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Answer of Question no.1(a).
Company
A Company is
an association of many persons who contribute money or money’s worth to a
common stock and employs it for a common purpose. The common stock so
contributed is denoted in terms of money and is called capital of the company.
The persons who contribute it or to whom it belongs are members. The proportion
of capital to which each member is entitled is his share.
According to
Section 3 (1) of Indian Companies Act 1956 " Company means a company
formed and registered under this Act."
According to
Professor Haney “A Company is an artificial person, created by law having a
separate entity with a perpetual succession and a common seal."
Characteristics of A Company: Following are the salient
features of a Company:
a)
Artificial
Person: A company is an artificial person, which exists only in the eyes of
law. The company carries business on its own behalf. It has a right to sue and
can be sued, can have its own property and its own bank account. It can also
own money and be a creditor.
b)
Created by
law: A company can be formed only with registration. It has to fulfill a lot of
formalities to be registered. It has also to fulfill a lot of legal formalities
in order to be dissolved.
c)
Separate
Legal entity: A company has a separate legal entity and is not affected by
changes in its membership.
d)
Perpetual
succession: A company has a continuous existence. Its existence does not
affected by admission, retirement, death or insolvency of its members. The
members may come or go but the company may go forever. Only law can terminate
its existence
e)
Limited
Liability: The liability of every member is limited to the amount he has agreed
to pay to the company on the shares held by him.
f)
Voluntary
Association: A company is a voluntary association. It cannot compel any one to
become its member or shareholder.
g)
Capital
Structure: A company has to mention its maximum capital requirements in future
in its memorandum of association. Its capital is divided into shares, which are
easily transferable from person to person.
h)
Transferability
of Shares: The shares of a company are freely transferable by its members
except in case of a private company, which may have certain restrictions of
such transferability.
i)
Common Seal:
As a company is an artificial person, so it cannot sign any type of contracts.
For this purpose its requires a common seal which acts as the official
signatories of the company. All the contracts prepared by its directors must
bear seal of the company.
j)
Democratic
Ownership: The directors of a company are elected by its shareholders in a
democratic way.
k)
Maintenance
of Books: A limited Company is required by law to keep a prescribed set of
account books and failure in this regard may attract penalty.
l)
Periodical
audit: A Company has to get its accounts periodically audited through the
chartered accountants appointed for this purpose by the shareholders.
Answer of Question no.1(b).
Meaning of Holding Company
Section 4 of the Companies Act, 1956 defines a
holding company. According to this section, one company can become the holding
company of another in any of the following three ways:
1. By holding more than 50% of nominal
value of the equity shares of the other company i.e. the holding company holds
the majority of voting power in the subsidiary company.
For example, if A ltd holds 51% shares
of B ltd. Then A ltd is said to be holding company of B Ltd.
2. By controlling the composition of
the Board of Directors of the other company so that the holding company is able
to appoint or remove the directors of the subsidiary company.
For example, if 3 directors of A ltd
out of total 5 is from B ltd then B ltd is said to be holding company of A ltd.
3. By controlling a holding company
which controls another subsidiary or subsidiaries.
For example, if B Ltd is a Subsidiary
of C Ltd & C Ltd is a subsidiary of A Ltd then B Ltd is also deemed to be a
subsidiary of A Ltd.
Meaning of “subsidiary
Company”
A company is a “subsidiary” of another
company, its “holding company”, if that other company—
1.
holds a majority of the voting rights in it, or
2.
is a member of it and has the right to appoint or remove a
majority of its board of directors, or
3.
is a
member of it and controls alone, pursuant to an agreement with other members, a
majority of the voting rights in it, or if
it is a subsidiary of a company that is itself a subsidiary of that other
company.
An example will illustrate the point. Company B is a subsidiary of
company A, and company C is a subsidiary of company B. Company C will be a
subsidiary of company A.
A subsidiary company cannot hold shares or be a member of its holding
company except as a legal representative of a deceased member of the holding
company or any trustee.
Answer of Question no.2.
Memorandum of Association
Section 2
(28) of the act
defines Memorandum as “Memorandum means the Memorandum of association of a
company as originally framed or as altered from time to time in pursuance of
any previous companies law or of this act”.
Memorandum
of association is the document which contains the rules regarding constitution
and activities and objects of the company. It is fundamental charter of the
company. Its relation towards the members and the outsiders are determined by
this important document.
One of the essentials for the registration of a company is memorandum of
association (sec 33). It is the first step in the formation of a company. Its
importance lies in the fact that it contains the fundamental clauses which have
often been described as the conditions of the company’s incorporation.
Memorandum of association is divided into 5 clauses:
1)
Name clause
2)
Registered office clause
3)
Objects clause
4)
Liability clause and
5)
Capital clause
Artilces of Association
Section 2
(2) of the
companies act defines articles as “Articles means Articles of Association of a
company as originally framed or altered from time to time in pursuance of any
previous law or of this act including so far as they apply to the company the
regulations contain as the case may be in Table A to Schedule I of this act”
The Articles
contain rules and regulations for the internal management of the company. They
are framed with the object of carrying out the aims and object of the
memorandum of association and also to monitor that the same are carried as
prescribed.
The Model
contents of the Article of association as per Table ‘A’ are as under
1)
the business
of the company;
2)
the amount
of capital issued and the classes of shares into which the capital is divided;
the increase and reduction of the share capital;
3)
the rights
of each class of shareholders and the procedure for variation of their rights;
4)
the
execution or adoption of a preliminary agreement, if any;
5)
the
allotment of share; calls and forfeiture of shares for non – payment of calls;
6)
transfer and
transmission of shares;
7)
company’s
lien on shares;
8)
exercise of
borrowing powers including issues of debentures;
9)
general
meeting, notices, quorum, proxy, poll, voting, resolution, minutes; etc.
The difference between Memorandum of Association
& Article of Association is given here :
BASIS OF DISTINCTION
|
MEMORANDUM OF ASSOCIATION
|
ARTICLE OF ASSOCIATION
|
MEANING
|
It is a charter of a company
.It sets the constitution .It defines limits ,powers and objects of the
company
|
It contains rules and
regulation for the internal management of the company
|
OBJECTIVES
|
It governs relationship with
the external world i.e. creditors, sellers, buyers & debtors
|
It governs internal
relationship between the members of the company.
|
STATUS
|
It is the primary document. It
is the foundation of the company.
|
It is the secondary document
& it is based on the memorandum of association.
|
COMPULSION
|
It is a compulsory document for
all the companies
|
It is compulsory for private
companies, unlimited companies and companies limited by guarantee.
|
ALTERATION
|
It is an unalterable document.
Alteration can only be done by the permission of court
|
It can be stitched according to
the management a resolution is to be passed and it is within the limits of
Memorandum of Association
|
Ultra Vires Actions
|
It lays down the boundaries
beyond which a company cannot work.All such acts are illegal.
& they are called ultra
vires acts.
|
The articles are controlled by
the memorandum Within it the shareholders and the directors may make such
regulations as they feel fit for internal management.
|
Importance of Memorandum of Association.
It is the
foundation of a business. It shows the capacity to contract of a company. It is
constitution of a company which relates with the outside world. No company is
allowed to temper with its contents without the sanction of central government
or court of law. Any act of the company outside the scope of activities as laid
down in the memorandum is said to be ultra vires and non binding on it.
Importance
of Articles of Association
Under sec 36, the memorandum and the articles when registered, shall bind
the company and its members to the same extent as if it had been signed by them
and had contained a covenant on their part that the memorandum and the articles
shall be observed.
With respect to the above section, the importance of articles of
association can be summed up as follows:
1) Binding on members in their relation to
the company- the members are bound to the company by the provisions of the
articles just as much as if they had all put their seals to them.
2) Binding on company in relation to its
members- just as members are bound to the company, the company is bound to
the members to observe and follow the articles.
3) Neither company, nor members bound to
outsiders- articles bind the members to the company and company too the
members but neither of them is bound to an outsider to give effect to the
articles.
4) Binding between members inter se-
the articles define rights and liabilities of the members. As between members
inter se the articles constitute a contract between them and are also binding
on each member as against the other or others. Such contract can be enforced
only through the medium of the company.
Answer
of Question no.3(a).
Pre-incorporation
Contracts
Sometimes contracts are made on behalf of a company even before it is
duly incorporated. These are called as pre-incorporation contracts. Two
consenting parties are necessary to a contract, whereas a company before
incorporation is a non-entity. Therefore, following are the effects of
pre-incorporation contracts.
Company cannot be sued on pre-incorporation contracts- A company,
when it comes into existence, cannot be sued on pre-incorporation contracts. In
English and Colonial Produce Co, Re, a solicitor on the request of
promoters prepared a company’s documents and spent time and money in getting it
registered. But the company was not held to be bound to pay for those services
and expenses.
Company cannot sue on pre-incorporation contracts- A company
cannot by adoption or ratification obtain the benefit of a contract made on its
behalf before the company came into existence. In Natal Land and
Colonization Co v. Pauline Colliery Syndicate, the promoters of a proposed
company obtained an agreement from a landlord that he would grant lease of coal
mining rights to the company. The company could not, after incorporation,
enforce this contract.
Agents may incur personal liability- The agents who contract for a proposed
company may sometimes incur personal liability. In Kelner v. Baxter, the
promoters of a projected hotel company purchased wine from the plaintiff on
behalf of the company. The company came into being but, before paying the price
went into liquidation. They were held personally liable to the plaintiff.
Ratification of a pre-incorporation contract
So far as the company is concerned it is neither bound by nor can
have the benefit of a pre-incorporation contract. But this is subject to the
provisions of the Specific Relief Act, 1963.
Section 15 of the Act provides that where the promoters of a company
have made a contract before its incorporation for the purposes of the company,
and if the contract is warranted by the terms of incorporation, the company may
adopt and enforce it. In Vali Pattabhirama Rao v. Ramanuja Ginning and Rice
Factory, a promoter of a company acquired a leasehold interest for it. He
held it for sometime for a partnership firm, converted the firm into a company
which adopted the lease. The lessor was held bound to the company under the
lease.
Section 19 of the Specific Relief Act provides that the other party
can also enforce the contract if the company has adopted it after incorporation
and the contract is within the terms of incorporation.
Answer of Question no.3(b).
Promoters
A promoter is a person who does the necessary preliminary work incidental
to the formation of a company. It is a compendious term used for a person who
undertakes, does and goes through all the necessary and incidental
preliminaries, keeping in view the object, to bring into existence an
incorporated company. Chronologically, the first persons who control a
company’s affairs are its promoters.
Functions
The promoter of a company decides its name and ascertains that it will be
accepted by the Registrar of Companies.
He settles the details of the company’s Memorandum and Articles, the
nominations of directors, solicitors, bankers, auditors and secretary and the
registered office of the company.
He arranges for the printing of the Memorandum and Articles, the
registration of the company, the issue of prospectus, where a public issue is
necessary
He is responsible for bringing the company into existence for the object
which he has in view.
Quasi-trustee-a promoter
is neither an agent nor a trustee of the company under incorporation but
certain fiduciary duties have been imposed on him under the Companies Act,
1956.He is not an agent because there is no principal born at the time and he
is not a trustee because there is no cesti que trust in existence. Hence he
occupies the peculiar position of a quasi-trustee.
Fiduciary position
Not to make any profit at the expense of the company-the
promoter must not make, either directly or indirectly, any profit at the
expense of the company which is being promoted. If any secret profit is made in
violation of this rule, the company may, on discovering it, compel him to
account for and surrender such profit.
To give benefit of negotiations to the company-the promoter
must, when once he has begun to act in the promotion of a company, give to the
company the benefit of any negotiations or contracts into which he enters in
respect of the company. Thus where he purchases some property for the company,
he cannot rightfully sell that property to the company at a price higher than
he have for it. If he does so, the company may, on discovering it, rescind the
contract and recover the purchase money.
To make a full disclosure of interest or profit-if the
promoter fails to make a full disclosure of all the relevant facts, including
any profit and his personal interest I a transaction with the company, the
company may sue him for damages for breach of his fiduciary duty and recover
from him any secret profit made even though rescission is not asked or is
impossible.
Not to make unfair use of position-the promoter must not make an unfair or t
take care to avoid any unreasonable use of his position and must take care to
avoid anything which has the appearance of undue influence or fraud
Further, a promoter cannot relive himself of his liability by making
provisions to that effect in the Articles of the company.
Duty of promoter as regards prospectus-the promoter must see,
in connection with the prospectus, if any is issued, that the prospectus –
(a) contains the necessary particulars
(b) does not contain any untrue or misleading statements or
does not omit any material fact.
Answer of Question no.4(a).
Kinds of Company
Meetings:
A company is
an association of several persons. Decisions are made according to the view of
the majority. Various matters have to be discussed and decided upon. These
discussions take place at the various meetings which take place between members
and between the directors. Needless to say, the importance of meetings cannot
be under-emphasised in case of companies. The Companies Act, 1956 contains
several provisions regarding meetings. These provisions have to be understood
and followed.
For a
meeting, there must be at least 2 persons attending the meeting. One member
cannot constitute a company meeting even if he holds proxies for other members.
Broadly,
meetings in a company are of the following types :-
a. Meetings of Members :
These are
meetings where the members / shareholders of the company meet and discuss
various matters. Member’s meetings are of the following
types :-
A. Statutory Meeting :
A public company limited by shares or a guarantee company having share capital is required to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the company. Such a meeting 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. In a statutory meeting, the following matters only can be discussed :-
A public company limited by shares or a guarantee company having share capital is required to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the company. Such a meeting 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. In a statutory meeting, the following matters only can be discussed :-
1)
Floatation
of shares / debentures by the company
2)
Modification
to contracts mentioned in the prospectus
The purpose
of the meeting is to enable members to know all important matters pertaining to
the formation of the company and its initial life history. The matters
discussed include which shares have been taken up, what money has been
received, what contracts have been entered into, what sums have been spent on
preliminary expenses, etc. The members of the company present at the meeting
may discuss any other matter relating to the formation of the Company or
arising out of the statutory report also, even if no prior notice has been
given for such other discussions but no resolution can be passed of which
notice have not been given in accordance with the provisions of the Act.
A notice of
at least 21 days before the meeting must be given to members unless consent is
accorded to a shorter notice by members, holding not less than 95% of voting
rights in the company. A statutory meeting may be adjourned from time to time
by the members present at the meeting.
B. Annual
General Meeting: Every company must in each year hold an annual general meeting.
Not more than 15 months must elapse between two annual general meetings.
However, a company may hold its first annual general meeting within 18 months
from the date of its incorporation. In such a case, it need not hold any annual
general meeting in the year of its incorporation as well as in the following
year only. A notice of at least 21 days before the meeting must be given to
members unless consent is accorded to a shorter notice by members, holding not
less than 95% of voting rights in the company. The notice must state that the
meeting is an annual general meeting. The time, date and place of the meeting
must be mentioned in the notice.
The AGM must
be held on a working day during business hours at the registered office of the
company or at some other place within the city, town or village in which the
registered office of the company is situated. The Central Government may,
however, exempt any class of companies from the above provisions.
C.
Extraordinary General Meeting: Every general meeting (i.e. meeting of members of the company)
other than the statutory meeting and the annual general meeting or any
adjournment thereof, is an extraordinary general meeting. Such meeting is
usually called by the Board of Directors for some urgent business which cannot
wait to be decided till the next AGM. Every business transacted at such a
meeting is special business. An explanatory statement of the special business
must also accompany the notice calling the meeting. The Articles of Association
of a Company may contain provisions for convening an extraordinary general
meeting.
D. Class
Meeting: Class
meetings are meetings which are held by holders of a particular class of
shares, e.g., preference shareholders. Such meetings are normally called when
it is proposed to vary the rights of that particular class of shares. At such
meetings, these members dicuss the pros and cons of the proposal and vote
accordingly. (See provisions on variations of shareholder’s rights). Class meetings are held to pass resolution which will
bind only the members of the class concerned, and only members of that class
can attend and vote.
Unless the
articles of the company or a contract binding on the persons concerned
otherwise provides, all provisions pertaining to calling of a general meeting
and its conduct apply to class meetings in like manner as they apply with
respect to general meetings of the company.
b. Meetings of the Board of
Directors
-Meeting of
the Board of Directors
-Meeting of
a Committee of the Board
c. Other Meetings
A. Meeting
of debenture holders: A company issuing debentures may provide for the holding of
meetings of the debentureholders. At such meetings, generally nmmatters
pertaining to the variation in terms of security or to alteration of their
rights are discussed. All matters connected with the holding, conduct and
proceedings of the meetings of the debentureholders are normally specified in
the Debenture Trust Deed. The decisions at the meeting made by the prescribed
majority are valid and lawful and binding upon the minority.
B. Meeting
of creditors: Sometimes, a
company, either as a running concern or in the event of winding up, has to make
certain arrangements with its creditors. Meetings of creditors may be called
for this purpose. Eg U/s 393, a company may enter into arrangements with creditors
with the sanction of the Court for reconstruction or any arrangement with its
creditors.
Answer of Question no.4(b).
Issue of shares at discount
As a general rule, a company cannot
ordinarily issue shares at a discount, except in case of ‘reissue of forfeited
shares’ and in accordance with the provisions of Companies Act.
But according to Section 79 of company
act 1956, a company is permitted to issue shares at discount provided the
following conditions are satisfied: -
(1) A company shall not issue shares at a
discount except as provided in this section.
(2) A company may issue at a discount
shares in the company of a class already issued, if the following conditions
are fulfilled, namely:-
(i) the issue of the shares at a discount
is authorised by a resolution passed by the company in general meeting, and
sanctioned by the Company Law Board;
(ii) the resolution specifies the maximum,
rate of discount 1[ at which the shares are to be issued: 2[ Provided that no
such resolution shall be sanctioned by the Company Law Board if the maximum
rate of discount specified in the resolution exceeds ten per cent., unless that
Board is of opinion that a higher percentage of discount may be allowed in the
special circumstances of the case;]
(iii) not less than one year has at the date
of the issue elapsed since the date on which the company was entitled to
commence business; and
(iv) the shares to be issued at a discount
are issued within two months after the date on which the issue is sanctioned by
the Company Law Board or within such extended time as the 3[ Company Law Board]
may allow.
(3) Where a company has passed a
resolution authorising the issue of shares at a discount, it may apply to the
3[ Company Law Board] for an order sanctioning the issue; and on any such
applica- tion, the 3[ Company Law Board], if, having regard to all. the circum-
stances of the case, it thinks proper so to do, may make an order sanctioning
the issue on such terms and conditions as it thinks fit.
(4) Every prospectus relating to the issue
of the shares shall contain particulars of the discount allowed on the issue of
the shares or of so much of that discount as has not been written off at the
date of the issue of the prospectus. If default is made in complying with this
sub- section, the com- pany, and every officer of the company who is in
default, shall be punishable with fine which may extend to fifty rupees. 4[
Issue and Redemption of Preference Shares]
Answer of Question no.5(a).
Procedure to remove the managing
director before the expiry of period by the shareholders under section 284 of
the companies act, 1956
1)
A Special
notice of the intension to move a resolution for the removal of director be
furnished by any member to the company not less than 14 days before the meeting
at which it is to be moved, exclusive of the day on which the notice is served
and the day of the meeting.
2)
Send a
notice, immediately after the notice of the intention to move any such
resolution has been received by it, in the same manner as it gives notice of
the meeting.
3)
If is not
possible for the company to give notice to all the members, publish by
advertisement in the newspaper having an appropriate circulation not less than
7 days before the meeting.
4)
Hold and
convene a General meeting to discuss besides others the following
matters:To pass a [Ordinary
resolution] for the removal of Managing director.
5)
The company
must give intimation to the Managing director of the intended resolution by sending
a copy of the special notice received by it, forthwith on receipt thereof. The
Managing director shall have the right to be heard on the resolution at the
meeting.
6)
The Managing
director, who is sought to be removed, can make a representation in writing
against his removal and request the company to notify it to the company's
members [section
225(4)]. If the director requests the company to notify the
members of the company his representation against his removal and the
representation is of reasonable length and it has been received not too late,
the company must
(a)
|
mention in
the notice of the resolution to be moved at the annual general meeting, the
fact of the representation having been received; and
|
(b)
|
send a
copy of the representation to every member along with the notice of the
meeting if the representation has been received before sending the notice of
the meeting or separately if the representation has been received after
sending the notice of the meeting.
|
7)
If the
representation could not be sent to the members because it was received too
late or because the company made a default in sending it, the company must read
out the representation at the annual general meeting, if the director requires
it to do so. In addition, director can make oral representation at the annual
general meeting.
8)
In case of
listed companies, notify the Stock Exchange with which shares of the Company
are listed about the change in the company directors [Clause 30(a) of the
Standard Listing Agreement].
9)
File [e-form
no. 32] with the Registrar of Companies with in 30 days of passing the
resolution.
10)
Pay the
requisite fees, as prescribed by the Companies (Schedule X) of Companies
Act, 1956.
11)
Make
necessary entries in the Register of Directors and in the Register of
Director’s Shareholding. [Section
303(1) & 307].
12)
Fees can be
paid through Credit Card / by cash / by cheque in favour of “MCA Collection
Account ICICI Bank” at the prescribed rates. (Fee Calculator)
13)
Notify the
Stock Exchange with which shares of the Company are listed about the change in
the company directors [Clause 30(a)
of the Standard Listing Agreement]
Answer of Question no.5(b).
COMPANY SECRETARY
A secretary is a representative of the company who is selected to carry
out the ministerial or administrative duties. He is mainly anxious to make sure
that the relationships of the company are accomplished according to the
provisos of the Companies Act and articles of association of the company.
The Indian Companies Act, 1956 (as amended by the Companies Amendment
Act, 1974) in Section 2(45) has expressed the term secretary as "any individual,
possessing the prescribed qualifications, appointed to perform the duties which
may be per by a secretary under the Act and any other ministerial or
administrative duties".
The definition of Company secretary has given various points of concern
they are that a person can only be appointed as a company secretary rather than
the firm, he or she should have the qualifications prescribed by the Central
Government and the duties have ministerial or administrative nature.
QUALIFICATIONS OFA COMPANY SECRETARY
Section 2(45) of the Companies Act has given the guidelines for the
qualifications of a company secretary. Under Section 383-A of the Act states
that company with a paid up share capital should appoint a whole time secretary
There are two qualifications of company who can appoint secretary are
the company having a paid up share capital of Rs.2 crores or more and the other
one is that those companies having lesser paid up share capital. Companies
having a paid up share capital of less than Rs.2 crores might not appoint a
whole-time secretary as it is not an easy appoint company secretary with the
companies having a paid up share capital of less than Rs.2 crores.
An individual having one or more of the following qualification be able
to be appointed as a secretary for small sized companies such as he or she
should be a member of the Institute of Company Secretaries of India; have
passed the Intermediate examination conducted by the Institute of Company
Secretaries of India; possessing a Post-graduate degree in Commerce or
Corporate Secretary ship being approved by any University in India; Law
graduate from any University; can be a member of the Institute of Chartered
Accountants of India; an individual holding post-graduate degree or diploma in Management
science granted by any University or the Institutes of Management i.e.,
Ahmedabad, Calcutta, Bangalore, or Lucknow, can be a member of the Institute of
Cost and Works Accountants of India; should have Post-graduate diploma in
company secretaryship granted by the Institute of Commercial Practice. Delhi,
under Delhi Administration or diploma in corporate laws and management granted
by the Indian Law Institute, New Delhi; or a Post-graduate diploma in Company
Law and Secretarial Practice granted by the University of Udaipur, or should be
a member of the Association of Secretaries and Managers, Calcutta.
Besides these statutory qualifications he or she have got the general
knowledge together with the knowledge of the industry and trade, so that he can
make useful suggestion to directors. He should have a sound knowledge of
different laws affecting the business. He should also have knowledge of
economics, banking and finance. He must have a good personality as he is
supposed to co-operate with the staff at all times.