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CORPORATE LAWS UNDERSTANDING A MUST FOR ANY CORPORATE CITIZEN

PPt's Corporate Laws

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Page 1: PPt's Corporate Laws

CORPORATE LAWS

UNDERSTANDING A MUST FOR ANY CORPORATE CITIZEN

Page 2: PPt's Corporate Laws

CORPORATE LAWS• MEANING AND ITS NATURE-1 LECTURE• THE COMPANIES ACT-6 LECTURES• CONTRACT ACT-6 LECTURES• NEGOTIABLE INSTRUMENT ACT-1 LECTURE• SALE OF GOODS ACT-1 LECTURE• LIMITED LIABILITY PARTNERSHIP ACT-1 LECTURE• COMPETITION ACT-1 LECTURE• RIGHT TO INFORMATION ACT- 1 LECTURE• INFORMATION TECHNOLOGY ACT-1 LECTURE• THE CONSUMER PROTECTION ACT-1 LECTURE

Page 3: PPt's Corporate Laws

LAW-MEANING AND ITS NATURE

• BODY OF RULES• FOR GUIDANCE AND CONDUCT OF PERSONS-

BOTH HUMAN AND ARTIFICIAL• LAW IS IMPOSED TO BRING ORDER IN GROUP• ENFORCED BY EXECUTIVE• LAW PRESUPPOSES STATE• QUITE FLEXIBLE AND CHANGING• MADE TO SERVE SOME PURPOSE-SOCIAL,

ECONOMICAL OR POLITICAL

Page 4: PPt's Corporate Laws

LAW-MEANING AND ITS NATURE

• LAW VS. MORALITY• IGNORANCE OF LAW IS NO EXCUSE• CLASSIFICATION– PUBLIC LAW AND PRIVATE LAW• PUBLIC LAW IS CONSTITUTIONAL LAW,

ADMINISTRATIVE LAW, CRIMINAL LAW, MUNICIPAL LAW, INTERNATIONAL LAW-ENFORCED ON BEHALF OF OR IN THE NAME OF THE STATE• PRIVATE LAW-REGULATES THE RELATIONS OF THE

CITIZENS-LAW OF CONTRACT, PROPERTY, SUCCESSION

Page 5: PPt's Corporate Laws

LAW-MEANING AND ITS NATURE

• CLASSIFICATION– CRIMINAL LAW AND CIVIL LAW– SUBSTANTIVE LAW AND PROCEDURAL LAW

Page 6: PPt's Corporate Laws

LAW-MEANING AND ITS NATURE

• SOURCES OF INDIAN LAW– PRIMARY-CUSTOMS, JUDICIAL PRECEDENTS,

STATUTES, PERSONAL LAW– SECONDARY-ENGLISH LAW, JUSTICE, EQUITY AND

GOOD CONSCIENCE

Page 7: PPt's Corporate Laws

LAW-MEANING AND ITS NATURE• MERCANTILE OR BUSINESS LAWS

– REGULATION OF RESTRICTIVE AND UNFAIR TRADE PRACTICES– FOREIGN EXCHANGE MANAGEMENT AND REGULATION– INSOLVENCY– REGULATION OF COMPANIES– NEGOTIABLE INSTRUMENTS ACT– SALE OF GOODS ACT– CONTRACT ACT– IMPORT AND EXPORT REGULATIONS– MORTGAGE– PARTNERSHIP-LLP– REGULATION OF ESSENTIAL COMMODITIES– REGULATION AND DEVELOPMENT OF INDUSTRY– REGULATION OF FOREIGN EXCHANGE AND FOREIGN CAPITAL– EXCISE, IMPORT DUTY, CUSTOMS, CORPORATE TAX ETC

Page 8: PPt's Corporate Laws

LAW-MEANING AND ITS NATURE

• ESSENTIALS OF LAW– PREDICTABILITY– FLEXIBILITY– REASONABLE APPLICATION AND COVERAGE

Page 9: PPt's Corporate Laws

LAW-MEANING AND ITS NATURE

• PROCESS OF PASSING A STATUTE IN INDIA– ORDINARY BILLS-CAN ORIGINATE IN ANY HOUSE– MONEY BILL- CAN ORIGINATE ONLY IN LOK SABHA

Page 10: PPt's Corporate Laws

THE COMPANIES ACT, 1956 WITH AMENDMENTS TILL DATE

• DEFINITION AND NATURE OF COMPANY• DEFINITION– SEC. 3(1)(i) OF ACT-A COMPANY FORMED OR

REGISTERED UNDER THE ACT OR AN EXISTING COMPANY

– HANEY-A COMPANY IS AN ARTIFICIAL PERSON CREATED BY LAW, HAVING A SEPARATE ENTITY, WITH A PERPETUAL SUCCESSION AND COMMON SEAL

Page 11: PPt's Corporate Laws

THE COMPANIES ACT, 1956 WITH AMENDMENTS TILL DATE

• DEFINITION– LORD JUSTICE LINDLEY-

• AN ASSOCIATION OF PERSONS• WHO CONTRIBUTE MONEY OR MONEY’S WORTH TO A COMMON

STOCK• AND EMPLOY IT IN SOME TRADE OR BUSINESS• AND WHO SHARE THE PROFIT OR LOSS ARISING THEREFROM• THE COMMON STOCK SO CONTRIBUTED IS DENOTED IN MONEY

AND IS THE CAPITAL OF THE COMPANY• THE PERSONS WHO CONTRIBUTE IT OR TO WHOM IT BELONGS

ARE MEMBERS• THE PROPORTION OF CAPITAL TO WHICH EACH MEMBER IS

ENTITLED IS HIS SHARE• SHARES ARE ALWAYS TRANSFERABLE ALTHOUGH THE RIGHT TO

TRANSFER THEM IS OFTEN MORE OR LESS IS RESTRICTED

Page 12: PPt's Corporate Laws

THE COMPANIES ACT• CHARACTERISTICS/ ADVANTAGES OF COMPANY– INCORPORATED ASSOCIATION– ARTIFICIAL LEGAL PERSON– SEPARATE LEGAL ENTITY-SALOMAN VS. SALOMAN &

COMPANY CASE– PERPETUAL SUCCESSION– COMMON SEAL– LIMITED LIABILITY– TRANSFERABILITY OF SHARES– SEPARATE PROPERTY– CAPACITY TO SUE AND LIABILITY TO BE SUED

Page 13: PPt's Corporate Laws

THE COMPANIES ACT

• DISADVANTAGES– EXCESSIVE FORMALITIES AND EXPENDITURE– SEPARATION OF OWNERSHIP AND CONTROL– CORPORATE SCAMS– COMPANY IS NOT A CITIZEN AND CANNOT CLAIM

FUNDAMENTAL RIGHTS– SEPARATE ENTITY VIOLATED BY LIFTING

CORPORATE VEIL

Page 14: PPt's Corporate Laws

THE COMPANIES ACT• CORPORATE VEIL LIFTED IN FOLLOWING CIRCUMSTANCES

– REDUCTION IN MINIMUM NUMBER OF MEMBERS– MIS STATEMENT IN THE PROSPECTUS– FAILURE TO REFUND SHARE APPLICATION MONEY– FAILURE TO DELIVER SHARE CERTIFICATE WITHIN PRESCRIBED TIME– MISDESCRIPTION OF COMPANY NAME– RELATIONSHIP OF HOLDING AND SUBSIDIARY COMPANY– TO INVESTIGATE OWNERSHIP OF COMPANY– BUSINESS OF COMPANY CARRIED FOR FRAUDULENT PURPOSES– COMPANY HAVING ENEMY CHARACTER– FOR PREVENTING FRAUD AGAINST REVENUE– WHEN COMPANY IS SHAM– TO ASCERTAIN TECHNICAL COMPETENCE– TO CHECK ECONOMIC OFFENCE

Page 15: PPt's Corporate Laws

FORMATION OF A COMPANY• NAME APPROVAL• GETTING MEMORANDUM AND ARTICLES OF

ASSOCIATION PRINTED• SUBSCRIBING MEMORANDUM AND ARTICLES• DEPOSITING REQUISITE FEE WITH DOCUMENTS AND

AFFIDAVIT WITH ROC– MEMORANDUM & ARTICLES– PROPOSED AGREEMENT TO APPOINT MD– CONSENT OF DIRECTORS– STATUTORY DECLARATION THAT ALL REQUIREMENTS OF

ACT FOR REGISTRATION HAVE BEEN COMPLIED WITH

Page 16: PPt's Corporate Laws

FORMATION OF A COMPANY

• ISSUE OF CERTIFICATE OF INCORPORATION BY REGISTRAR– ON RECEIVING IT COMPANY BECOMES BODY

CORPORATE WITH PERPETUAL SUCCESSION AND COMMON SEAL

Page 17: PPt's Corporate Laws

COMMENCEMENT OF BUSINESS• A PRIVATE LIMITED COMPANY AND PUBLIC

COMPANY NOT HAVING SHARE CAPITAL CAN START BUSINESS IMMEDIATELY AFTER GETTING CERTIFICATE OF INCORPORATION

• PUBLIC COMPANY WITH SHARE CAPITAL HAS TO-– FILE PROSPECTUS OR STATEMENT IN LIEW OF

PROSPECTUS– STATUTORY DECLARATION THAT DIRECTORS HAVE

TAKEN AND PAID FOR QUALIFICATION SHARES AFTER THIS CERTIFICATE OF COMMENCEMENT OF

BUSINESS IS ISSUED BY ROC

Page 18: PPt's Corporate Laws

MEMORANDUM OF ASSOCIATION

• LIFE GIVING DOCUMENT• CONSISTS OF FUNDAMENTAL CONDITIONS

UPON WHICH COMPANY IS ALLOWED TO BE INCORPORATED

• SPECIFIES THE BOUNDARIES OF COMPANIES WORKING

Page 19: PPt's Corporate Laws

MEMORANDUM OF ASSOCIATION• CLAUSES– NAME– REGISTERED OFFICE-CO. MUST HAVE REGISTERED OFFICE

ADDRESS EITHER FROM DATE OF COMMENCEMENT OF BUSINESS OR WITHIN 30 DAYS OF INCORPORATION WHICHEVER IS EARLIER- IT IS PLACE WHERE STATUTORY BOOKS OF CO. ARE KEPT AND GENERAL MEETINGS ARE HELD

– OBJECTS CLAUSE-MAIN/ OTHERS– LIABILITY CLAUSE– CAPITAL CLAUSE– SIGNATORY TO THE MEMORANDUM WITH NO. OF SHARES

TAKEN

Page 20: PPt's Corporate Laws

MEMORANDUM OF ASSOCIATION

• ULTRA VIRES DOCTRINE-TRANSACTIONS BEYOND THE SCOPE OF MEMORANDUM ARE ULTRA VIRES AND CAN NOT BE RATIFIED EVEN BY THE WHOLE BODY OF MEMBERS

• CHANGE IN NAME, REGISTERED OFFICE, OBJECTS, CAPITAL-PROCESS

Page 21: PPt's Corporate Laws

ARTICLES OF ASSOCIATION

• LAYS DOWN RULES AND REGULATIONS FOR INTERNAL MANAGEMENT

• FACILITATE THE OBJECTS SET OUT IN MEMORANDUM

• DEFINES DUTIES, RIGHTS AND POWERS OF GOVERNING BODY

• PROVIDES MODE AND FORM IN WHICH BUSINESS OF THE COMPANY IS TO BE CARRIED ON

Page 22: PPt's Corporate Laws

ARTICLES OF ASSOCIATION• CONTENTS

– SHARE CAPITAL AND RIGHTS ATTACHED TO DIFFERENT CLASSES OF SHARES– ALLOTMENT OF SHARES– ISSUE OF CERTIFICATE AND WARRANTS– CALLS ON SHARES– TRANSFER AND TRANSMISSION OF SHARES– FORFEITURE OF SHARES– ALTERATION OF SHARE CAPITAL– GENERAL MEETINGS– APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL– DEVIDENDS, RESERVES ETC.– ACCOUNTS AND AUDIT– COMMON SEAL OF THE COMPANY– VOTING RIGHTS AND PROXIES– WINDING UP– ADOPTION AND EXECUTION OF PRELIMINARY CONTRACTS– BOARD MEETINGS– PAYMENT OF INTEREST OUT OF CAPITAL

Page 23: PPt's Corporate Laws

ARTICLES OF ASSOCIATION• ALTERATION OF ARTICLES-BY PASSING SPECIAL

RESOLUTION AND FILING WITH ROC WITHIN 30 DAYS-SUBJECT TO FOLLOWING LIMITATIONS– NOT INCONSISTENT WITH MOA– NOT INCONSISTENT WITH COMPANIES ACT– ILLEGAL OR AGAINST PUBLIC POLICY– MADE IN GOOD FAITH AND FOR BENEFIT OF COMPANY– MUST NOT CONSTITUTE FRAUD ON MINORITY

*FURTHER CENTRAL GOVT. APPROVAL NECESSARY IF CONVERSION OF PUBLIC LTD CO. INTO PRIVATE AND FOR ALTERATION IN TERMS AND CONDITIONS IN APPOINTMENT OR REAPPOINTMENT OF WHOLE TIME DIRECTOR OR DIRECTOR NOT LIABLE TO RETIRE BY ROTATION

Page 24: PPt's Corporate Laws

MEMORANDUM AND ARTICLES• DISTINCTION

– SCOPE– NATURE– MANDATORY– ALTERATION CONVENIENCE– RATIFICATION– REMEDY TO OUTSIDERS FOR ULTRA VIRES ACTS

• LEGAL EFFECT– BIND COMPANY TO MEMBERS– BIND MEMBERS TO COMPANY– BIND MEMBERS INTER SE– DO NOT BID THE COMPANY OR MEMBERS TO OUTSIDERS

Page 25: PPt's Corporate Laws

KINDS OF COMPANIES

• MODE OF INCORPORATION– Statutory Companies-under special Act passed by

central or state legislature-Life Insurance Corporation of India, Food Corporation of India, Reserve Bank of India-these are governed by respective Acts and they do not require to have Memorandum or Articles

– Registered Companies-under the Companies Act 1956

Page 26: PPt's Corporate Laws

KINDS OF COMPANIES

• ACCORDING TO LIABILITY OF MEMBERS– LIMITED BY SHARES AND GUARANTEE– UNLIMITED COMPANIES

Page 27: PPt's Corporate Laws

KINDS OF COMPANIES

• ACCORDING TO NUMBER OF MEMBERS– PRIVATE COMPANY AND PUBLIC COMPANY• PRIVATE COMPANY

– MINIMUM PAID UP CAPITAL NOT LESS THAN RS. 1 LAC– RESTRICTION ON RIGHT TO TRANSFER SHARES– MAX. 50 MEMBERS EXCLUDING PAST/ PRESENT EMPLOYEES– PUBLIC INVITATION TO SUBSCRIBE SHARES OR DEBENTURES

PROHIBITED– DOES NOT ACCEPT DEPOSITS FROM PERSONS OTHER THAN

ITS MEMBERS, DIRECTORS OR THEIR RELATIVES– MUST HAVE WORDS “PVT. LTS.” AS LAST PART OF ITS NAMEPUBLIC COMPANY IS ONE WHICH IS NOT PRIVATE COMPANY

Page 28: PPt's Corporate Laws

KINDS OF COMPANIES

• HOLDING AND SUBSIDIARY COMPANY– A COMPANY IS DEEMED TO BE SUBSIDIARY

COMPANY • WHERE ANOTHER COMPANY CONTROLS MAJORITY OF

COMPOSITION OF ITS BOARD OF DIRECTORS• WHERE ANOTHER COMPANY HOLDS MORE THAN 50%

OF ITS NOMINAL VALUE OF EQUITY SHARE CAPITAL• WHERE IT IS SUBSIDIARY OF ANOTHER COMPANY’S

SUBSIDIARY

Page 29: PPt's Corporate Laws

KINDS OF COMPANIES

• GOVERNMENT COMPANY– ANY COMPANY IN WHICH NOT LESS THAN 51%

PAID UP SHARE CAPITAL IS HELD BY CENTRAL OR STATE OR PARTLY BY CENTRAL AND PARTLY BY STATE GOVERNMENT

Page 30: PPt's Corporate Laws

PROSPECTUS

• ANY DOCUMENT DESCRIBED OR ISSUED AS A PROSPECTUS AND INCLUDES ANY NOTICE, CIRCULAR, ADVERTISEMENT OR OTHER DOCUMENT INVITING DEPOSIT FROM THE PUBLIC OR INVITING OFFERS FROM PUBLIC FOR SUBSCRIPTION OR PURCHASE OF ANY SHARES IN OR DEBENTURES OF A BODY CORPORATE

Page 31: PPt's Corporate Laws

PROSPECTUS

• ABRIDGED PROSPECTUS Sec 56(3)– Summary of full prospectus containing all the

salient particulars– Contained in form 2A– Such as name, address of registered office, terms

of issue, company management, financial performance, etc.

Page 32: PPt's Corporate Laws

PROSPECTUS

• SHELF PROSPECTUS– BY FINANCIAL INSTITUTION OR BANK– FOR ISSUE OF LOAN/ SHARES SECURITIES TO

PUBLIC– VALID FOR 1 YEAR– EACH TIME SECURITIES ISSUED INFORMATION

MEMORANDUM TO BE FILED WITH SEBI/ REGISTRAR

Page 33: PPt's Corporate Laws

PROSPECTUS• RULES REGARDING ISSUE OF PROSPECTUS

– FILED WITH SEBI 21 DAYS BEFORE FILING WITH ROC. ALSO DRAFT PROSPECTUS TO BE FILED WITH STOCK EXCHANGES WHERE LISTING OF SECURITIES PROPOSED

– IT MUST BE DATED– IT MUST BE REGISTERED– TERMS OF CONTRACTS MENTIONED IN PROSPECTUS NOT TO BE

VARIED WITHOUT APPROVAL OF GENERAL BODY APPLICATION FORM TO BE ACCOMPANIED BY ABRIDGED PROSPECTUS

– PROHIBITION ON APPLYING IN FICTITIOUS NAMES-IMPRISONMENT 5 YEARS

– ISSUED WITHIN 90 DAYS OF SUBMISSION TO ROC, OTHERWISE IT LAPSES

Page 34: PPt's Corporate Laws

PROSPECTUS• CONTENTS

– GENERAL INFORMATION-NAME, REGISTERED OFFICE, CONSENT OF CENTRAL GOVERNMENT, LICENCE, NAME OF REGIONAL STOCK EXCHANGE AND OTHER EXCHANGES WHERE LISTING PROPOSED, DATE OF OPENING/ CLOSING/ EARLIEST CLOSING, NAMES OF AUDITORS, MERCHANT BANKER, REGISTRAR TO ISSUE, BANKERS, UNDERWRITERS

– CAPITAL STRUCTURE– TERMS OF PRESENT ISSUE– PARTICULARS OF ISSUE– COMPANY MANAGEMENT AND PROJECT– COMPANY UNDER SAME MANAGEMENT– PENDING LITIGATION– MANAGEMENT PERCEPTION OF RISK FACTORS LIKE SENSITIVITY TO

FOREIGN EXCHANGE RATE FLUCTUATION, RAW MATERIAL AVAILABILITY, MARKETING OF PRODUCT, COST OVERRUN ETC.

Page 35: PPt's Corporate Laws

PROSPECTUS

• BOOK BUILDING• MISSTATEMENT IN PROSPECTUS-– False statement– Omission of essential facts– Misleading statement or half truth– Ambiguous statement– Misrepresentation of facts

Page 36: PPt's Corporate Laws

PROSPECTUS• Liabilities or remedies for mis- statements– Right to recession– Right to damages for fraud– Liability of directors/ promoters and expert

• DEFENCES AVAILABLE– WITHDRAWL OF CONSENT– ABSENCE OF CONSENT– IGNORANCE OF UNTRUE STATEMENTS– BONAFIDE BELIEF IN TRUTH OF STATEMENT– STATEMENT BASED ON EXPERTS’ AUTHORITY– STATEMENT WAS CORRECT AND FAIR COPY OF OFFICIAL DOCUMENTSUIT MAY ALSO LIE AGAINST ABOVE FOR FRAUDULENT REPRESENTATIONLIABILITY OF DIRECTORS FOR OMISSION TO INCLUDE MATTERS SET OUT U/S

56

Page 37: PPt's Corporate Laws

PROSPECTUS• LIABILITY FOR UNTRUE STATEMENT

– IMPRISONMENT UPTO 2 YEARS OR FINE RS. 50000 OR BOTH• PENALTY FOR FRAUDULENT INDUCING A PERSON TO

INVEST MONEY– IMPRISONMENT UPTO 5 YEARS OR FINE RS. 100000 OR BOTH

• LIABILITY FOR PURCHASING SHARES IN FICTITIOUS NAME– IMPRISONMENT UPTO 5 YEARS

• FAILURE TO ISSUE ABRIDGED PROSPECTUS WITH APPLICATION FORM– FINE UPTO RS. 50000

Page 38: PPt's Corporate Laws

PROSPECTUS

• STATEMENT IN LIEU OF PROSPECTUS– NECESSARY CAPITAL RAISED FROM FRIENDS,

RELATIVES AND UNDERWRITERS AND PUBLIC NOT INVITED

– NO NEED TO ISSUE PROSPECTUS BUT STATEMENT IN LIEU OF PROSPECTUS CONSISTING OF SCHEDULE III INFORMATION TO BE FILED WITH ROC

– PRIVATE COMPANY NEITHER TO ISSUE PROSPECTUS OR FILE STATEMENT IN LIEU OF PROSPECTUS

Page 39: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• INTEREST OF A SHAREHOLDER IN A COMPANY• BUNDLE OF RIGHTS AND LIABILITIES –ENJOY

CONTRACTUAL RIGHTS AND RIGHTS UNDER COMPANIES ACT

• RIGHT TO DIVIDEND , TO VOTE, TO ATTEND GENERAL MEETINGS ETC.

Page 40: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• KINDS OF SHARES– EQUITY SHARES

• NO PREFERENCE , EQUITABLE RIGHTS• ALWAYS IRREDEMABLE• NORMAL VOTING RIGHTS

– PREFERENCE SHARES• CUMULATIVE AND NON CUMULATIVE• PARTICIPATING AND NON PARTICIPATING• REDEEMABLE AND NON REDEEMABLE

– DEFFERED SHARES• FOUNDER SHARES ISSUED TO PROMOTERS• CARRY DISPROPORTIONATE VOTING RIGHTS• ONLY INDEPENDENT PRIVATE COMPANY CAN ISSUE

Page 41: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• PURCHASE OF OWN SHARES BY COMPANY SEC. 77– NO COMPANY CAN PURCHASE, EXCEPT• WHERE CAPITAL REDUCED IN PURSUATION OF SEC.

100-104• FOR PREVENTION OF OPPRESSION AND

MISMANAGEMENT• POWER UNDER SEC. 77A

– TO IMPROVE SHAREHOLDERS’ WEALTH– TO PREVENT HOSTILE TAKEOVER BID– IMPROVE EPS AND PUSH UP MARKET PRICE

Page 42: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• REQUIREMENTS TO BUY BACK U/S 77A

– BUY BACK FROM ITS FREE RESERVES, SECURITIES PREMIUM ACCOUNT, PROCEEDS FROM ANY OTHER SHARES OR SPECIFIED SECURITIES

– MUST BE AUTHORISED BY ARTICLES OF CO.– UPTO 10% OF PAID UP CAPITAL AND FREE RESERVES BUY BACK WITH BOARD RESOLUTION

ONLY– BEYOND THIS SPECIAL RESOLUTION IN GENERAL MEETING– MAX. BUY BACK 25% OF TOTAL PAID UP CAPITAL AND FREE RESERVES BUT NOT EXCEEDING

25% OF TOTAL PAID UP EQUITY CAPITAL IN THAT FINANCIAL YEAR– AFTER BUY BACK RATIO OF DEBT NOT TO EXCEED TWICE OF CAPITAL AND FREE RESERVES– SHARES AND SECURITIES FOR BUY BACK SHOULD BE FULLY PAID UP– BUY BACK TO BE IN ACCORDANCE WITH SEBI GUIDELINES\– BUY BACK TO BE COMPLETED IN 12 MONTHS FROM PASSING BOARD RESOLUTION/ SPECIAL

RESOLUTION AS THE CASE MAY BE– BUY BACK CAN BE MADE FROM EXISTING SECURITIES HOLDERS ON PROPORTIONATE BASIS,

FROM OPEN MARKET PURCHASES, FROM ODD LOTS OF LISTED COMPANY, FROM EMPLOYEES– DECLARATION OF SOLVENCY SIGNED BY TWO DIRECTORS INCLUDING 1 MANAGING DIRECTOR

TO BE FILED WITH ROC AND SEBI DECLARING THE FINANCIAL SOUNDNESS OF COMPANY TO MEET ITS OBLIGATION AND THAT IN ONE YEAR FROM DECLATION THE COMPANY WILL NOT BE INSOLVENT

Page 43: PPt's Corporate Laws

SHARE AND SHARE CAPITALREQUIREMENTS TO BUY BACK U/S 77A

*PHYSICAL DESTRUCTION OF SECURITIES IN 7 DAYS OF COMPLETION OF BUY BACK*NO FURTHER SHARE ISSUE WITHIN 24 MONTHS FROM BUY BACK EXCEPT BONUS ISSUE, CONVERSIONS, STOCK OPTIONS*MAINTENANCE OF REGISTER OF SECURITIES PURCHASED, CONSIDERATION PAID AND DATE OF CANCELLATION*FILING OF RETURN OF BUY BACK WITH ROC AND SEBI IN PRESCRIBED FORMS IN 30 DAYS OF COMPLETION OF BUY BACK*NON COMPLIANCE OF ABOVE COMPANY AND EVERY OFFICER LIABLE TO IMPRISONMENT UPTO 2 YEARS OR FINE UPTO RS. 50000 OR BOTH

Page 44: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• UNDERWRITING COMMISSION – AGREEMENT TO TAKE UNSUBSCRIBED SHARE

CAPITAL– INCREASES PUBLIC CONFIDENCE– SECURITY TO OFFERER– COMMISSION 5% ON SHARES AND 2.5% ON

DEBENTURES MAX.– FULL DISCLOSURE IN PROSPECTUS OR STATEMENT

IN LIEU OF PROSPECTUS

Page 45: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• ISSUE OF SECURITIES AT PREMIUM SEC 78– ISSUE AT A HIGHER PRICE THAN FACE VALUE– AMOUNT OF PREMIUM TO BE TRANSFERRED TO

SHARE PREMIUM ACCOUNT– IT CAN BE USED TO ISSUE FULLY PAID UP BONUS

SHARES, WRITE OFF PRELIMINARY EXPENSES, TO WRITE OFF COMMISSION, EXPEMSES OR DISCOUNT ON ISSUE OF SHARES OR DEBENTURES OF COMPANY, TO PROVIDE FOR PREMIUM PAYABLE ON REDEMPTION OF PREFERENCE SHARES OR DEBENTURES OR TO BUY BACK SHARES UNDER SECTION 77A

Page 46: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• ISSUE OF SHARES AT A DISCOUNT SEC. 79– MUST BE OF CLASS ALREADY ISSUED– ONE YEAR ELAPSED FROM COMMENCEMENT OF

BUSINESS ENTITLEMENT– AUTHORISED BY ORDINARY RESOLUTION OF

COMPANY– DISCOUNT RATE NOT TO EXCEED 10% UNLESS

AGREED BY NATIONAL COMPANY TRIBUNAL BOARD– ISSUE TO BE MADE IN 2 MONTHS OF RESOLUTION OR

CLB APPROVAL UNLESS EXTENDED NY CLB– PROSPECTUS TO INCLUDE DETAILS– NOT APPLICABLE TO DEBENTURES

Page 47: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• ISSUE OF BONUS SHARES– FREE OF COST IN FORM OF FULLY PAID UP SHARES– ISSUED TO EXISTING MEMBERS IN PROPORTION OF THEIR

HOLDING– SHARE CAPITAL INCREASES WHILE ASSETS REMAIN INTACT– TERMED AS CAPITALIZATION OF UNDISTRIBUTED PROFITS– CAPITAL REDEMPTION RESERVE/ SECURITIES PREMIUM

RESERVE/ GENERAL RESERVE/ OTHER FREE RESERVES CAN BE USED FOR THIS

– ARTICLES MUST PERMIT ISSUE OF BONUS SHARES– DIRECTORS AND SHAREHOLDERS APPROVAL MUST– IN ACCORDANCE WITH SEBI GUIDELINES WHEREEVER

APPLICABLE

Page 48: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• SEBI GUIDELINES FOR BONUS ISSUE

– PROVISIONS IN ARTICLES– DECISION IMPLEMENTED IN 6 MONTHS OF APPROVAL BY BOARD– NO REVERSAL OF DECISION– NO BONUS ISSUE WITH 12 MONTH OF ANY PUBLIC/ RIGHT ISSUE– GUIDELINES APPLICABLE TO LISTED COMPANY ONLY– RESERVES CREATED OUT OF REVALUATION NOT TO BE USED– DECLARATION OF BONUS IN LIEU OF DIVIDEND NOT ALLOWED– NO BONUS ISSUE IF DEFAULT IN PAYMENT OF STATUTORY DUES OF

EMPLOYEES LIKE PF– NO DEFAULT BY COMPANY IN PAYMENT OF INTEREST/PRINCIPAL OF

FIXED DEPOSITS/ DEBENTURES– NO BONUS ISSUE IF IT WILL DILUTE VALUE OR RIGHT OF CONVERTIBLE

DEBENTURE HOLDERS (FULLY OR PARTLY CONVERTIBLE)

Page 49: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• SWEAT EQUITY

– ISSUED TO EMPLOYEES/ DIRECTORS AT A DISCOUNT TO MARKET PRICE OR IN EXCHANGE OF TECHNICAL KNOW HOW OR INTELLECTUAL PROPERTY RIGHTS

– NO INDEPENDENT CATEGORY OF SHARES BUT SAME EQUITY SHARES– MUST BE OF CLASS ALREADY ISSUED– 1 YEAR ELAPSED FROM ENTITLEMENT TO COMMENCE BUSINESS– ISSUE AUTHORISED BY SPECIAL RESOLUTION OF MEMBERS– MADE IN ACCORDANCE WITH SEBI GUIDELINES IN CASE OF LISTED

SHARES– IF SWEAT EQUITY TO PROMOTERS THEN ORDINARY RESOLUTION

ALSO PASSED– RESOLUTION TO REMAIN VALID FOR 12 MONTHS– SHARES SUBJECT TO LOCK IN FOR 3 YEARS

Page 50: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• ALTERATION IN SHARE CAPITAL SEC. 94– INCREASE BY ISSUING NEW SHARES– CONSOLIDATE OR SUB-DIVIDE– CANCEL THE SHARES NOT TAKEN UPABOVE BY ORDINARY RESOLUTION

Page 51: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• VOTING RIGHTS– EQUITY SHAREHOLDERS HAVE RIGHT TO VOTE ON EVERY

RESOLUTION IN GENERAL MEETING-ON POLL RIGHT IN PROPORTIONATE OF CAPITAL SUBSCRIBED

– PREFERENCE SHAREHOLDERS• NORMALLY NO RIGHT TO VOTE• CAN VOTE ON RESOLUTIONS WHICH AFFECT THEIR RIGHTS, FOR

EXAMPLE RESOLUTION FOR WINDING UP• ALSO CUM PREF SHAREHOLDERS HAVE 2 YEARS ARREAR DIVIDEND• ALSO NON CUM PREF SHAREHOLDERS WHEN DIVIDEND BEFORE

MEETING ARREAR FOR 2 YEARS OR 3YEARS IN BLOCK OF 6 YEARS• IN SAME PROPORTION AS PAID UP PREF. SHARE CAPITAL BEARS TO

EQUITY SHARE CAPITAL

Page 52: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• FORFEITURE OF SHARES– FOR NON PAYMENT OF CALLS IN RESPECT

THEREOF– PROVISION IN ARTICLES NECESSARY– MINIMUM 14 DAYS NOTICE WITH A RIDER THAT IF

NOT PAID IN 14 DAYS SHARES WILL BE FORFEITED– RESOLUTION OF BOARD REQUIRED– IN GOOD FAITH

Page 53: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• EFFECTS OF FORFEITURE– TERMINATION OF MEMBERSHIP– CESSATION OF RIGHTS AND CLAIMS IN RESPECTS

OF SUCH SHARES– FORFEITED SHARES BECOMES PROPERTY OF

COMPANY– SUBSISTENCE OF LIABILITY IF WINDING UP

COMMENCES WITHIN 1 YEAR

Page 54: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• RE ISSUE OF FORFEITED SHARES-AT A PRICE WHICH WAS UNPAID OR MORE- EXCESS TO BE TRANSFERRED TO SHARE PREMIUM ACCOUNT

• ANNULMENT OF FORFEITURE-FOR BONAFIDE CAUSE

Page 55: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• CALLS ON SHARES– BY MEANS OF BOARD RESOLUTION SEC 292(1)(a)– Resolution to provide time and place of payment– BONAFIDE IN THE INTEREST OF COMPANY– UNIFORM BASIS– SEBI GUIDELINES-UPTO RS. 50 CRORE ISSUE FULL AMOUNT

ON APPLICATION; 50-500 CRORES ENTIRE SUBSCRIPTION TO BE CALLED UP IN 12 MONTHS FROM DATE OF ALLOTMENT

– >500 CR. ISSUE 25% PAYMENT ON APPLICATION, ALLOTMENT, AND EACH CALL MAXIMUM

– PAYMENT OF INTEREST/ DIVIDEND ON ADVANCE CALL MONEY

Page 56: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• SHARE CERTIFICATE– SEC 84-ISSUED BY COMPANY UNDER COMMON

SEAL SPECIFYING NUMBER OF SHARES AND AMOUNT PAID

– TO BE ISSUED IN 3 MONTHS FROM DATE OF ALLOTMENT OR 2 MONTHS OF APPLICATION FOR TRANSFER

Page 57: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• RIGHTS OF MEMBERS

– INDIVIDUALLY• RIGHTS SHARES• TRANSFER SHARES• VOTE• OBTAIN COPIES OF MEMORANDUM AND ARTICLES, BALANCE SHEET, RESOLUTIONS AND

MINUTES• TO RECEIVE SHARES• DEMAND POLL• RECEIVE DIVIDEND, BONUS• PRESENT PETITION OF WINDING UP

– GROUP RIGHTS• APPOINT DIRECTORS AND AUDITORS• DEMAND POLL• REQUISITION OF EXTRA ORDINARY GENERAL MEETING• ALTER MEMORANDUM AND ARTICLES• REQUEST GOVERNMENT TO INVESTIGATE AFFAIRS OF COMPANY• TO APPLY TO TRIBUNAL FOR WINDING UP

Page 58: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• TRANSFER AND TRANSMISSION OF SHARES– MOVEABLE PROPERTY– TRANSFERABLE AS PROVIDED IN ACT AND

ARTICLES– BY SALE OR OTHERWISE– SHARES OF LISTED AND PUBLIC LIMITED

COMPANY ARE FREELY TRANSFERABLE– BY MEMBER OR DECEASED’S REPRESENTATIVE

Page 59: PPt's Corporate Laws

SHARE AND SHARE CAPITAL• TRANSFER IN PRESCRIBED FORM• TRANSFER DEED DULY STAMPED• COMPLETED BOTH BY TRANSFEROR AND TRANSFEREE

AND SIGNED AND WITNESSED• PRESENTATION TO COMPANY • BOARD MEETING• TRANSFER EFFECTEDON BACK OF SHARE CERTIFICATE• DEPOSITORY SYSTEM-TRANSFER EFFECTED BY BOOK

ENTRY BY DEPOSITORY WITHOUT ANY TRANSFER DEED AND WITHOUT PHYSICAL DELIVERY OF SHARES

Page 60: PPt's Corporate Laws

SHARE AND SHARE CAPITAL

• TRANSMISSION OF SHARES– TRANSFER OF OWNERSHIP BY OPERATION OF LAW– ON DEATH, INSOLVENCY OR LUNACY OF

SHAREHOLDER– WITHOUT ANY FORMAL INSTRUMENT OF TRANSFER,

SHARES VEST IN LEGAL REPRESENTATIVE, OFFICIAL RECEIVER/ASSIGNEE OR THE ADMINISTRATOR AS THE CASE MAY BE

– THE PERSON ENTITLED TO BECOME MEMBER SHALL MAKE APPLICATION ALONG WITH RELEVANT CERTIFICATE AND SUCCESSION CERTIFICATE

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DIRECTORS

• SEC. 2(13)- ANY PERSON OCCUPYING THE POSITION OF A DIRECTOR BY WHATEVER NAME CALLED

• A PERSON WHO HAS CONTROL OVER DIRECTION, GOVERNANCE, POLICIES OR SUPERINTENDENCE OF AFFAIRS OF A COMPANY

• SEC. 253 ONLY INDIVIDUALS CAN BE APPOINTED AS DIRECTORS

Page 62: PPt's Corporate Laws

DIRECTORS

• NUMBER OF DIRECTORS– PUBLIC COMPANY MIN.3– PRIVATE COMPANY MIN 2– NO LIMIT ON MAX.– NUMBERS PROVIDED IN ARTICLES

Page 63: PPt's Corporate Laws

DIRECTORS

• HOW MANY DIRECTORSHIPS ONE CAN TAKE– NOT MORE THAN 15 AT A TIME EXCLUDING

DIRECTORSHIP IN• PRIVATE COMPANY • UNLIMITED COMPANY• SECTION 25 COMPANY• ALTERNATE DIRECTORIF ONE IS HAVING 15 DIRECTORSHIP AND APPOINTED

DIRECTOR FURTHER IT IS VOID UNLESS HE VACATES ANOTHER OFFICE IN 15 DAYS SEC 277

PENALTY RS.50000 FOR BREACH

Page 64: PPt's Corporate Laws

DIRECTORS• APPOINTMENT

– ARTICLES –FIRST DIRECTORS– SUBSEQUENT DIRECTORS BY GENERAL MEETING– PUBLIC CO. -2/3RD DIRECTORS BY ROTATION AND MAX. 1/3RD PERMANENT

UNLESS ARTICLES OTHERWISE PROVIDE– OF 2/3RD, 1/3RD SHALL RETIRE AT EVERY AGM IN ORDER OF SENIORITY OF

APPOINTMENT– DIRECTOR OTHER THAN RETIRING, NEW APPOINTMENT NOTICE 14 DAYS

BEFORE MEETING WITH SECURITY 5000 RS. .COMPANY WILL INFORM MEMBERS 7 DAYS BEFORE MEETING. SECURITY DEPOSIT REFUNDED IF CANDIDATE WINS

– CASUAL VACANCY SHALL BE FILLED UP BY BOARD FOR REMAINING TENURE OF OUTGOING DIRECTOR

– ADDITIONAL DIRECTOR BY BOARD UPTO NEXT GENERAL MEETING BUT TOTAL DIRECTORS NOT TO EXCEED LIMIT OF ARTICLES

– NOMINATED DIRECTORS– APPOINTED BY CENTRAL GOVERNMENT

Page 65: PPt's Corporate Laws

DIRECTORS• AUDIT COMMITTEES SEC 292A– EVERY PUBLIC COMPANY WITH PAID UP CAPITAL OF

RS 5 CR OR MORE SHALL SET UP COMMITTEE OF BOARD AS AUDIT COMMITTEE

– AT LEAST 3 DIRECTORS– 2/3RD DIRECTORS OTHER THAN MD OR WTD– COMPOSITION OF COMMITTEE DISCLOSED IN

ANNUAL REPORT– TO DISCUSS WITH STATUTORY AUDITORS THE

INTERNAL CONTROL SYSTEMS AND COMPLIANCE THEREWITH, REVIEW HALF YEARLY AND YEARLY ANNUAL FINANCIAL STATEMENTS

Page 66: PPt's Corporate Laws

DIRECTORS

• REMOVAL OF DIRECTORS– BY SHAREHOLDERS BY GIVING 14 DAYS NOTICE

BEFORE THE MEETING BY PASSING ORDINARY RESOLUTION

– BY CENTRAL GOVERNMENT– BY TRIBUNAL ON APPLICATION MADE U/S 397-98

FOR OPPRESSION AND MISMANAGEMENT

Page 67: PPt's Corporate Laws

DIRECTORS• DISQUALIFICATION OF DIRECTORS

– PERSON OF UNSOUND MIND– AN UNDISCHARGED UNSOLVENT– WHO HAS APPLIED TO BE ADJUDGED INSOLVENT– PERSON CONVICTED BY COURT OF AN OFFENCE INVOLVING MORAL

TRUPTITUDE AND IMPRISONED FOR 6 MONTHS OR MORE AND HAS NOT COMPLETED 5 YEARS FROM COMPLETION OF SENTENCE

– FAILED TO PAY CALLS FOR 6 MONTHS FROM DUE DATE– DISQIALIFIED BY TRIBUNAL– IS DIRECTOR OF PUBLIC COMPANY WHICH HAS NOT FILED ANNUAL

ACCOUNTS AND ANNUAL RETURNS FOR CONTINUOUS 3 YEARS OR FAILED TO REPAY DEPOSIT, PAY INTEREST THEREON, REDEEM ITS DEBENTURE ON DUE DATE OR PAY DIVIDEND AND SUCH FAILURE CONTINUES FOR 1 YEAR OR MORE

Page 68: PPt's Corporate Laws

DIRECTORS• POWERS

– CO EXIST WITH COMPANY POWERS EXCLUDING POWERS TO BE EXCERCISED BY GENERAL BODY

– MAKE CALLS– ISSUE DEBENTURES– BORROW MONEY– INVEST COMPANIES FUNDS– MAKE LOANS– BUY BACK SHARES U/S 77A(2)(b)– FILLING CASUAL VACANCY OF BOARD– APPOINT ADDITIONAL DIRECTOR– SANCTION CONTRACT IN WHICH A DIRECTOR IS INTERESTED– RECOMMENDING RATE OF DIVIDEND– APPOINT FIRST AUDITOR– FILLING UP CASUAL VACANCY OF AUDITOR EXCEPT RESIGNATION – MAKE POLITICAL CONTRIBUTION

Page 69: PPt's Corporate Laws

DIRECTORS

• MATTERS REQUIRING UNANIMOUS CONSENT OF BOARD MEMBERS PRESENT– APPROVAL OF PROSPECTUS– APPOINT MD WHO IS ALREADY MD OF ANOTHER

COMPANY– SANCTIONING MAKING INVESTMENT IN SHARES

OF OTHER BODIES CORPORATE

Page 70: PPt's Corporate Laws

DIRECTORS• RESTRICTIONS ON POWERS-TO BE EXCERCISED WITH

APPROVAL OF GENERAL MEETING IN A PUBLIC COMPANY– SELL, LEASE OR OTHERWISE DISPOSE OFF WHOLE OR

SUBSTANTIALLY WHOLE UNDERTAKING– EXTEND TIME FOR REPAYMENT OF LOAN DUE TO COMPANY

FROM ITS DIRECTOR– TO INVEST AMOUNT OF COMPENSATION ON COMPULSORY

ACQUISITION OTHER THAN TRUST SECURITIES– TO BORROW MONEY IN EXCESS OF PAID UP CAPITAL AND FREE

RESERVES– TO MAKE CONTRIBUTION TO CHARITABLE OR OTHER TRUST NOT

DIRECTLY RELATED TO BUSINESS OF THE COMPANY OR WELFARE OF ITS EMPLOYEES EXCEEDING RS. 50000 IN A FINANCIAL YEAR OR 5% AVERAGE NET PROFIT OF LAST 3 YEARS WHICHEVER HIGHER

Page 71: PPt's Corporate Laws

DIRECTORS• MEETINGS OF BOARD– MINIMUM 4 IN A YEAR– NOTICE IN WRITING TO EVERY DIRECTOR ON HIS USUAL

INDIAN ADDRESS WHICH SHOULD SPECIFY DATE, PLACE AND TIME OF MEETING

– AGENDA-BUSINESS TO BE TRANSACTED IN MEETING TO BE MENTIONED IN NOTICE

– QUORUM• 1/3RD OF TOTAL STRENGTH OF BOARD-ANY FRACTION TO BE

COUNTED AS 1• OR 2 DIRECTORS WHICHEVER HIGHER• ARTICLES MAY PROVIDE FOR HIGHER QUORUM• IF NO QUORUM MEETING TO BE ADJOURNED SAME DAY AND

TIME NEXT WEEK, IF PUBLIC HOLIDAY THEN NEXT DAY

Page 72: PPt's Corporate Laws

DIRECTORS

• MEETINGS OF BOARD– RESOLUTION BY CIRCULATION– BUSINESS TRANSACTED BY RESOLUTION

THROUGH SIMPLE MAJORITY

Page 73: PPt's Corporate Laws

DIRECTORS

• DIRECTORS’ RESPONSIBILITY STATEMENT– SEC 217(AA)-TO BE ATTACHED TO DIRECTORS’

REPORT- SHALL INDICATE THAT• APPLICABLE ACCOUNTING STANDARDS FOLLOWED• ACCOUNTING POLICIES SELECTED AND APPLIED

CONSISTENTLY FOR TRUE AND FAIR VIEW OF PROFIT AND FINANCIAL POSITION• SUFFICIENT CARE TAKEN TO MAINTAIN ADEQUATE

ACCOUNTING RECORDS TO PREVENT FRAUD AND OTHER IRREGULARITIES• ACCOUNTS PREPARED ON GOING CONCERN BASIS

Page 74: PPt's Corporate Laws

DIRECTORS• DUTIES OF DIRECTORS

– ACT IN GOOD FAITH– REASONABLE CARE IN DISCHARGE OF DUTIES– TO ATTEND BOARD MEETING– DUTY NOT TO DELEGATE– DUTY TO DISCLOSE INTEREST– STATUTORY DUTIES

• CALL EXTRA ORDINARY GENERAL MEETING• LAY ANNUAL REPORT BEFORE THE GENERAL BODY MEETING• CONVENE GENERAL MEETINGS• APPOINT FIRST AUDITORS• TAKE QUALIFICATION SHARES IF REQUIRED• TO AUTHENTICATE AND APPROVE FINANCIAL STATEMENTS• FILE RETURN OF ALLOTMENT

Page 75: PPt's Corporate Laws

DIRECTORS• MANAGERIAL REMUNERATION

– REFERS TO REMUNERATION PAYABLE TO MD/WTD/MANAGER (MEMBER OF BOARD)

– PROVISION IN ARTICLES MUST– MONTHLY PAYMENTS/ SPECIFIED %AGE OF PROFITS/ SITTING

FEE– SEC 198-OVERALL CEILING 11% IN CASE OF PUBLIC COMPANY

EXCLUSIVE OF SITTING FEE– CEILING ON SITTING FEE RS. 20000/= PER MEETING PER

DIRECTOR FOR BOARD/ COMMITTEE MEETING– NOT TO EXCEED 5% OF PROFITS FOR ONE SUCH DIRECTOR , IF

THERE ARE MORE THAN 1 THEN 10%– OTHER DIRECTORS TO BE PAID-CEILING 1% IF THERE IS A MD OR

WTD AND 3% OF NET PROFITS IF THERE IS NONE MD/WTD

Page 76: PPt's Corporate Laws

DIRECTORS• MANAGING DIRECTOR

– SEC. 269-EVERY PUBLIC COMPANY OR PRIVATE COMPANY WHICH IS SUBSIDIARY OF PUBLIC COMPANY HAVING PAID UP CAPITAL OF RS. 5 CR OR MORE MUST HAVE MD/WTD

– SEC. 2(26)-MD DEFINED AS DIRECTOR WHO BY AGREEMENT OR RESOLUTION OF COMPANY OR PROVISION IN MEMORANDUM OR ARTICLES IS ENTRUSTED WITH SUBSTANTIAL POWERS OF MANAGEMENT WHICH OTHERWISE WOULD NOT BE EXCERCISABLE BY HIM

– ACTS UNDER DIRECT SUPERVISION AND CONTROL OF BOARD OF DIRECTORS

– MAX. PERIOD 5 YEARS AT A TIME– CAN NOT ACT AS MD IN MORE THAN 2 COMPANIES AT A TIME– WIDE DISCRETIONARY POWERS

Page 77: PPt's Corporate Laws

DIRECTORS

• WHOLE TIME DIRECTOR– SEC.269(1)-A DIRECTOR IN WHOLE TIME

EMPLOYMENT OF THE COMPANY– ONLY BY SPECIAL RESOLUTION OF GENERAL

MEEETING– NO RESTRICTION ON TERM– CAN NOT BE WTD IN MORE THANONE COMPANY – EXCERCISES POWERS IN TERMS OF CONTRACT– NO DISCRETIONARY POWERS

Page 78: PPt's Corporate Laws

DIRECTORS

• COMPANY SECRETARY– MEMBER OF ICSI– ONLY INDIVIDUAL– PERFORMS MINISTERIAL OR ADMINISTRATIVE

POWERS – NOT ENTRUSTED WITH POWERS OF

MANAGEMENT AND CONTRAL NORMALLY– APPOINTMENT COMPULSORY BY A COMPANY

HAVING PAID UP CAPITAL OF RS. 10 CRORES OR MORE

Page 79: PPt's Corporate Laws

DIVIDENDS AND INTERESTS• PART OF CORPORATE PROFITS DISTRIBUTED AMONGST

SHAREHOLDERS• DIVIDEND SHALL INCLUDE INTERIM DIVIDEND• FIXED FOR PREFERENCE SHARES AND VARIABLE FOR EQUITY

SHARES• PROFITS AND DIVISIBLE PROFITS• Declaration at general meeting• Out of current year profits, out of accumulated profits and out of

payments given by Central/ State Govt. towards guarantee• NEVER PAID OUT OF CAPITAL• DIVISIBLE PROFITS AFTER CHARGING CURRENT YEAR AND

PREVIOUS YEARS UNABSORBED DEPRECIATION AS WELL AS PAST YEARS LOSSES

Page 80: PPt's Corporate Laws

DIVIDENDS AND INTERESTS

• COMPULSORY TRANSFER TO RESERVE– 10-12.5% DIV. 2.5%– 12.5%-15% 5%– 15-20% 7.5%– >20% 10% MINIMUM– NO TRANSFER TO RESERVES IF DIVIDEND <10%

Page 81: PPt's Corporate Laws

DIVIDENDS AND INTERESTS• IN PROPORTION TO AMOUNT PAID UP ON EACH SHARE IF

ARTICLES SO PROVIDE OTHERWISE IN PROPORTION TO NOMINAL VALUE OF SHARES

• CAN’T PAY ANY DIVIDEND UNLESS ALL IRREDEMABLE PREF SHARES ARE PAID

• CASH PAYMENT OR CREDIT TO BANK ACCOUNT IF MANDATE GIVEN

• TO REGISTERED HOLDER• INTERIM DIVIDEND• IN 42 DAYS FROM DECLARATION• TRANSFER TO INVESTOR EDUCATION AND PROTECTION

FUND AFTER 7 YEARS

Page 82: PPt's Corporate Laws

ACCOUNTS AND AUDIT*ANNUAL ACCOUNTS AND BALANCE SHEET SEC 210

BOARD OF DIRECTORS SHALL LAY BALANCE SHEET

PROFIT AND LOSS ACCOUNT, AND DIRECTORS’ REPORTBEFORE AGMPERIOD NORMAL 12 MONTHSNOT TO EXCEED 15 MONTHSWITH SPECIAL PERMISSION OF ROC 18 MONTHSFILING OF ACCOUNTS WITH ROC

Page 83: PPt's Corporate Laws

ACCOUNTS AND AUDIT• AUDIT– COMPULSORY – THEY REPORT TO SHAREHOLDERS– 1ST AUDITORS APPOINTED BY BOARD IN 1 MONTH OF

INCORPORATION– IF BOARD FAILS THEN GENERAL MEETING MAY

APPOINT 1ST AUDITORS– SUBSEQUENT AUDITORS BY GENERAL MEETING BY

ORDINARY RESOLUTION– REMUNERAION-IF APPOINTED BY BOARD THEN BY

BOARD, OTHERWISE IN GENERAL MEETING OR AS THE GENERAL BODY DETERMINE

Page 84: PPt's Corporate Laws

ACCOUNTS AND AUDIT

• SPECIAL AUDIT SEC 233A– ORDER BY CENTRAL GOVERNMENT AS UNDER• AFFAIRS NOT MANAGED IN ACCORDANCE WITH

SOUND BUSINESS PRINCIPLES OR PRUDENT COMMERCIAL PRACTICES• COMPANY SO MANAGED LIKELY TO CAUSE INJURY OR

DAMAGE TO INTEREST OF TRADE, INDUSTRY OR BUSINESS TO WHICH IT PERTAINS• FINANCIAL POSITION SUCH TO ENDANGER SOLVENCY

Page 85: PPt's Corporate Laws

ACCOUNTS AND AUDIT

• COST AUDIT– CENTRAL GOVERNMENT MAY REQUIRE FOR

PARTICULAR INDUSTRIES– ENGAGED IN PRODUCTION, PROCESSING AMD

MANUFACTURING OR MINING– TO EXAMINE UTILIZATION OF MATERIAL, LABOUR AND

OTHER ITEMS OF COST– AUDIT CONDUCTED BY QUALIFIED COST ACCOUNTANT

OR A CHARTERED ACCOUNTANT IF SUFFICIENT NUMBER OF COST ACCOUNTANTS NOT AVAILABLE

Page 86: PPt's Corporate Laws

BORROWING POWERS• BORROWINGS BY DIRECTORS NOT TO EXCEED

PAIDUP SHARE CAPITAL AND FREE RESERVES• BEYOND THIS MEMBERS AUTHORISED• FIXED AND FLOATING CHARGE MAY BE CREATED• FIXED CHARGE IS ON SPECIFIC PROPERTY• FLOATING CHARGE IS ON ALL PRESENT AND

FUTURE ASSETS OF COMPANY• CHARGE REQUIRE REGISTRATION WITH ROC• READ DEBENTURES AND PUBLIC DEPOSIT FROM

BOOK

Page 87: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND AMALGAMATIONS

• APPLICABLE TO COMPANIES WHICH ARE GOING CONCERN

• TO SAVE THEM FROM LIQUIDATION• COMPROMISE

ARRANGEMENTS• RECONSTRUCTIONS• AMALGAMATIONS

Page 88: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND

AMALGAMATIONS• COMPROMISE– PRE EXIST DISPUTE BETWEEN COMPANY AND

MEMBERS/ CREDITORS– SETTLEMENT OF DISPUTE WITH MUTUAL

CONSENT– SOME DEGREE OF GIVE AND TAKE

Page 89: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND

AMALGAMATIONS• ARRANGEMENT– READJUSTMENT OF RIGHTS AND LIABILITIES OF A

MEMBER OR A CREDITOR OR A CLASS OF THEM– INVOLVES OF REORGANIZATION OF SHARE

CAPITAL BY CONSOLIDATION OF DIFFERENT CLASSES OF SHARES OR BY SUB DIVISION OF SHARES INTO SHARES OF DIFFERENT CLASSES OR BOTH

Page 90: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND

AMALGAMATIONS• PROCEDURE OF COMPROMISE/ ARRANGEMENT– APPLICATION TO TRIBUNAL BY COMPANY/

LIQUIDATOR OR AFFECTED MEMBER/ CREDITOR– TRIBUNAL TO INFORM CENTRAL GOVERNMENT– MEETING OF MEMBERS/ CREDITORS CALLED– NOTICE TO ALL INTERESTED PARTIES THROUGH

ADVERTISEMENT– 3/4TH MAJORITY SHOULD APPROVE– APPROVAL BY TRIBUNAL– TRIBUNAL ORDER FILED WITH ROC– TRIBUNAL MAY ORDER EVEN FOR WINDING UP

Page 91: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND

AMALGAMATIONS• RECONSTRUCTION– FORMATION OF NEW COMPANY TO TAKE OVER

ASSETS OF EXISTING COMPANY– OLD COMPANY WOUND UP– DONE TO REORGANIZE –ALTER/ MODIFY RIGHTS

OF SHAREHOLDERS OR CREDITORS OR BOTH

Page 92: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND

AMALGAMATIONS• AMALGAMATION– 2 MORE COMPANIES JOIN TOGETHER OR ONE

TAKES OVER OTHERS– SHAREHOLDERS OF TRANSFEROR COMPANY

BECOMES SHAREHOLDERS OF TRANSFEREE COMPANY

– DONE TO AVAIL MORE SYNERGIES

Page 93: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND

AMALGAMATIONS• AMALGAMATION– SCHEME OF AMALGAMATION PREPARED

• APPROVED BY 3/4TH VALUE OF SHARES• SANCTION BY TRIBUNAL WHICH CAN MAKE PROVISIONS FOR

– TRANSFER OF ASSETS AND LIABILITIES– ALLOTMENT OF SHARES ETC BY TRANSFEREE COMPANY– CONTINUATION OF ANY LEGAL PROCEEDINGS– DISSOLUTION WITHOUT WINDING UP– PROVISION FOR DISSENTING PERSONS– OTHER MATTERS– REPORT FROM ROC THAT AFFAIRS OF COMPANY NOT CARRIED

DETRIMENTAL TO SHAREHOLDERS OR OTHER STAKEHOLDERS– TRIBUNAL ORDER FILED WITH ROC– TRIBUNAL TO INFORM CENTRAL GOVERNMENT OF EACH CASE AND TAKE

INTO CONSIDERATION OF DIRECTIVES OF CENTRAL GOVERNMENT

Page 94: PPt's Corporate Laws

COMPROMISE, ARRANGEMENTS, RECONSTRUCTIONS AND

AMALGAMATIONS• AMALGAMATION IN NATIONAL INTEREST

– CENTRAL GOVERNMENT MAY ORDER IN PUBLIC INTEREST– WITH SUCH CONSTITUTION, PROPERTY, RIGHTS, INTERESTS,

AUTHORITIES, PRIVILEGES AND LIABILITIES AS MAY BE SPECIFIED IN ORDER

– DRAFT ORDER OF CENTRAL GOVERNMENT SENT TO BOTH COMPANIES TO REPLY ANY OBJECTIONS IN 2 MONTHS

– MODIFICATION IN DRAFT ORDER IN VIEW OF ANY SUGGESTIONS RECEIVED FROM COMPANIES

– EACH STAKEHOLDER SHALL HAVE SAME RIGHTS AS BEFORE. IF REDUCTION IN RIGHTS , COMPENSATION SHALL BE PAID

– COPY OF ORDER PASSED PLACED BY GOVERNMENT BEFORE BOTH HOUSES OF PARLIAMENT AS SOON AS POSSIBLE

Page 95: PPt's Corporate Laws

WINDING UP

• BY STRIKING OFF NAME OF DEFUNCT COMPANY

• BY WINDING UP• BY COMPROMISE/ ARRANGEMENT FOR

RECONSTRUCTION OR AMALGAMATION WITHOUT WINDING UP

Page 96: PPt's Corporate Laws

WINDING UP

• DEFUNCT COMPANY– ROC SENDS LETTER OF ENQUIRY– NO REPLY IN 1 MONTH– ANOTHER NOTICE BY ROC IN 14 DAYS– NO REPLY IN 1 MONTH– REGISTRAR MAY INFORM COMPANY AND

PUBLISH IN OFFICIAL GAZETTE THAT ON EXPIRY OF 3 MONTHS ITS NAME SHALL BE STRUCK OFF

Page 97: PPt's Corporate Laws

WINDING UP

• WNNDING UP– PROCESS TO END KIFE OF COMPANY– PROPERTY ADMINISTERED BY LIQUIDATOR– LIQUIDATOR TAKES CONTROL OF COMPANY,

COLLECTS ASSETS, PAY DEBTS AND FINALLY DISTRIBUTES SURPLUS AMONGST MEMBERS IN ACCORDANCE WITH THEIR RIGHTS

– COMPULSORY WINDING UP BY TRIBUNAL U/S 433 OR VOLUNTARY WINDING UP BY MEMBERS/ CREDIRORS

Page 98: PPt's Corporate Laws

WINDING UP• WINDING UP BY TRIBUNAL-GROUNDS– SPECIAL RESOLUTION PASSED BY MEMBERS– DEFAULTS IN HOLDING STATUTORY MEETING OR IN

DELIVERING STATUTORY REPORT TO REGISTRAR– FAILURE TO COMMENCE BUSINESS IN 1 YEAR OF

INCORPORATION OR SUSPENDING BUSINESS FOR WHOLE YEAR

– REDUCTION IN MEMBERSHIP BELOW STATUTORY MEINIMUM

– INABILITY TO PAY DEBTS• RS 1 LAC DUE, DEMAND MADE AND WITHIN 3 WEEKS

COMPANY FAILED TO PAY OR SATIFY CREDITOR

Page 99: PPt's Corporate Laws

WINDING UP• WINDING UP BY TRIBUNAL-GROUNDS– JUST AND EQUITABLE

• WHERE SUBSTRATUM OF COMPANY GONE• COMPLETE DEADLOCK IN MANAGEMENT• OPPRESSION OF MINORITY• COMPANY WAS FORMED FOR ILLEGAL PURPOSES SUCH AS

RUNNING THE LOTTERIES• INSOLVENCY INEVITABLE• WHERE COMPANY WORKING AGAINST

– INTEGRITY OF INDIA– SECURITY OF STATE– FRIENDLY RELATION WITH FOREIGN STATE– PUBLIC ORDER, DECENCY, MORALITY

Page 100: PPt's Corporate Laws

WINDING UP

• WINDING UP BY TRIBUNAL-GROUNDS– WINDING UP SICK INDUSTRIAL COMPANY

Page 101: PPt's Corporate Laws

WINDING UP• CONSEQUENCES OF WINDING UP ORDER– DISCHARGE OF EMPLOYEES– CONTINUATION OF SUIT OR LEGAL PROCEEDING

AGAINST COMPANY IF PERMITTED BY TRIBUNAL– SUBMISSION OF AUDITED BOOKS TO TRIBUNAL– OFFICIAL LIQUIDATOR TO TAKE CHARGE OF COMPANY– DISPOSAL OF PROPERTY OF COMPANY/ SHARES OF

COMPANY/ ALTERATION IN STATUS OF MEMBERS VOID – FLOATING CHARGE WITHIN 12 MONTHS IMMEDIATELY

BEFORE WINDING UP ORDER VOIDREAD LIQUIDATOR RIGHTS AND LIABILITIES FROM BOOK

Page 102: PPt's Corporate Laws

WINDING UP

• VOLUNTARY WINDING UP-GROUNDS– BY PASSING ORDINARY RESOLUTION BY MEMBERS

IF PERIOD FIXED FOR DURATION OF COMPANY EXPIRED OR SOME EVENT ON THE HAPPENING OF WHICH COMPANY IS TO BE DISSOLVED

– BY PASSING SPECIAL RESOLUTION FOR ANY OTHER REASON WHATSOEVER

– WITHIN 14 DAYS IT IS TO BE ADVERTISED IN NEWSPAPER CIRCULATING IN THE DISTRICT WHERE REGISTERED OFFICE IS SITUATED

Page 103: PPt's Corporate Laws

WINDING UP

• MEMBERS VOLUNTARY WINDING UP– DECLARATION OF SOLVENCY– RESOLUTION-ORDINARY/ SPECIAL

Page 104: PPt's Corporate Laws

WINDING UP

• CREDITORS’ VOLUNTARY WINDING UP– WHEN COMPANY INSOLVENT– HERE CREDITORS TAKE PROMINANCE IN WINDING

UP PROCEEDINGSDIFFERENCE BETWEEN MEMBERS AND CREDITORS’

VOLUNTARY WINDING UP-READ FROM BOOK