promoters’

FUNCTIONS OF PROMOTERS:
• To discover an idea for establishing a company.
• To make detailed investigations about the demand for the
product, availability of power, labour, raw material.
• To investigate the idea and know whether the formation
of the company is possible and profitable.
• To find out suitable persons who are willing to act as first
directors of the company. To settle the name of
company.
• To select bank, legal advisor, auditor, underwriter for the
company.
• To submit all the documents required for incorporation
with the registrar.
• To make proper arrangement for the office of the
company.
• Etc…….

DUTIES AND OBLIGATION OF
PROMOTERS
• The promoters must disclose fully all the material facts
regarding the formation of a company.
• The promoters must faithfully disclose all the facts
relating to the property which they want to sell to the
company.
• The promoters must not make an unfair use their
position.
• To disclose the liability and pay the secret profits if
promoters have earned.
• The prospectus of the company should contain the
true statements.
• Liability on statutory mistakes or frauds in the
property.

REMUNERATION OF PROMOTERS
• He may be paid a certain lump sum.
• He may be given shares of the company.
• He may be given commission of the shares
sold by the company.
• He may be given an option to buy the shares
of the company at par when their market
price is higher.
• He may sell his own property to the company
at higher price and earn profit.

Liability of the promoter
• A promoter can be compelled by the company to hand
over any secret profit which he has made without full
disclosure to the company. The company can also sue
for the rescission of the contract of sale by the
promoter where the promoter has not disclosed his
interest therein.
• the promoters are criminally liable under section 63 for
the issue of prospectus containing untrue statements.
• . A company may proceed against a promoter on action
for deceit or breach of duty under section 543.

2. INCORPORATION STAGE
• A company is said to be incorporated when it
fulfill the formalities of registration and obtain
“CERTIFICATE OF INCORPORATION” by
submitting the MoA, AoA and written consent
of all the directors.
• A public to commence business, should raise
the required capital and obtain the “
CERTIFICATE OF COMMENCEMENT OF
BUSINESS”

3: capital subscription
• a public company can raise the required funds from the
public by means of issue of shares and debentures. for
doing the same, it has to issue a prospect which is an
invitation to public to subscription to the capital of the
company and undergo various other formalities.
• (i) SEBI Approval
• (ii) Filling of prospectus
• (iii) Appointment of Bankers, Brokers , Underwriters
• (iv) Minimum subscription
• (v) Application to stock Exchange
• (vi) Allotment of shares

What is 'Minimum Subscription
The "minimum subscription" is the minimum amount
which, in the opinion of directors or the signatories of the
memorandum, must be raised by the issue of shares in
order to provide the sums in respect of each of the
following heads:
(1) the purchase price of any property purchased or to be
purchased;
(2) any preliminary expenses payable by the company and
any commission (underwriting or otherwise) payable to
any person;
(3) the repayment of any moneys borrowed by the
company;
(4) working capital; and
(5) any other expenditure.

4: RAISING OF SHARE CAPITAL
• 4. Entering onto an agreement with
underwriters.
• Applying to the stock exchange for listing of
shares.
• Issue of prospectus inviting public to
subscribe.
• Allotting shares.

: MEMORANDUM OF ASSOCIATION
IT IS AN IMPORTANT DOCUMENT WHICH DEFINES
OBJECTIVES, POWERS, SCOPES AND RELATIONS
WITH OUTSIDERS .
A Memorandum of Association (MOA) is a legal
document prepared in the formation and
registration process of a company to define its
relationship with shareholders. The MOA is
accessible to the public and describes the
company's name, physical address of registered
office, names of shareholders and the distribution
of shares. The MOA and the Articles of Association
serve as the constitution of the company.

CLAUSES (CONTENTS) OF
MEMORANDUM OF ASSOCIATION
• 1. Name Clause.
• 2. Registered Office clause.
• 3. Objective Clause
• 4. Liability Clause.
• 5. Capital Clause.
• 6. Association Clause
• Note: The MoA must be signed by at least seven
subscribers in the case of Public Company and
two in the case of Private company.

NAME CLAUSE
• The Company is a legal entity. Therefore, it must have
its name to establish its identity.
• The company is free to choose any name but it must
not be undesirable or it should not be identical to the
name of the existing company.
• The name should not be prohibited one.
• The name of the company must end with the word
limited so all the persons dealing with the company
must know that their liability is limited up to the extent
of their of shares.
• In the case of private limited company the word
private limited to be used as the last word of the name.

Registered Office Clause
• Every company must have a registered office from
the day it starts its business or within 30 days of
getting the Certificate of Incorporation, whichever
is earlier.
• Memorandum of Association must state the name
of the State in which the registered office of the
company is situated.
• This clause is important as it mentions the
residence for the purpose of the communication
with the company.
• It determines the jurisdiction of the company and
also mentions the place where all the records of
company are maintained.

OBJECTIVE CLAUSE
It is the essence of memorandum. it clearly
defines the sphere of the company activities.
It indicates a series of objects for which the
company is established.
HERE THE COMPANY SHOULD MENTION ITS
• MAIN OBJECTIVES
• SUBSIDARY OBJECTIVES
• OTHER OBJECTIVES

LIABILITY CLAUSE
• THE EXTENT AND NATURE OF THE LIABILITY OF
SHARESHOLDERS SHOULD BE STATED
LIKE
• LIMITED LIABILITY
• LIMITED BY GAURANTEE
• UNLIMITED
The liability of the members is limited to the extent of the
value of shares purchased by them.
In a case if a shareholder has to pay the unpaid amount on the
share investment, he can be compelled to pay to the extent of
unpaid amount on the shares, nothing more.

CAPITAL CLAUSE
• Amount of share capital with which the
company is to be registered and its division
into shares of a fixed amount must be stated
in the Memorandum of Association of a
company limited by shares.
• THE AUTHORISED CAPITAL SHOULD BE
MENTIONED
• A COMPANY IS NOT AUTHORISED TO ISSUE
ABOVE AUTHORISED CAPITAL

Subscription/ASSOCIATION CLAUSE
• THIS CLAUSE CONTAINS DELCARATION OF
MEMBERS
• THE NAMES, ADDRESSESS AND OCCUPATIONS
OF THE SUBSCRIBERS SHOULD BE MENTIONED
• THE SIGNATURES ARE TO BE ATTESTED BY
PROPER WITNESS

Doctrine of ultra vires
• The expression “ultra vires” consists of two words:
‘ultra’ and ‘vires’. ‘Ultra’ means beyond and ‘Vires’
means powers. Thus, the expression ultra vires means
an act beyond the powers.
• The object clause of the memorandum of the company
contains the object for which the company is formed.
• An act of the company must not be beyond the object
clause otherwise it will be ultra vires and therefore,
void and cannot be ratified even if all the member wish
to ratify. This is called the doctrine of ultra vires.

ARTICLES OF ASSOCIATION
• The articles of association are subordinate to the
memorandum of association of the company.
• The AoA contains regulations regarding all matter
concerning the internal affairs of the company
• The provisions of the articles must not be
inconsistent with or repugnant to any of the
provisions of the memorandum of the Act.
• AOA can be altered at any time according to the
wishes of the member.

AOA
• The articles of association is a document that
contains the purpose of the company as well
as the duties and the responsibilities of its
members defined and recorded clearly. It is an
important document which needs to be filed
with the registrar of companies.

Contents in the Articles of Association
• Adoption of preliminary contracts.
• Number and value of shares
• Allotment of shares
• Calls on shares
• Transfer of shares
• Forfeiture,reissue,surrender of shares
• Alteration of share capital
• Share certificates
• Conversion of shares in to stocks
• Meetings and proceedings
• Voting rights , proxies and polls
• Appointment , Remmunaration,etc of Directors
• Borrowing powers ,. Dividend and Reserves,
• Accounts and audit , Procedure of winding up , Seal of the
company

MOA
1. Determines the
constitution and activities
of the co.
2. It is fundamental charter
3. Every co. must have a MOA
4. Alteration of MOA is
difficult
AOA
1. It contains rules and
regulations of internal
management of co.
2. It is subsidiary to MOA& if
conflicting, MOA would
prevail
3. Public company limited
by shares may or may not
have AOA
4. Alteration is easier by
special resolution
Difference Between MOA &AOA

Doctrine of Indoor Management
• The Doctrine of Indoor Management says
that if a person enters into a contract with a
Company he has the rights to inquire into the
correctness of the contract since Article and
Memorandum of Association are public
documents.
• It is invoked by the person.

Constructive Notice of MOA & AOA
• MOA & AOA are public documents.
• Lodged with the Registrar and are open for inspection.
• Any person can obtain the inspection of these
documents.
• Duty of every person to inspect the documents before
dealing with the company.
• Thus MOA & AOA is presumed to be notice of public.
• Such notice is called “Constructive Notice”.
• Every person dealing with a company must read the
public documents of the company.
• If he does not read them, it is his fault

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• Every person dealing with the company is deemed to have
a constructive notice of the contents of the memorandum
and articles of the company.
• An outsider dealing with the company is presumed to have
read the contents of the registered documents of the
company.
• The further presumption is that he has not only read and
inspected the documents but has also
• understood them fully in the proper sense. This is known as
the rule of constructive notice.
• So, the doctrine or rule of constructive notice is a
presumption operating in favor of the company against the
outsider

Prospectus
• It is a valuable document containing
important details about a company
• A prospectus is thus any document which
invites the public to provide funds to the
company bye law of deposits or subscriptions
to its shares and debentures.
• It should be duly signed by the company.
‫نامه‬ ‫اطالع‬

Important s of Prospectus
• . It is an invitation to the public to subscribe to the
shares and debentures of the company.
• It informs public about the company and stimulates
people to invest money in the company.
• It provides an authentic record of the terms and
conditions on which shares and debentures have been
issued.
• It identifies the persons who can be held responsible
for any untrue or incorrect statements made in it.
• It reflects the business policies and programes of the
company.
• It helps the investors to take investment decisions.

Contents of the prospectus
It contains the following details about the company:
• Name of the company
• Address of the Registered office.
• Nature and objects of business
• Capital structure
• History of the company
• Particulars about Underwriters,auditors,brokers,bankers
• Date of opening and closing subscription list
• Name of stock exchanges where applications for listing has been
made
• Information about material contracts with managerial personnel
• Outstanding liabilities
• Financial information.
• Consent of managerial personnel
• Management perception of risk factors.
• Statutory or other information.

Directors
• A company is a legal entity and does not have
any physical existence. It can act only through
natural persons to run its affairs. The person,
acting on its behalf, is called Director. A
Director is any person, occupying the position
of Director, by whatever name called. They are
professional men, hired by the company to
direct its affairs. But, they are not the servants
of the company. They are rather the officers of
the company.

Appointment of Directors :
Director may be appointed in the following ways:
• 1. By the articles as regards first directors.
• 2. By the company in general meeting.
• 3. By the directors,
• 4. By third parties
• 5. By the principle of proportional representation
• 6. By the central government
Removal of directors :
a director of a company can be removed by
• (a) shareholders
• (b) central government, or
• (c) the court

Who can’t be a directors
The circumstances in which a person cannot be appointed as a director
of a company are enumerated in section 247. According to this section, a
person cannot be appointed as a director of a company, if
• (i) He has been found to be of unsound mind by a competent court
and the finding is in force;
• (ii) He is an undischarged insolvent;
• (iii) He has applied to be adjudicated as an insolvent and his
application is pending;
• (iv) He has been convicted of an office involving moral turpitude and
sentence to imprisonment for not less than 6 months and a period of
5 year has not elapsed since the expiry’s of his sentence;
• (v) He has not paid any call in respect of share of the company held by
him for period of six month from the last day fixed for the payment;
• (vi) He has been disqualified by an order of the court under section
203, of an office in relation to promotion, formation and
management of the company or fraud or misfeasance in relation to
the company.

Duties of the directors
Duties of the directors are mainly divided into
two parts. They are:-
• 1. Statutory Duties
• 2. General Duties

Statutory Duties
• A) To file return of allotment: Section 75 of the
Companies Act, 1956 requires acompany to file with
the Registrar, within a period of 30 days
• (B) Not to issue irredeemable preference share or
shares or share redeemable after 20years:
• (C) To disclose interest .
• (D) To disclose receipt from transfer of property (sec.
319): Any money received by the director from the
transferee in connection with the transfer of the
companys property or undertaking must be disclosed
to the members of the company and approved by the
company in general meeting. Otherwise, the amount
shall be held by the directors in trust for the company

CONT…
• E) To disclose receipt of compensation from transferee of
shares .
• (F) Duty to attend Board meetings.
• (G) To convene statutory, Annual General meeting (AGM)
and also extraordinary general meetings
• H) To prepare and place at the AGM along with the balance
sheet and profit & loss account a report on the company's
affairs including the report of the Board of Directors .
• (I) To authenticate and approve annual financial statement.
• (J) To appoint first auditor of the company
• K) To appoint cost auditor of the company.
• (L) To make a declaration of solvency in the case of
Members’ voluntary winding up.

General Duties
• (A) Duty of good faith: The directors must act in the best interest of
the company. Interest of the company implies the interest of the
present and future members of the company on the footing that
company would be continued as going concern.
• (B) Duty of care: A director must display care in performance of
work assigned to him. He is, however, not expected to display an
extraordinary care but that much care which a man of ordinary
prudence would take in his own case. Any provision in the
company's Articles or in any agreement that excludes the liability of
the directors for negligence, default, misfeasance, breach of duty or
breach of trust, is void. The company cannot even indemnify the
directors against such liability.
• (C) Duty not to delegate: Director being an agent is bound by the
maxim. delegatus nonpotest delegare. which means a delegate can
not further delegate. Thus, a director must perform his functions
personally. However, he may delegate his in certain conditions.

Liabilities of the Directors of a
company
• Breach of fiduciary duty: Where a Director acts dishonestly to the
interest of the company, he will be held liable for breach of
fiduciary duty.
• Ultra vires acts: Directors are supposed to act within the
parameters of the provisions of the Companies Act, Memorandum
and Articles of Association, since these lay down the limits to the
activities of the company and, consequently, to the powers of the
Board of Directors.
• Negligence: As long as the Directors act within their powers with
reasonable skill and care, as expected of them as prudent
businessmen, they discharge their duties to the company
• Mala fide acts: Directors are the trustees for the money and
property of the company, handled by them, as well as for exercise
of the powers, vested in them. If they dishonestly or in a mala fide
manner, exercise their powers and perform their duties, they will be
liable for breach of trust and, may be required to make good the
loss or damage, suffered by the company by reason of such mala
fide acts

Meetings of a Company
• A company is an association of several persons.
Decisions are made according to the view of the
majority. Various matters have to be discussed and
decided upon. These discussions take place at the
various meetings which take place between members
and between the directors. Needless to say, the
importance of meetings cannot be under-emphasised
in case of companies. The Companies Act, 1956
contains several provisions regarding meetings. These
provisions have to be understood and followed.
For a meeting, there must be at least 2 persons
attending the meeting. One member cannot constitute
a company meeting even if he holds proxies for other
members.

Meetings of Shareholders
• These meetings are general meetings as they are
attended by all the members.•
• The management of the company is undertaken
through meetings of the company’s shareholders
where major decisions are to be taken. The meetings
are usually called by directors, but may also be called
by the shareholders.
• The meetings of the shareholders are of three types:
• 1. The Statutory Meeting
• 2. The Annual General Meeting
• 3. Extra Ordinary General Meeting

statutory meeting
The statutory meeting is the first meeting of the
members of the company after it commences business. It
is held once in lifetime of the company.
• Section 157(1) states that “ every company limited by
shares and every company limited by guarantee and
having a share capital shall , within a period of not less
than three months, nor more than six months, from
the date at which the company is entitled to
commence business, hold a general meeting of the
members of the company, which shall be called ‘the
statutory meeting’”.

Objects of Holding the Statutory
Meeting:
• 1.To discuss the success of the formation of the
company.
• 2.To approve/modify the contracts which were
specified in the prospectus.
• 3.Providing information to the members
regarding Shares. Allotted, Preliminary Expenses,
Underwriting agreement and contracts entered
by the company.
• Note: Sec-433(b) provides for that the Statutory
report be delivered to the ROC otherwise
company will be wound up

Requirements to conduct a Statutory
Meeting:
• 1.Notice: A clear 21 days notice must be given to
all
• 2.Agenda: Since all items are of Special Business
category therefore each must be accompanied
with an explanatory note for each item.
• 3.Time, date and place of Statutory meeting:
• Statutory Report: Directors must send a report to
every member 21 days before the date of the
meeting.

Annual General Meeting
Is a meeting which Must be held by every type of
company, public or private, once a year. Every
company must in each year hold an annual general
meeting. Not more than 15 months must elapse
between two annual general meetings.
However, a company may hold its first annual
general meeting within 18 months from the date of
its incorporation. In such a case, it need not hold
any annual general meeting in the year of its
incorporation as well as in the following year only.

Requirements of AGM
• Following are the requirements of AGM:
• i. It must be held every year.
• ii. The first AGM is to be held within eighteen months of
incorporation.
• iv. Notice of the date of the meeting is to be send twenty
one days before such date to the shareholders whereas in
case of a listed company the notice is also required to be
published in the newspaper.
• v. In case of default in complying with any of these
requirements all officers party to such default shall be held
liable.
• vi. The gap between two AGMs should not be more than
fifteen months.

Agenda of AGM
In this meeting the following matters are
usually considered.
Annual accounts of the company
Declaration of dividend
 Retirement and appointment of auditors
retirement and appointment of Directors

Extraordinary General Meeting
• All general meetings other than annual general meeting
and statutory meeting are known as Extra-Ordinary General
Meetings. This meeting is held on the special occasions or
you can say in the emergency situations when directors
think that it necessary. For example; at the plan of merger
etc
Occasion:
• This meeting is held on the special occasion and in the
emergency situation.
Notice of the Meeting:
• The directors will send a notice of the meeting to all the
members of the company at least 21 days before the
meeting.

Directors meeting
When the meeting is held among the directors
of the company it is called directors meeting. It
is classified into two parts. They are:
• Board meeting
• Committee meeting

Special meeting
For any special situation, when the meeting is arranged
by the company, it is called special meeting. The types of
the special meetings are as follows:
• Class-meeting: The Company has different kinds of
shares. When the meeting is arranged by any one kind
of shareholders it is called class meeting.
• Creditors meeting: The directors or their appointed
lower can invite this type of meeting. Moreover this
type of meeting may be arranged by the order of the
court.

TYPES OF Restructuring
• Expansion: Mergers,
Acquisitions,Takeovers,Tender offer, Joint Venture
• Contraction: Sell offs, Spin offs, Split offs, Split
ups, Divestitures, Equity Carve outs
• Corporate Control: Takeover Defenses, Share
Repurchases, Exchange Offers, Proxy Contests
• Changes in Ownership: Leveraged Buyout, Going
Private.3RubySharma, CBS ,Landran,Mohali

merger
• A merger refers to the process whereby at least
two companies combine to form one single
company. Business firms make use of mergers for
consolidation of markets as well as for gaining a
competitive edge in the industry. Merger is a
financial tool that is used for enhancing long-term
profitability by expanding their operations.
Mergers occur when the merging companies
have their mutual consent as different from
acquisitions, which can take the form of a hostile
takeover.

1: Vertical Merger
• A merger between two companies producing different goods or
services for one specific finished product. A vertical merger occurs
when two or more firms, operating at different levels within an
industry's supply chain, merge operations.
• Example
• A vertical merger joins two companies that may not compete with each
other, but exist in the same supply chain. An automobile company
joining with a parts supplier would be an example of a vertical merger
2:Horizontal Merger
• A merger occurring between companies in the same industry.
Horizontal merger is a business consolidation that occurs between firms
who operate in the same space, often as competitors offering the same
good or service
•
Example A merger between Coca-Cola and the Pepsi beverage division,
for example, would be horizontal in nature
Types of mergers

cont…
3: Conglomerate Merger
A merger between firms that are involved in totally
unrelated business activities.
Two types of conglomerate mergers:
1. Pure conglomerate mergers involve firms with nothing
in common.
2. Mixed conglomerate mergers involve firms that are
looking for product extensions or market extensions.
Eg: Walt Disney Company and the American
Broadcasting Company

Cont..
4:Concentric Merger
• A merger of firms which are into similar type
of business.
• Eg:Nextlink is a competitive local exchange
carrier offering services in 57 cities and
building a nationwide IP network.
• Concentric, a national ISP, offers dedicated
and dial-up Internet access, high-speed DSL
and VPN services across the U.S. and overseas.

Amalgamation
• This involves fusion of one or more companies
where the companies lose their individual
identity and the new company comes into
existence to take over the business of
companies being liquidated.
• The merger of Brook Bond India Limited and
Lipton India Limited resulted in formation of a
new company Brook Bond Lipton India Limited

takeover
The term takeover is understood to connote
hostility. When an acquisition is a ‘forced’ or
'unwilling’ acquisition, it is called a takeover. A
holding company is a company that holds more
than half of the nominal value of the equity capital
of another company, called a subsidiary company,
or controls the composition of its Board of
Directors. Both holding and subsidiary companies
retain their separate legal entities and maintain
their separate

Acquisition
• Acquisition may be defined as an act of acquiring
effective control over assets or management of a
company by another company without any
combination of businesses or companies.
• A substantial acquisition occurs when an acquiring
firm acquires substantial quantity of shares or voting
rights of the target company This involves buying
assets of another company. The assets may be tangible
assets like manufacturing units or intangible like
brands.
• HLL buying brands of lakme is an example of asset
acquisition

Joint venture
This Involves two companies coming together
and forming a new company whose ownership is
changed. Generally this strategy is adopted by
MNC’s to enter into foreign companies.
• DCM Group and Daewoo Motors entered in to
a joint venture to form DCM Daewoo Limited
to manufacture auto mobiles in India

(SEBI)
• Securities Exchange Board of India (SEBI) was set
up in 1988 to regulate the functions of securities
market. AND in May 1992, SEBI was granted legal
status by the government . SEBI is a body
corporate having a separate legal existence and
perpetual succession.
• Purpose and Role of SEBI:
• SEBI was set up with the main purpose of keeping
a check on malpractices and protect the interest
of investors.

objectives of SEBI
• The overall objectives of SEBI are to protect the
interest of investors and to promote the development
of stock exchange and to regulate the activities of stock
market. The objectives of SEBI are:
• 1. To regulate the activities of stock exchange.
• 2. To protect the rights of investors and ensuring safety
to their investment.
• 3. To prevent fraudulent and malpractices by having
balance between self regulation of business and its
statutory regulations.
• 4. To regulate and develop a code of conduct for
intermediaries such as brokers, underwriters, etc.

unit6
Winding up of a company
•

Winding up of a company
Winding up of a company is the stage, where by the
company takes its last breath. It is a process by which
business of the company is wound up, and the company
ceases to exist anymore. All the assets of the company
are sold, and the proceedings collected are used to
discharge the liabilities on a priority basis.
There are two ways, in which a company may be wound
up. They are:
• WINDING UP BY TRIBUNAL
• Voluntary winding up.
– Members Voluntary winding up.
– Creditiors Voluntary winding up.

VOLUNTARY WINDING UP
A company may, voluntary wind up its affairs, if
it is unable to carry on its business, or if it was
formed only for a limited purpose, or if it is
unable to meet its financial obligation, and etc.
A company may voluntary wind up itself, under
any of the two modes:
• Members voluntarily winding up.
• Creditors voluntarily winding up

Cont…
• A company may voluntarily wind up itself, either by passing:
•
• An ordinary resolution, where the purpose for which the
company was formed has completed, or the time limit for
which the company was formed, has expired.
• Or
• By way of special resolution
• Both types of resolution shall e passed in the general
meeting of the company. (484)
• Once the resolution of voluntarily winding up is passed, and
then the company may be wound up, either through:
 Members voluntarily winding up, or
 Creditors voluntarily winding up

i. MEMBERS VOLUNTARILY WINDING UP
• Directors of the company shall call for a Board of Directors Meeting,
and make a declaration of winding up, accompanied by an Affidavit,
stating that;
• The company has no debts to pay, or
• The company will repay it's debts; if any, within 3 years from the
commencement of winding up, as specified in declaration (488
ii. CREDITORS VOLUNTARILY WINDING UP
• Where the resolution for winding up has been passed, but the
Board of Directors are not in a position to give a declaration on the
liability of company, they may call a meeting of creditors, for the
purpose of winding up. (500)
• It is the duty of Board of Directors, to present a full statement of
company’s affairs, and list of creditors alongwith their dues, before
the meeting of creditors. [500 (3)]
Whatever resolution, the company passes in creditor's meeting, shall
be given to the Registrar within ten days of its passing. (501)

2: WINDING UP BY TRIBUNAL
A company may be wound up by the Tribunal on a
petition filed under Section 272 of the Act.
.This is called compulsory winding up. Section 433 lays
down the following grounds for the winding up of a
company by the tribunal.
• 1. Special resolution of the company:
• 2. Default in holding statutory meeting:
• 3. Failure to commence or suspension of business:
• 4. Reduction of members below minimum:
• 5. Inability to pay debts:
• 6. Just and equitable:

Cont..
1. Special resolution of the company:
• If the company has by a special resolution resolved that it
may be wound up by the court. The power of the court in
such a case is discretionary. The court may refuse to order
winding up where it is opposed to public or company’s
interest.
2. Default in holding statutory meeting:
• If a company makes a default in delivering the statutory
report to the registrar or in holding the statutory meeting,
the court may order winding up of the company
3. Failure to commence or suspension of business:
• Where a company does not commence its business within a
year from its incorporation, or suspends its business for a
whole year, the court may order for its winding up.

Cont…
• 4. Reduction of members below minimum:
• Where the number of members is reduced below 7 in
the case of public company and below 2 in case of a
private company, the court may order the winding up
of the company.
• 5. Inability to pay debts:
• The court may order for the winding up of a company if
it is unable to pay its debts. The basis of an order for
winding up under this clause is that the company has
ceased to be commercially solvent i.e. it is unable to
met its current demands, although the assets when
realized may exceed its liabilities

cont,…
6. Just and equitable:
• The last ground on which the court can order the
winding up of a company is when the court is of the
opinion that it is just and equitable that the company
should be wound up. This clause gives the court a very
wide power to order winding up wherever the court
considers it just and equitable to do. The court will
consider such grounds to wind up a company for just
and equitable reasons as are not covered by the
preceding fie clauses.
• The following are the instances where the courts have
exercised their discretion under this clause:

Cont…
• i) Where there is a deadlock in the management.
• ii) Where it is impossible to carry on the business of
the company except at a loss.
• iii) Where the company has ceased to carry on its
authorized business and is engaged in an illegal
business.
• iv) Where the object for which the company is formed
is impossible of further pursuit.
• v) Where the minority is being disregarded or
oppressed.
• vi) Where there is lack of confidence in directors.
• vii) Where a company has been conceived and brought
forth in fraud.

PRIORITY IN DISPOSING LIABILITIES
When the company is wound up, by any mode, the liabilities
shall be discharged in following priority.
• Workman's dues.
• Debts due to secured creditors, in case of insolvency.
• All , taxes, cesses and rates due from the company to the
central government or a state govt.
• All wages and salary of any employee due
within four months.
•
• All holiday remuneration becoming payable to any
employee

Duties of liquidator
• To conduct proceedings in winding up.
• To submit preliminary report(sec.455).
• To take custody of company’s property.
• To take legal assistance (sec.459).
• To maintain proper books.
• To present accounts to tribunal.
• To consider the wishes and directions of
creditors and contributories.

corporate law (CL) Under company act 2013

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