companies act,2013

 The history of Indian company law began with the Companies act
of 1850, modelled on British Companies act of 1844.
 Between 1850 and 1882, the Companies act was amended many
times and the act of 1882 repealed all the previous laws and
remained in force till 1912, though amended many times.
 The Indian Companies act of 1913 was based on the British
Companies act of 1908.
Historical development of company
law

 Subsequent amendments were in 1914, 1915, 1920, 1926, 1930,
1932 and 1936
 After independence it was found that the company law should
again be amended.
 Therefore The Companies Act, 1956 was passed and it came into
force on 1st April 1956
 The Companies Act, 1956 had undergone changes by
amendments in 1960, 1962, 1963, 1964, 1965, 1966, 1967, 1969,
1971, 1977, 1985, 1988, 1996, 1999, 2000, 2002 and 2006.
 At present we have companies Act 2013
Contd..

The provisions of the Act shall apply to
 Companies incorporated under this Act or under any previous company law.
 Insurance companies
 Banking companies
 Companies engaged in the generation or supply of electricity
 Any other company governed by any special Act for the time being in force.
 Such body corporate which are incorporated by any Act for time being in force,
and as the Central Government may by notification specify in this behalf
Applicability of the Companies Act,
2013

 Company is a voluntary association of persons formed
for the purpose of doing business, having a distinct
name and limited liability.
 A company is an artificial person created by law.
 A company means a group of persons associated
together for the attainment of a common end, social
or economic.
What is a company?

 Separate legal entity
 Limited liability of members
 Perpetual succession
 Common seal
 Transferability of shares
 Separate property ownership
 Capacity to sue and being sued
Characteristics of a company

 A company is in law regarded as an entity separate from its
members. It has an independent corporate existence.
 Any of its member can enter into contracts with it in the
same manner as any other individual can and he cannot be
held liable for the acts of the company even if he holds
virtually the entire share capital.
 The company’s money and property belongs to it and not
to the shareholders (although the shareholders own the
company)
Separate legal entity

 The liability of the members of a company, is limited
to the amount remaining unpaid on the shares
subscribed by them.
 Thus, in case of fully paid up shares, the members
cannot be asked to contribute any further, if the
company goes into liquidation.
Limited liability

 Being an artificial person a company never dies, nor
does its life depend on the life of its members.
Members may come and go but the company can go
on forever.
 It continues to exist even if all its members are dead.
 The existence of company can be terminated only by
law. It means that a company’s existence persists
irrespective of the change in the composition of its
membership.
Perpetual succession

 Since a company has no physical existence, it must
act through its agents and all such contracts entered
into by its agents must be under a seal of the
company.
 The common seal acts as the official signature of the
company.
COMMON SEAL

 The capital of a company is divided into parts called
shares. These shares are, subject to certain
conditions, freely transferable, so that no shareholder
is permanently wedded to the company. When the
joint stock companies were established the great
object was that the shares should be capable of being
easily transferred
Transferability of shares

 As a company is a legal person distinct from its
members, it is capable of owning, enjoying and
disposing of property in its own name. Although its
capital and assets are contributed by its shareholders,
they are not the private and joint owners of its
property.
 The company is the real person in which all its
property is vested and by which it is controlled,
managed and disposed of.
Separate property

 As the company is a separate legal entity , is has been
provided with a veil, compared to that of individuals who
are managing the company.
 But if the court feels that such veil has been used for any
wrongful purpose, the court lifts the corporate veil and
makes the individual liable for such acts which they
should not have done or doing in the name of the
company
Lifting of Corporate Veil

 Lady walk Mansion, London
 Owner: lady walk LLP

The corporate veil can be lifted either under the
 Statutory provisions or
 Judicial interpretations
The statutory provisions are provided under the
Companies Act. The other circumstances are decided
through Judicial interpretations, which are based on
facts of each case as per the decisions of the court
Circumstances to lift the
corporate veil…

 Reduction in membership- Less than seven in public
company and less than two if it is a private company
 Mis-description of companies name- While signing a
contract if the company’s name is not properly
described, then the corporate veil can be lifted.
 Failure to refund application money- After the issue
of shares to the public, the company has to pay back
the initial payment to the unsuccessful applicants
(SEBI Guidelines- 130 Days), if they fail to do so, the
corporate veil can be lifted.
Statutory circumstances for lifting
the corporate veil

 Misrepresentation in the prospectus- (Derry Vs Peek) In case of
misrepresentation, the promoters, directors and every other
person responsible in this matter can be held liable.
 Fraudulent Conduct- In case the company is carried on with an
intent to defraud the creditors, then the court may lift the
corporate veil.
 Holding and subsidiary companies- A subsidiary has a distinct
legal entity from the holding company other than in a few
circumstances, so if otherwise shown, the court may under the
Act , lift the corporate veil of the subsidiary company.
continued

 When the court feels that there are no statutory
provisions which can pierce the corporate veil, and the
identity of the company is not the one which has to
exist, and the court has to interfere in order to avoid
the activities that are done in the name of the company
by persons managing them, it has been empowered to
do so……
The circumstances are…..
Circumstances to lift the corporate
veil through judicial interpretations

 Protection of Revenue- When ever a company uses its name for
the purpose of tax evasion or to circumvent tax obligations
 Prevention of fraud or Improper conduct- The incorporation has
been used for fraudulent purpose, like defrauding the creditors,
defeating the purpose of law etc..
 Determination of the character of the company- Enemy company
or all the members being the citizens of the enemy country.
(Daimler Co. Ltd V. Continental Tyre & Rubber Co. Ltd)
Judicial interpretations by the court
are as follows:

 Where a company is used to avoid welfare legislation-
If a company is formed in order to avoid the benefits
to the workers like bonus, or other statutory benefits..
 For determining the technical competence of the
company- To look into the competency of the company
or the shareholders or promoters
(New Horizon’s Ltd and Another V. Union of India
(1994)
Other circumstances

By Liability By Type By Listing status
UnlimitedLimited PrivatePublic
By Shares By Guarantee Small
Listed Unlisted
One Person

 On the basis of liability
 Limited Company ( Limited by share or by guarantee)
 Unlimited company
Types of Companies

 Limited by Shares- In such companies, the liability is only the amount
which remains unpaid on the shares.
 Limited by Guarantee not having share capital-In this type of
companies the memorandum of Association limits the members’
liability. It will be based on the undertaking that has been given in
MOA for their contribution in case of a winding up.
 Limited by guarantee having share capital- In such cases , the liability
would be based on the MOA towards the guaranteed amount and
the remaining would be from the unpaid sums of the shares held by
the person concerned.
Limited Company

 There is no limit on the liability of the members. The liability
in such cases would extend to the whole amount of the
company’s debts and liabilities.
 Here the members cannot be directly sued by the creditors.
 When the company is wound up, the official liquidator will
call upon the members to discharge the liability.
 The details of the number of members with which the
company is registered and the amount of share capital has to
be stated in the Articles of Association (AOA).
Unlimited Company

Company CIN Company Name
U74300DL1996ULT082136 DISCOVERY COMMUNICATIONS INDIA (PVT COMPANY WITH
UNLIMITED LIABILITY)
U74899DL1995ULT065954 REEBOK INDIA COMPANY
U74140KA1996ULT068492 ALTRAN TECHNOLOGIES INDIA PRIVATE LIMITED
U65990DL1981ULT165402 MILKY INVESTMENT AND TRADING COMPANY
Example of Private Limited Company
with Unlimited Liability

 One person company
 Section 3 (1)c of Companies Act: one person alone can register a company
 (different from sole proprietor in terms of liability)
 Minimum authorised capital of and had at least one member
 One person to be nominated – he shall in the event of death or incapacity
become the member
 He should be an Indian citizen residing in India – for a period not less than
182 days
 Minor cannot be a member of OPC
 OPC cannot be converted to a Sec 8 company
 OPC can be converted to any other forms of organisation
 If paid up capital exceeds Rs 50 lakh or turnover crosses Rs. 2 cr (in last 3 yrs)-
voluntary conversion in 2 months else within 6 months
 On the basis of members

Company CIN Company Name
U67190DL1996OPC078228 R P MALHAN AND COMPANY PRIVATE LIMITED(OPC)
U63090TN2015OPC098810 FUTURE ROADLINES PRIVATE LIMITED (OPC)
U15119GJ2016OPC091784 ANAVI MARKETING (OPC) PRIVATE LIMITED
U74120TG2015OPC101795 ABHYASA ENTERPRISES (OPC) PRIVATE LIMITED
U74999AS2017OPC017743 BAHARUDDIN CONSTRUCTION ENTERPRISE (OPC)PRIVATE
LIMITED
Examples of OPC

 Minimum two persons are required to form a pvt company
 Maximum 200 persons
 Prohibits any invitation to the public to subscribe to any securities of the
company
 Small company section 2(85)
 Any company, other than a public company,
 Paid up capital not to exceed Rs. 50 lakhs (not to be more than Rs.5 cr)
 Turnover not to exceed Rs.2 cr (not to be more than Rs.20cr)
 This section shall not apply to holding company or subsidiary company or
company registered under section 8 or company or body corporate
governed by special Act.
Private Company
Section 2 (68)

 It can have a minimum of two members.
 It can commence business immediately after obtaining
certificate of incorporation.
 It need not issue prospectus or statement in lieu of prospectus.
 It can have a minimum of 2 directors.
 It need not hold statutory meeting or file statutory report with
the ROC.
Exemption and Privileges of a Private company

 A Public company means a company-
> Which is not a private company
Seven or more members are required to form public
company
> Which has a minimum paid-up capital of Rs 5 lakh or such
higher paid-up capital, as may be prescribed
Public Company 2(71)

Differentiating Features Public Limited
Company
Private Limited
Company
Minimum members 7 2
Minimum directors 3 2
Maximum members Unlimited 200
Minimum capital 5,00,000 (paid up) 1,00,000 (authorised)
Invitation to public Yes No
Issue of prospectus Yes No
Certificate for commencement of
business
Yes No
Term used at the end of name Limited Private limited
Managerial remuneration Can not exceed
more than 11%
of net profits
No restriction
Statutory meeting (mandatory) Yes No

 Google India Private Limited is a
Private incorporated on 16 December
2003.
 It is classified as Non-govt company
and is registered at Registrar of
Companies, Bangalore. Its authorized
share capital is Rs. 90,000,000 and its
paid up capital is Rs. 10,738,790.
 It is involved in Other computer
related activities [for example
maintenance of websites of other
firms/ creation of multimedia
presentations for other firms etc.]
GOOGLE INDIA PRIVATE LIMITED

 Holding company
 A company is a holding company in relation to one or more other
companies means, a company of which such companies are subsidiary
companies
 Subsidiary company
 Company in which the holding company controls the composition of
the Board of Directors
 Exercises or controls more than one half of the total share capital
either at its own or together with one or more of its subsidiary
companies
 Associate company
 Company in which that other company has a significant influence
(control of at least 20% of the share capital or of business decisions
under an agreement)
 Eg. StarBucks - 'A TATA Alliance'
On the basis of control

 Listed company Sec. 2(52).
 Company which has any of its securities listed any
recognised stock exchange.
 Unlisted company
 Means company other than listed company
On the basis of access to capital

 A company incorporated outside India, but having a place of
business in India.
 If it does not have a place of business in India but only has agents
in India it cannot be considered to be foreign company.
other companies
Foreign Company

 When 51% of the paid up share capital is held by the
government.
 The share can be held by the central government or state
government. Partly by central and partly by two or more
governments.
 As the legal status of the company does not change by
being a government company, there are no special
privileges given to them.
Government Company

 Dormant company:
 The 2013 Act states that a company can be classified as dormant
when it is formed and registered under this 2013 Act for a future
project or to hold an asset or intellectual property and has no
significant accounting transaction.
 Such a company or an inactive one may apply to the ROC in such
manner as may be prescribed for obtaining the status of a
dormant company.[Section 455 of 2013 Act
CIN Company Status
U72200TG1990PTC011250
NCORE TECHNOLOGY PVT
LTD
Dormant

 Section 8 deals with the formation of companies which are
formed to promote the charitable objects of commerce, art,
science, sports, education, research, social welfare, religion,
charity, protection of environment etc.
 Such company intends to apply its profit in promoting its
objects and prohibiting the payment of any dividend to its
members.
 Examples of section 8 companies are FICCI, ASSOCHAM,
National Sports Club of India, CII etc.
Formation of company with
charitable objects

 A Farmer Producer Company can be formed by any 10
or more primary producers or by two or more
producer institutions, or by a contribution of both.
 A Farmer Producer Company is a hybrid between
cooperative societies and private limited companies.
 Eg Neera Producers companies formed by farmers
under guidance of Coconut Development Board
Farmer Producer Company

 Company consists of heterogeneous (varied or diverse ) members,
whereas a Hindu Undivided Family business consists of homogenous
(unvarying) members since it consists of members of the joint family itself.
 In a Hindu Joint Family business the Karta (manager) has the sole authority
to contract debts for the purpose of business. There is no such system in a
company.
 A person becomes a member of JHF by virtue of birth. There is no such
provision in the company
 No registration is compulsory for carrying on business for gain by a JHF
even if the number of members exceeds twenty. Registration of company
is compulsory
Difference between Company and
Joint Hindu Family Business

 Minimum number of members:
 Private : 2
 Public 7
 Maximum
 Private : 200
 Public : No limit
 Minimum Paid up share capital:
 Private : (minimum authorised share capital) Rs. 1 lakh
 Public: Rs. 5 lakhs
 Issue of shares
 Private : Not to issue securities
 Public: Can issue securities
Comparison of
public and private companies

1. Company has to be registered, it is not compulsory under
Partnership Act to register the concern.
2. No. of persons required to form
1. Company: OPC:1, Private : minimum 2, Public minimum 7
2. Partnership: minimum 2
3. Maximum number of members
public company: no limit
private company : 200 persons
Partnership: 50 persons
4. Company has legal existence apart from its members,
partnership has no legal existence apart from its partners
Difference between company and
partnership

 Creditors of the company are not creditors of individual
shareholders, they can proceed against the company alone.
The creditors of the partnership are creditors of the individual
partners
 Shareholder is not an agent of the company, while a partner is
an agent of the firm
 Liability of partners is unlimited; liability of shareholders is
usually limited
 Company has perpetual succession; partnership comes to an
end when partner dies or becomes insolvent
Difference between company and partnership

 Company is managed by the Board of Directors,
partnership by the partners themselves (either all or some
of them acting for all)
 Companies powers are defined by MoA & AoA which have
legal authority and cannot be easily altered. Partnership
deed can be easily altered with the consent of all partners
 Company is subject to strict control as per companies Act
with regard to maintanence of books of account, share
capital, distribution of profit etc. There is no such statutory
obligations in partnership

 No association of persons or partnership or more than such
number of persons shall be formed for the purpose of
carrying on any business unless it is registered as a company
under the Companies Act
 If they do not register they can be considered to be illegal
association. The contract entered into by this illegal
association is void and cannot be validated. Its illegality will
not affect its tax liability or its chargeability
 The certification of incorporation is the conclusive evidence,
that all the requirements for the registration have been
complied with the Act
 Above stated provision shall not be applied to
 JHF business
 An association or partnership, if it is formed by professionals who
are governed by special Acts
Registration and Incorporation

 Formation of a company is a complex activity involving
completion of a lot of legal formalities and procedures . To
fully understand the process one can divide the formalities
into four distinct stages, which are;
 (i) promotion ;
 (ii) incorporation ;
 (iii) subscription of capital ; &
 (iv) commencement of business
Incorporation of a company

 The persons who conceive an idea of a company decide and
do the necessary work for formation of a company are called
the promoters of the Company.
 The Promoters are the persons who decide on the formation
of the company.
 The promoters of a company stand undoubtedly in a fiduciary
position though they are not the agent or a trustee of a
company. They are the ones “who create and mould the
company”.
Incorporation of a Company

 Promotion is the first stage in the formation of a company. The
promotion of a company comprises the preparatory steps leading to
its incorporation. It involves the following steps :
 (i) Identification of business opportunity
 (ii) Feasibility studies
 (a) Technical feasibility
 (b) Financial feasibility
 (c) Economic feasibility
 (iii) Name approval
 (iv) preparation of necessary document
Promotion

 Procedure to be followed for incorporation of a
company
 Filing of documents and information with the
registrar: the following documents are to be filed with
the RC
 MoA and AoA duly signed by all subscribers
 A declaration by the person engaged in the formation of the company
(advocate, CA, CS etc) and by a person named in the articles (director,
manager or secretary of the company
 Affidavit from each of the subscribers to the memorandum and from
persons named as the first directors, if any, in the articles (director,
manager or secretary of the company): that information furnished is
correct
 The address for correspondence till its regd office is established
 The particulars of subscribers along with proof of identity
 Particulars of the persons mentioned in the articles as the first directors
of the company and such other particulars including proof of identity
Incorporation of a company- sec 7

 Issue of certificate of incorporation on registration
 Allotment of corporate identity number (CIN)
 Maintenance of copies of all documents and
information

 It is the charter of the company
 It contains the fundamental conditions upon which the
company can be incorporated
 It contains the objects of the company’s formation
 The company has to act within objects specified in the
MOA
 It defines as well as confines the powers of the company
 Any thing done beyond the objects specified in the MOA
will be ultra vires. Their transactions will be null and void
 The outsider have to transact looking into the MOA
Memorandum of Association

 The Name Clause – it decides on the name of the company based
on the capital involved (pvt ltd/public ltd etc)
 The Registered Office Clause- where it has registered its head
office and other branch office ( The registered office can be
changed with the permission of the ROC)
 The Object Clause- Main object, ancillary object and the other
objects of the company are clearly specified ( Ashbury Railway
Carriage Co V. Riche). There is only object clause to be stated as
per Companies Act of 2013
 The applicable doctrine here is the “ Doctrine of Ultra Vires”
beyond the powers of the company
The Compulsory Clauses
in MOA

 The Liability Clause- What is the liability of its members.. limited by
shares or guarantee or unlimited, there can be alteration in the
liability clause
 The Capital Clause - The amount of the nominal capital of the
company, number of shares in which it is to be divided… alteration
of the capital clause etc
 The Association or Subscription clause- Where the subscribers to
the MOA declare that they respectively agree to take the number
of the shares in the capital.
 In case of OPC, name of the person who, in the event of death of
the subscriber shall become the member of the company

 The powers exercisable by the company are to be confined to
the objects specified in the MOA.
 So it is better to define and include the provisions regarding
the acquiring of business, sharing of profits, promoting
company and other financial, gifts , political party funds etc
 If the company acts beyond the powers or the objects of the
company that is specified in the MOA, the acts are considered
to be of ultra vires. Even if it is ratified by the all the members,
the action is considered to be ineffective.
 Even the charitable contributions have to be based on the
object clause. ( A Lakshmanaswami Mudaliar V. LIC of India)
“Doctrine of Ultra Vires”

 It is the companies bye- laws or rules to govern the
management of the company for its internal affairs
and the conduct of its business.
 AOA defines the powers of its officers and also
establishes a contract between the company and the
members and between the members inter se
 It can be originally framed and altered by the company
under previous or existing provisions of law.
Articles of Association

 Share capital
 Calls on shares
 Transfer and transmission of shares
 Forfeiture of the shares
 Surrender of the shares
 General meetings
 Alteration of the capital
 Directors etc..
 Dividends and reserves
 Account and audit
 Borrowing powers
 Winding up
 Adoption of the preliminary contracts etc….
Contents of the AOA may be as
follows:

Memorandum of association Articles of association
1.It is the fundamental document
2. It is the Charter of the company.
3. It dictates external and internal affairs of
the company.
4. It has effects on the members as well as
the outsiders.
5. Ratification: No act can be ratified which
is done beyond the memorandum: This is
called as “Doctrine of Ultra Vires”..
6. The memorandum of association is
bound to observe.
(a) The provisions of the Companies Act,
2013;
(b) Any other law in force.
1. It is the subsidiary document.
2. These are mere regulations of the co.
3. It dictates only internal affairs and
management of the company.
4. It has effects on the members and
employees of company.
5. Ratification: An act covered by articles of
association can be ratified by majority
principle. It is called ‘Indoor Management’.
6. The Articles of Association are bound to
observe,—
(a) The provisions of the Companies Act,
2013 and Rules;
(b) Any other law in force; and
(c) The memorandum of association of the
company.
Difference between MOA & AOA

 Any person who enters into a contract 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 known as 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 MOA and
AOA.
Doctrine of constructive notice

 An outsider cannot be expected to know the internal affairs of
the company or to inquire into the regularity of its internal
proceedings.
 He is entitled to presume that the internal management of the
company is regular. This is known as doctrine of indoor
management.
Doctrine of indoor management

 The companies can raise money by offering securities for sale to
the public.
 They can invite the public to buy shares, which is known as public
issue.
 For this purpose the company may issue a prospectus, which may
include a notice circular, advertisement or other documents which
are issued to invite public deposits.
Raising of Capital From Public

 It is an invitation issued to the public to purchase or subscribe
shares or debentures of the company.
 Every prospectus must be dated. The date of publication and the
date of issue must be specifically stated in the prospectus.
 The golden rule of the prospectus is that every detail has to be
given in strict and scrupulous accuracy. The material facts given in
the prospectus are presumed to be true.( New Brunswick and
Canada Railway. Land & Co. Vs. Muggerridge).
Prospectus

 General information
 Capital structure
 Terms of present issue
 Management and projects
 Management and perception of risk factor
It is compulsory to register the prospectus with the Registrar
No prospectus shall be valid if it is issued more than 90 days after
which copy thereof is delivered to the Registrar
Contents of the prospectus (page 45)

 The liability will be on the director of the company ,
whose name was written during the time of issue
 The persons who have authorized their names to be
theirs in the prospectus to be named as directors
 Promoter
 Every person including the person who is an expert
and has authorized his name to be issued with the
prospectus
Civil Liability for Misstatements
In case of any untrue statement in the prospectus

 Relying on the prospectus if any person buys shares, the
person may
 Rescind the contract ( only when there is
misrepresentation relating to the material facts.
 Claim damages- it can be claimed from the directors,
promoters or other persons who has authorized their
name to be written during the issue of the prospectus
Remedies for misstatements in the
prospectus

 If a company does not want to issue a prospectus to the public
for subscription of the shares, it should file a statement in lieu of
prospectus with the registrar.
 It must be signed by every person named in it as director or by
his agent authorized in writing
 The nature of the information of this document is more or less
similar to that given in the prospectus.
Statement in lieu of prospectus

The Legal Status of the director
The director occupies the position of a:
 As a Trustee- In relation to the company
 As Agents- When they act on behalf of the company
 As Managing Partner-As they are entrusted with the responsibility
of the company
Directors

 Section 149(1) of the Companies Act, 2013 requires that every
company shall have a minimum number of
 3 directors in the case of a public company
 two directors in the case of a private company, and
 one director in the case of a One Person Company.
 A company can appoint maximum 15 fifteen directors. A
company may appoint more than fifteen directors after passing
a special resolution in general meeting and approval of Central
Government is not required.
Minimum/Maximum Number of
Directors

 Maximum number of directorships, including any alternate
directorship a person can hold is 20.
 It has come with a rider that number of directorships in public
companies/ private companies that are either holding or
subsidiary company of a public company shall be limited to 10.
 Residence of a director in India
 Section 149 (3) of the Act has provided for residence of a
director in India as a compulsory i.e. every company shall have
at least one director who has stayed in India for a total period
of not less than 182 days in the previous calendar year.
Number of directorships- Section 165

 Every listed company shall appoint at least one woman
director within one year from the commencement of the
second proviso to Section 149(1) of the Act.
 Every other public company having paid up share capital of
Rs. 100 crores or more or turnover of Rs. 300 crore or more
as on the last date of latest audited financial statements,
shall also appoint at least one woman director within 1
years from the commencement of second provison to
Section 149(1) of the Act.
Woman Director

 Every listed public company shall have at least one-third of the
total number of directors as independent directors (fraction is
to be rounded off to one).
 An independent director means a director other than a
managing director or a whole-time director or a nominee
director who does not have any material or pecuniary
relationship with the company/ directors.
 Rule 5 - an independent director shall possess appropriate skills,
experience and knowledge in one or more fields of finance, law,
management, sales, marketing, administration, research,
corporate governance, technical operations or other disciplines
related to the company’s business.
Independent Directors

As per the company law, the following persons are disqualified
from been appointed as a director:
 Unsound mind
 An undischarged insolvent
 A person who is convicted by the court
 Who has applied for being adjudged insolvent
 Not paid for the call on shares
 Persons who are already directors in maximum number of
companies as per the provisions of the Act or
 Any other person who has been disqualified by the court for any
other reason
Disqualifications

Fiduciary Duties
 To act honestly and with good faith
 Not to use confidential information of the company for their
own purpose
 Duty of Care and to act reasonably while acting for the
company
Statutory Duties
 Not to contract with company, where he/she or his relative
has an interest in the contract
 where he/she has a interest, they need to inform the board or
seek prior approval while entering into contract, otherwise
the contract is voidable
 Duty to attend and convene meetings
 Duty not to delegate
Duties and Liabilities of the
Directors

 Liability of the director for any untrue statement in
the prospectus
 Inviting any deposits in contravention of the law
 Liability for false advertisement
 Failure to repay the application money, which was
excess
 Concealing the names of the creditors
 Failure to lay the balance sheet.
 Failure to provide information to the auditor etc
Criminal Liability

 Shareholders meetings
1. Statutory meetings ( which happens only once in the
lifetime of the company) The meeting is held to enable
members to know all important matters pertaining to the
formation of the company like.
1. Notice to be served at least 21 days prior to meeting and
statutory report need to be sent
2. If statutory meeting is not convened company may be wound
up
3. It must be held within a period of not less than one month or
within a period not more than six months from the date on which
it is entitled to commence business i.e. it obtains certificate of
commencement of business.
Classification of Meetings

 Annual General Meetings: to give full information to the
members regarding the progress made by the company
 Not more than 15 months must elapse between two AGMs.
However, a company may hold its first annual general meeting
within 18 months from the date of its incorporation.
 The notice of the meeting must be accompanied by a copy of
the annual accounts of the company, director‟s report on the
position of the company for the year and auditor‟s report on
the accounts
 Extra ordinary General Meetings - Convened to transact some
special or important decision to be taken
 Class meetings- This is the meeting of the shareholders-
which is convened by the class of shareholders based on the
kind of shares they hold.

 Meetings of the Directors
 Board Meetings-
 This is conducted for the smooth running of the company and for
collectively taking the decisions. The meetings may be conducted to
call on shares, issue debentures, borrow money, to make loans, To
invest the funds etc
 A Board meeting must be held at least once in every three
months, and at least four such meetings must be held in a calendar
year and time gap between two board meetings shall not be more
than 120 days
 Meetings of the committees of Directors
 Meetings of debenture holders
 Meetings of creditors
 Meetings of creditors and contributories on the winding up of the
company
Other meetings

 A motion when passed is called a resolution.
 The resolution in the General body meetings can be an
ordinary resolution
( Simple majority) and special resolution.
 Special resolution- ( notice of 21 days to be given) the
notice has to specify the purpose. The number of votes
to be cast in favour of the resolution is to be three
times the number vote cast against.
Resolution

 Written notice to be given
 Notice to be issued under the authority of the company
 In case of failure to give a notice, the persons concerned may
be punished with fine and the proceedings of the meeting
will be rendered invalid.
How to conduct meeting?

 It is the process whereby the life of the company is ended and
its property is administered for the benefit of its creditors and
members.
 During this process a liquidator is appointed to take control of
the company. The liquidator will be responsible for the assets,
debts and final distribution of the surplus to the members.
 It is the process for discharge of liabilities and returning the
surplus to those who are entitled for it.
 But even a company which is making profit can be wound up is
the special feature of winding up , which is different from that
of the process of insolvency.
Winding up

 Chapter XX of the 2013 Act consisting of sections 270 to 365,
deals with the provisions of winding-up of companies. The 1956
Act prescribes three modes of winding-up. This includes the
following: By the court
 Under the supervision of the court
 Voluntary
 As against the existing modes of winding-up as prescribed by
the 1956 Act, the 2013 Act prescribes the following two modes:
 By the Tribunal
 Voluntary
Modes of winding up

 The 2013 Act does not acknowledge the distinction between members
voluntarily winding-up and creditors voluntarily winding-up.
 When a company is wound up by the members or the creditors without the
intervention of Tribunal, it is called as voluntary winding up. It may take place
by:-
1. By passing an ordinary resolution in the general meeting if :-
· the period fixed for the duration of the company by the articles has expired;
· some event on the happening of which company is to be dissolved, has
happened.
2. By passing a special resolution to wind up voluntarily for any reason
whatsoever.
Within 14 days of passing the resolution, whether ordinary or special, it must
be advertised in the Official Gazette and also in some important newspaper
circulating in the district of the registered office of the company.
VOLUNTARY WINDING UP OF A
REGISTERED COMPANY


1. If the company has, by a Special Resolution, resolved that the
company be wound up by the Tribunal.
2. If default is made in delivering the statutory report to the
Registrar or in holding the statutory meeting
3. If the company fails to commence its business within one year
of its incorporation, or suspends its business for a whole year.
The winding up on this ground is ordered only if there is no
intention to carry on the business and the Tribunal's power in
this situation is discretionary.
4. If the number of members is reduced below the statutory
minimum i.e. below seven in case of a public company and two
in the case of a private company.
Grounds for Compulsory Winding Up or Winding up by
the Tribunal:

 5. If the company is unable to pay its debts.
6. If the tribunal is of the opinion that it is just and equitable that
the company should be wound up.
7. Tribunal may inquire into the revival and rehabilitation of sick
units. It its revival is unlikely, the tribunal can order its winding up.
8. If the company has made a default in filing with the Registrar its
balance sheet and profit and loss account or annual return for any
five consecutive financial years.
9. If the company has acted against the interests of the sovereignty
and integrity of India, the security of the State, friendly relations
with foreign States, public order, decency or morality.

 A petition for winding up has to be filed by the concerned
person to the prescribed authority
 Liquidator to be appointed to safeguard the property of
the company
 Then the court will hear the matter and pass necessary
orders. It can dismiss the petition or pass an order of
winding up
Winding up procedure

1. Court will send notice to an official liquidator, to take charge of the
company. He shall carry out the process of winding up, ( sec. 444)
2. The official liquidator is appointed by central Government ( sec. 448).
3. The company shall relevant particulars, relating to, assets, cash in hand, bank
balance, liabilities, particulars of creditors etc, to the official liquidator. ( sec.
454)
4. The official liquidator shall within six months, from the date of winding up
order, submit a preliminary report to the court regarding :
· Particulars of Capital
· Cash and negotiable securities
· Liabilities
· Movable and immovable properties
· Unpaid calls
5. The winding up order, shall be applicable on all the creditors and
contributories, whether they have filed the winding up petition or not.
Duty of the liquidator

 The entire procedure for bringing about a lawful end to the life of
a company is divided into two stages – ‘winding up’ and
‘dissolution’.
 Winding up is the first stage in the process whereby assets are
released, liabilities are paid off and the surplus, if any distributed
among its members. Dissolution is the final stage whereby the
existence of the company is withdrawn by the law.
 When the company ceases to exist as a corporate entity for all
practical purposes it is said to have been dissolved.
 Dissolution has to be declared by the court.
 The order has to be forwarded by the liquidator to the Registrar of
the Companies within 30 days from the date of the order of
dissolution.
Dissolution of the company

companies act,2013

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