Prospectus

'If the Prospectus had mentioned the possibility, it might have enhanced the value of
stocks'~ Ralph Nieders

A Prospectus is a legal document describing a company's security that has been put on sale.
It is a legal disclosure document that provides information about an investment offering to
the public, and that is required to be filed with the Securities and Exchange Commission
(SEC) or local regulator. The Prospectus contains information about the company, its
management team, recent financial performance, and other related information that
investors would like to know.

According to section 2(70) of Company's Act 2013, Prospectus can be defined as "any
document which is described or issued as a Prospectus" and also any notice, circular,
advertisement or any other document acting as an invitation to offers from the public. Such
an invitation to offer should be for the purchase of any securities of a corporate body. Shelf
Prospectus and red herring Prospectus are also considered as a Prospectus.

A Prospectus should be issued to public as an invitation for subscribing public share or

document. It can be issued directly by the company or on the behalf of company. Every
public company either issues a Prospectus or files a statement in lieu of Prospectus. This is
not mandatory for a private company. But when a private company converts from private to
public company, it must have to either file a Prospectus if earlier issued or it has to file a
statement in lieu of Prospectus.

Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement
of the Prospectus. This section states that when in any manner the advertisement of a
Prospectus is published, it is mandatory to specify the contents of the memorandum of the
company regarding the object, member's liabilities, amount of the company's share capital,
signatories and the number of shares subscribed by them and the capital structure of the
company.

The Prospectus benefits both the company and the investors. The Prospectus is the mirror
showing the reflection of the company. It by providing the details about the company helps
investors to make decision. The investors examine the financial status of a company to make
sure it is financially stable enough to uphold its obligations. The Prospectus is issued by the
company with the intention of raising funds. It helps company to acquire money from the
market. When it is Initial Public Offer of the company it helps in introducing the company to
the market.
Components of a Prospectus
Section 26 of Company's Act 2013, provides the details that a Prospectus should contain.
The Prospectus should be duly signed and dated for a public company.

A Prospectus should contain:

1. Name and registered address of the office, its secretary, auditor, legal advisor,
bankers, trustees, etc
2. Date of the opening and closing of the issue.
3. Statements of the Board of Directors about separate bank accounts where receipts
of issues are to be kept.
4. Statement of the Board of Directors about the details of utilization and non-
utilisation of receipts of previous issues.
5. Consent of the directors, auditors, bankers to the issue, expert opinions.
6. Authority for the issue and details of the resolution passed for it.
7. Procedure and time scheduled for the allotment and issue of securities.
8. The capital structure of the in the manner which may be prescribed.
9. The objective of a public offer.
10. The objective of the business and its location.
11. Particulars related to risk factors of the specific project, gestation period of the
project, any pending legal action and other important details related to the project.
12. Minimum subscription and what amount is payable on the premium.
13. Details of directors, their remuneration and extent of their interest in the company.
14. Reports for the purpose of financial information such as auditor's report, report of
profit and loss of the five financial years, business and transaction reports, statement
of compliance with the provisions of the Act and any other report.

As per section 26 of Company's Act 2013, the Prospectus of a company must be

issued only on the date of publication; it should not be issued before or after the
date. The copy of Prospectus should be delivered to the registrar for registration.
The Prospectus should also contain the date when it was delivered to the registrar.
The Prospectus should be signed by all the directors whose name has been
mentioned in the Prospectus.

Registration of Prospectus
Section 26(7) of the Act states that the registrar will register the Prospectus if:

 It fulfils the requirements of this section, i.e., section 26 of the Companies Act, 2013;
and
 It contains the consent of all the persons named in the Prospectus in writing.
Issue of Prospectus
The Prospectus of a company must be issued within 90 days of delivering the copy to the
registrar. If the Prospectus is not delivered within the prescribed time, it will be considered
invalid.

If the Prospectus is in contravention to the section 26 of the Act, it will be considered

invalid, and the company will be liable for fine under section 26(9) for Rs. 50,000 to Rs. 3,
00,000. If any person becomes aware of such Prospectus after knowing the fact that such
Prospectus is being issued in contravention of section 26 then he is punishable with the
following penal provisions.

Imprisonment up to a term of 3 years, or

Fine of more than Rs. 50,000 not exceeding Rs. 3,00,000

Types of Prospectus:

 Red Herring Prospectus

 Shelf Prospectus
 Abridged Prospectus
 Deemed Prospectus
 Red Herring Prospectus

Red Herring Prospectus

The Red Herring Prospectus does not include the full particulars of the price of securities. A
company planning to make an offer of securities can issue a red herring Prospectus before
the issue of the Prospectus. The companies file the red herring Prospectus with the ROC at
least 3 days before the opening the offer. The obligations of this are similar to that of any of
the Prospectus. The variations in the red herring Prospectus from the other Prospectus are
highlighted.

While closing an offer, the companies file the Prospectus with the ROC and Securities and
Exchange Board. It contains the information of the total capital raised whether, by share
capital or debt, the closing price of the offer and the other details left out in the red herring
Prospectus.

Shelf Prospectus
The companies file the Shelf Prospectus with the Registrar of Companies at the first stage of
the offer. The first offer indicates a period of validity, which does not exceed one year from
the date of opening the first offer. Moreover, it does not require a Prospectus for the
subsequent offers during the validity period.

While filing for Shelf Prospectus, the company should also file the information
memorandum. The information memorandum should contain all the material facts of the
created charges, the company's financial position changes. The companies should file the
memorandum within the stipulated time before the issue of the subsequent offers. The filed
information memorandum stays as a Prospectus along with shelf Prospectus whenever the
company makes an offer.

Abridged Prospectus
The abridged Prospectus is a summary of a Prospectus filed before the registrar. It contains
all the features of a Prospectus. An abridged Prospectus contains all the information of the
Prospectus in brief so that it should be convenient and quick for an investor to know all the
useful information in short. Section 33(1) of the Companies Act, 2013 also states that when
any form for the purchase of securities of a company is issued, it must be accompanied by
an abridged Prospectus. It contains all the useful and materialistic information so that the
investor can take a rational decision and it also reduces the cost of public issue of the capital
as it is a short form of a Prospectus.

Deemed Prospectus
As per Section 25(1) of the Companies Act, 2013, a document will be deemed to be a
Prospectus if the company agrees to allot or offer securities to the public. The document
from which the offer is made to the public for sale is deemed Prospectus. The document is
deemed to be a Prospectus of a company for all purposes and all the provision of content
and liabilities of a Prospectus will be applied upon it.

Conclusion
Prospectus is a formal legal document that provides details about the company to general
public. It invites investors for investing in the company in the form of shares, debentures or
any other investments. The Prospectus must be registered and according to the conditions
specified in the Act.

Every public company and private company who is converting in public company issues a
Prospectus or the Prospectus is issued on their behalf. It contains information about
management team and financial position of the company. It can be issued at various stages
of public offer. When a company is making a proposal for an offer of securities, then prior to
issuing a Prospectus, it may issue a red herring Prospectus.
A company can also issue a shelf Prospectus when it has to make an offer one or more
securities or class of securities and then it does not have to issue a Prospectus before issuing
an offer of each security.

Prospectus is an important document from the point of view of both company and investors
hence; it is governed by the Companies Act 2013.

Qns:- The Position Of Promoters Under Companies Act, 2013.

For the purpose of formation of a company there must be a process and that involves
several stages. In the first stage in the process is the promotion. At this stage the ideas of
carrying on a business is convinced by a person called promoters. For the incorporation of a
company various formalities are required to be carried out. The promoters perform these
functions and bring the company into existence. A promoter conceptualizes the idea of a
company and the purpose of its formation.

Meaning of Promoters:
The person who creates and makes a logical plan to modify and statutory existence of the
company. This person is called to be the Promoter.

Definition:
According to Companies Act, 2013 under section 2(69) "Promoter" can be defined as the
following:

 A person who has been named as such in a prospectus or is identified by the

company in the annual return to in section 92
 A person who has control over the affair of the company, directly or indirectly
whether as a shareholder, director or otherwise.
 A person who is in agreement with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act.

Types of promoters:

1. Professional Promoters:
The principal activity of such persons is promoting new companies. The inception of
a company and its promotion is very specialised and technical affair; and its always
 the case that a person who wants to promote a company is able to carry out all the
formalities that are part of the promotion process. Knowledge and experience are
the essential ingredients of successful promotion and professional promoters have
both . That is why they are paid for their service.

2. Occasional Promoters:
Such promoters are not professionals, they digress from their normal activities to
promote a company. They normally do the promotion themselves without the help
of professionals, and are also called accidental promoters".

3. Government:
In many countries, the government has started taking up promotional activity. In
India, the Central and state Government have promote many industrial and
commercial undertakings. There have been instances when the government has had
to undertake the promotional activity because of economic, social or national
reasons.

Rights of Promoters:

1. Rights to recover Initial Expenses:

Promoters have the rights to recover the capital they seek to and build to operate
the company. They payment of these expenses depends on a lot of directors.
Case: Melheldo V/s Porto Aljeyer Rail Co. 1874

2. Right to receive Proportionate amount from Co-promoters:

where more than one person act as the promoters of the company, one promoter
can claim against another promoter for the compensation and damages paid by him.
Promoters are severally and jointly liable for any untrue statement given in the
prospectus and for the secret profits.

3. Remuneration (right to receive):

The promoters work hard to build and run companies and for this the companies pay
them as reward this remuneration is paid by different companies in different way
which may be cash or debentures.

Functions of the Promoter:

1. To conceive an idea of forming a company and explore its possibilities.

2. To decide about the following:
 o The name of the company
o The location of its registered office
o The amount and form of its share capital
o The bankers
o The auditors
o The legal advisers
3. They get Memorandum of Association and Article of Association drafted and printed.
4. To make preliminary contracts with vendors, under writers etc.
5. To make arrangement for the preparation of prospectus, its filing , advertisement
and issue of capital.
6. To arrange for the registration of company and obtain the certificate of
incorporation.

Liabilities of Promoters:

1. Liability to account in profit:

The promoter is liable to account to the company for all secret profits made by him
without full disclosure to the company. The company may adopt any one of the
following two courses if promoters fails to disclose the profit.

o The company can sue the promoter for an amount of profit and recover the
same with interest.
o The company can rescind the contract and can recover the money paid.

2. Liability For Mis-Statement In The Prospectus:

Section 62(1), hold the promoter liable to pay compensation to every person who
subscribes for any share or debentures on the faith of the prospectus for any loss or
damage sustained by the reason of any untrue statement included it. Section 62,
also provides certain ground on which a promoter can avoid his liability. Section 63,
provide for criminal liability for misstatement in the prospectus and a promoter may
also become liable under this act.

3. Personal Liability:
The Promoter is personally liable for all contracts made by him on behalf of the
company until the contracts have been discharged or the company takes over the
liability of the promoter. The dead of promoter does not relieve him from liabilities.

4. Liability at the time of winding up of the company:

In the course of winding up of the company, on an application made by official
liquidator the court may make a promoter liable for misfeasance or breach of trust.
Legal position of Promoters:
The promoter is neither a trustee nor an agent of the company because there is no company
yet in existence. The correct way to describe his legal position is that he stands in a fiduciary
position towards the company about to be formed.

From the fiduciary position of promoters the two important result follows:

1. A promoter cannot be allowed to make any secret profits. If it is found that in any
particular transaction of the company he has obtained a secret profit for himself, he
will be bound to refund the same of the company.

2. The promoter is not allowed to derive a profit from the sale of his own property to
the company unless all material facts are disclosed. If he contracts to sell his own
property to the company without making a full disclose, the company either
repudiate the sale or affirm the contracts and recover the profit made out of it by
the promoter.

Conclusion:
The promoters surely plan an important role in the company's establishment and its
success. Whether it be dealing with the professional or employing the workers, the
promoters help in the best possible way to set up the company.

Qns:- Steps In Formation Of A Company?

Meaning Of A Company: At the outset, it is very essential to understand the meaning of a

company. The company is defined under Section 2(20) of the Companies Act, 2013. As per
the section, a company is an association of a person who has a separate legal entity and
has a perpetual succession. The capital of the company is divided into small
denominations known as “shares”.

The term “separate legal entity” means that the company has a different existence from its
shareholders. The company can hold assets in its name and can be sued or be sued. Similarly,
“perpetual succession” means that the members may come or go, but the company will
remain forever.

Steps In Formation Of Company

The formation of a company is a complex process that involves the completion of legal
formalities and procedures. In order to understand the complete process, the formalities are
divided into three distinct

Stages of formation of company namely:

1. Promotion;
2. Incorporation
3. Subscription of capital
Promotion Of A Company

It is the first stage in the formation of a company. It involves creating a new business idea and
taking initiatives to form a company to bring that idea into reality. An individual, group of
individuals or even a company may have discovered an opportunity. Such persons or groups
of persons are known as the promoter of the Company.

The steps involved in the promotion stage are as follows-

Identification Of Business Opportunity:

The primary responsibility of a promoter is to identify a business opportunity. The opportunity

may arise relating to producing a new product or making existing service available through an
alternative channel. After finding the opportunity, it is analysed to see its technical and
economic feasibility. Only after these investigations provide a favourable picture, the
promoters may decide to actually incept a company.

Name Approval:

After deciding the prospective profitability of the company, it is time to select the name of
the company. For this purpose, an application is made to the registrar of companies of the
state in which the registered office of the company is going to be situated. The name of the
company shouldn’t resemble the name of any existing company. Further, usage of words like
king, queen, national emblem, etc are also prohibited for this purpose.
Fixing Up Signatories To The Memorandum Of Association (MOA)

The promoters of the company decide the signatories of the Memorandum of Association of
the proposed company. Usually, it is observed that the people signing the MoA of a company
are also the first Directors of the Company. However, they need to give written consent to
act as Directors and take all the responsibilities attached thereto.

Appointment Of Professionals:

During the process of incorporation, certain professionals such as mercantile bankers,

auditors etc., are appointed by the promoter to assist the proposed company in filing
necessary documents with the Registrar of Companies. The details of all the shareholders
along with the amount of the shares subscribed by them also need to be submitted.

Incorporation

It refers to that process by which the company came into existence. It involves the submission
of various documents with the Registrar of Companies (ROC) for the formation of a company.

Documents Required For Incorporation

 Memorandum of Association
The Memorandum of Association is the most important document which is often understood
as the constitution of the company. The company is bound by the terms mentioned in the
MOA. It contains the following clause

1. Name clause
2. Registration clause
3. Object clause
4. Liability clause
5. Capital clause
Memorandum of Association-definition and format of MoA

 Article of Association
The Articles of association are the special document that governs the internal relations of a
company. It contains all the details pertaining to the managerial rules and regulations
followed by the company. The articles of a company shall be in respective forms as specified
in Table F, G, H, I and J in the schedule as may be applicable to such company.

 Consent of Proposed Directors:

Apart from the MOA and the AOA of the company, the written consent of each director is
required to be submitted with the registrar of companies. They should specify that they have
the requisite qualifications for this post and agree to take responsibility for the same. This
statement is filed as per the DIR 12 form.

Agreement:
The agreement determines the key managerial persons of the company including the
managerial director, whole-time director, company secretary, etc.

 Statutory Declaration
At this stage, the last document is a declaration stating that the company has complied with
all the legal provisions and all the necessary documents have been submitted to the Registrar.
In case, such information proves to be false, criminal action may initiate against the directors
as well as the promoters.

If the Registrar is satisfied with regards to the completion of formalities, he issues a Certificate
of Incorporation to the company, which is also known as the birth of the company. From
November 1, 2000, the Registrar of Companies gives a CIN (Corporate Identity Number) to
the Company.

Effect Of The Certificate Of Incorporation

It is believed that a company is legally born on the date which is printed on the Certificate of
Incorporation. After receiving the certificate, It becomes a legal entity with a perpetual
succession on such date. The company is entitled to enter into valid contracts through its
name. This Certificate is conclusive evidence of the regularity of the incorporation of a
company. It is solid proof of the existence of a company. The company can sue another party
or it can be sued after incorporation.
Capital Subscription Stage

A company can’t run without capital. Just like food is needed for a human body to survive,
similarly, adequate capital is needed for the survival of a business and the formation of a
company. After incorporation, one of the important steps is to arrange finance for the
company. There are various sources of finances such as private equity, venture capital, bank
loan, etc. However, the most prominent and widely used source is to get capital from the
public.

This involves the following steps-

SEBI Approval

SEBI (Securities and Exchange Board of India) is the apex body governing all the securities-
related transactions in India. A public company that wants to raise money from the public
must make adequate disclosure to the SEBI. It must

not conceal any material information from the potential investors to safeguard their interests.
Therefore, prior approval from SEBI is required before raising funds from the public.

Filing Of Prospectus

The company is also required to file a copy of the prospectus or statement in lieu of the
prospectus with the ROC. A prospectus is a document that invites deposits from the public
or inviting offers from the public for the subscription or purchase of the shares of the
company. In simple words, it is an invitation given to the public at large. It is essential that all
the information provided in the prospectus must be true and all the material facts must be
disclosed.

Appointment Of Bankers, Brokers, Etc.

For raising funds, bankers, brokers, etc played a very vital role. The application money is
received by the bankers of the company. The brokers sell the shares through the distribution
of forms and encourage the public to apply for the shares. If the company is not fully assured
of a good response from the public, it may appoint an underwriter for this purpose.
Underwriters undertake to subscribe to the shares of the company if these are not subscribed
by the public. They charge a commission for this service.

Minimum Subscription:

As per SEBI rules, it is essential that a minimum of 90% of people subscribe to the shares of
the company. It aims to ensure that the company must receive applications for a certain
minimum number of shares before going ahead with the

allotment of shares. As per the Companies Act, 2013, it is called the ‘minimum
subscription’.Thus, if applications received for the shares are for an amount less than 90 per
cent of the total amount, the company can’t issue its share to the public.

Application To Stock Exchange:

As per the Companies Act, it is essential for a public company to make an application to at
least one stock exchange to seek their permission for dealing in its shares or debentures. If
such permission is not granted within ten weeks from the last date of subscription, the entire
allotment becomes void and the company has to return money to all the shareholders within
8 days.

Allotment Of Shares:

Before the shares are allotted, the money received from the shareholders shall be kept in a
separate escrow account and must not be used by the company. It is important to note that
if the number of shares allotted is less than the number applied by the shareholder or in a
condition wherein no shares are allotted to the applicant, the excess application money shall
be returned to applicants or it can be adjusted towards allotment money due from them.

Conclusion : The formation of a company involves procedural as well as legal requirements.

Various documents, ranging from Memorandum of Association to Articles of Association are
submitted to the Registrar of Companies. The registrar after satisfying itself with all the legal
formalities issues a certificate of incorporation, which is proof of the existence of the
company.
Qns:- Registration and Incorporation of a Company.

The Companies Act, 2013 details the regulations and company registration papers essential for
the incorporation of a company. In this article, we will understand all such rules and
documents listed in the Act. To begin with, let’s define the promoters of a company.

Promoters

Section 2(69) of the Companies Act, 2013, defines promoters as an individual who:-

 Is named as a promoter in the prospectus or in the annual returns of

the company.

 Controls the affairs of a company, directly or indirectly.

 Advises, directs, or instructs the Board of Directors.

Hence, we can say that promoters are people who originally come up with the idea of the
company, form it and register it. However, solicitors, accountants, etc. who act in their
professional capacity are NOT promoters of the company.

Formation of a Company

Section 3 of the Companies Act, 2013, details the basic requirements of forming a company as
follows:

 Formation of a public company involves 7 or more people who subscribe their

names to the memorandum and register the company for any lawful purpose.

 Similarly, 2 or more people can form a private company.

 One person can form a One-person company.

Registration or Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for incorporation of a company.
Here is the procedure:

Filing of company registration papers with the registrar

To incorporate a company, the subscriber has to file the following company registration papers
with the registrar within whose jurisdiction the location of the registered office of the
proposed company falls.
 1. The Memorandum and Articles of the company. All subscribers have to sign on
the memorandum.

2. The person who is engaged in the formation of the company has to give a
declaration regarding compliance of all the requirements and rules of the Act. A
person named in the Articles also has to sign the declaration.

3. Each subscriber to the Memorandum and individuals named as first directors in

the Articles should submit an affidavit with the following details:

i. Declaration regarding non-conviction of any offence with respect to

the formation, promotion, or management of any company.

ii. He has not been found guilty of fraud or any breach of duty to any
company in the last five years.

iii. The documents filed with the registrar are complete and true to the
best of his knowledge.
4. Address for correspondence until the registered office is set-up.

5. If the subscriber to the Memorandum is an individual, then he needs to provide

his full name, residential address, and nationality along with a proof of identity. If
the subscriber is a body corporate, then prescribed documents need to be
provided.

6. Individuals mentioned as subscribers to the Memorandum in the Articles need to

provide the details specified in the point above along with the Director
Identification Number.

7. The individuals mentioned as first directors of the company in the Articles must
provide particulars of interests in other firms or bodies corporate along with their
consent to act as directors of the company as per the prescribed form and
manner.
Issuing the Certificate of Incorporation

Once the Registrar receives the information and company registration papers, he registers all
information and documents and issues a Certificate of Incorporation in the prescribed form.

Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to the company which is a
distinct identity for the company. The allotment of CIN is on and from the company’s
incorporation date. The certificate carries this date.
Maintaining copies of Company registration papers

The company must maintain copies of all information and documents until dissolution.

Furnishing false information at the time of incorporation

During the formation of a company, an individual can:

 Furnish incorrect or false information

 Suppress any material information in the documents provided to the Registrar for
the incorporation, on purpose

In such cases, the individual is liable for action for fraud under section 447.

The company is already incorporated based on false information

If a company is already incorporated but it is found at a later date that the information or
documents submitted were false or incorrect, then the promoters, first directors, and persons
making a declaration is liable for action for fraud under section 447.

Order of the National Company Law Tribunal (NCLT)

If a company is incorporated by furnishing false or incorrect information or representation or

suppressing material facts or information in the documents furnished, the Tribunal can pass
the following orders (if an application is made and the Tribunal is satisfied with it):

 Pass an order to regulate the management of the company. It can include

changes in its Memorandum and Articles if required. This order is either in public
interest or in the interest of the company and its members and creditors.

 Make the liability of its members unlimited

 Order removal of the name of the company from the Registrar of Companies

 Order the company to wind-up

 Pass any other order as it deems fit

Before passing an order, the Tribunal has to give the company a reasonable opportunity to
state its case. Also, the Tribunal should consider the transactions of the company including
obligations contracted or payment of any liability.

Effect of Registration of a Company

According to Section 9 of the Companies Act, 2013, these are the effects of registration of a
company:

 From the date of incorporation, the subscribers to the Memorandum and all
subsequent members of the company are a body corporate.

 A registered company can exercise all functions of a company incorporated

under the Act. Also, the company has perpetual succession with power to
acquire, hold, and dispose of property of all forms. Also, it can contract, sue and
be sued by the said name.

 Further, the company becomes a legal person separate from the incorporators
from the date of incorporation. Also, a binding contract comes into existence
between the company and its members as mentioned in the Memorandum and
Articles of Association. Until the company dissolves or the Registrar removes it
from the register, it has perpetual existence.

Qns:- DOCTRINE OF INDOOR MANAGEMENT

Introduction:

The doctrine of indoor management, also known as the Turquand rule, is a concept that has
been in existence for over 150 years. This principle provides a protective shield to external
parties or outsiders against the actions carried out by a company.

When a person enters into a contract with a company, they must ensure that the transaction
is sanctioned by the company's memorandum and articles of association. There's no
requirement to delve into internal irregularities. Even if such irregularities exist, the company
would be held accountable as the person acted in good faith or bona fide.

To fully understand this doctrine, it's important to first grasp the concept of the doctrine of
constructive notice. Both the doctrine of indoor management and constructive notice will be
discussed in detail below.

The Doctrine of Constructive Notice:

As per the Companies Act 2013, Section 399, any person may inspect any documents
maintained with the Registrar of Companies after paying the prescribed fees. Any person can
also obtain a copy of any document including the certificate of incorporation from the
Registrar.
In line with this provision, the Memorandum of Association and the Articles of Association are
public documents once they are filed with the Registrar. Any person may inspect the same
after paying the prescribed fees. Special resolutions also need to be registered with the
Registrar under the Companies Act, 2013.

The doctrine presumes that every person is aware of the contents of the Memorandum of
Association, Articles of Association, and every other document, such as a special resolution as
it is filed with the Registrar and available for public inspection.

This principle was upheld in the landmark case of "Smith v. Eastwood" where it was
established that if any person enters into a contract that is inconsistent with the company's
Memorandum and Article, they will not secure any rights against the company, and will bear
the consequences themselves.

Origin of the Doctrine of Indoor Management:

The doctrine originated from the landmark case "Jones v. Lipman" (1962). The facts of the
case are as follows: The company's articles provided for the borrowing of money on bonds,
which required a special resolution to be passed in the General Meeting. The management
borrowed the loan but failed to pass the resolution. When the loan repayment defaulted, the
company was held responsible. The shareholders refused to accept the claim without a trace
of the resolution. They maintained that the company would be liable since the person dealing
with the company is entitled to assume that there has been necessary compliance with the
internal management.

This rule was also adopted by the Supreme Court in "Adams v. Cape Industries plc" (1990). In
this case, the company's articles stated that the cheque would be signed by two Directors and
countersigned by the Secretary. It later came to light that neither the Directors nor the
Secretary who signed the cheque were properly appointed. It was held that the person
receiving such a cheque would be entitled to the amount since the appointment of directors
is a part of the internal management of the company, and a person dealing with the company
is not required to enquire about it.

The above view held in the case of "Adams v. Cape Industries plc" is supported by Section 176
of the Companies Act, 2013, which states that the defects in the appointment of the director
or directors will not invalidate the acts done.

The doctrine provides protection to outsiders who enter into a contract with the company
against any irregularities in the internal procedure of the company. Outsiders can't discover
internal irregularities that occur in a company, hence, the company will be held liable for any
loss suffered by them due to these irregularities.
While the doctrine of constructive notice protects the company against the claims of
outsiders, the doctrine of indoor management protects the outsiders against the company's
procedures.

Exceptions to the Doctrine of Indoor Management:

There are certain exceptions to the doctrine that have been judicially established, which
provide circumstances under which the benefit of indoor management cannot be claimed by
a person dealing with the company.

Knowledge of Irregularity:

This rule does not apply to situations where the person affected has actual or constructive
notice of the irregularity. In the case of "Rolled Steel Products (Holdings) Ltd v. British Steel
Corporation" (1986), the company's articles allowed the directors to borrow up to a certain
limit. The limit could be raised provided consent was given in the General Meeting. Without
the resolution being passed, the directors borrowed a larger amount from one of the directors
who took debentures. It was held that the company was liable only to the extent of the
original limit. Since the directors knew the resolution was not passed, they couldn't claim
protection under Turquand's rule.

Suspicion of Irregularity:

If any person dealing with the company is suspicious about the circumstances surrounding a
contract, then they should enquire into it. If they fail to enquire, they cannot rely on this rule.

In the case of "Bratton Seymour Service Co Ltd v. Oxborough" (1992), the plaintiff accepted
the transfer of property from the accountant. The Court held that the plaintiff should have
obtained a copy of the Power of Attorney to confirm the authority of the accountant.
Therefore, the transfer was considered void.

Forgery:
Transactions involving forgery are void ab initio (null and void) as it's not a case of absence of
free consent; it's a situation of no consent at all. This was established in the "Ashbury Railway
Carriage and Iron Co Ltd v. Riche" (1875) case. A person was issued a share certificate with a
common seal of the company. The signature of two directors and the secretary was required
for a valid certificate. The secretary signed the certificate in his name and also forged the
signatures of the two directors. The holder argued that he was unaware of the forgery, and
he isn't required to look into it. The Court held that the company is not liable for forgery
committed by its officers.
Doctrine of Indoor Management

The doctrine of indoor management, also known as the Turquand rule is a 150-year old
concept, which protects outsiders against the actions done by the company.

Any person who enters into a contract with the company shall ensure that the transaction is
authorised by the articles and memorandum of the company. There is no requirement to look
into the internal irregularities, and even if there are any irregularities, the company shall be
held liable since the person has acted on the grounds of good faith.

To absorb the concept of this doctrine, it is important to understand the concept of the
doctrine of constructive notice. Both the concept of indoor management and constructive
notice is explained below.

Doctrine of Constructive Notice

Section 399 of the Companies Act, 2013 states that any person may, after payment of the
prescribed fees inspect by electronic means any documents kept with the Registrar of
Companies. Any person can also obtain a copy of any document including the certificate of
incorporation from the Registrar.

In line with this provision, the Memorandum of Association and the Articles of Association are
public documents once they are filed with the Registrar. Any person may inspect the same
after payment of the fees prescribed. The special resolutions are also required to be
registered with the Registrar under the Companies Act, 2013.

The doctrine presumes that every person has knowledge of the contents of the Memorandum
of Association, Articles of Association and every other document such as special resolutions
as it is filed with the Registrar and available for public view.

This principle has been upheld in the landmark case of Oakbank Oil Co. V. Crum (1882) 8
A.C.65. Thus, if any person enters into a contract, which is inconsistent with the company’s
Memorandum and Article, he shall not acquire any rights against the company and shall bear
the consequences himself.

Origin of Doctrine of Indoor Management

The doctrine originated from the landmark case Royal British Bank V Turquand (1856) 6 E&B
327. The facts of the case are as follows. The Articles of the company provide for the
borrowing of money on bonds, which requires a resolution to be passed in the General
Meeting. The directors did acquire the loan but failed to pass the resolution. The repayment
on loan defaulted, and the company was held liable. The shareholders refused to accept the
claim in the absence of the resolution. Held, the company shall be liable since the person
dealing with the company is entitled to assume that there has been necessary compliance
with regards to the internal management.

The rule was further endorsed by the House of Lords in Mahony V East Holyford Mining
Co. [1875] LR 7 HL 869. 6. In this case, the Articles of the company provided that the cheque
shall be signed by two directors and countersigned by the secretary. It later came to light that
neither the directors nor the secretary who signed the cheque was appointed properly. Held,
the person receiving such cheque shall be entitled to the amount since the appointment of
directors is a part of the internal management of the company and a person dealing with the
company is not required to enquire about it.

The above view held in the case of House of Lords in Mahony V East Holyford Mining Co. is
supported by Section 176 of the Companies Act, 2013, which states that the defects in the
appointment of the director shall not invalidate the acts done.

The doctrine provides the third parties who enter into a contract with the company is
protected against any irregularities in the internal procedure of the company. The third
parties cannot find out internal irregularities that take place in a company, hence the
company will be liable for any loss suffered by them due to these irregularities.

The doctrine of constructive notice protects the company against the claim of third parties
while the doctrine of indoor management protects the third parties against the company
procedures.

Exceptions to the Doctrine of Indoor Management

Listed below are the exceptions to the doctrine that have been judicially established, which
provide circumstances under which the benefit of indoor management cannot be claimed by
a person dealing with the company.

Knowledge of Irregularity

This rule does not apply to circumstances where the person affected has actual or
constructive notice of the irregularity. In Howard V Patent Ivory Manufacturing
Company (1888) 38 Ch D 156, the Articles of the company empowered the directors to
borrow up to 1,000 pounds. The limit could be raised provided consent was given in the
General Meeting. Without the resolution being passed, the directors took 3,500 pounds from
one of the directors who took debentures. Held, the company was liable only to the extent of
1,000 pounds. Since the directors knew the resolution was not passed, they could not claim
protection under Turquand’s rule.

Suspicion of Irregularity

In case any person dealing with the company is suspicious about the circumstances revolving
around a contract, then he shall enquire into it. If he fails to enquire, he cannot rely on this
rule.

In the case of Anand Bihari Lal V Dinshaw & Co, (1946) 48 BOMLR 293, the plaintiff accepted
a transfer of property from the accountant. The Court held that the plaintiff should have
acquired a copy of the Power of Attorney to confirm the authority of the accountant. Thus,
the transfer was considered void.

Forgery

Transactions involving forgery are void ab initio (null and void) since it is not the case of
absence of free consent; it is a situation of no consent at all. This has been established in
the Ruben V Great Fingall Consolidated case [1906] 1 AC 439. A person was issued a share
certificate with a common seal of the company. The signature of two directors and the
secretary was required for a valid certificate. The secretary signed the certificate in his name
and also forged the signatures of the two directors. The holder contented that he was not
aware of the forgery, and he is not required to look into it. The Court held that the company
is not liable for forgery done by its officers.

Examples of Doctrine of Indoor Management

 Abc received a cheque from Xyz company. The Articles of Association of Xyz
company provided that cheques issued by the company need to be signed by
two directors and countersigned by the secretary. The directors nor the
secretary who signed the cheque was appointed properly and thus the cheque
issued was not valid. Abc sued the company for the irregularities in the
procedure. Is Abc liable for relief?
Answer: Abc is entitled to relief and the company has to pay the amount of the cheque since
the appointment of directors is a part of the internal management of the company and a
person dealing with the company is not required to enquire about it.

 Xyz receives a share certificate of ABC Limited issued under the seal of the
company. The company secretary issues the certificate after affixing the seal and
forging the signature of the two directors. Xyz files a lawsuit claiming that the
forging of signatures is a part of the internal management of the company. Is the
claim by Xyz valid and is liable to get relief?

Answer: According to the exceptions to the doctrine of indoor management, a transaction

involving forgery is null and void. Since the document issued to Xyz is null and void, the claim
made by him is not valid. Thus, he is not entitled to any relief.

Frequently Asked Questions

Why is it known as the Turquand rule?

The doctrine of indoor management is also known as the Turquand rule as this doctrine was
founded in the case of ‘Royal Bank v Turquand’. It was in the Turquand case, the court held
that the outsiders are bound to know the external position of the company, but are not bound
to know its indoor management. Thus, it is called the Turquand rule.

Is there any provision for the doctrine of indoor management under the Companies Act, 2013?

No. There is no specific provision relating to the doctrine of indoor management under the
Companies Act, 2013. However, the courts in India have recognised this doctrine in various
cases and thus followed in India.

Is the doctrine of indoor management applicable in India?

Yes. The Indian courts have applied the doctrine of indoor management in cases like ‘Dewan
Singh Hira Singh v. Minerva Mills Ltd’. In this case, under the company’s articles, the directors
had the power to allot only 5,000 shares. However, they allotted above 13,000 shares.

The Court held that the allottees of shares were contracting in good faith with the company,
and they were entitled to assume that the acts of the directors in making allotments to them
were within the scope of their powers conferred upon them by the shareholders of the
company. They were not bound to inquire whether the acts of the directors which related to
internal management had been properly and regularly performed.
What is the basis of the doctrine of indoor management?

The doctrine of indoor management is based on obvious reasons of convenience in business

relations for third parties with a company. It is based on the rule that what happens internally
in a company is not a matter of public knowledge. An outsider can only presume the
intentions of a company, but not know the information he/she is not privy to. If not for this
doctrine, the company could escape creditors by denying the authority of officials to act on
its behalf.

Qns:- CUSTODIAN OF SHARE CERTIFICATES

The concept of a custodian of share certificates involves an entity or individual responsible

for the safekeeping and management of share certificates on behalf of shareholders. Here are
key aspects of this concept:

1. *Safekeeping:* The primary role of a custodian is to securely store share certificates,

whether in physical or electronic form, to prevent loss, theft, or damage. This safeguards the
proof of ownership in a company.

2. *Transfer and Record Keeping:* Custodians facilitate the transfer of shares between
shareholders and maintain accurate records of ownership. This includes updating share
certificates to reflect changes in ownership due to buying, selling, or other transactions.

3. *Dividend Distribution:* In some cases, custodians handle the distribution of dividends to

shareholders. This involves ensuring that dividends are accurately credited to the accounts of
the beneficial owners.

4. *Corporate Actions:* Custodians play a role in managing corporate actions such as mergers,
acquisitions, or stock splits. They ensure that necessary adjustments are made to share
certificates in accordance with these events.

5. *Proxy Voting:* Depending on arrangements, custodians may handle proxy voting on

behalf of shareholders. This involves exercising voting rights during shareholder meetings
based on the instructions of the beneficial owners.

6. *Communication:* Custodians communicate important information from the company to

the shareholders. This may include annual reports, notices of meetings, and other relevant
updates.
7. *Compliance:* Custodians need to comply with relevant laws and regulations governing
the safekeeping and management of securities. This includes adhering to industry standards
and legal requirements.

8. *Anti-Money Laundering (AML) and Know Your Customer (KYC):* Custodians often have
procedures in place to comply with AML and KYC regulations, ensuring that the ownership of
shares is legitimate and in accordance with regulatory standards.

9. *Confidentiality:* Custodians are typically bound by confidentiality obligations to protect

the sensitive information related to share ownership and transactions.

10. *Transfer and Transmission:* Custodians assist in the proper transfer and transmission of
shares, whether due to sale, inheritance, or other legal events, ensuring that changes in
ownership are accurately reflected.

Overall, the custodian of share certificates plays a vital role in maintaining the integrity and
security of the ownership structure of a company's shares, facilitating smooth transactions,
and ensuring compliance with legal and regulatory requirements.

Qns:-Share: Meaning,Definition And Types

Meaning Of Shares
Capital of the company is divided into number of indivisible units of a fixed amount each of which
is called shares according to section 2 (84) of the companies act; 2013. Share is a share in the
capital of company includes stock except where a distinction between stock and shares express
or implied.

The sale of goods act 1930 includes share in the definition of goods .

Features Of Shares

1. Share is a movable property.

2. Share is regarded as goods under the Goods Act.
3. Share gives right and liability to the holder.
4. Share is different from stock.

Definition Of Share
According to section 2(84) share is share in the capital of company and includes stock except
where a distinction is made between stock and share is expressly or impliedly provided.
Definition Under The Sale Of Goods Act; 1913
Share is defined under the sale of goods Act as Goods.

In the case of Borland Trustee Vs . Steel Brothers, 1901.

Justice Farewell define the term shares as a share is the interest of share holder in the
company measured by sum of money for the purpose of liability in the first place and interest of
in second place but also consisting of a series of mutual covenant entered into by all the share
holder in accordance with the companies act.

Types Of Shares

Under the companies act,2013 A company can issue only two kind of shares:

1. Preference share capital.

2. Equity share capital

a. With voting rights

b. With differential right as to dividend voting right as to dividend voting or otherwise

Note. However section 50 of companies act provide that a private company which is not a
subsidiary of a public company may issue shares of such other kind as it may think fit.

Preference Shares
Preference shares are those which carry a right to be paid affixed amount dividend and a right to
be paid the amount of capital in the event of windingup .

Note.The article of the company may provide some other to the preference share holder.

Types Of Preference Share

1. Cumulative preference shares

2. Non-cumulative preference shares
3. Participating preference shares
4. Non-participating preference shares
5. Convertible preference shares
6. Non-convertible preference shares
7. Redeemable preference shares
Cumulative Preference Shares
These share is entitled to dividend a fix rate .the company phase dividend if it has sufficient
profit in case of insufficiency dividend will go on a cumulating till it is fully paid of such arrears
are carry forward to the next year and are actually paid of the subcequent year profit .

Non Cumulative Preference Share

Non cumulative preference shares are those shares on which the arrears of dividend do not
accumulate if in a particular year there are no profits the share holder shall not get anything.

Participating Preferencial Shares

The holder of such shares are to receive dividend at a fix rate and in addition they have right
to participate in the surplus profits along with equity share holder after dividend at a certain
rate has been paid to equity share holder. In the event of windingup if there are surplus assets
then the holders of such share shall be entitled to share in the surplus assets as well.

Non Participating Preference Share

The holder of such shares are entitled to wholly fixed rate of dividend and do not participate
further in surplus profits.

Convertible Preference Shares

These preference shares holder have a right to convert these shares into equity shares within
a certain period.

Non Convertible Preference Share

These preference share holder have no right to convert there shares into equity shares.

Redeemable Preferencen Share

A company limited by shares if authorized by its article may issue preference shares which
are to be redeemed after a certain fixed period .Thus the amount received on such shares can
be returned during the lifetime of the company. subject to condition given under section 55
of companies act.

Equity Shares
Equity shares means all shares which are not preferencial shares.]
Qns:- Doctrine of Ultravires.

Meaning
Ultra vires is a Latin phrase that interprets to beyond the powers. this implies that somebody is
acting on the far side the scope of the authority or power that's granted to him by law, contract, or
agreement. ultra vires is opposite from intra vires, that is Latin for within the powers. If somebody
desires the legal authority to try to one thing, and so acts among that granted authority, then he's
acting intra vires. For instance, ultra vires actions may be deemed invalid when the very fact,
whereas acts that performed intra vires measure to be valid.

Introduction
The Doctrine of ultra vires is related to actions taken by a private in relevancy corporation or
company. Each company has what's known as a Memorandum of Association of Company
(Memorandum), that is the company's constitution. The memorandum defines the company's
objectives, powers, and areas of operation, each internal and external. The memorandum are an
overview and a guide that the executives of the corporate will follow to make sure of the scope of
their own powers, and what lines they can't and may not cross.

This commitment to uphold the company's memorandum is cited as doctrine of ultravires. If the
corporate performs an act that's on the far side the scope of the powers afforded to that by its
memorandum, then that act is ultra vires, or on the far side its powers. The Doctrine of ultravires
could be a reasonably policy that reassures a company's shareholders and creditors that the
corporate won't use their assets or funds for any functions aside from people who afforded to
that, and such that among the ultra vires school of thought.

The Doctrine of ultra vires could be a basic rule of Company Law. It states that the objects of a
corporation, as laid out in its memorandum of Association, may be departed from solely to the
extent allowable by the Act. Hence, if the corporate will act, or enters into a contract on the far
side the powers of the administrators or the corporate itself, then the aforesaid act/contract is
void and not wrongfully binding on the corporate.
The term ultra vires means that Beyond Powers. In legal terms, it's applicable solely to the acts
performed in way over the legal powers of the someone. This works on assumption that the
powers restricted in nature. Since the Doctrine of ultra vires limits the corporate to the objects
laid out in the memorandum, the corporate will be:

 Restrained from exploitation its funds for functions aside from those laid out in the
memorandum
 Restrained from carrying on trade totally different from the one licensed.

The company cannot sue on ultra vires dealings. Further, it cannot be sued too. If a corporation
provides product or offers service or lends cash on Associate in Nursing ultra vires contract, then
it cannot get payment or recover the loan. However, if an investor loans cash to a corporation
that has not been extended nevertheless, then he will stop the corporate from parting with it via
Associate in Nursing injunction.

The investor has this right as a result of the corporate doesn't become the owner of the money
because it is ultra vires to the corporate and also the investor remains the owner. Further, if the
corporate borrows cash in ultra vires dealings to repay a legal loan, then the investor is entitled to
recover his loan from the corporate.
Sometimes act that is ultra vires may be regularised by the shareholders of the corporate. for
instance:

 If act is ultra vires the facility of administrators, then the shareholders will validate it.
 If act is ultra vires the Articles of the corporate, then the corporate will alter the Articles.

Remember, you cannot bind a corporation through ultra vires contract. Estoppel, acquiescence,
lapse of your time, delay, or approval cannot build it Intra vires

Effects of an Ultra Vires Act

The effects of an ultra vires act may be summed up as follows:

 An ultra vires act is going to be totally void and it'll not bind the corporate; neither the
company nor the outsider will enforce the contract.
 Any member of the corporate will bring injunction against the corporate to stop it from
doing any ultra vires act.
 The administrators of the corporate are going to be in person susceptible to keep the
funds used for the ultra vires acts.
 Wherever a company's cash has been used ultra vires to amass some property, the
correct of the corporate over such property is command secure.
 Since ultra vires contracts are treated as invalid from the kick-off, it cannot become intra
vires by reason of rule of evidence or approval.
 Ultra vires borrowing doesn't produce the link of mortal and person. the sole attainable
remedy in such case is in rem and not in personam.

Types of Ultravires Acts

There are 3 sorts of ultra vires acts, that mentioned below:

 Ultra Vires the memo by the corporate Acts performed by the corporate that are on the
far side or beyond the powers granted to that within the memo are ultra vires.
 Ultra Vires the Articles, intra vires the corporate These are acts performed on the far side
the powers granted to the corporate by its Articles of Association, however that are still
inside the powers of its memo. These acts are ultra vires the Articles, however intra vires
the corporate.
 Ultra Vires the administrators, however intra vires the corporate These are acts
performed by the company's administrators that are ultra vires their authority, however
intra vires the corporate as an entire.
 Ultra vires acts cannot be sanctioned. this implies that when somebody commits
Associate in Nursing ultra vires act, that act cannot retroactively be created valid. it's for
good invalid and on the far side the scope of that actor's powers, as granted to him by the
company's memo.

Will Ultra Vires Act be Ratified?

An ultra vires act cannot be sanctioned even by the full body of the shareholders and create it
binding on the corporate. In alternative words, even the shareholders cannot do Associate in
Nursing ultra vires act. this is often the peculiar feature of this philosophical system.

The principles of law on this subject were 1st pronounced by Lord Cairons, L.J., in Ashbury
Railway Carriage & Iron Co. Ltd. V. Riche. therein case, an organization was shaped with the
subsequent objects:

a. to make, sell, lend or rent, railway carriages and wagons, and

b. to purchase, lease, work and sell mines, minerals and land and buildings.

The directors contractile to finance the development of a railway line in Belgium with Mls Riche.
The Court control that the contract was ultra vires the corporate and void, in order that even the
following assent of the full body of the shareholders couldn't formalise it.

However, later on, the House of Lords control in alternative cases that the philosophical system
of ultra vires ought to be applied fairly and unless it's expressly prohibited, an organization could
do Associate in Nursing act, that is very important for, or attendant attainment of its objectives.

Exception to the Doctrine of Ultravires

There are, however, sure exceptions to the current philosophical system, that are as follows:

1. An act, that is intra vires the corporate however outside the authority of the administrators
is also sanctioned by the shareholders in correct form.
2. Act that is intra vires the corporate however drained the act in irregular manner, is also
valid by the consent of the shareholders. The law, however, doesn't need that the
consent of all the shareholders ought to be obtained at identical place and within the
same meeting.
3. If the corporate has nonheritable property through an investment, that is ultra vires, the
company's right over such a property shall still be secured.
4. Whereas applying philosophical system of ultra vires, the consequences that are
incidental or important to the act shall not be invalid unless they're expressly prohibited
by the Company's Act.
5. There are sure acts underneath the corporate law, that tho' not expressly declared within
the memo, are deemed impliedly inside the authority of the corporate and so they're not
deemed ultra vires. for instance, a business company will raise its capital by borrowing.
6. If act of the corporate is ultra vires the articles of association, the corporate will alter its
articles so as to validate the act.

Relevant Cases Related To Doctrine Of Ultra Vires

Ashbury Railway Carriage and Iron Company Ltd v. Riche, (1875) L.R. 7 H.L. 653.,
Fact of the case:
In this case, the objects of the corporate as expressed within the objects clause of its
memorandum, were to build and sell, or lend on rent railway carriages and wagons, and every
one styles of railway plaint, fittings, machinery and wheeled vehicle to hold on the business of
mechanical engineers and general contractors to get and sell as merchants timber, coal, metal or
different materials; and to shop for and sell any materials on commissions or as agents.

The administrators of the corporate entered into a contract with material resource for finance a
construction of a railway line in European nation. All the members of the corporate legal the
contract, however in a while the corporate unacknowledged it. Riche sued the corporate for
breach of contract.
Issue of the case
Whether the contract was valid and if not, whether or not it may well be legal by the
members of the company?
According to House of Lords
The contract was on the far side the objects as outlined within the object's clause of its
memorandum and so it absolutely was void. the corporate had no capability to formalise the
contract.

Decision
The House of Lords has control that associate ultra vires act or contract is void in its origin and
its void as a result of the corporate had not the capability to create it and since the corporate
lacks the capability to create such contract, however it will have capability to formalise it. If the
shareholders are allowable to formalise associate ultra vires act or contract, it'll be nothing
however allowing them to try and do the terribly factor that, by the Act of Parliament, they're
prohibited from doing.

The House of Lords has expressed the read that a corporation incorporated beneath the
businesses Act has power to try and do solely those things, that are approved by its objects
clause of its memorandum, and something not therefore approved is ultra vires the corporate and
can't be legal or created effective even by the unanimous agreement of the members.
The Company cannot be prosecuted supported associate ultra vires Contract

Evans v. Brunner Mond & Company

Fact of the case
In this case, a corporation was incorporated for carrying on business of producing chemicals.
The objects clause within the memoranda of the corporate approved the corporate to try and do
all such business and things as perhaps incidental or semi-conducting to the attainment of the
higher than objects or any of them by a resolution the administrators were approved to distribute
a hundred thousand out of surplus backlog to such universities in U.K. as they may choose for
the furtherance of research project and education.

The resolution was challenged on the bottom that it absolutely was on the far side the objects
clause of the memoranda and so it absolutely was ultra vires the facility of the corporate. the
administrators well-tried that the corporate had nice issue find trained men and also the purpose
of the resolution was to encourage scientific coaching of additional men to alter the corporate to
recruit workers and continue its progress.

Decision:
The court control that the expenditure approved by the resolution was necessary for the
continuing progress of the corporate as chemical makers and therefore the resolution was
incidental or semiconducting to the attainment of the most object of the corporate and
consequently it absolutely was not ultra vires. Acts incidental or ancillary are those acts, that
have an affordable proximate reference to the objects expressed within the object's clause of the
memoranda.

Attorney General vs. Great Japanese Railway Co.,

Whatever might fairly be considered incidental or eventful upon those things per the
memorandum of association as object ought to not be control ultra vires unless expressly
prohibited.
Rolled Steel merchandise (Holdings) Ltd v British Steel Corporation
A company has potentiality to try and do solely those things that are among, or fairly relate, its
expressed objects. If associate act is capable of being in pursuance of, or related, the expressed
objects, it couldn't be ultra vires and void attributable to the aim or state of mind of the
administrators who authorised it.

Radha Bari Tea Company Private Limited vs. Mridul Kumar Bhattacharjee and Other
The doctrine of ultra vires provides that an action, taken by the board of directors of a company
or the company itself beyond the powers conferred on the company and its directors by the
memorandum of association of the company, is ultra vires.

White and another v South Derbyshire District Council,

An ultra vires act isn't essentially void for all functions and also the law would try to guard
innocent third parties who had relied upon the apparent validity of such act.

Conclusion
No company may be purported to run while not borrowings. However, at an equivalent time, it's
necessary to guard the interest of the creditors and investors. Any irregular and devil-may-care
act might lead to economic condition or concluding of the corporate. this could cause goodly
losses to them. So, to guard the interest of the investors and therefore the creditors, specific
provisions are created within the memoranda of the corporate that defines the objectives of the
corporate.

Directors of the corporate will act solely among the orbit of the authority provided to them
beneath these objectives. If any borrowing is produced on the far side the authority provided by
these objectives mentioned within the memorandum, it'll be thought-about as ultra-vires. Any
borrowing that is produced through associate degree ultra-vires act is void-ab-initio, and hence,
administrators are in person chargeable for the provided acts. However, if such borrowings are
ultra-vires solely to the articles of the corporate or ultra-vires administrators, then they will be
legal by the shareholders. Then when such commendation, they'll be thought-about valid.

Thus, administrators should be terribly cautious whereas borrowing funds, because it might not
solely build them in person to blame for the results of such acts however additionally might lead
to goodly losses to investors and creditors.

Qns:- What is MoA?

The Memorandum of Association (MoA) is a legal document that lays out the framework for
the establishment of a company. It is one of the essential documents required to set up a
company in many jurisdictions, including India, the United Kingdom, and other common-law
countries.
The MoA includes the company's name, registered office address, nature of business,
authorized share capital, and the names and signatures of the subscribers who are the initial
shareholders. It also outlines the company's objectives, powers, and limitations, which the
company must operate within.
The MoA is crucial as it defines the company's scope of activities and helps protect the
shareholders' interests. Any changes to the MoA require approval from the shareholders
and regulatory authorities, depending on the jurisdiction's rules and regulations.
Format of Memorandum of Association

The format of the Memorandum of Association may vary slightly depending on the
jurisdiction and the type of company being formed. However, generally, the following
information is included in the Memorandum of Association:

1. Name Clause: This clause specifies the name of the company that is being formed.
2. Registered Office Clause: This clause specifies the registered office of the company.
3. Object Clause: This clause specifies the main objects of the company and the activities
that it is authorized to carry out. It is important to note that the company cannot engage in
activities that are not specified in this clause.
4. Liability Clause: This clause specifies the liability of the members of the company. It
could be limited by shares or guarantees or unlimited.
5. Capital Clause: This clause specifies the amount of authorized share capital of the
company and the number of shares that can be issued.
6. Association Clause: This clause states the intention of the subscribers to form the
company and become members.
The format of the Memorandum of Association may also include other clauses that are
specific to the jurisdiction or the type of company being formed. It is important to consult
the relevant laws and regulations to ensure that the Memorandum of Association complies
with all the requirements.

Objectives in registering MoA

The objectives of registering the Memorandum of Association (MoA) are as follows:

1. To provide legal status: The MoA is a legal document that defines the scope of a
company's activities and helps provide it with a legal identity. It also helps establish the
company as a separate legal entity from its owners or shareholders.
2. To define the company's purpose: The MoA sets out the company's objectives and the
activities it is authorized to undertake. This helps to ensure that the company operates
within the scope of its objectives and complies with the applicable laws and regulations.
3. To protect the interests of shareholders: The MoA outlines the rights and obligations of
the shareholders, which helps protect their interests. It also helps prevent any unauthorized
activities or decisions that could adversely affect the shareholders.
4. To facilitate capital raising: The MoA specifies the authorized share capital of the
company, which helps investors understand the potential size of the company and the
amount of capital required for its operations. This helps in raising capital through the
issuance of shares.
5. To facilitate decision-making: The MoA helps in decision-making by outlining the
company's powers and limitations. It provides guidance to the management and directors
on the activities that the company can undertake, which helps them make informed
decisions.
In summary, registering the Memorandum of Association is a crucial step in the formation of
a company, as it provides legal status, defines the company's objectives, protects the
interests of shareholders, facilitates capital raising, and facilitates decision-making.

Clauses and contents of Memorandum of Association

The clauses of the Memorandum of Association (MoA) may vary depending on the
jurisdiction and the type of company being formed. However, some of the common clauses
that are typically included in the MoA are as follows:

● Name Clause: This clause specifies the name of the company and ensures that the name
is unique and does not violate any existing trademarks or laws.
● Registered Office Clause: This clause specifies the address of the registered office of the
company, which is the official address for communication and legal purposes.
● Object Clause: This clause specifies the main objectives of the company and the
activities that it is authorized to undertake. It outlines the scope of the company's
operations and ensures that it operates within the legal and regulatory framework.
● Liability Clause: This clause specifies the liability of the members of the company. It
could be limited by shares or guarantees or unlimited.
● Capital Clause: This clause specifies the authorized share capital of the company and the
number of shares that can be issued. It also outlines the rules and procedures for issuing
and transferring shares.
● Association Clause: This clause states the intention of the subscribers to form the
company and become members.
● Alteration Clause: It outlines the procedures and requirements for making any changes
or alterations to the MoA.
● Winding-up Clause: This clause outlines the procedures for winding up the company in
case of insolvency or any other reason.
● Miscellaneous Clause: This clause includes any other provisions or information that is
relevant to the formation and operation of the company.
It is important to note that the MoA must comply with the relevant laws and regulations of
the jurisdiction in which the company is being formed.

Advantages and Disadvantages of MoA

Advantages of Memorandum of Association (MoA):
1. Legal Status: The MoA provides the company with legal status and establishes it as a
separate legal entity from its owners or shareholders.
2. Objectives: The MoA specifies the objectives and activities that the company is
authorized to undertake. It ensures that the company operates within the scope of its
objectives and complies with the applicable laws and regulations.
3. Protection of shareholders: It outlines the rights and obligations of the shareholders,
which helps protect their interests. It also helps prevent any unauthorized activities or
decisions that could adversely affect the shareholders.
4. Capital Raising: The MoA specifies the company's authorized share capital, which helps
investors understand the potential size of the company and the amount of capital required
for its operations. This helps in raising capital through the issuance of shares.
5. Decision Making: It helps in decision-making by outlining the company's powers and
limitations. It guides the management and directors on the activities the company can
undertake, which helps them make informed decisions.

Disadvantages of Memorandum of Association (MoA):

1. Restrictive: The MoA specifies the objectives and activities the company is authorized to
undertake, which can be restrictive. It may prevent the company from taking advantage of
new opportunities or entering into new markets.
2. Difficulty in Changing: The MoA is a legal document, and any changes to it require the
approval of the shareholders and the relevant authorities. This can be a lengthy and
complicated process.
3. Limited Liability: The liability of the members of the company may be limited, but this
may not always be an advantage. In some cases, it may make it more difficult for the
company to raise capital, as investors may be hesitant to invest in a company with limited
liability.
4. Cost: The process of drafting and registering the MoA can be expensive, especially if
legal assistance is required.
5. Public Disclosure: The MoA is a public document, and its contents are available for
public inspection. This may reveal sensitive information about the company's objectives and
operations to competitors and other stakeholders.
In summary, while the Memorandum of Association provides many benefits to a company,
there are also some disadvantages that must be considered before it is drafted and
registered. It is important to weigh the advantages and disadvantages carefully to
determine whether the MoA is appropriate for the company's needs.

Conclusion
In conclusion, the Memorandum of Association (MoA) is a legal document that plays a vital
role in the formation of a company. It outlines the objectives, activities, and limitations of
the company and helps establish it as a separate legal entity. The MoA also protects the
interests of the shareholders, helps in decision-making, and provides guidance to the
management and directors.
However, the MoA can also be restrictive, difficult to change, and expensive to draft and
register. It may also limit the liability of the members of the company and reveal sensitive
information about the company to competitors and other stakeholders.
Therefore, before drafting and registering the MoA, it is important to weigh the advantages
and disadvantages carefully to determine whether it is appropriate for the company's
needs. Legal assistance may be necessary to ensure that the MoA complies with all the
applicable laws and regulations.

Qns:- PROSPECTUS.

Section 2(70) of the Companies Act 2013 defines Prospectus as “any document issued for
advertisement or other document inviting offers from the public for the subscription or
purchase of any securities of a body corporate”.

A Prospectus is an invitation issued to the public to offer for purchase/subscribe shares or

debentures of the company. In other words, any advertisement offering shares or debentures
of the company Private limited companies are strictly prohibited from issuing a prospectus
and they cannot invite the public to subscribe to their shares. A prospectus can only be issued
by public limited institutions. Making it an open invitation prolonged to the public at large.

Advertisement of the Prospectus

Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement of
the prospectus. In any manner where an advertisement of any prospectus of a company is
published, it shall be necessary to specify therein the contents of its memorandum as regards
the objects, the liability of members and the amount of share capital of the company, and the
names of the signatories to the memorandum and the number of shares subscribed for by
them, and its capital structure.

Types of Prospectus

o Red Herring Prospectus

o Shelf Prospectus
 o Abridged prospectus

o Deemed Prospectus

1. Red Herring Prospectus

Specified under Art 31 of the Companies Act 2013 a red herring prospectus is issued prior to
the prospectus when a company is proposing to make an offer.

It shall file it with the Registrar at least three days prior to the opening of the subscription list
and the offer. A red herring prospectus shall carry the same obligations as are applicable to a
prospectus and any variation between the red herring prospectus and a prospectus shall be
highlighted as variations in the prospectus.

o Shelf Prospectus

A prospectus that has been issued by any public financial institution, company, or bank for
one or more issues of securities or class of securities as mentioned in the prospectus is known
as Shelf prospectus. When a shelf prospectus is issued then the issuer does not need to issue
a separate prospectus for each offering he can offer or sell securities without issuing any
further prospectus.

The provisions related to shelf prospectus have been discussed under section 31 of the
Companies Act, 2013.

o Abridged prospectus

A summary of a prospectus filed before the registrar. It contains all the features of a
prospectus known as Abridged prospectus. An abridged prospectus contains all the
information of the prospectus in brief so that it should be convenient and quick for an investor
to know all the useful information in short.

Section33(1) of the Companies Act, 2013 also states that when any form for the purchase of
securities of a company is issued, it must be accompanied by an abridged prospectus.

o Deemed Prospectus

A deemed prospectus has been stated under section 25(1) of the Companies Act, 2013.

A document will be considered as a deemed prospectus through which the offer is made to
the public for sale when any company offers securities for sale to the public, allots or agrees
to allot securities. The document is deemed to be a prospectus of a company for all purposes
and all the provision of content and liabilities of a prospectus will be applied upon it.

Objectives of Issuing the Prospectus

o To bring to the notice of the public that a new company has been formed.

o To preserve an authentic record of the terms and allotment on which the public
have been invited to buy its shares or debentures.

o To secure that the directors of the company accept responsibility for the statements
in the prospectus.

Contents of Prospectus

The contents of the prospectus have been specified in Schedule II of the Companies Act. The
important contents in the prospectus include the following.

o Name and address of the company

o Objects of the company

o Full particulars of the signatories to the Memorandum and number of shares taken
by them.

o The names, addresses, and occupations of the directors, managing directors or

managers, etc.

o The number and classes of shares.

o The minimum subscription

o The qualification shares of a director and the remuneration of the directors.

o The amount payable on application, on the allotment, and on calls.

o The names of the underwriters.

o The estimated amount of preliminary expenses.

o The names and addresses of the auditors of the company

 o Particulars about reserves and surplus

o Voting rights of the different classes of shares.

o Reports of the auditors regarding profits and losses of the company.

o A similar report by the Chartered Accountant regarding the Profits and Losses and
Assets and Liabilities of the Company.

Consequences of Misstatement in Prospectus

Civil and Criminal liabilities shall be faced by any person who provides with misstatement in a
prospectus.

1. Civil liability

In case, misleading prospectus amounts to misrepresentation, the aggrieved persons can

repudiate the contract. They can claim a refund of their money. Damages can also be claimed
by the persons found guilty.

o Criminal liability

In case any deliberate concealment is made, directors will be punished with a fine of Rs. 5,000
or imprisonment up to two years or both. If it is a fraud the fine will extend to Rs. 10,000 or 5
years imprisonment or both.

Statement in Lieu of Prospectus

When the prospectus is not issued by the company a statement in lieu of a prospectus must
be filed with the Registrar at least three days before the allotment of shares. The contents of
the statement in lieu of prospectus are very much similar to the prospectus. The statement
must be signed by all the directors or their agents authorized in writing. These provisions do
not apply to a private company.

Conclusion

A prospectus plays an important part in the development of a public limited company. It is

one of the most important booklets as it instructs more about the company in a detailed
manner about its share.

Qns:- What is the doctrine of Indoor management?

Doctrine of Indoor Management, also known as the Rule of Turquand, is a legal concept that
provides protection to third parties who enter into transactions with a company based on the
assumption that the internal procedures of the company have been complied with, even if
they have not been followed. The doctrine is based on the principle that outsiders dealing
with a company should not be expected to know the internal affairs of the company.

The doctrine of indoor management is recognized in Section 128 of the Indian Companies Act,
2013. According to this section, any act of the board of directors or any officer of a company
that is in contravention of the company’s MoA or AoA shall be valid, provided it is done in
good faith and is not ultra vires the company’s powers.

The landmark case related to the doctrine of indoor management is:

Royal British Bank v. Turquand (1856): In this case, it was held that a person dealing with a
company is entitled to assume that the internal procedures of the company have been
complied with, and that the company has the power to enter into a particular transaction,
even if the person has not actually read the company’s AoA. The case involved a company
that had issued a bond to the plaintiff, and the company argued that the bond was invalid
because it had not been authorized by its AoA. The court held that the bond was valid, as the
plaintiff was entitled to assume that the directors had the authority to issue it.

An example of the doctrine of indoor management is:

Suppose that Company A’s AoA requires that all contracts above a certain amount must be
approved by the company’s board of directors. If the company’s secretary, who is not
authorized to approve such contracts, enters into a contract with a third party, the contract
would be considered invalid under the company’s AoA.

However, the doctrine of indoor management would protect the third party who entered into
the contract with the company in good faith and without knowledge of the secretary’s lack of
authority. The third party would be entitled to assume that the secretary had the authority
to enter into the contract, and the contract would be deemed valid.

Landmark cases on doctrine of indoor management

Mahony v East Holyford Mining Co. (1875)

In this case, the court held that a person dealing with a company is entitled to assume that
the directors have the authority to enter into a particular transaction, even if there are
irregularities in the internal management of the company.

The case involved a company that had issued a mortgage to the plaintiff, and the company
argued that the mortgage was invalid because it had not been authorized by the company’s
AoA.
The court held that the mortgage was valid, as the plaintiff was entitled to assume that the
directors had the authority to issue it, even if there were irregularities in the internal
management of the company.

Official Liquidator, Manabe & Co. Pvt. Ltd. v. Commissioner of Police (1999)
In this case, the court held that the doctrine of indoor management applies to criminal
proceedings as well, and that a person accused of a crime cannot be held liable if they entered
into a transaction with a company based on the assumption that the internal procedures of
the company had been complied with.

M. Rajendra Naidu v. Sterling Holiday Resorts (India) Ltd. (2012)

In this case, the court held that the doctrine of indoor management does not apply if the
person dealing with the company had knowledge of the irregularities in the internal
management of the company.

The case involved a person who had purchased shares in a company and later challenged the
validity of the company’s resolution on the ground that it had not been passed in accordance
with the company’s AoA.

The court held that the person was not entitled to the protection of the doctrine of indoor
management, as he had knowledge of the irregularities in the internal management of the
company.

Exceptions to the Doctrine of Indoor Management

Although the doctrine of indoor management provides protection to outsiders who deal with
a company in good faith and assume that its internal procedures have been complied with,
there are certain exceptions to this doctrine. Here are some relevant exceptions:

Knowledge of Irregularity
The doctrine of indoor management does not protect an outsider who has knowledge of any
irregularity or lack of authority on the part of the company’s officers. In such cases, the
outsider cannot rely on the indoor management rule and is bound to make further inquiries.
The principle was established in the case of Ashbury Railway Carriage and Iron Co. Ltd. v.
Riche (1875).

Ultra Vires Acts

The indoor management rule cannot validate an act that is ultra vires or beyond the powers
of the company as laid down in its memorandum or articles of association. Any act that is
beyond the scope of the company’s objects is deemed to be ultra vires. The rule was
established in the case of Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875).
Forgery
The doctrine of indoor management does not apply where the outsider is dealing with a
forged document or the signature of the officer is forged. In such cases, the company is not
bound by the transaction, and the outsider cannot claim protection under the indoor
management rule. This principle was established in the case of Ruben v. Great Fingall
Consolidated Ltd. (1906).

Misrepresentation
If the outsider has been induced to enter into the transaction by misrepresentation or fraud
on the part of the company’s officers, the indoor management rule does not apply. The
principle was established in the case of Daimler Co. Ltd. v. Continental Tyre and Rubber
Co. (1916).

Conclusion

Articles of Association is a vital document that sets out the internal regulations and
management framework for a company. It defines the rights, duties, powers, and obligations
of its members and directors, and also outlines the procedures for meetings, decision-making,
and other corporate actions.

The Articles of Association must be drafted carefully and in compliance with the Companies
Act, 2013, as they have a binding effect on the company and its members. Any alterations to
the Articles of Association must also comply with the legal provisions and be approved by a
special resolution in a general meeting of the company.

Understanding the Articles of Association is crucial for the smooth functioning and effective
governance of a company.

Alteration of Articles of Association

The Articles of Association of a company can be altered in various ways, subject to the
provisions of the Companies Act, 2013. Alteration of Articles of Association is a common
requirement for a public company to become a private company, or for a private company to
become a public company. The following are the provisions for the alteration of AoA in each
case:

Alteration of AoA for a Public Company to Become a Private Company

 To convert a public company into a private company, the AoA needs to be altered by
removing the provisions that make it a public company. The following provisions of
the AoA need to be altered:
 Remove the provisions related to the minimum number of members, which is seven
for a public company and two for a private company.
  Remove the provisions related to the right to transfer shares, which is unrestricted
for a public company and restricted for a private company.
 Remove the provisions related to the invitation to the public to subscribe for shares
or debentures, which is allowed for a public company and prohibited for a private
company.
 The alteration of AoA must be approved by a special resolution of the shareholders,
and the approval of the National Company Law Tribunal (NCLT) is required.
Alteration of AoA for a Private Company to Become a Public Company
 To convert a private company into a public company, the AoA needs to be altered by
adding provisions that make it a public company. The following provisions of the AoA
need to be altered:
 Add the provisions related to the minimum number of members, which is seven for a
public company and two for a private company.
 Add the provisions related to the right to transfer shares, which is unrestricted for a
public company and restricted for a private company.
 Add the provisions related to the invitation to the public to subscribe for shares or
debentures, which is allowed for a public company and prohibited for a private
company.
 The alteration of AoA must be approved by a special resolution of the shareholders,
and the approval of the NCLT is required.
It is important to note that any alteration of the AoA must be made in accordance with the
provisions of the Companies Act, 2013, and any other applicable laws. Additionally, the
altered AoA must be filed with the Registrar of Companies within 30 days of the alteration.

Procedure for Alteration of Articles of Association

The Articles of Association (AoA) of a company can be altered or amended as per the
provisions of the Companies Act, 2013. The following are some of the ways in which the AoA
can be altered:

By a Special Resolution: The AoA can be altered by passing a special resolution in a general
meeting of the shareholders. A special resolution requires the approval of at least 75% of the
votes cast by the shareholders who are present or represented at the meeting.

By the Board of Directors: The AoA can be altered by the board of directors if the power to
do so is specifically given to them in the AoA. However, any such alteration must be ratified
by the shareholders at the next general meeting.

By an Order of the Tribunal: The AoA can be altered by an order of the National Company
Law Tribunal (NCLT) if it is satisfied that the alteration is necessary for the proper functioning
of the company or to protect the interests of the shareholders.
In accordance with the provisions of the AoA: The AoA may contain provisions for its own
alteration or amendment, in which case the alteration must be made in accordance with
those provisions.

It is important to note that any alteration of the AoA must be made in accordance with the
provisions of the Companies Act, 2013, and any other applicable laws. Additionally, the
altered AoA must be filed with the Registrar of Companies within 30 days of the alteration.

In conclusion, the AoA of a company can be altered by a special resolution of the

shareholders, by the board of directors with the ratification of the shareholders, by an order
of the NCLT, or in accordance with the provisions of the AoA itself. Any alteration must be
made in accordance with the provisions of the law and must be filed with the Registrar of
Companies.

Limitations on power to alter articles

The power to alter the Articles of Association (AoA) of a company is not absolute and is subject
to certain limitations. The following are some of the limitations on the power to alter the AoA:

Consistency with the Companies Act: Any alteration to the AoA must be consistent with the
provisions of the Companies Act, 2013, and any other applicable laws.

Contravention of Memorandum of Association: Any alteration to the AoA must not be in

contravention of the Memorandum of Association (MoA) of the company.

Binding Effect of Contracts: Any alteration to the AoA must not affect the binding effect of
contracts entered into by the company prior to the alteration.

Minority Shareholder Protection: Any alteration to the AoA that affects the rights of minority
shareholders must be made with their consent or with the approval of the National Company
Law Tribunal (NCLT).

Alteration of Fundamental Provisions: The AoA can be altered only to the extent that it does
not affect the fundamental provisions of the company, such as its name, registered office,
objects, and capital.

Mandatory Provisions: Certain provisions of the AoA, such as those related to the
appointment and remuneration of directors, appointment and removal of auditors, and
declaration and payment of dividends, cannot be altered without the approval of the
shareholders by way of a special resolution.
It is important to note that any alteration of the AoA that contravenes the provisions of the
Companies Act, 2013, or any other applicable law, or that affects the rights of minority
shareholders, may be challenged before the NCLT.

Qns:-What is the doctrine of Constructive Notice?

Doctrine of Constructive Notice is a legal concept that applies to the registration of companies
and states that all persons dealing with a registered company are deemed to have knowledge
of its Memorandum of Association and Articles of Association, as these documents are
available for public inspection. This means that any person who enters into a transaction with
the company is deemed to have constructive notice of the provisions of these documents,
even if they have not actually read them.

The doctrine of constructive notice is based on Section 399 of the Companies Act, 2013, which
provides that any person dealing with a registered company shall be deemed to have notice
of the company’s MoA and AoA.

The doctrine of constructive notice plays an important role in ensuring that persons dealing
with a registered company are aware of its MoA and AoA, and that they comply with the
provisions of these documents. However, it is also subject to certain limitations, particularly
in cases where there are irregularities in the internal management of the company.

Example:

Suppose that Company A is a registered company with an MoA and AoA that are available for
public inspection. Company A’s AoA contains a provision that limits the authority of its
directors to enter into contracts above a certain amount without the approval of the
company’s shareholders.

If a person, let’s call him Mr. X, enters into a contract with Company A for an amount above
the limit specified in the AoA, Mr. X is deemed to have constructive notice of the provision
and is therefore bound by it, even if he did not actually read the AoA. The doctrine of
constructive notice ensures that Mr. X cannot claim ignorance of the provision as a defence if
Company A seeks to enforce it against him.

Scope of AoA

The Articles of Association and Memorandum of Association (MoA) are two important
documents that a company must have as per the provisions of the Companies Act, 2013. The
MoA defines the fundamental objectives and scope of the company, while the AoA contains
the rules and regulations for the company’s management and operation.
The scope of the AoA is limited by the MoA, as the rules and regulations contained in the AoA
must be consistent with the objectives outlined in the MoA. The AoA must not exceed the
scope of the MoA and should not contain any provision that is ultra vires (beyond the powers)
of the company as specified in the MoA.

In the landmark judgment of Shyam Chand v. Calcutta Stock Exchange, the Supreme Court
of India held that the AoA of a company must not contain any provision that is beyond the
scope of the MoA. In this case, the Calcutta Stock Exchange had inserted a provision in its AoA
that allowed it to expel a member for conduct detrimental to the interest of the exchange,
even though this provision was not included in the MoA.

The Supreme Court held that the provision in the AoA was ultra vires the MoA and was
therefore void. The court emphasized that the scope of the AoA must be consistent with the
MoA and that any provision in the AoA that goes beyond the MoA is invalid.

This judgment highlights the importance of ensuring that the AoA is in line with the MoA, and
that any provision in the AoA must not exceed the scope of the MoA. Companies must take
care to ensure that their AoA is not ultra vires the MoA to avoid any legal disputes or
challenges to the validity of their AoA.

Qns:-Difference between Public Company and Private Company.

A company is one of the most important and prominent forms of business organisation. It
can be described as a voluntary association of individuals, having a common purpose, who
agree to pool their funds and unite to achieve the said goals. It can be called an artificial
person created under the jurisdiction of law having a distinct legal personality and its own
signature, referred to as the common seal. It is essentially an artificial person in that it
exists independently of the people who own, direct, and support its business. In legal
terms, it is called an artificial person. Majorly there are two types of companies Public
Company and Private Company.

What is a Public Company?

According to the Companies Act, 2013 a public company is one which invites the general
public to subscribe to its share capital to raise funds. Applications are invited through the
issue of prospectus and shares are allotment is made subsequently. Such companies allow
their shareholders to transfer their shares easily without restrictions. The shares of a
public company are listed on stock exchanges and all the trading is handled there with the
help of brokers. Other characteristics of a public company include:

 The minimum number of members required to incorporate a public company is

7 and there is no limit on the maximum number of members.
 It has a minimum paid-up capital of 5 lakhs.
 Any private company which is the subsidiary of a public company is also a
public company.
Every public company shall use the suffix “Ltd.” in its name as per the Companies Act,
2013.

What is a Private Company?

Contrary to a public company, a private company is one that does not offer its securities
to the general public for subscription through stock exchanges, rather such trading is done
either privately or over the counter. Such companies might also restrict the rights of their
members when it comes to transferring shares. A private company can also transition to a
public company subsequently at a point of time in its lifetime. Going public would give
company access to a number of other funding prospects as compared to a private
corporate body. When a private corporation goes public, all the privately owned securities
become public ownership and can now be listed on the stock exchange. Other
characteristics of a private company include:

 The minimum number of members in a private company is 2 and the maximum

is 200.
 It has a minimum paid capital of 1 lakh.
 Such a company does not invite the general public to subscribe to its deposits.
As per the Companies Act, 2013 every private company is required to use the suffix “Pvt.
Ltd.” in its registered name. For example, ABC being a private company is required to
disclose that through the suffix ABC Pvt. Ltd.

Difference between Public Company and Private Company

Basis Public Company Private Company

A private limited company refers

A public limited company means
to a company that is not listed
a company that is listed on a
Meaning on a stock exchange and the
recognised stock exchange and
shares are held privately by the
whose shares are publicly traded.
members concerned.

Number of Minimum 7 and there is no limit Minimum 2 and Maximum 200

Members for Maximum members. members.

Articles of It can draw up its own articles of They must draw up their own
Association association or adopt Schedule F. articles of association.
 Basis Public Company Private Company

The shares of a publicly traded

Shares of a private company are
company are freely transferable,
Transfer of not freely transferable, as the
i.e., freely tradable in an open
shares articles of association contain
market called the stock
restrictions.
exchange.

Public It may invite the public to Issuance of shares or bonds to

subscriptions subscribe for its shares or bonds. the public is prohibited.

Issuing a It may issue a prospectus or may Issuing a prospectus is

prospectus opt for a private placement. prohibited.

The company cannot issue shares

Minimum The company may allot shares
unless it reaches the minimum
allotment without obtaining a minimum
subscription specified in the
amount subscription.
prospectus.

You can start a business

After incorporation, it requires a
Starting a immediately after receiving an
certificate of commencement of
business extract from the commercial
business.
register.

Appointment of One director may be appointed Two or more directors may be

director by one resolution. appointed by one resolution.

Statutory
Statutory meeting is mandatory Statutory meeting is optional.
meeting

A public company must A private company must include

Use of suffix compulsorily include the words “Private Limited” as a suffix in its
“Limited” in its name. name.
 Basis Public Company Private Company

A public company must

Disclosing A private company does not have
compulsorily issue quarterly and
reports to the to disclose its financial results to
annual financial statements to
public the public.
the public.