Cl Promoter

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PROMOTER 1. 2. 3. 4. Professional Promoter. Occasional Promoter. Financial Promoter. Entrepreneurial Promoter.

The promoter has to take the following preliminary steps:1. Ascertainment of availability of the proposed name of the company. 2. Application for Licence. 3. SEBIs approval to draft Prospectus. 4. Prepare & finally get printed the companys Memorandum and Articles of Association.

Functions of a Promoter.1. To conceive an idea of starting a business. 2. To conduct the negotiation for the purchase of the business. 3. To collect the requisite number of person. 4. To decide on the following

Memorandum of AssociationMeaning: It contains the fundamental conditions upon which alone the company is allowed to be incorporated. Its purpose is to enable shareholders and those who deal with the company to know what its permitted range of activities are. Contents of Memorandum of Association (MA) 1.Name Clause 2.Registered Office Address Clause 3.Objects Clause 4.The Capital Clause 5.The Liability Clause 6.The Association Clause

Company LawArticles of Association Articles of Association(AA)are the rules regulations and bye-laws for the internal management of the affairs of the company AA next only in importance to the MA. AA are framed with the object of carrying out the aims and objectives as set out in the MA.

Contents of Articles of Association1Share Capital,Rights of Shareholders,Variation of these Rights,Payment of Underwriting Commission. 2.Lien on shares. 3.Transfer of shares 4.Transmission of shares 5.Forfeiture of shares 6.Conversion of shares in to stocks 7.Calls on shares 8.Share warrants 9.Alteration of Capital ..[contd]10. General Meetings and Proceedings thereat 11.Voting rights of members ,voting & proxies 12.Directors,their appointment,remuneration,qualifica tions, powers and proceedings of Board of Directors (Board). 13.Manager 14.Secretary 15 .Dividends and reserves 16.Accounts ,audit and borrowing powers. 17.Capitalization of profits 18.Winding up.

Form and signature of Articles The Article shall be a)printed, b)divided in to paragraphs,and c)signed by each subscriber of the Memorandum(who shall add his address,description and occupation,if any)in the Articles.

Limitations to Alterations(AA). 1.Must not be inconsistent with the Act . [Eg., alteration cant give powers to company to buy its own shares]. 2.Must not conflict with emorandum. 3.Must not sanction anything illegal.

Contd..Limitations to alteration[AA] 4.Must be for the benefit of the company. [Brown Vs British Abrasive Wheel Co.Ltd.]1919 5.Must not sanction anything illegal. 6.Must not increase liability of members[unless there is a written consent]. 7.Alteration by special resolution only. [Even clerical errors must be set right by a special resolution].

Limitations to alterations[AA] Contd 7.Breach of contract. 8.Approval of Central Government when a private co. is converted in to public co. 9.No power of the court to amend Articles. 10.Alteration may be with retrospective effect. The Articles may be altered from a back date [Eg., the inclusion of a lien clause which gives the company a lien on fully paid shares of members for debts incurred both before and after the inclusion of the clause.

Regulations required in case of an unlimited company,company limited by guarantee and private company limited by shares[Sec.27]

1.Unlimited Company: In case of an unlimited company ,the Articles shall state No .of .Members with which company is to be registered If it has a share capital,the amount of share capital with which company is to be registered.[Sec.27(1)]

Form & Signature of Articles The Articles shall be , * printed, * divided in to paragraphs & * signed by each subscriber of the Memorandum( who shall add his address,description and occupation,if any) in the presence of at least one witness who will attest the signature and like wise add his address,description and occupation if any.

Procedure for Alteration of Articles of Association

COMPANIES HAVE BEEN GIVEN VERY WIDE POWERS TO ALTER THEIR ARTICLES A company may by passing special resolution,alter regulations contained in its Articles anytime. A copy of every special resolution altering the Articles shall be filed with the Registrar within 30 days of its passing. Any alteration so made in the Articles shall be as valid as if originally contained in the Articles.[Sec.31(1)].

Legal Effect of Memorandum & Articles The MA & AA ,when registered ,bind a company and the members thereof to the same extent as if they respectively had been signed by the company and to each member. The legal implications of these documents may be discussed as to how far these documents bind:

1.Members to the company: As between the members and the company ,the Memorandum and Articles constitute a binding contract . Eg.,[Borlands Trustee v/s. Steel Bros.Co.Ltd]1901. The Articles of the company as altered provided that that the shares of a member who became bankrupt should be sold to certain persons at a fair price .B ,a share holder, became bankrupt and his trustee inbankruptcy claimed that he was not bound by the altered Articles.Held, Articles were a personal contract between B and the company,and as such B and his trustee were bound.

2.Company to members: A company is bound to the members: A company is bound to the members in the same manner as the members are bound to to the company .It can,therefore,exercise its rights ,as against any member ,only in accordance with the Memorandum and Articles. A member can obtain an injunction restraining a company from doing an ULTRA VIRES act.

Eg.,[Wood v/s Odessa Waterworks Co.Ltd.,]1889 The Articles of O.W .Co. provided that the directors may with the sanction of the company at general meeting declare a dividend to be paid to the members.A resolution was passed to give the shareholders debenture bonds instead of paying the dividend in cash. A member filed a suit to restrain the directors from acting on the resolution as it was not in accordance with the Articles of the company.The directors were restrained from acting on the resolution.

3.Members inter se [Among themselves]. The Articles &Memorandum constitute a contract between them [ all members]and also binding on each member as against the other or others.Such a contract can ,however ,be enforced through the medium of the company.

Eg.,[Rayfield v/s Hands]1960. The Articles of a company provided that if a member wanted to transfer his shares ,he must inform the directors of his intention and the directors must take the said shares equally between them at a fair value.The directors refused to take the shares and argued that the Articles did not impose any liability upon them. Held the directors were obliged to take the shares .The Articles imposed an obligation on them not as directors but as members of the company (I.e., in their capacity as members )and it was not necessary for the company to be a party to that action.

4. Company to the outsiders: The Articles do not constitute any binding contract between the company and an outsider. An outsider cannot take advantage of the Articles to found a claim there on against the company.This is based on the general rule of law that a stranger to a contract cannot acquire any rights and liabilities under the contract. If the Articles provide that the company on incorporation shall purchase certain property and appoint the vendor as one of the directors ,the vendor ,on becoming a shareholder ,cannot sue the company on the basis of the Articles.

Eg.,[Eley v/s Positive Government Association Co.]1876. The Articles of a company provided that E should be the solicitor of the company for life and could be removed from office only for misconduct.E took office and became a shareholder. After some time the company dismissed him without alleging misconduct.E sued the company for damages for breach regulations in the Articles. Held, the Articles did not constitute any contract between the company and an outsider and as such no action would lie.

Constructive Notice of Memorandum &Articles Every outsider dealing with a company is deemed to have notice of the contents of the Memorandum and Articles of Association,which on registration with the Registrar assume the character of public documents. This is known as Constructive Notice of Memorandum and Articles

Doctrine of Indoor Management There is one limitation to the Doctrine of Constructive Notice of Memorandum and Articles of a company. The outsiders dealing with the company are entitled to assume that as far as the internal proceedings of the company are concerned,everything has been regularly done. The outsiders need not enquire in to the regularity of the internal proceedings as required by MA &AA. This limitation of the doctrine of Constructive Notice is known as Doctrine of Indoor Management.

Turquand Rule[Doctrine of Indoor Management.] Royal British Bank V/s Turquand[1856] The directors of a company had issued a bond to T .They had the power under the Articles to issue such such bond provided they were authorized by a resolution passed by the shareholders at a general meeting of the company.Held,T could recover the amount of the bond from the company on the ground that he was entitled to assume that that the required resolution had been passed.[This is also known as Doctrine of Indoor Management or Turquands rule.].

Exceptions to the Doctrine of Indoor Management. 1 .Knowledge of irregularity:Where a person dealing with a company has actual or constructive notice of the irregularity as regards internal management ,he cannot claim the benefit under the rule of indoor management .

Eg., for Knowledge of Irregularity. [T.R.Pratt(Bombay)Ltd v/s.Sassoon Co.Ltd.]1936