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MBL1 contact class

Ms. Arpitha H.C
Assistant Coordinator
Distance Education Department
National Law School of India University
Bangalore-560072
email- arpithahc@nls.ac.in
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Overview of the syllabus
Unit 1 - Formation of a company
Unit 2 - Characteristics of corporate personality
Unit 3 - Management of a company
Unit 4 - Corporate finance and Investor protection
Unit 5 - Company law and secretarial functions
Unit 6 - The Competition Act, 2002
Unit 7 - Corporate accounts and audit
Unit 8 - Winding up
Unit 9 - The Depositories Act, 1996
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History of company legislation
Closely following the English Act of 1948
13
th
to 14
th
century Merchant Guilds prevailed
14
th
century Inclusion of the term Company for trading overseas
16
th
century Concept of regulated companies
17
th
century J oint stock company
During this time the only method of incorporation was through the royal
charter or an Act of the Parliament.
South sea company
Bubble Act, 1720
1844 J oint Stock Companies Act- incorporation through registration.
Registrar of Companies- All the required details of the company
Limited Liability Act, 1855
Then came the Companies Act, 1913
H.C Bhaba Committee
Till 1956, we have been following the 1913 Act, with various amendments.
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Amendments made in the 1956 Act as against
the 1913 Act
The promotion and formation of companies
Capital structure of a company
Company meetings and procedure
The presentation of company accounts, their
Audit, and the powers and duties of Auditors
The Inspection and Investigation of the affairs of
the company
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The constitution of Board of Directors and the powers
and duties of Directors, managing directors and
managers
The Administration of the Company Law.
After this various Amendments in the Year 1996, 2000
(Minimum paid up capital requirement, small
depositors, shelf prospectus, Information memorandum
and Red herring Prospectus etc, 2002 (Insertion of Part
VI A ( Sections 424A to 424L) for the Revival and
rehabilitation of sick Industrial Companies and
Establishment of NCLT) and the Competition Act, 2002
and 2006- Director Identification Number (Section
266A TO 266 G earlier) 2013 Act- ( Section 153 to
Section 159)and E Filing
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Finally the Companies Act, 2013- The Act
comprises of 29 chapters, 470 Clauses with 7
Schedules as against 658 sections and 14
Schedules in the Companies Act, 1956
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THE COMPANIES ACT, 2013
Need for a new Legislation- Why?
- The changing national and international economic
environment
- Exponential growthof the Indian economy
- Changes in the stakeholders expectations
- Manifold Increase in Number of Companies
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Applicability of the Act of 2013
The Provisions of the Act applicable to:
- Companies incorporated under this Act or under
any previous Company Law
- Insurance Companies
- Banking Companies
- Companies engaged in the generation of supply
of electricity
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What is a company?
Any association of persons for a common object
Two organizations for such an Association- a company
and a partnership law.
Useful for both small scale and large scale business as it
is the only organization that limits personal liability for
business debts.
Definition of a Company
Section 3 (1) (i)(1956 Act) Section 2(20) of the 2013
Act- A company means a company incorporated under
this Act or under any previous company Law.
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Who can form a Company?
Section 3 (1)- 2013 Act
(a) Seven or more Members
(b) Two or more Members
(c) One person( section 2(62))
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Features of a company
Incorporated association
Minimum number 7 for public company
Minimum number 2 for private company
Illegal association (Section 11)
Legal entity separate from its members
Lord Macnaughten-
The Company is at law a different person altogether from the subscribers .; and though
it may be that after incorporation the business is precisely the same as it was before and
the same persons are managers and the same hands receive the proceeds, the company is
not in law, the agent of the subscribers or trustee for them. Nor are the subscribers as
members liable, in any shape or form,except to the extent and in the manner provided by
the Act
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Kondoli tea Co. Ltd. In re ILR (1886)
Soloman v. Soloman & Co. Ltd.[1895-99] All.ER
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Chamundeeswari v. CTO,Vellore Rural[2007] 78
SCL 151 (Mad.)- held any dues from Company
have to be recovered only from company and not
from its directors.
Artificial person
Limited Liability
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Features of a company
When the company is registered with the limited liability
the members liability is restricted to the nominal value of
the shares taken by them or the amount guaranteed by
them.
Circumstances under which a member can lose the
privilege of a limited liability
- Reduction of Members below the statutory requirement
- Any Business carried out during the course of Winding up with an
Intention to defraud Creditors.( Section 542)
Transferability of shares (Section 82)
Perpetual succession
Common seal
Right to Sue and be Sued
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Lifting the corporate veil
Statutory Provisions 1. Reduction of Membership ( Section 45)
2. Misrepresentation in the Prospectus (section 62
& 63)- Fine up to Rs 50,000 or imprisonment up
to 2 years or both
3. Failure to return application money ( Section 69
and SEBI regulation,2009- failure will lead to
refund the same with an Interest of 6 % per
annum.
4. Failure to deliver share certificates within the
stipulated time( section 113)- Rs.5000 per day till
such default continues.
5. Mis-description of name (section 147)
6. Holding Subsidiary Company
7. Fraudulent Conduct[ section 542]
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Lifting the corporate veil
J udicial
Interpretations
1.Protection of Revenue- Sir Dinshaw Maneckjee
petit, Re.AIR 1927 Bom. 371
2.Prevention of Fraud or Improper conduct- Gilford
Motor Company v. Horne-1933] 1 CH 935
3.Determination of the Enemy character of a
company- Daimler Co.Ltd v. Continental Tyre and
Rubber Co.Ltd, (1916)2 AC 307
4.Formation of subsidiaries to only act as an Agent-
State of U.P v. Renusagar Power Co.[1991] 70
Comp.Cas.127
5.Where a company is used to avoid welfare
legislation
6.Illegal or improper use
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Advantages of Incorporation
1. Independent corporate existence
2. Limited liability
3. Separate property- On incorporation the corporate property
belongs to the company and the members have no direct proprietary
right in it.
4. Perpetual succession
5. Transferability of shares
6. Infinite membership
7. Mobilization of huge resources
8. Ease in control and management
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Disadvantages of Incorporation
1. Formality and expense
2. Loss of privacy
3. Divorce of control over ownership
4. Detailed winding up procedure
Is company a citizen?
Right to Property exists but Heavy Engineering
Mazdoor Union v. State of Bihar [1969]39 Comp.
cas.905 (SC) and State trading Corporation of India
Ltd. v.CTO [1963]33 Comp. Cas.1057. It was held
that a company has no fundamental rights which are
expressly available to citizens only.
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Kinds of companies
Private company (Section 2(68))
Public company
Limited liability companies
- Companies Limited by shares
- Companies limited by Guarantee
Unlimited Liability Companies
Statutory companies
Registered companies
Existing companies
Association not for profit
Government companies(Sec 2 (45))
Foreign companies(Sec. 2(42))
Holding and subsidiary companies(Sec 2 (46) and Sec 2(87))
Investment companies
One Person Company(Sec 2 (62)
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Private companies
- Section 2 (68) - Company which has a minimum paid up capital of 1 lakh
- Restricts the right to transfer its shares
- Limits the number of members to 200 except for one person Company
- Prohibits invitation to the public to subscribe for any shares of the company.
- Prohibits acceptance of deposits from persons other than the members,
directors or relatives.
Who shall not be treated as Members for the purpose of the 2013 Act?
- Only Restrictions contained in articles are valid
- Existing private companies
Other requirements
- Minimum of 2 persons to form a private company
- Only a competent person can be a subscriber
- The Words Pvt. Ltd. towards the end
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Public company (sec.2 (71))
As per the Companies (Amendment) Act, 2000,
Public company is any company:
i) Which is not a private company.
ii) Minimum paid up capital of 5 Lakhs.
iii) private company which is a subsidiary of a Public
Company.
- Hill crest Realty Sdn.Bhd.v. Hotel Queen Road(P.)
Ltd.[2006] 71 SCL 41(CLB) New Delhi
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Distinction between private companies and
public companies
Minimum number of members
Maximum number of members
Transferability of shares
Prospectus
Statement in lieu of prospectus
Minimum number of directors
Commencement of business
Statutory meetings and statutory meetings
Directors Consent
Appointment of Directors
Retirement of Directors
Quorum for general meetings
Public deposits
Paid up capital
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Conversion of a private company in to a
public company
1. Conversion by default (section 43)
2. Conversion by operation of law (section 43 A)
3. Conversion by choice (section 44)
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Conversion of a public company in to a
private company
1. Passing of a special resolution authorizing the
conversion and altering the articles so as to
contain the matters specified in section 3 (1) (iii)
2. Changing the name of the Company by omitting
the word Private
3. Approval from central government
4. Filing of printed copy of the Articles as altered
within one month of the receipt of the approval
from the central government.
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Types of Companies
Statutory companies
Registered companies
Limited Liability companies
- Companies Limited by shares
- Companies limited by Guarantee
Unlimited Liability company
Existing company
Associations not for profit( section 25)
Government companies (section 2(45)) of the Companies Act,2013
Foreign companies (Sec 2(42))
Holding and subsidiary companies
Investment companies
Producer company (part IX A of the Act)
Illegal association
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Exceptions to Illegal Association
- Stock Exchange
- Associations Not for profit-Making
- J oint Hindu Family.
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Formation of a company
4 stages
- Promotion
- Registration
- Floatation
- Commencement of Business
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Who is a promoter?(See Section 2 (69))
May be an Individual, syndicate,
association, partner or a company.
In twycross v. grant,1877 2 C.P.D. 469 Page 541 C.A
One who undertakes to form a company with reference to a
given project, and to set it going, and who takes the
necessary steps to accomplish that Purpose.
Legal position of a promoter
Not an agent nor a Trustee, but stands in a fiduciary
relationship with the company.
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Duties of a promoter
Not to make any secret profit out of the
promotion of a company.
To disclose to the company any interest which he
has in a transaction entered into by it.
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Remedies Available to the company against the
promoter for breach of his duties
1. Recession of Contract
2. To recover secret profit
- Promoter not in fiduciary relation when he
acquired the property but only when he sold it to
the company.
- Promoter in fiduciary position when he acquired
the property and when he sold it to the company
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Liability of a promoter
Section 56 and schedule II lays the matters to be stated and reports to
be set out in a prospectus- held for non compliance of the provisions
and the schedule.
Section 62 and 63- liable for any untrue statement in the prospectus.
By virtue of section 203, the court may suspend a promoter from
taking part in the management of the company for a period of 5 years
if :
a) He is convicted of offence in connection with the promotion, formation
or the Management of a company; or
b) If in the Liquidation proceedings , it is found that he is guilty of an
offence for which he is punishable under section 542.
c) Guilty of any fraud or misfeasance in relation to the company or of any
breach of his duty to the company
d) On Liquidators report if found guilty, liable to public examination
Can a promoter be remunerated?
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Pre-incorporation contracts
Position before 1963
Position after 1963
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Registration of a company
Section 12 of the Act
Procedure
(A) Type of company
(B) Application for availability of the name
(C) Corporate identity number
(D) Preparation of memorandum and articles of a company
(E) Vetting of the memorandum and articles, printing, stamping and signing of the
same
(F) Preparation of other documents
a) Power of attorney
b) Consent of the directors (section 266)
c) The particulars of the directors
d) Notice of registered address (section 146)
e) Statutory declaration
G. Filing of documentsfor registration
Certificate of incorporation
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Floatation of a company
Can go ahead with raising capital sufficient to
commence its business.
Section 70 of the companies Act, 1956
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Commencement of business
Section 149 of the Act to be complied.
Penalty- fine which may extend to Rs. 5000 for
everyday of default.
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Q&A
Clarifications
Suggestions for improvements
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Thank You!