Corp Regulations-Full Short Notes
Corp Regulations-Full Short Notes
3.Number of members
The maximum number of members allowed in private company is 200.
4.Financial year
The financial year in relation to company means the period ending on 31st day of
march every year and it has been incorporated on or after 1st day of January
5.Class Action Suit
This act introduced class action suit with a view of making shareholders and
other stakeholders more informed knowledgeable and conscious of their
right.
6.Composition of Board
Compulsory appointment of a woman director. At least one director should be
a person who has stayed in India for a period less than 182 days in previous
year.
Characteristics of a company
Voluntary association of a person.
A company has perpetual succession.
A company has separate legal entity.
The liability of a members of a company is limited.
A company has common seal.
It is an artificial person created by law.
It is managed by the board of directors.
The shares of company are freely transferable.
Kinds of Companies
On the basis of On the On the On the On the On the basis Other types of
incorporation basis of basis of basis of basis of of nationality companies
liabilities number of ownership control
members
Chartered Companies Private Government Holding National Small company
companies limited by Company companies companies companies
shares
Statutory Companies Public Non- Subsidiary Foreign Defunct
companies limited by company government companies companies company
guarantee companies
2. Statutory company
A company formed by a special statute or act passed by the
parliament is known as statutory company.
3. Registered company
The companies formed and registered under the companies act 2013 is known
as registered company.
3. Unlimited company
An unlimited company is a type of private company. It has some
features of limited company.
C. On the basis of number of members
1. Private Company
A company which is formed with a minimum number of 2 persons is known
as private company.
2. Public company
It is not a private company and has a minimum paid up share capital
of Five lakh rupees or such higher paid-up capital.
Difference between private company and public company
Private Company Public Company
Minimum number of members Minimum number of members
is two. is seven.
Maximum number of There is no maximum limit.
members is two hundred.
Transferability of shares is Shares are freely transferable
restricted.
Number of directors required There should be at least three
is two. directors.
There is no public invitation. Public invitation is allowed.
2. Subsidiary company
A company owned or controlled by another company is known as
subsidiary company.
2. Foreign company
A company incorporated outside India is known as foreign company.
2. Defunct companies
A defunct company is a company which have failed to commence its business
of its incorporation.
3. Dormant company
A company which is not active is known as dormant company.
Listed companies
A company its securities is listed on any recognized stock exchange is known
as listed companies.
Associate company
An associate company means a company which has a significant influence in
another company, but which is not subsidiary company of that company.
Nidhi’s
Nidhi means a company which has been incorporated with the object of
cultivating the habit of thrift and savings among its members.
Corporate Veil
It is a legal decision to treat the rights and duties of a corporation as a right or
liabilities of its shareholders.
Promotion
Promotion is the process of organizing and planning the finance of a business
under the corporate firm.
Promoter
A promoter is a firm or person who does the preliminary work related
to the formation of a company.
Types of Promoters
1. Professional promoters
These promoters take the promotion as their profession. Their interest
is promotion of business, not running of the business.
2. Occasional promoters
These promoters take interest in floating some companies. They are not
engaging in promotion work on a regular basis.
3. Entrepreneur promoters
They are both promoters and entrepreneurs.
4. Financial promoters
A promoter who provides and offer the financial services also is known
as financial promoters.
Function of a promoter
1. Discovery of business idea
2. Detailed investigation of the project.
3. Assembling various factors of production.
4. Preparing preliminary documents.
.
5. Entering preliminary documents.
6. Naming the companies.
7. Appointment of bankers, brokers etc.
Duties of a promoter
1. Duty to disclose the secret profit.
2. Duty to disclose all the material facts
3. Duty to disclose private arrangements
4. Duty of promoter against future allottees.
Liabilities of promoter
1. Liability to account in profit.
2. Liability in the misstatement in the property.
3. The promoter is personally liable for all contracts made by him on behalf
of the company.
Memorandum of Association
It is a legal document contains fundamental conditions of a company is
allowed to be incorporated.
Contents of memorandum
1. Name clause
2. Situation clause
3. Object clause
4. Liability clause
5. Capital clause
6. Association clause
1. Name clause
The first clause of a memorandum is the name of the proposed company.
Name of the company with the last word ‘limited’ in the case of public
company or the last words ‘private limited’ in the case of a private limited
company.
2. Situation clause
This clause mention name of the state in which the registered office of the
company is to be situated. It is also called registered office clause.
3. Object clause
This is the most important clause in memorandum. This states object of the
company. It means the type of the activities which the company carry on.
4. Liability clause
This clause states that nature of liability that the member incur. The liability
of the company whether limited or unlimited and also states company limited
by shares and company limited by guarantee.
5. Capital clause
This clause states that the capital of the company with which the
company is registered and division of share capital.
6. Association clause
This clause is also known as subscription clause. This clause states that the
purpose of the subscribers to incorporate the company, agreeing to take
the shares in the company based on the number written in the
memorandum
Articles of the Association
Articles of association is a document that defines the purpose of a company
and specifies the regulation for its operations.
Prospectus
Prospectus is a formal document. It is an invitation to offer to subscribe
for shares or debentures in the company.
Abridged prospectus
It means a memorandum containing salient features of a prospectus as may be
specified by the SEBI by making regulations in this behalf.
Shelf prospectus
It is a type of prospectus issued by companies making multiple issues of bonds
for raising fund.
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Module III
SHARES AND SHARE CAPITAL
Share
The capital of a company is divided into small units. Those units are
called share.
Stock
A set of shares put together in a bundle is called stock.
Difference between Shares and Stock
SHARES STOCK
It has nominal value It has no nominal value
It has distinctive numbers It has no such number
It is partly or fully paid up It is always fully paid up
It can be issued directly It cannot be issued directly
It transferred in multiple of one It transferred in fractions
Underwriting
Underwriting is an act of guarantee by an organization for the sale of certain
minimum number of shares and debentures issued by a public limited
company.
Underwriting commission
It is a compensation that an underwriter receives for placing a new issue
with investors.
Listing of Securities
It means enrolment of name of the company in the official list
maintained in the stock exchange.
Objectives of Listing
1. To ensure supervision and control of trading.
2. To mobilizes savings for economic development.
3. To protect interest of investors.
4. To create ready marketability and liquidity.
Advantages of listing
1. High liquidity
2. Facilitate buying and selling
3. Tax advantages
4. Fair price
5. Helps to raise finance
6. Protects investors
7. Good collateral securities
8. Get regular information
Limitations of listing
1. Speculation
2. No regular price quoting
3. Large amount of listing fees
4. Information to competitors
Sweat equity shares
Sweat equity shares are those shares issued by the company to its directors
and employees 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.
Forfeiture of shares
It means cancellation of shares due to non-payment of allotment money
within a specified period.
Share Certificate
It is a document issued by the company evidencing that a person named in such
certificate is the owner of the shares of the company
. Contents of a share certificate
1. Name and address of registered office.
2. Serial number of share certificate
3. Date of issue of share certificate.
4. Name and address of holder.
5. Number and class of shares.
6. Signature.
Share warrant
It is a document issued under the common seal of the company stating that
the bearer is entitled to the specified number of shares
. Transmission of shares
It is the passing of title or property in shares from one person to another
by the operations of law such as death, insolvency etc.…
Difference between Transfer and Transmission of shares
Transfer of shares Transmission of shares
It is voluntary. It is involuntary.
Transfer of shares take place at It is taken only at the time of
any time. death, insolvency, insanity.
Valid consideration exists. There is no consideration.
Bonus shares
Bonus shares are those shares which are issued by a company free of cost to
the existing shareholders of a company.
Dematerialization
It is a process of converting physical shares into digital or electronic form.
Advantages of Demit system
1. Immediate transfer of shares.
2. No stamp duty on transfer of securities.
3. Elimination of bad deliveries.
4. Elimination of loss or theft of shares.
5. It enables share transfer without involve much paperwork.
6. Faster and smoother settlement.
Disadvantages of Demit system
1. Dishonest stockbrokers.
2. Trading in stock maybe uncontrollable in case of dematerialization.
Depository Participant (DP)
It is described as an agent or the registered stock broker of a depository.
Module IV
Management of Companies
Director
A director means a director appointed to the board of a company. It means
the person who appointed for the management of the company.
Qualification of director
In Companies act, 2013 does not laid down any particular qualification for a
director, not even qualification of shares. Directors must hold qualification
shares. Nominal value of qualification shares of a director is fixed by the
articles of the company.
Disqualification of Directors
1. If he is unsound mind.
2. If he is undischarged insolvent.
3. He has been convicted by a court of any offence.
4. If he has not paid any call-in respect of shares of the company.
5. If he has not allotted the direct identification number.
6. If he has not filled the annual accounts for continuous three
financial year.
7. If he has not filed annual returns for continuous three financial year.
Role of directors
1. Directors as agents
A director is an agent of the company for the conduct of the business of the
company. Directors of a company have fiduciary relationship with the
company as well as shareholders when act as an agent.
2. Directors as trustees
Directors as trustee of the company's money and properties. They
safeguard them for and on behalf of the company.
3. Directors as employees
Where any director, besides being a director is also in the service or
employment of the company such as secretary, managing or otherwise he
will be treated as an employee.
4. Directors as managing partners
Directors are elected representatives of the shareholders and they are in a
position as managing directors.
Powers of directors
1. To call on shareholders in respect of money unpaid on shares.
2. To authorize buy back of shares.
3. To borrow monies.
4. To grant loans.
5. To issue securities.
6. To diversify the business of the company.
7. To approve amalgamation and merger.
8. To invest fund of the company.
Duties and Responsibilities of
directors’ Statutory duties
1. To verify truthiness of prospectus.
2. To determine amount of minimum subscription.
3. To keep register of members.
4. To convene annual general meeting.
5. To convene extra ordinary general meeting.
6. To send to the registrar the copies of resolution.
7. To keep register of mortgages and charges.
8. To submit statement of affairs at the time of winding up.
General duties
1. To exercise independent judgment.
2. To exercise reasonable care, skill and diligence.
3. To avoid conflicts of interest.
4. Not to accept benefits from third party.
5. To promote the success of the company for the benefits of its
members as a whole.
Rights of directors
1. Right to access company’s document and financial records.
2. Right to get remuneration.
3. Right to delegate duties.
4. Right to receive notice of board meeting.
5. Right to participate in board meeting.
6. Right to vote at board meeting.
7. Right to hold any number of directorships.
8. Right to claim reimbursement of business expenses.
Liabilities of directors
Liabilities of the directors can be classified into three types:
1. Liability to outsiders.
2. Liability to company
3. Criminal liability.
Appointment of directors
1. Appointment of first directors
a. By articles of the articles of the company.
b. By the subscribers to the memorandum of association.
2. Appointment of subsequent directors
a. By the company in general meeting.
b. By the board of directors.
c. By third party.
d. By tribunal.
e. By the principle of proportional representation.
Removal of directors
1. Removal by the share.
2. Removal by the tribunal.
3. Removal by central government.
1. Meeting of directors
The directors must hold their meetings as frequently as possible. These
meetings of the directors are known as board meetings.
3. Agenda
The term agenda means things to be done. It is aa statement of the business
to be transacted at a meeting.
4. Quorum
The quorum for a meeting of BODs of a company shall be 1/3rd of its total
strength or two directors whichever is higher.
5. Chairperson
Every meeting of the board must have chairperson to preside over it.
6. Resolution
Decisions are taken by directors by passing resolutions.
7. Voting
Each director has one board for each resolution put to vote at the meeting. In
case of an equality of votes, the chairperson shall have a second or casting
vote.
2. Meeting of shareholders
Shareholders meeting can be any of the following:
1. Annual general meeting
2. Extra ordinary meeting
3. Class meeting
At the meeting
1. To get the attendance register signed by the shareholders.
3. Meeting of Creditors
A company call the meeting of creditors, when the company proposes
to make a scheme for arrangement with its creditors.
2. Notice of meeting
The second requirement of a valid meeting is that a proper notice of meeting
should be given to the members. In addition to the members, notice should
be given to auditors, directors etc.
3. Quorum
Quorum means minimum number of members who must be present in the
meeting for validity of the meeting.
Duties of Chairman
a. To set the agenda.
b. To lead the meeting.
c. to maintain order at the meeting.
d. To ensure the conventions of the meeting are been followed.
e. To ensure members present at meeting.
f. To exercise his casting votes for interest of the company.
5. Minutes of meeting
Minutes is a clear and accurate record of the proceedings and the
decisions at a meeting.
Objectives of use of minutes
a. It provides a clear and accurate record of business transactions at a
meeting.
7. Proxy
A proxy is an authorized agent of member for the purpose of voting.
8. Resolution
A resolution represents the collective decision of the meeting.
Types of resolution
a. Ordinary resolution
It is one which require a single majority, that is the votes in favor should
exceed the votes against the resolution.
b. Special resolution
It is a resolution which is passed by at least three fourth majority of votes of
members on show of hands or electronically.
Difference between ordinary resolution and special resolution
Ordinary Resolution Special Resolution
It is required for ordinary It is required for special matters.
matters.
It is passed by simple majority of It is passed by at least 3/4th
votes. majority of members.
Company secretary
Company secretary is a principal officer responsible for the secretarial and
management of the company as per companies Act.
Winding Up
Meaning
It is a process of realization of assets, payment of liabilities and distribution of
surplus among the members of the company. It is also known as liquidation of
company.
Modes of winding up
a. Winding up by tribunal
b. Voluntary winding up
a. Winding up by tribunal
The company may require to wound up by the tribunal under the following
situations:
1. In the case of company does not pay debts amounts exceeding one
lakh rupees.
2. Shareholder’s resolution
Shareholders must meet and pass ordinary resolution or a special
resolution for the winding up of the company.
3. Meeting of creditors
The company should call a meeting of creditors and the majority should
agrees for winding up.
2. Consequences as to creditors
It is the duty of the liquidator to pay off all liabilities of the company.
4. Consequences as to cost
Assets of the company are insufficient to satisfy the liabilities, the court
may make an order for payment of cost of assets.
5. Consequences as to documents
Any document in the name of the company must contain a
statement that the company is wound up.
Liquidator
A liquidator is an officer who is specially appointed to wind up the affairs of
a company.
6. To raise any money required for the security of the asset of the
company.
Dissolution of a company
Dissolution of a company means existence of a company comes to an end.
The legal entity of the company The legal entity status comes to
continues. end.