NATURE AND KINDS OF COMPANIES

Company:
In a voluntary association of persons formed for the purpose of doing business, having a
distinct name and limited liability. It is a juristic person having a separate legal entity
distinct from the members who constitute it, capable of rights and duties of its own and
endowed with the potential of perpetual succession (Soloman vs saloman & co Ltd [1897])
AC 22.

Salient Features of a Company:

1. Separate Legal Entity: A company is a distinct legal entity different from its
members or shareholders. The company may hold property, employ persons, sue or be
sued in its own name.

2. Limited Liability of Members: The liability of the members of a company is limited

to the amount remaining unpaid on the shares unpaid by them. Thus, in case of fully
paid up shares, the members cannot be asked to pay any further, if the company goes
into liquidation.

3. Perpetual Succession: A company enjoys continuous existence, members may

come and go, the shareholder may change on account of transfer or transmission of
shares, but the company survives, till wounded up.

4. Common Seal: A company has a common seal which is the signature of that
company. The company’s seal is affixed on all documents executed for and on its behalf.

5. Separate Property Ownership: A company may own and dispose its property on
its own name. The property of the company is not the property of the shareholders;
shareholders are not co-owners of the company.

6. Transferable Shares: Shares held in a company are movable property and are
freely transferable. A private company may impose certain restrictions on the transfer of
its shares.

7. Capacity To Sue and Being Sued: A company is capable of entering into contracts
and enforcing its rights under the contracts. It can sue and be sued in its own name.

TYPES OF COMPANIES:

Private Company:

A private company is one which by its Articles:

1. Restricts the right to transfer its shares.
2. Limits the number of members to fifty, excluding the employees and ex employees,
3. Restricts the subscription of shares or debentures from general public [sec-3 [iii]].

Public Company:

A public company is one, which is not a private company. Thus, if the articles do not provide
the aforesaid three restrictions, it shall be a public company. A public company requires a
minimum seven number and there is no limit on the maximum members. The shares and
debentures of a public company are quoted on a stack exchange and are freely transferable.
Other Types Of Companies Under The Act
Within the private and public categories, there are certain types of companies which are
either public or private companies for example there are Government companies, Charitable
companies, Finance companies, Companies without share capital, Guarantee companies,
Holding/Subsidiary companies etc.

1. Holding and subsidiary companies.

2. Group and associate companies.
3. Deemed public companies (Sec 43 a company).
4. Government and Public Sector companies.
5. Charitable and non-profit making organisations.
6. Nidhi Company.
7. Company Limited by Guarantee.
8. Investment Company.
9. Unlimited Liability Company.
10. Statutory Company
11. FERA Company.
12. Foreign Company.
13. Non Banking Financial Company.

Companies Under The Income Tax Act

A} Domestic Company.
B} Company in which public is substantially interested.
C} Foreign Company.

Basically companies act provides for registration of two types of companies- private &
public. Within this broad classification, the act provides for the variety of companies that
may be registered under the act. What kind of setup will be most suitable for the project is
difficult to decide. A person will have to study the pros and cons of every form of enterprise
and should take an informed decision accordingly.

FORMATION OF A COMPANY
It is very easy to start a company. All that you need is two persons to start a private
company and minimum of seven persons to start a public company.

It is important to note that even existing ‘companies’ can join others in starting a company,
because a company is also a ‘person’ for all practical purpose. The persons who start a
company are called ‘promoters’ and the process of starting a company is called
‘incorporation’.

Steps for Incorporation Of A Company

1. NAME

Every body is known by a name. Therefore, the first step towards incorporation of a
company is to select a suitable name for the proposed company.

The Central Government has made certain guidelines on availability of names. As per these
guidelines, certain names cannot be allowed. For example, a name resembling with an
existing company will not be allowed. Similarly, the names of national leaders like Gandhiji
or Nehru will not be allowed. Further, a name shall be deemed to be undesirable if words like
‘National’ or ‘Union’ of ‘President’ are used. Therefore, it will be necessary to see these
guidelines before deciding on the name of the company.

2. MEMORANDUM & ARTICLES OF ASSOCIATION

After the name of the proposed company has been approved by the Registrar of companies,
the second step is to draft Memorandum and Articles of association of the company.

Out of these two documents, Memorandum is the most important document, as it will
contain the ‘Object’ for which the proposed company is being incorporated. In addition to
the ‘Objects’ Memorandum will also contain details of name, registered office and capital
structure of the company. The Articles of Association, on the other hand, are regulations for
the internal management of a company. The Articles will generally contain information on
topics like share capital, transfer of shares, divided, forfeiture of shares, conduct of Annual
General meeting, Chairman’s role etc. It is important to note that since the articles of a
company are internal regulations, these cannot contravene the provisions of the companies
Act or any other law in force in India. These Articles are always subordinate to the
Memorandum of Association and the companies Act.

The matters covered by the Memorandum of Association of a company.

a) Name: ex:- Godrej Steel Furniture Pvt. Ltd.
b) Registered Office.

The Memorandum of Association must give information on the registered office of the
company and the state in which such a registered office will be located. The location of the
registered office is important for the following reasons:
i) A company’s AGM is required to be held at a place where registered office of the
company is located.
ii) Secondly, all meetings of Board of Directors are generally held at the place where
Registered office of the company is situated, though legally a company can hold its
Board Meeting wherever it wants.
iii) Thirdly, all-important documents etc., of a company like Register of members,
register of changes, register of directors; books of account etc. are required by law to
be kept at the registered office.
iv) Finally, for all the legal matters, the location of the companies registered office
becomes important. All the notices, letters, correspondence has to be addressed to
registered office of a company.

c) Objects of the company: A company will always be formed for some specific
purpose, which is called the objects of the company. A company must always be
formed for those objects, which are lawful, and not for-bidden by law.

The objects of the company are required to be stated under three headings:

i) The main objects – Principal Activities of the company, which will be taken up
immediately upon incorporation. Generally, one four or five main objects are allowed.
For example, a company proposing to manufacture all kinds of vehicles may have
main objects as manufacture of Car, Scooter, Van, Truck, and Cycle etc.
ii) Ancillary or incidental objects – under this, a company can take up only those
activities which will enable a company to achieve its main objects or those activities
which can conveniently be taken up for the benefit of the company as a whole.
iii) Other objects – under ‘other objects’ a company may mention all those
activities, which may not be directly connected with its main objects. For example, ‘of
a manufacturing company may contain objects like providing Hire purchase/leasing
services or offering consultancy services etc., which are no way connected with its
main objects of manufacturing activity.

d) Liability clause: The fourth clause in Memorandum should state, the liability of
members. A company will be either a limited company of unlimited. A company
which limited by shares, must state that the liability of the members shall be limited.
 e) Capital Clause: This clause must state the amount of share capital with which the
company is registered and the division of such share capital into different classes of
shares.

f) Association Clause: All signatures to the Memorandum shall have to give a

declaration that they are agreeing to form a company and that they shall take up the
shares mentioned against their names in the Memorandum.

3. ARTICLES OF ASSOCIATION

The Second important document required for incorporation of a company is the Articles of
Association.

What are Articles of Association?

The Articles are the Rules and Regulations for internal management of a company. The
Memorandum & Articles of Association will define the objects for which a company has been
incorporated. However, to manage the day-to-day affairs of the company there is need to
have some set of rules and regulations hence, Articles of Association. The need to have
some set of rules and regulations for internal Management of a company arises due to the
fact that the companies Act mentions only law, but it does not give in all the cases, as to
what procedure has to be followed to implement the law. Therefore, to know the procedure,
one has to refer to the Articles.

For instance, the companies Act, allows a company to issue shares to public. But it does not
say as to how the share certificates have to be issued to share holders. It is also a fact that
there are many issues on which companies Act is silent. In such cases, Articles can provide
for those items, which have not been specifically provided for those items, which have not
been specifically provided for under the Act. The articles should not be against provisions of
the companies Act or any other law for the time being in force in India. Properly drafted
articles will help the company in conducting its affairs in a smooth manner.

TABLE ‘A’
Table ‘A’ is nothing but a model of rules and regulations, which are given in Schedule – I, to
the companies Act, for companies, which are limited by shares. A company can straight
away adopt Table ‘A’ or make its own articles; the choice is with the company. If a company
decides to make its own articles, then it must states in its articles that regulations contained
in Table ‘A’ will automatically become applicable to suxh a company, even if the articles of
that company may not contain those regulations.

4. PREPARATION OF OTHER DOCUMENTS FOR INCORPORATION:

Once Memorandum & Articles of Association are ready, following additional documents are
required for filing with the Registrar of companies.
1. Consent of person to act as a director in Form No. 29.
2. Particulars of the Directors, like Name, Age, Address etc., in Form No.32.
3. Address, of the Registered Office in Form No. 18.
4. A declaration that all provisions of the companies Act 1956 have been duly compiled
with, in connection with incorporation in Form No. 1.
5. A power of Attorney, in favour of some officer for making changes, if required and for
collecting the original certificate of incorporation.

5. CERTIFICATE OF INCORPORATION

On submission of above referred documents along with necessary Registration Fee etc., the
Registrar of companies shall register the company and issue a certificate under his
signature, which is called as ‘Certificate of Incorporation.’ From the date of issue of such
certificate, a company is said to have been born with the name mentioned in the said
certificate.

6. COMMENCEMENT OF BUSINESS

A private company can straight away commence its business after getting a certificate of
incorporation. In case of a public company, it has to fulfill certain conditions, then the
Registrar will issue a certificate to commence Business.

MEMORANDUM OF ASSOCIATION
The Memorandum of Association is the fundamental document of the company containing
the basic conditions on which the company is incorporated. It lays down the objectives of the
company and specifies the limit within which the company can operate.

Format And Content

A memorandum for a company limited by shares, should be in the format given in table B of
schedule I to the act, or as near there to as circumstances admit.

A memorandum contains the following clauses:

1. Name Clause – Containing the name as approved by the Registrar, along with the
words ‘Private Limited’ or ‘Limited’, as the case may be.
2. Registered Office Clause – Specifying the state where in the Registered Office of
the company situate.
3. Object Clause – Specifying the activities, which the company proposes to and is
authorized to undertake. It contains the three sub-clauses:
a) Main objectives, which are pursued by the company
immediately after its incorporation.
b) Objects Incidental or ancillary to the attainment of main
objects which are carried out only to the extent necessary for the
attainment of the main objects.
 c) Other objects which are necessary to enable the
company to undertake all types of legal business activities which the company
may anticipate to pursue, such as, to deal in machinery, appliances, plants, tools,
transport vehicles, etc.. to purchase, acquire, hold, dispose of and deal in any
shares, debentures and other securities etc..
4. Liability Clause – Stating that liability of the members is limited to the extent of the
unpaid amount with reference to the shares held by them (or to extent of the amount
undertaken to be contributed in the event of winding up, in case of a company limited by
guarantee).
5. Capital Clause – Stating the authorized capital up to which the company can issue
its shares.
6. Association Clause – Is the subscriber’s declaration that they desire of being
formed in to the company and agree to take the specified number of shares in the
company’s capital.
7. Stamp Duty And Witness – The Memorandum is to be stamped by affixing stamps
of the prescribed value. The memorandum should be signed and dated by all the
subscribers and witnessed by one person. This date must be after the date on which the
memorandum has been stamped.
8. Doctrine Of Ultra Vires – The objects stated in the Memorandum defines the field
of industry within which the company must confine its activities. When a company acts
beyond its objects. It exceeds its legal capacity and its powers under the Memorandum,
Such an action is stated to be ‘Ultra Vires’ the Memorandum and is Void. The company
cannot even ratify such act by amending its memorandum.

The Implications of ultra vires acts are :-

i) Any member can get an injection restraining the company from acting ultra vires.
ii) The directors become personally liable to the company and must make good any
loss incurred by the company under such act.
iii) The directors shall be personally liable to the third party for any loss incurred by him,
where such third party was incited by the directors to the contract with the company in
a
matter that was ultra vires.

Exceptions:
The doctrine of Ultra vires does not apply to:
 Where an act is ‘ultra vires’ the powers of the directors only, it can be ratified by
the shareholders.
 Where an act is ‘ultra vires’ the articles of the company, the act can be ratified by
amending the articles.
 Where the company’s money has been spent ‘ultra vires’ on purchasing some
property, the company’s right over that property are not affected.

ARTICLES OF ASSOCIATON
Articles of Association are the second constitutional document, which lays down the rules
and regulations for the conduct of internal affairs of the company. The articles constitute a
contract between the company and its members and between members themselves. The
articles are subordinate to the Memorandum, and should not, therefore, contain any
regulation, which is contrary to the Memorandum.

Articles may be drafted in one of the forms given in table A, C, D or E of Schedule I to the
Act, as may be applicable or in a form as near there to as the circumstances admit.

The Articles of a private company having share capital must

(a) Restrict the right to transfer its shares;

(b) Limit the maximum numbers of members to 50; and
(c) Prohibit invitation to public to subscribe for any of its shares or debentures.

It may be noted that even if a private company has become a deemed public company by
virtue of Section 43 A its articles of Association may include provisions relating to matters
Specified above.

Articles usually provide for the following matters:

1. Exclusion wholly or in apart of Table A.

2. Common Seal, Its use and safe custody.
3. Alteration of Capital - how and to what extent.
4. Barrowings - the mode and the limit.
5. General Meetings - notice required, resolutions, voting rights, proxies etc.
6. Directors - their appointment, qualification, remuneration, powers, duties and
removal, names of first directors, minimum and maximum number of directors.
7. Dividends and reserve funds.
8. Accounts and audit.
9. Manager or secretary - appointment and remuneration.
10. Adoption of contracts entered in to the promoters.
11. Remuneration to promoters.
12. Special provisions for amalgamation.
13. Winding up.

Stamp Duty And Witness:

The Articles are to be signed by all the subscribers, duly stamped and witnessed, as in case
of Memorandum.

Doctrine Of Constructive Notice:

Any person who enters into a contract with a company, is expected to have knowledge of
the power and position of the company and its directors, and is presumed to have gone
through its Memorandum and Articles. This is popularly called the 'doctrine of constructive
notice'. Thus no person who binds himself to the company can later plead that he had no
knowledge of the contents of its memorandum and article’s.

PROSPECTUS:
'Prospectus' is the basic document for raising funds from the public. 'Prospectus' means any
document described or issued as a prospectus and included any notice, circular,
advertisement or other document inviting deposits from the public or inviting offers from the
public for the subscription or purchase of any shares in, or debentures of the company.
Thus, a prospectus is a general invitation of the company on the conditions specified in the
application form.

Private companies are prohibited from inviting any public subscription in shares or
debentures and as such they cannot issue any prospectus.
Every public company having share capital is required to issue on its formation a
prospectus, or to file with the registration a statement in lieu of prospectus, where the
company does not invite public subscription.

Essential Contents Of Prospectus

(i) Date of prospectus which generally the date of its publication.

(ii) Name and registered office of the company.
(iii) Constant of the Central Government for the present issue/compliance with the SEBI
Guidelines.
(iv) Names of stock exchanges where application made of listing of present issue.
(v) Punishment for fictitious applications.
(vi) Refunded of the issue if minimum subscription of 90% is not received within 90
days from issue closure.
(vii) Issue of allotment letters/refunds within the period of 10 weeks and interest on
delayed refunds.
(viii) Date of opening and closing and the earliest closing date.
(ix) Name and address of auditors and lead manager.
(x) Name and address of trustee under debenture trust deed.
(xi) Credit rating from CRISIL (or other rating agency) for the proposed
debenture/preference shares issue.
(xii) Terms of underwriting.
(xiii) Capital structure of the company, size of present issue, paid up capital after
present issue of after conversion of debentures.
(xiv) Terms and particulars of the issue.
(xv) Main objects of the company, promoters, names, addresses and occupation of
manager, managing director and other directors, details of the project, its
implementatio9n and prospects.
(xvi) Stock market data for shares/debentures, high / low price in the last three years
and monthly high/low during the last six months.
(xvii) Particulars of any previous issue by the company and other companies under the
same management.
(xviii) Management perception of risk factors.
(xix) General information as to consent of directors, auditors, solicitors, manager to the
issue, Registrar of issue, bankers to the company, bankers to the issue, names and
addresses of the company secretary, legal adviser, lead managers, co-managers,
auditors, etc.
(xx) Financial information of the company.
(xxi) Minimum subscription, expenses of the issue, underwriting commission and
brokerage.
(xxii) Rights of the members as to voting, dividend, lien on shares, forfeiture of shares,
etc.
(xxiii) Restriction on transfer and transmission of shares/debentures.
(xxiv) Material contracts and inspection of documents, etc.
SHARE CAPITAL AND ALLOTMENT
The total capital of the company is divided into small equal parts called shares. Funds for
the company are raised by issuing shares to the investors.

A share is thus an interest in the share capital of a company, made up of diverse rights
conferred on its holders by the articles of the company. Shares are movable property
transferable in terms of articles.

Kinds Of Shares
Shares are mainly of two kinds - equity and preference.

Preference shares carry a preferential right in the payment of dividend by fixed amount or at
a fixed rate, and a preferential right for repayment of capital on winding up. Preference
shares may be cumulative or non-cumulative, redeemable or irredeemable, participating or
non-participating. Generally, and unless specified, preference shares are non-cumulative,
irredeemable and non-participating.

Equity shares are the ordinary shares, which receive dividends out of profits as proposed by
the board of directors and declared by the members.

Dividend on equity shares is paid only after paying dividend on preference shares. Similarly,
repayment of equity shares is made only after all other liabilities and preference shares
have been paid. Equity shares carry voting rights and are also entitled to any surplus left
over in the event of winding up.

Sweat Equity Shares

Sweat Equity share is a class of shares are issued by the company to employees or directors
at a discount or for consideration other than cash for providing know-how or making
available rights in the nature of intellectual property rights or value additions. The following
conditions must be satisfied for issuing Sweat Equity shares:
 The issue is authorized by a special resolution, which should specify the number of
shares, current market price, consideration, if any, and the class or classes of
directors or employees to whom such shares are issued.
 The company must be one year old after it has obtained certificate of
commencement of
business.
 In the case of listed company, the issue must be in accordance with SEBI regulations.
An
unlisted company will issue such shares according to the prescribed guidelines.

Allotment
A company invites offers from the public to purchase its shares, by issuing a prospectus. The
investors make their offers by submitting their application forms with the company. When
these offers are accepted by the company, the shares are ‘allotted’ to the applicant. The
company conveys its acceptance by legal agreement between the company and the
applicant.

If the company allots lesser number of shares than applied for, in case of over-subscription,
the application money in respect of the shares not allotted is either adjusted towards
allotment money payable on shares, or refunded.

Conditions For Valid Allotment

(1) The allotment must be made by a competent authority, that is, the Board of Directors.
(2) The allotment must be made within a reasonable time.
(3) The allotment must be absolute and unconditional.
(4) The allotment must be properly communicated.
(5) The allotment should be made after the beginning of the day from the date of issue of
prospectus or on such later time as may be specified in the prospectus.
(6) The allotment should not be made after 3 days from the date of filing a statement in the
prospectus.
(7) The allotment should not be made unless the amount of minimum subscription as stated
in the prospectus, has been received by the company and the amount received shall be
refunded within 120 days from issue of prospectus. The application money on each share
must not be less than 5% of its nominal value. The application money must be kept in a
separate account with a scheduled Bank until the certificate of business commencement
has obtained and the amount of minimum subscription received.

Allotment Money And Calls On Shares

The amount payable on each share is generally spread over certain installments. It is
payable partly on application, partly on allotment and /or one or more calls.

After the shares have been allotted, the shareholder is required to deposit the allotment
money.

Thereafter the call money is also demanded in terms of the issue. When all the calls are
paid, the share becomes fully paid-up.

Forfeiture Of Shares
If a share holder defaults in making payment of allotment money or any call money, in
respect of the shares allotted to him, the company reserves the right to forfeit the shares. In
that event, the company forfeits the amount paid-up on those shares and the shareholder
loses his rights under the shares.

SEBI Guidelines For Public Issues

The Securities and Exchange Board of India SEBI) has issued elaborate guidelines on public
issues, including first public issue to be made by an existing private or closely held company
after its conversion into a Public company.

Under the new guidelines prior approval of the “controller of capital Issues shall no more be
required. The new guidelines have been modified and clarified from time to time.

Share Certificate
Share certificates are issued by a company to its shareholders, as an evidence of the title to
the shares. A share certificate is a declaration that the person whose name is written on that
certificate is legal owner of the number of shares specified therein. A share certificate is
transferable by delivery and endorsement.

Share Warrant
A share warrant entitles the bearer to the shares specified in that warrant and the shares
may be transferred to him on delivery of the warrant. A public company may issue share
warrants with respect to its fully paid-up shares, if authorized by its Articles and with prior
approval of the Central Government.

Transfer Of Shares:

As noted above, shares are movable property transferable by delivery and endorsement, in
accordance with the articles of association. The instrument of transfer (i.e. transfer deed) is
executed both by the transferor and the transferee, and the transferor thereafter delivers it
to the transferee along with share certificates. A company shall register transfer of shares
only when a proper instrument of transfer duly stamped and executed, along with the share
certificate (or letter of allotment) is lodged with the company. Thereafter, the transferee’s
name is entered into the register of members, and the transferor’s name is either struck off
or his holding is reduced by number of shares transferred.
Buy Back Of Shares:
A company may purchase or buy – back its own shares or other specified securities out of its
free reserves or securities premium account or the proceeds of any shares or other specified
securities but the buy – back shall not be effected out of the proceeds of an earlier issue of
the same kind of shares/securities.

The buy – back must be authorized by the articles, adopted by a special resolution and
should be in respect of such shares which are fully paid – up. Further, the buy – back should
not exceed 25% of the total paid up capital and free reserves and after such buy – back the
ratio of the debt, both secured and unsecured, owned by the company is not more than
twice the capital and its free reserves. In case of a listed company the buy – back should be
in accordance with SEBI regulations and in case of an unlisted company; the buyback should
be in accordance with the prescribed guidelines. Every buy – back should be completed with
twelve months from the date of passing the special resolution. A declaration of solvency in
the prescribed form signed by at least two directors shall be filed with the Registrar and also
with SEBI, if it is a listed company, before making such buy – back. The shares and securities
in respect of which buy – back is affected, shall be extinguished and physically destroyed
within seven days of the last date of completion of buy – back. The company is not entitled
to make further issue of same kind of shares and securities, which have been bought back
within a period of 24 months except by way of bonus shares or in the discharge of subsisting
obligations. A return containing prescribed particulars relating to buy – back shall filed within
30 days of such completion with the Registrar and also with SEBI, if it is a listed company.

If free reserves are utilized for buy – back, sums equal to the nominal value of the share so
purchased shall be transferred to the capital redemption reserve account. The company is
not permitted to buy – back its own shares or other specified securities whether directly or
indirectly through any subsidiary company or its own subsidiary companies or through any
investment company or if it has not compiled with the provisions of sections 159, 207 and
211. Further if a default is made by the company is repayment of deposits or interest
payable, redemption of debentures or preference shares or payment of dividend or
repayment of any term loan or interest payable thereon of any bank or financial institution,
it shall not resort to buy – back till the subsistence of the default.

Dividend on Shares:
The shareholders get the return on their share investment in the company in the form of
dividend. Dividend can only be paid out of the profit and not out of capital.

Normally, dividend is recommended by the Board of Directors on the basis of the profits
earned by the company and are paid to the shareholders after it is declared at the Annual
General Meeting. The shareholders have a right to declare dividend or adopt as it is
recommended by the directors but they have no right to increase the dividend.

The Board of Directors may pay an interim dividend, if so authorized by the Articles, if they
feel satisfied that the current year’s profits are sufficient for paying interim dividend.

Nomination Facility:
A holder or joint holder of shares in or debentures of a company may nominate a person, in
the event of his death or in the event of death of all the joint holders. If a minor is appointed
as nominee, the holder may nominate any other person to become entitled to such
securities, in the event of his death, during the minority. The nomination may be varied, if
desired. A nominated person, if becomes entitled to shares in, or debentures of, a company
by virtue of his nomination, may elect to get himself registered as holder of such securities
or else may make such transfer of shares or debentures as the deceased share holder or
debenture holder could have made.

RAISING CAPITAL FROM PUBLIC

How To Raise Funds?
A company may raise funds either by private placement with friends and relative, or by
making public issues. A company may raise funds by various instruments viz. Shares,
debentures, bonds or deposits. The procedure of raising share capital is being discussed in
the following paragraphs. The procedure for other instruments is also the same.

MEETING AND RESOLUTINS

Meeting
A company functions through its directors, who hold meeting and decide on matters
concerning the company’s business. Besides, the shareholders also meet annually to take
important decisions giving policy guidelines to the directors on various matters. Meetings
are therefore, of great significance with regard to decision-making on company affairs.

Company meetings are four types-Board meeting, statutory Meeting, Annual General
Meeting and Ordinary General Meeting.

Board Meeting
In order that the board of directors should meet at regular intervals, it is essential that a
board meeting be held at least once in every three months and at least four times in a year.

Proper notice of the meeting should be given to every director.

The quorum for a board meeting is one-third of the total number of directors on the board,
or two directors, whichever is higher. If the quorum is not present, the board cannot transact
any business and the meeting shall stand adjourned for the same day in next week, at the
same time and place.

The Chairman of the Board presides over the meeting. If the Chairman is not present, the
directors shall appoint one of themselves as the Chairman, who shall then preside.

At a board meeting, the matters generally taken up for consideration include-making calls
on shares, issuing debentures or other borrowing, investment of company’s funds and
extending loans, filling a certain powers to a directors or a committee of the Board, filling a
casual vacancy in the Board appointment of managing director or manager, etc.

Statuatory Meeting
Statutory meeting is the first general meeting of the members of the company. It is held
only by public limited companies with in a period of not less than one month and not more
than 6 months, from the date it is entitled to commence business. The meeting is held for
discussing the matters relating to the formation of the company and matter arising out of
the statutory report.

Annual General Meeting

Annual General Meeting (AGM) is the meeting of the members of a company is to be held by
every company – public and private.

The first AGM must held with in the 18 months of the date if incorporation of the company.
One AGM must be held in every calendar year. The time gap between two successive annual
general meetings should net exceed 15 months (Which may be extended by the registrar,
on an application, by another 3 months).
AGM must be held at the register office of the company or at any other place in the city
where the registered office is situated and not elsewhere. The meeting must be held during
hours and not a working day.

The company must give a notice of at least 21 clear days to its members. A shorter notice
can be given if all the members agree to it unanimously.

The notice must specify the place, day and hour of the meeting and the business to be
transacts there at. Besides, a copy of the balance sheet, Profit and Loss account, auditors
report and documents attached there to, shall be sent along with the notice. It is also
accompanied by an ‘explanatory statement’ setting out the material particulars regarding ‘
special business’ to be transacted at meeting. ‘ Special business’ means and business other
than ‘ ordinary business’. And ‘Ordinary business’ transacted at the AGM, includes:

a) Consolidation and adoption of accounts, reports of directors and auditors.

b) Declaration of dividend.
c) Appointment of directors in place of those retiring by rotation, and
d) Appointment of auditors and fixation of their remuneration.

Quorum
Minimum number of members required to constitute a valid meeting and to transact
business is called quorum. If no quorum is present, there can be no meeting and no business
can be transacted.

Unless the Articles provide for a large number, quorum for a public company shall be five
members present personally and for a private company for the purpose of quorum.

If within half an hour from the time appointed for holding the meeting the quorum is not
fulfilled, the meeting shall stand adjourned to the same day of the nest week a the same
time and place, or such other day, time and place as the Board may determine.

Minutes:
A brief summary of the proceedings of the meeting is to be recorded in the minutes Book.

Extra-Ordinary General Meeting: A general meeting other than the annual general
meeting is called extraordinary general meeting (EGM). An EGM. As convened when some
special and urgent business is to be transacted and which must be transacted before the
next annual general meeting. Besides, members holding 1/10th of the paid – up capital
carrying voting rights may also request to the Board of Directors to convene an EGM.

The requirements of notice, quorum, minutes, etc. shall be the same as mentioned with
regard to AGM, expect their in the case of a shorter notice, the consent of members, holding
not less than 95 % of such part if the paid – up share capital gives a right to vote at the
meeting, shall be sufficient.

Voting:
Voting is a means of determining the sense or opinion of a meeting i.e. whether the meeting
approves or disapproves of the proposals placed before it. A proposal is also known as a
motion. After discussion the motion is put to vote, and if it is favoured by the requisite
majority, it is adopted as a resolution.

Voting may be conducted either by show of hands or by poss. On a show of hands, one
member has one vote, the number of members who raise their hands in favour and those
against the motion, are counted and the motion is declared carried or lost, as the case may
be. Proxy votes are not counted on a show of hands unless the Articles provide otherwise.
In a voting by poll, the number of votes cast in an election for or against a resolution, are
counted. In a poll, the voting right of a member is in proportion of his shareholding. A proxy
can also vote in a poll.

Proxy:
Any member entitled to attend and vote at a general meeting may appoint another person,
whether a member or not, to attend and vote as his proxy. A proxy has no right to speak at
the meeting or vote on a show of hands. He can vote only on a poll, unless the articles
provide otherwise.

Resolution:
At a general meeting, all decisions are taken in the form of resolutions. Resolutions may be
ordinary or special.

An ordinary resolution is one, which requires a simple majority i.e. more than 50% of the
votes cast in person or by proxy in favour of the resolution.
A resolution is said to be ‘special resolution’, where:
1. The intention to propose the resolution as special resolution is specified in the notice
of the general meeting.
2. It requires at least 75% of the votes cast, either by show of hands or on poll in person
or proxy, in favour of the resolution.

A special resolution shall be required in matters such as, altering the objects clause in the
memorandum, changing the registered office from one State to another, changing the name
of the company, alteration of the Articles, paying interest out of capital, reduction in share
capital, determining the remuneration of any director or managing director, voluntary
winding up of the company, commencement of new business, further issue of shares to
persons other than the existing share holders, etc.

Certain resolutions can be considered at a general meeting only when a ‘Special Notice’ is
given by the proposer. The proposer must give a notice to the company, signifying his
intention to move the resolution, atleast 14 days before the date of the meeting. After
receipt of notice, the company shall give atleast 7 days notice to all its members, either by
advertisement or by any other mode. Special Notice is required for resolutions for
appointment of a director other than a retiring director, or for removal of a director, or for
appointment of an audit or other than the retiring auditor, or for removal of an auditor.
WINDING UP
Winding up implies dissolution of a company, when the assets of the company are realized,
its-debts and liabilities are paid off, and the balance is distributed amongst the members in
promotion to their contribution to the share capital of the company, the company is said to
be wound up.

There are three modes of winding up of a company namely, winding up by the court,
voluntary winding up under court’s supervision.

Winding Up By The Court:

A Company may be wound up by the court in the following circumstances:
a) If the company has, by a special resolution, resolved that it may be wound up the court.
b) If the company default in delivering the statutory report to the Registrar of Companies or
in holding the statutory meeting.
c) If the company does not commence its business within a year from its incorporation, or
suspends its business for a whole year.
d) If the number of members is reduced, in the case of a public company below seven, and
in the case of a private company below two.
e) If the company is unable to pay its debts.
f) If the court is of opinion that it is ‘just and equitable’ that the company should be wound
up.

Following grounds have been considered to be ‘just and equitable’ for ordering winding up of
a company by court:
1. Where the business of the company has disappeared through the Government taking
over that business.
2. Where the company has lost its substratum i.e. the subject matter of the company is
gone, or the object for which it was incorporated has substantially failed.
3. When it is impossible to carry on the business of the company except at a loss.
4. When there is a dead lock in the management for instance, when there are only two
members and they don’t agree with each other.
5. When the affairs of the company are being carried out in a manner oppressive
towards the minority shareholders.

Who May Apply:

An application to the court, for the winding up of a company, may be made by-the company,
any creditors or creditors, any person(s) liable to contribute to the assets of the company in
the event of its winding up (i.e. contributories), any of the aforesaid parties whether
together or separately, the Registrar, or by any person authorized by the Central
Government.

Procedure:
After hearing a winding up petition, the court may either dismiss it or order for its winding
up. If the court orders for winding up, the Official Liquidator becomes the liquidator of the
company. The Liquidator then takes over the entire assets and liabilities of the company,
realizes the assets and discharges the liabilities. When the affairs of the company have been
completely wound up, the court shall make an order that the company be dissolved from the
date of the winding up order.

Voluntary Winding Up:

A Company may be voluntarily wound up in the following circumstances:
1) When the period fixed for duration of the company by its Articles has expired, or the
event, if any, has occurred on the occurrence of which the articles provide for the
dissolution of the company and the company has passed an ordinary resolution for its
voluntary winding up.
2) When the company has, at any time, passed a special resolution for its voluntary winding
up.

Within fourteen days of the passing of the ordinary or special resolution, the company shall
give a notice of the same in the Official Gazette and also in some newspaper circulating in
the district of the Registered Office of the company. A voluntary winding up shall commence
at the time when the resolution is passed and the liquidator is appointed, but it does not put
an end to the corporate existence of the company. The company shall cease to carry on its
business, except insofar as may be required for the beneficial winding up of such business.

Members Voluntary Winding Up:

In a members voluntary winding up, the Board of Directors or where there are more than
two directors, the majority of directors, should make a declaration of solvency, at a Board
Meeting, stating that the company has no debts or that it will be able to pay its debts in full
within the specified period (not exceeding three years).

Such a declaration in the prescribed form, along with a report of the auditors on the profit
and loss account and balance sheet as on the latest practicable date before the making of
the declaration, shall be filed with the Registrar. Within five weeks of making the
declaration, the resolution for winding up should be passed at the general meeting, the
liquidator(s) shall be appointed and his/their remuneration fixed.

Within 14 days the resolution should be advertised in the Official Gazette and the
newspaper. A notice of appointment of liquidator shall be given to the Registrar within 10
days.

The liquidator shall realize the assets, prepare lists of creditors and settle their claims. The
liquidator will then distribute the surplus among the contributories. The liquidator shall make
an account of the winding up and proceed to give notice of final meeting and dissolution of
the company.

Creditors Voluntary Winding Up:

In creditors voluntary winding up, a meeting of the creditors is convened along with the
general meeting. The board of Directors shall give a full statement of the position of the
company’s affairs together with a list of the creditors of the company and the estimated
amount of their claims. The creditors may pass a resolution for the winding up of the
company. A copy of the resolution shall be filed with the Registrar within 10 days of passing
the resolution. The creditors at their meeting may nominate a person to be the liquidator for
the purpose of winding up the affairs and distributing the assets of the company. The
creditors may also appoint a committee of Inspectors consisting of not more than five
persons.

Besides, the members may also appoint a liquidator at the general meeting. If the liquidator
appointed by the members and the creditors, are different persons, then the creditors
nominee shall become the liquidator .If the members do not appoint, creditors nominee
becomes the liquidator and vice versa.

The liquidator then follows the same procedure as described in the case of member’s
voluntary winding up.

Winding Up Under Supervision Of The Court:

After a company has passed a resolution for voluntary winding up, the court may order that
the winding up shall continue but under the courts supervision. The effect of an order for
supervision is the amalgamation of voluntary winding up and winding p by the court. The
extent of supervision will depend on the court’s order. The court may also appoint additional
liquidator or remove any liquidator. The liquidator shall work according to the instructions of
the court.
Contributories:
‘Contributory’ means every person who is liable to contribute to the assets of a company in
the event of its winding up. A shareholder is liable to contribute an amount remaining
unpaid on his shares. Besides, holders of fully paid up shares and even past members are
deemed as contributories, under certain circumstances (given in Section 426).