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Company Law Notes and Study Material

When studying for exams or delving deeper into the subject of Company Law, having comprehensive and well-organized notes and study materials can make a significant difference. Company Law, with its extensive scope and intricate legal principles, covers a wide array of topics including the formation, management, and dissolution of companies. Understanding these facets is crucial for students, legal practitioners, and business professionals alike.

Company Law in India has evolved significantly, influenced largely by English company laws. From the Joint Stock Companies Act of 1844 to the comprehensive Companies Act of 2013, Indian company law provides a robust framework for corporate governance and regulation. The Companies Act, 2013, introduced significant reforms including the concept of One Person Company (OPC), Corporate Social Responsibility (CSR), and enhanced governance norms. Key features of company law include the definition and types of companies, incorporation procedures, management structure, duties and liabilities of directors, shareholder rights, and the winding-up process.

In this blog post, we aim to provide you with essential notes and study materials that cover key areas of Company Law. These resources are designed to help you grasp the fundamental concepts, navigate through legal texts, and prepare effectively for your exams. From the historical background and development of company law in India to detailed discussions on corporate personality, types of companies, incorporation process, and the roles and responsibilities of directors, we offer a structured overview that caters to both beginners and advanced learners.

Join us as we explore the intricate world of Company Law, offering insights and clarity to support your academic and professional journey.

COMPANY LAW

Introduction

  • Definition of Company:
    • Derived from Latin words “com” (with/together) and “panis” (bread) – implies an association for economic purposes.
    • Haney: “A company is an artificial person created by law, having separate entities, with a perpetual succession and common seal.”
    • Section 2(20) Companies Act 2013: A company incorporated under this act or any previous company law.

Body Corporate

  • Section 2(11) Companies Act 2013: Includes companies incorporated outside India, but excludes cooperative societies and any body corporate specified by the central government.

Historical Background

  • Influence: Indian company law is largely based on English company laws.
  • Key Acts:
    • 1844: Joint Stock Companies Act (England) – Adopted in India in 1850 introducing the concept of ‘separate legal entity’.
    • 1857: Companies Act – Introduced ‘limited liability’.
    • 1866: Companies Act – Consolidated and amended laws related to incorporation, regulation, and winding up.
    • 1913: Companies Act – Regulated Indian companies until 1956.
    • 1956: Companies Act – Based on the English Companies Act 1948; introduced after the committee report by Shri H.C. Bhaba in 1952.
    • 2002: Companies (Amendment) Act – Established National Company Law Tribunal.
    • 2006: Companies (Amendment) Act – Introduced Directors Identification Number (DIN) and electronic filing.
    • 2013: Companies Act – Replaced the 1956 Act; introduced 470 sections, 29 chapters, and 7 schedules, including concepts like CSR and OPC.

DEVELOPMENT OF COMPANY LAW IN INDIA

The enactment of the Joint Stock Companies Act, of 1844 in England, the first Companies Act was passed in India in 1850. It provided for the registration of the companies and the transferability of shares. The Amending Act of 1857 conferred the right of registration with or without limited liability. Subsequently, this right was granted to banking and insurance companies by an Act of 1860 following a similar principle in Britain. The Companies Act of 1856 repealed all the previous Acts. That Act provided inter alia for incorporation, regulation and winding up of companies and other associations. This Act was recast in 1882, embodying the amendments which were made in the Company Law in England up to that time. In 1913 a consolidating Act was passed, and major amendments were made to the consolidated Act in 1936. In the meantime, England passed a comprehensive Companies Act in 1948. In 1951, the Indian Government promulgated the Indian Companies (Amendment) Ordinance under which the Central Government and the Court assumed extensive powers to intervene directly in the affairs of the company and to take necessary action in the interest of the company. The ordinance was replaced by an Amending Act of 1951.

Meaning and Definition of a Company

  • Latin Origin: “Com” (with/together) and “panis” (bread).
  • Corporate Body: Legal entity with distinct status from its members.
  • Legal Person: Capable of rights and liabilities like a natural person.
  • Incorporation: Through Special Act of Parliament (e.g., LIC, SBI) or company law (e.g., Tata Steel Ltd., Reliance Industries Limited).
  • Section 2(20) Companies Act 2013: Company means a company incorporated under this Act or any previous company law

Characteristics of a Company

1. Incorporated Association

  • Public Company: Minimum 7 members.
  • Private Company: Minimum 2 members.
  • One Person Company (OPC): Permitted under Section 3.

2. Separate Legal Entity

  • Case Law:
    • Kondoli Tea Co. Ltd., Re ILR [1886]
    • Salomon v. Salomon & Co. Ltd. [1859] Established the principle of corporate personality.
  1. Artificial Person: Exists only in contemplation of law.
  2. Limited Liability
  • Types:
    • Limited by shares
    • Limited by guarantee
    • Unlimited liability company

3. Separate Property

  • Case Law: Bacha F. Guzdar v. CIT, Bombay

4. Transferability of Shares

  • Shares are considered movable property under Section 44.
  1. Perpetual Succession: Continues as an entity despite changes in membership.
  2. Common Seal: Optional after the 2015 Amendment Act.

Kinds of Companies

  • Chartered Companies: Established under royal charter (no longer in existence).
  • Statutory Companies: Formed by Act of Legislature (e.g., LIC, RBI).
  • Registered Companies: Formed under relevant company law.

Types under Companies under Company Act 2013

1. Public Company [Section 2(71)]

  • Minimum 7 members.
  • No maximum limit on members.
  • Can float shares and invite public investment.
  • Minimum 3 directors.
  • Must conduct statutory meetings and submit reports.
  • Requires a certificate to commence business.

2. Private Company [Section 2(68)]

  • Includes OPC and Small Company.
  • Minimum 2 members, maximum 200 (except OPC).
  • Cannot invite public investment.
  • Minimum 2 directors.
  • No need for statutory meetings.
  • Can commence business upon receiving a certificate of incorporation.

3. One Person Company (OPC)

  • Formed by one person.
  • Limited liability company.
  • Recommended by J.J. Irani committee.

4. Small Company [Section 2(85)]

  • Paid-up share capital not exceeding ₹50 lakhs.
  • Turnover not exceeding ₹2 crores.

5. Limited Liability Company

  • By Shares
  • By Guarantee
  • By Guarantee with Share Capital

6. Unlimited Liability Company [Section 3(2)]

  • No limit on members’ liability.

7. Holding and Subsidiary Company [Section 2(46) and 2(87)]

  • Holding company controls the board of directors or more than half of the total share capital of the subsidiary.

8. Government Company [Section 2(45)]

  • Not less than 51% of the paid-up share capital is held by the central/state government(s).

9. Foreign Company [Section 2(42)]

  • Incorporated outside India, has a place of business in India, and conducts business activities.

10. Associate Company

  • Parent company possesses a minority ownership stake (20-50%).

11. Producer Company

  • Focuses on production, procurement, marketing, etc., of primary produce of members.

12. Dormant Company

  • Formed for future projects, with minimal significant accounting transactions.

13. Nidhi Company

  • Promotes thrift and saving habits among members, receiving and utilizing deposits for their benefit.

Definition by Jurists

  • Lord Justice Lindley: An association of persons contributing money to a common stock, employed in trade/business, sharing profits/losses. Shares represent members’ entitlement to capital and are usually transferable, though restrictions may apply.

Doctrines

  1. Doctrine of Lifting or Piercing the Corporate Veil

The separate personality of a company is a statutory privilege meant to be used for legitimate business purposes only. When this privilege is used fraudulently or dishonestly, the court can disregard the corporate entity and hold the individuals behind it accountable. This principle, known as “lifting or piercing the corporate veil,” allows the court to treat the company and its members as one entity, making the members liable for the company’s debts and obligations.

  1. Nature and Characteristics of a Company

“A company is a voluntary association for profit with capital divisible into transferable shares with limited liability, having a distinct corporate entity and a common seal with perpetual succession.”

(i) Corporate Personality

  • A company has its own name, seal, and assets distinct from its members.
  • It is a separate legal entity capable of owning property, incurring debts, borrowing money, entering contracts, and suing or being sued.

Case: Salomon v. Salomon & Co. Ltd. (1897) A.C. 22

  • Salomon sold his business to a company he formed, becoming its main shareholder and creditor.
  • When the company failed, unsecured creditors claimed the company was a mere agent of Salomon.
  • The House of Lords ruled that the company was a separate legal entity, distinct from Salomon.

Case: Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12 (P.C.)

  • Lee formed a company and was its managing director and chief pilot.
  • After Lee’s death, his widow claimed compensation as an employee’s widow.
  • The Privy Council held that Lee was a separate legal person from his company, entitling his widow to compensation.

Case: Re. Kondoli Tea Co. Ltd. (1886) ILR 13 Cal. 43

  • The Calcutta High Court recognized a company’s separate legal entity, even if shareholders transferred property to the company.

(ii) The Company as an Artificial Person

Case: Union Bank of India v. Khader International Construction & Others (2001) 42 CLA 296 SC

  • The Supreme Court ruled that a company could sue as an indigent person under Order 33, Rule 1 of the Civil Procedure Code, 1908.

(iii) Company is Not a Citizen

  • A company is not a citizen under the Citizenship Act, 1955 or the Constitution of India. Case: State Trading Corporation of India Ltd. v. C.T.O. AIR 1963 SC 1811
  • The Supreme Court held that the State Trading Corporation was not a citizen. Case: R.C. Cooper v. Union of India AIR 1970 SC 564
  • A shareholder can petition on behalf of the company if their rights are also infringed. Case: Bennett Coleman Co. v. Union of India AIR 1973 SC 106
  • Shareholders’ fundamental rights are protected when affected by state action.

(iv) Company has Nationality and Residence

Case: Gasque v. Inland Revenue Commissioners (1940) 2 K.B. 88

  • A company’s domicile is its place of registration. Case: Tulika v. Parry and Co. (1903) ILR 27 Mad. 315
  • A company’s residence is where its meetings and governing body are located.

(v) Limited Liability

  • A member’s liability is limited to the unpaid amount on their shares. Case: Re. London and Globe Finance Corporation (1903) 1 Ch.D. 728
  • Limited liability has greatly benefited commercial prosperity by allowing the aggregation of small sums into large capitals.

(vi) Perpetual Succession

  • A company continues to exist despite changes in membership.

(vii) Separate Property

  • A company can own, enjoy, and dispose of property in its own name. Case: R.F. Perumal v. H. John Deavin AIR 1960 Mad. 43
  • No member can claim ownership of the company’s property.

Case: Mrs. Bacha F. Guzdar v. The Commissioner of Income Tax, Bombay AIR 1955 SC 74

  • Shareholders do not own company property; they have certain legal rights like voting and receiving dividends.

(viii) Transferability of Shares

  • Shares are movable property and can be transferred according to the articles of the company. Case: Re. Balia and San Francisco Rly. (1968) L.R. 3 Q.B. 588
  • Shares are intended to be easily transferable.

Section 44 of the Companies Act, 2013:

  • Shares held by members are movable property and can be transferred as provided by the articles.

(ix) Capacity to Sue and Be Sued

Case: Floating Services Ltd. v. MV San Fransceco Dipaloa (2004) 52 SCL 762 (Guj)

  • A company can sue its own members.

(x) Contractual Rights

Case: British Thomson-Houston Company v. Sterling Accessories Ltd. (1924) 2 Ch. 33

  • A company, as a legal person, can enforce its contractual rights.

Promotion of a Company

  • Definition: The initial step in company formation initiated by promoters.
  • Promoter: A person who persuades others to invest in a company before its incorporation and can enter contracts on behalf of the company.
  • Companies Act, 2013, Section 2(69): Defines a promoter as someone named in the prospectus, controls company affairs, or whose advice the Board of Directors follows.

Case Laws Defining Promoter

  • Twycross v. Grant (1877): A promoter forms a company and takes necessary steps to set it up.
  • Phosphate Sewage Co. v. Hartmount (1876) & Jubilee Cotton Mills Ltd. v. Lewis (1924): A promoter aids in procuring company incorporation.

Duties of a Promoter

  1. Disclosure Obligations: Must fully disclose any benefit accrued from company transactions (Section 102(4), 102(5)).
  2. Profit from Property Sales: Must disclose material facts if selling personal property to the company.
  3. Utilization of Raised Funds: Must adhere to the specified objectives of fund usage (Section 13(8)).
  4. Shareholder Exit Offers: Dissenting shareholders must be given an exit opportunity (Section 27(2)).
  5. Appointment of Directors: Responsible for appointing directors if all vacate or resign (Sections 167(3), 168(3)).
  6. Cooperation with Liquidator: Must cooperate during company liquidation (Section 284(1)).

Liabilities of Promoters

  1. False Information (Section 7(6)): Liable for fraud if incorporation involves false information.
  2. Non-compliance with Prospectus (Section 26): Liable for omissions or misleading statements in the prospectus.
  3. Misstatements in Prospectus (Section 35(1)): Civil liability for misleading prospectus statements.
  4. Fraudulent Inducement (Section 36): Liable for inducing investments through false statements.
  5. Private Placement Violations (Section 42): Liable for contraventions in private placements.
  6. Failure to Cooperate with Liquidator (Section 284(2)): Punishable by imprisonment or fine.
  7. Public Examination (Section 300(1)): Liable to public examination for fraud.
  8. Deceit or Breach of Duty (Section 340): Actionable for misapplication or breach of trust.
  9. Criminal Liability (Sections 34, 447): Liable for misleading prospectus statements with severe penalties for fraud.

Rights of Promoters

  • Preliminary Expenses: Right to receive reimbursement for preliminary expenses.
  • Proportionate Recovery: Right to recover costs from co-promoters.

Formation of a Company

Section 3 of the Companies Act, 2013:

1. Formation for Lawful Purpose:

  • Public Company: Seven or more persons.
  • Private Company: Two or more persons.
  • One Person Company (OPC): One person with a nominee.

2. Requirements for Registration:

  • Memorandum of Association (MOA)
  • Articles of Association (AOA)
  • Statement of Nominal Capital
  • Notice of Address of Registered Office
  • List of Directors and Their Consents
  • Declaration of Compliance: Signed by an advocate of High Court or Supreme Court or a chartered accountant involved in the company formation.

Certificate of Incorporation:

  • Upon satisfaction, the Registrar registers the company and issues a Certificate of Incorporation.
  • This certificate gives the company legal recognition and confirms compliance with the Act.

Incorporation of Companies

  1. Application for Availability of Name of Company
  • Section 4(4): An application can be made to the Registrar for the reservation of a name for:
    • The proposed company.
    • The new name for an existing company.
  • Section 4(2): The name stated in the memorandum shall not:
    • Be identical or resemble the name of an existing company.
    • Constitute an offense under any law.
    • Be deemed undesirable by the Central Government.
  • Section 4(3): A company name shall not contain:
    • Words suggesting government patronage without approval.
    • Prescribed words or expressions without Central Government approval.
  • Section 4(5):
    • (i): Registrar reserves the name for 60 days upon application.
    • (ii): If the name was applied with incorrect information:
      • (a): If the company isn’t incorporated, the reserved name is canceled, and the applicant may face a penalty up to ₹1,00,000.
      • (b): If the company is incorporated, the Registrar may:
        • Direct the company to change its name within three months.
        • Strike off the company’s name.
        • Petition for winding up of the company.
  1. Filing of Documents with Registrar of Companies
  • Section 7(1): Documents to be filed with the Registrar where the registered office is proposed to be situated.
  1. Declaration from Professional
  2. Affidavit from the Subscribers to the Memorandum
  3. Furnishing Verification of Registered Office

Punishment for Furnishing False or Incorrect Information at the Time of Incorporation

  • Section 7(5):
    • If any person furnishes false or incorrect information for company registration, they are punishable under Section 447 for fraud.
  • Section 7(6):
    • If, after incorporation, it’s proven that false information was used:
      • Promoters, first directors, and declarants under Section 7(1)(b) are punishable under Section 447.

Powers of the Tribunal

  • Section 7(7): If a company is incorporated with false information, the Tribunal may:
    • Pass orders for management regulation.
    • Direct members’ liability to be unlimited.
    • Remove the company’s name from the register.
    • Order the winding up of the company.
    • Issue other orders deemed fit.
    • Company shall be given a reasonable opportunity to be heard before any order.

Memorandum of Association (MOA) [Section 2(56)]

Definition: Constitution or rule book of the company, outlining the field of business, objectives, and types of business.

  • Significance: Limits the powers of the company and outlines its scope of validity and powers.
  • Section 4(1): Shall state:
    • (a): Name of the company (ending with “Limited” or “Private Limited”).
    • (b): State of the registered office.
    • (c): Objects of the company.
    • (d): Members’ liability.
    • (e): Share capital details.
    • (f): For One Person Company, the name of the person who becomes a member upon the subscriber’s death.
  • Section 4(6): The memorandum shall be in forms specified in Tables A to E of Schedule I.

Articles of Association (AOA) [Section 2(5)]

  • Definition: Internal regulations and by-laws for the company’s operations.
  • Section 5(1): Shall contain regulations for the management of the company.
  • Significance: Governs the duties, rights, and powers of the company’s governing body and outlines the mode and form of business operations.
  • Hierarchy: Subordinate to the MOA and the Companies Act. In case of conflict, MOA provisions prevail.

Prospectus [Section 2(70)]

  • Definition: Document described or issued as a prospectus, including notices, circulars, advertisements, and other documents inviting the public to purchase securities.
  • Essentials:
    1. Invitation to the public for subscription to shares or debentures.
    2. Made to the public.
    3. Made by or on behalf of the company.
    4. Relates to shares, debentures, or other instruments.

Types of Prospectus:

  1. Red Herring Prospectus [Section 32]: Lacks complete particulars about the price of the securities.
  2. Shelf Prospectus [Section 31]: Issued for multiple securities over a period, valid for up to 1 year.
  3. Abridged Prospectus: Contains all salient features of the prospectus.
  4. Deemed Prospectus [Section 25(1)]: Document offering the sale of securities to the public, deemed as a prospectus by law.

Essentials for a Prospectus:

  1. It invites subscription to public shares or debentures or invites deposits.
  2. The invitation is made to the public.
  3. The invitation is made by or on behalf of the company.
  4. It relates to shares, debentures, or other instruments.

Public Offer: Includes initial or further public offers of securities, or offers for sale of securities to the public.

Golden Rule of Prospectus:

  • Principle: Information in the prospectus must be true, fair, and accurate.
  • Case: New Brunswick and Canada Rly. and land co. v. Muggeridge (1860).

MEANING AND NATURE OF A SHARE

Section 2(84) of the Companies Act, 2013 defines a share as “a share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied.”

KINDS OF SHARES

Section 43 of the Companies Act, 2013 permits a company limited by shares to issue two classes of shares:

1. Equity Share Capital:

  • With voting rights; or
  • With differential rights as to dividend, voting, or otherwise in accordance with such rules as may be prescribed.
  • Equity shares may have similar rights or different voting rights as described in Rule 4 of Companies (Share Capital and Debentures) Rules, 2014.

2. Preference Share Capital: Section 43 of the Act does not apply to private companies unless the Articles of the Company provide otherwise.

ISSUE OF CAPITAL

1. Issue of Shares at Premium (Section 52):

  • Share premium must be transferred to a share premium account.
  • Utilization of the share premium account must be as prescribed in section 52.

2. Issue of Shares at Discount (Section 53):

  • Issuing shares at a discount is prohibited except for issuing sweat equity shares.
  • Any share issued by the company at a discounted price shall be void.

Meaning and Nature of a Share

Definition of a Share (Section 2(84)): A share in a company is a part of its share capital and includes stock unless there’s a distinction between stock and shares expressed or implied.

Kinds of Shares (Section 43):

  1. Equity Share Capital: Can have voting rights or differential rights as to dividend, voting, etc., as prescribed.
  2. Preference Share Capital: Includes fixed-rate dividends or premiums, with preferential rights in dividends and capital repayment during winding up.

Issue of Capital

  • Issue of Shares at Premium (Section 52): Share premium must be transferred to a share premium account and used as prescribed.
  • Issue of Shares at Discount (Section 53): Generally prohibited except for sweat equity shares; shares issued at a discount are void.

Share Capital and Debentures

Share Capital: Represents the amount invested in the company, classified into various types:

  • Nominal, Authorized, or Registered Capital
  • Issued Capital
  • Subscribed Capital
  • Called Up and Uncalled Capital
  • Paid-Up Capital

Debentures

Definition (Section 2(30) of Companies Act 2013): Debentures include debenture stock, bonds, or any instrument evidencing a company’s debt, with or without a charge on company assets.

Types of Debentures

1. Based on Performance

  • Redeemable Debentures: Have a specified redemption date mentioned in the certificate.
  • Irredeemable Debentures: Continue indefinitely, becoming redeemable only during liquidation.

2. Based on Security

  • Secured Debentures: Backed by a charge on company assets.
  • Unsecured Debentures: Without asset backing, posing higher risk to debenture holders.

3. Based on Convertibility

  • Fully Convertible Debentures (FCD): Can be converted into equity shares.
  • Non-Convertible Debentures (NCD): Remain as debt, not convertible into equity.

4. Based on Record

  • Registered Debenture: Name, address, and details entered in the company’s register.
  • Unregistered (Bearer) Debenture: Transferable without registration, similar to bearer shares.

5. From Coupon Rate Perspective

  • Specific Coupon Rate Debentures: Have a stated interest rate.
  • Zero Coupon Rate Debentures: Issued at a discount without a specified interest rate.

Classification of Debentures

1. Convertibility

  • Non-Convertible Debentures (NCD): Remain as debt without conversion into shares.
  • Partly Convertible Debentures (PCD): Part of the debentures convert into equity shares.
  • Fully Convertible Debentures (FCD): Entirely convertible into equity shares.
  • Optionally Convertible Debentures (OCD): Investor has the choice to convert into shares.

2. Security

  • Secured Debentures: Backed by company assets.
  • Unsecured Debentures: Not backed by specific assets, posing higher risk.

3. Redeemability

  • Redeemable Debentures: Redeemed at a fixed date or upon conditions.
  • Irredeemable (Perpetual) Debentures: No fixed repayment date, redeemed on liquidation.

4. Registration

  • Registered Debentures: Named and registered with the company.
  • Bearer Debentures: Transferable by delivery, like bearer shares.

Issue of Debentures (Section 71): Requires special resolution for issuance with an option to convert into shares, either wholly or partly, at the time of redemption.

Directors in Companies

  1. Definition and Appointment: Directors are individuals appointed to the board of a company, responsible for managing its affairs.
  2. Composition of Board:
  • Public Company: 3 to 15 directors.
  • Private Company: 2 to 15 directors.
  • One Person Company (OPC): Minimum 1 director.
  • Maximum 15 directors allowed; exceeding requires a special resolution.
  1. Eligibility: Certain individuals like company auditors, banned directors, minors, bankrupts are ineligible for directorship.
  2. Types of Directors:
  • Nominee Director: Appointed by specific shareholders, banks, or government in certain cases.
  • Independent Director: Non-executive, ensuring governance and compliance.
  • Additional Director: Appointed until the next Annual General Meeting (AGM).
  • Alternate Director: Fills in for absent directors.
  • Residential Director: Must have stayed in India for a specified period.
  • Women Director: Mandatory for listed companies or specific capital/turnover criteria.
  • Small Shareholders Director: Elected by small shareholders in a listed company.

Meetings of the Board

  1. First Meeting: Within 30 days of incorporation.
  2. Regular Meetings: Minimum of 4 board meetings annually, with a maximum gap of 120 days between consecutive meetings.
  3. Meetings for Specific Companies: OPC, Small Company, and Dormant Company require at least one board meeting in each half of the year.
  4. Attendance: Directors can participate via video or audio means, subject to certain restrictions.
  5. Notice: Directors must be notified at least 7 days before the meeting.
  6. Quorum: Minimum number of members required for a valid meeting.
  • Public Company: 1/3 of total members or two directors (whichever is higher).
  • Private Company: At least two directors.

Types of Meetings:

  1. Annual General Meeting (AGM)
  2. Extraordinary General Meeting (EGM)
  3. Creditor’s Meeting
  4. Debenture Holders Meeting
  5. Audit Committee Meeting

Procedure for Calling Meetings:

  1. Notification: Informing directors and members beforehand.
  2. Contents of Notice: Details about the meeting agenda.
  3. Quorum: Ensuring the required number of members present.
  4. Chairman: Presiding over the meeting.
  5. Resolutions: Decisions taken in the meeting.
  6. Voting: Process for decision-making.
  7. Adjournment and Minutes: Recording meeting details.
  8. Reporting: Filing a report with the registrar after the meeting.
  9. Meetings of the Board [Section 173]
    1. First Board meeting within 30 days of incorporation (Section 173(1))
    2. Minimum of 4 Board meetings per year, not more than 120 days between consecutive meetings (Section 173(2))
    3. Secretarial Standard 1 (SS-1) requires at least one meeting every calendar quarter (Section 173(2))
    4. One Person Company (OPC), small company, and dormant company require at least one Board meeting in each half of the year (Section 173(3))
    5. Section 8 Company requires one meeting every six months (Section 173(1))
  1. Committees under Companies Act 2013
    1. Mandatory Committees: Audit, Nomination and Remuneration, Stakeholders Relationship, Corporate Social Responsibility (CSR) (Section 177)
  2. Power of Board [Section 179]
    1. Authority to make calls on shareholders (Section 179(1))
    2. Authorization for buy-back of securities (Section 179(2))
    3. Issuance of securities, borrowing money, investments, loans, approval of financial statements (Sections 179(3)-(7))
    4. Powers related to diversification, amalgamation, political contributions, appointment/removal of KMPs, auditors, and secretarial auditor (Sections 179(8)-(13))
  3. Restriction on Powers of Board [Section 180]
    1. Selling or leasing whole or substantially whole undertaking (Section 180(a))
    2. Investment of merger compensation (Section 180(b))
    3. Borrowing money exceeding paid-up capital and free reserves (Section 180(c))
    4. Remitting or giving time for repayment of debt from a director (Section 180(d))
  4. Key Managerial Personnel (KMP) [Section 2(51)]
    1. Definition includes CEO, managing director, company secretary, whole-time director, CFO, and others as prescribed.
  5. General Meetings
    1. Annual General Meeting (AGM) requirements (Section 96)
    2. Extraordinary General Meeting (EGM) for matters requiring immediate attention
  6. Notice of Meeting [Section 101]
    1. Minimum notice period of 21 days (14 days for Section 8 company)
    2. Contents of notice, including agenda, time, place, and persons entitled to receive notice
  7. Ordinary and Special Resolutions [Section 114]
    1. Criteria for ordinary and special resolutions
    2. Consequences of irregularly convened meetings on special business
  8. Deposit [Section 2(31)]
    1. Definition of deposit under the Act
    2. Exclusions from the definition of deposit
  9. Persons Responsible to Maintain Books
    1. MD, WTD, CFO, and others charged by the Board with compliance duties (Section 128)
  10. Penalty
    1. Failure to comply with provisions of Section 128 may lead to imprisonment or fine (Section 128)
  1. Definition of Financial Statement
    1. Includes Balance Sheet, Profit and Loss account, Cash flow Statement, Statement of change in equity, explanatory notes (Section 2(40))

Cases for reference:

  • Re: Dundee Gas Company (1899) – On the definition of Ordinary Resolution
  • Scottish Insurance Corporation (1959) – On Special Resolution requirements
  • Ashbury Railway Carriage and Iron Co. Ltd. (1885) – On the power to borrow money

Corporate Social Responsibility (CSR) under Section 135

  • Definition of CSR according to UNIDO and the Triple Bottom Line (TBL) approach.
  • Mandatory CSR spending of 2% of average profits of the previous three years (Section 135(1)).
  • Formation of a CSR Committee consisting of 3 or more directors (Section 135(1)).
  • Functions of the CSR Committee (Section 135(3)): Formulation of CSR policy, recommendation of expenditure, and monitoring.
  • Board’s role in approving CSR policy (Section 134(4)) and ensuring CSR activities (Section 135(5)).
  • Reporting requirements for unspent CSR funds (Section 135(5) provisos II and III).

Companies (Amendment) Act, 2019

  • Applicability of CSR provisions based on criteria in the preceding financial years (net worth, turnover, net profit).
  • Mandatory spending of at least 2% of average net profits on CSR activities.
  • Appointment and qualifications of auditors (Section 141).
  • Disqualifications of auditors (Section 141(3)).
  • Removal of auditors (Section 140(1) and Rule 7) and resignation procedures (Section 140(2), 140(3), and Rule 8).
  • Remuneration of auditors (Section 142).

Dividend: A dividend refers to a portion of a company’s earnings that is distributed to its shareholders, as decided by the board of directors. It is essentially a share of the after-tax profit of a company, distributed among shareholders based on the number and class of shares they hold. The board of directors determines the amount and timing of the dividend, whether it is paid out of current earnings or from past earnings kept as reserves.

Types of dividends:

  1. Final Dividend: This is declared at the company’s annual general meeting and becomes a debt enforceable against the company once declared. It can only be declared if recommended by the Board of Directors and must be mentioned in the Directors’ Report.
  2. Interim Dividend: This type of dividend is declared by the Board of Directors between two annual general meetings. The provisions related to the payment of dividends apply to interim dividends as well.

Merger: A merger is a combination of two or more entities into one, involving the accumulation of their assets and liabilities, resulting in a single business entity. In India, a merger can also be referred to as an ‘amalgamation.’ It can be between two equal companies or involve a larger company acquiring a smaller one.

Types of Mergers:

  1. Horizontal Merger: Occurs between companies operating in the same industry and level of the supply chain. They often merge for expanding customer base, increasing market share, or creating synergies.
  2. Vertical Merger: Involves companies operating in the same line of production but at different stages of the supply chain. It aims to achieve economies of scale.
  3. Reverse Merger: Happens when a parent company merges with its subsidiary or a profit-making company merges with a loss-making one.
  4. Conglomerate Merger: Involves companies operating in different lines of business, aiming to diversify and spread risk.

Acquisition: An acquisition is the process of one company procuring another. The acquiring company can buy a significant amount of shares or assets of the target company, depending on the deal structure. Unlike a merger, the acquired company retains its separate legal identity in an acquisition.

Winding up a company

Meaning of Winding-Up: It’s the process of ending a company’s existence and administering its property for the benefit of shareholders and creditors.

Structure of Winding-Up:

  • By Court (NCLT)/Compulsory Winding-Up: Initiated by the court due to various reasons.
  • Voluntary Winding-Up: The company decides to wind up before the NCLT does. This process is now under the Insolvency & Bankruptcy Code.

Voluntary Winding-Up Methods:

  • Ordinary Resolution: When a specified period or event mentioned in the articles occurs.
  • Special Resolution: Requires a 75% majority from shareholders and directors.

Company Liquidator: Appointed by NCLT during insolvency. Manages company affairs, finances, and pays creditors, shareholders, etc.

Powers & Duties of Company Liquidator:

  • Conducting business and completing contracts.
  • Dealing with company property.
  • Selling the company’s undertaking as a going concern.
  • Settling claims of creditors.
  • Inspecting company records and financial statements.
  • Handling negotiable instruments and seeking professional assistance.
  • Taking actions necessary for winding up under the control of NCLT.
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