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COMPANY LAW | LAW OF AGENCY | LAW OF CONTRACTS | PARTNERSHIP | SALE OF GOODS

 
I. COMPANY-MEANING & CHARACTERISTICS

1. Define a Company.

Ans: A Company denotes an association of like-minded persons formed for the purpose of carrying on some business or undertaking.

2. What is meant by separate legal entity of a Company?

Ans: On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately.

3. Is a Company Natural Person, a Legal Person or an Artificial Person. State.

Ans: The most striking feature of a Company is its distinct legal personality. The Company has its own name, its own seal. It is capable of owning property, incurring debt, borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately.

The Company, though a legal person, is not a citizen under the Constitution of India.

4. What do you mean by perpetual succession of a Company?

Ans: Variation in members or their identity does not affect the legal existence and identity of its existence. A Company is a creation of law and can only be dissolved by it. Perpetual succession means that the company will remain in existence perpetually.

5. What is Common Seal ?

Ans: A company is a artificial person and does not have a physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal. Any document not bearing the seal of the company may not be accepted as authentic and may not have any legal force.


II. MEMORANDUM OF ASSOCIATION & ARTICLES OF ASSOCIATION

1. State the nature of Memorandum of Association. Explain its contents.

Ans: The MOA is a fundamental document of the Company that lays down the objects of the Company. This document is essential and should be made available and known to the members of the Company, creditors and public at large.

The Board of Directors shall strictly adhere to the MOA in their work concerning the Company. Any alteration to the MOA may be carried out as per the regulations laid down in the Companies Act, 1956.

Contents:
a.Name of the Company-Name Clause.
b.Situation of Registered Office.
c.Objects Clause.
d.Liability Clause.
e.Capital Clause.
f.Subscription Clause.

2. Explain the contents of Articles of Association.

Ans: Articles of Association is a constitutional document that lays down the rules and regulations for the conduct of the internal affairs of the company. The Articles constitute a contract between the company and its members and between members themselves. The Articles are subordinate to the MOA and should not contain any regulation that is contrary of MOA.

AOA provide information on:
a.Adoptions or execution of pre-incorporation contracts.
b.Alteration of Authorised Capital.
c.Shares-issue, transfer, transmission, buy-back etc.
d.Mode and limit of Borrowings.
e.General Meetings-Notice etc.
f.Directors-appointment, remuneration etc..
g.Dividend, reserves etc.
h.Accounts and audit.
i.Amalgamations, mergers etc.
j.Common seal-use and custody.
k.Managers and Secretaries.
l.Winding up.

3. Differentiate between Memorandum of Association and Articles of Association of a Company.
MOA AOA
1. Lays down the main objects 1. Lays down the rules and regulations
of the Company. regarding the internal administration of the
Company.

2. Bound by Company Law. 2. Bound by MOA.

3. Requires special procedures 3. Alteration of Articles is a simpler procedure.
for its endorsements.

4. Governed by Doctrine of 4. Governed by Doctrine of Indoor
Ultravires. Management

4. What is Doctrine of Ultravires ?

Ans: This refers to the objects stated in MOA defining the field of industry in which the Company must confine its activities. When the Company acts beyond its objects, it exceeds its legal capacity and powers under the MOA. Such a action is said to be Ultravires the Memorandum and is void.

5. What is meant by constructive notice?

Ans: It means that any person who is a member of the Company or dealing with the Company is expected to be aware of the Company’s objectives. He cannot be ignorant. For example, when a person buys shares of a Company, he is expected to know the nature and objectives of the Company.

6. How is the Object Clause of the MOA altered?

Ans: The Object Clause of the MOA can be altered by passing a special resolution at the Extra-ordinary General Meeting after giving due notice..

Following are the pre-requisites to be complied by the Company for Alteration of Object Clause u/s 17 of the Companies Act, 1956:
a.To hold Board Meeting after giving notices to all the Directors as per Section 286 for alteration of the object clause.
b.To issue notice of Extra-ordinary General Meeting giving not less than 21 days from the date of the meeting proposing the Special Resolution with suitable explanatory statement.
c.Special Resolution at the Extra-ordinary General Meeting should be passed at the General Meeting by three fourths (3/4) majority.
d.To file the Special Resolution with explanatory statement in form No.23 along with requisite filing fee with the concerned Registrar of Companies within 30 days from the date of the Extra-ordinary General Meeting.

7. Explain the procedure of alteration of Domicile clause of the MOA.

Ans: Following are the steps to be taken in case the Registered Office of the Company is proposed to be shifted from one state to another state :

Example: Let us consider the shifting of Registered Office of a Company from Karnataka to Maharashtra:

Step.1
Board meeting to be called for the purpose of convening General body meeting.

Step.2
Notice to be issued to the Shareholders proposing the special resolution with suitable explanatory statement.

Step.3
After passing the special resolution form no.23 to be filed with Registrar of Companies at Bangalore with 30 days of passing the special resolution.

Step.4
One month before filing the petition with Company Law Board (CLB) publish a general notice in the newspaper in the principal language (Kannada) in which the present registered office of the company is situated and also in English language in Bangalore. This notice is to be published as per Rule 36(1) (I) of the CLB bench rules.

Step.5
Petition under section 17 of the companies act, 1956 for confirmation of the alteration of the memorandum of association (Alteration of Situation Clause) to be filed with CLB, Southern Region, Chennai.

Step.6
Intimation to Govt. of Karnataka for obtaining No-Objection Certificate for shifting of Registered Office.

Step 7
Recommendation letter to be obtained from Registrar of Companies addressed to CLB for shifting of Registered Office from Bangalore to Mumbai.

Step 8
Before filing a copy of the petition with CLB, a full set of petition along with enclosures to be delivered to ROC, Bangalore.

Step 9
On receiving CLB approval, file Form No. 20 with ROC of both states.

Step 10
ROC, Bangalore will give a recommendation for transferring the files.

It may be noted that change in registered office within local limits of same city does not involve alteration of MOA. Further change of Registered Office of the Company from one city to another within the same state does not involve alteration of MOA.

8. What is the significance of Table

Schedule I of the Companies Act, 1956 deals with various model forms of MOA and AOA of various types of companies The above schedule is divided into several tables. Each table serves as a model for one kind of company.
Table:- It deals with regulations for management of the company of a company limited by shares.

III. INCORPORATION & KINDS OF COMPANIES

1. Company is an artificial person created by law. Explain this statement with reference to the stages in the formation of a Company.

Ans: A Company is a separate, unique legal entity with its distinct common seal. The stages in the formation of a Company are:
a.Promotion Stage:
i)Discovery of a business opportunity.
ii)Detailed investigation.
iii)Assembling.
iv)Financing the proposition.
b.Name Selection.
c.Incorporation stage.
d.Raising of Share Capital.
e.Commencement stage.

2. Explain Incorporation of a Company.

Ans: Incorporation of a Company refers to the process of fulfilling the registration formalities and obtaining the Certificate of Incorporation from the Registrar of Companies in the concerned state where the office is situated. The Certificate of Incorporation is conclusive evidence that the Company has come into being. The company after incorporation becomes:
a.The Company becomes a distinct legal entity.
b.It acquires a perpetual succession.

3. Explain the various stages of incorporation of a company.

Ans: The first step involves the filing Form 1A with ROC for confirmation of Name Availability of the company proposed to be incorporated. Subsequently:
a.MOA & AOA of the proposed Company has to be filed with ROC.
b.Written consent of all the Directors to act as Directors and undertake prescribed qualification shares to be filed.
c.List of all persons who have consented to act as Directors along with their names, addresses, signatures and occupations.
d.A declaration stating that all requirements of the Companies Act, 1956 and other formalities relating to registration have been complied with.

4. Give the meaning of term-Promotion. Who is the promoter of a Company?

Ans: Promotion refers to the entire process by which a company is brought into existence. It starts with the conceptualization of the birth of a company and determination of the purpose for which it is to be formed. The persons who conceive the company and invest the initial funds are known as the promoters of the company. The promoters enter into preliminary contracts with vendors and make arrangements for the preparation, advertisement and the circulation of prospectus and placement of capital. However, a person who merely acts in his professional capacity on behalf of the promoter (eg lawyer, CA, etc) for drawing up the agreement or other documents or prepares the figures on behalf of the promoter and who is paid by the promoter is not a promoter.

A promoter of a Company is the person who takes preliminary steps for the purpose of formation and incorporation of a Company. A promoter may be an individual, association, partner or a company.


5. What is Certificate of Incorporation.

Ans: It is a conclusive evidence that a Company has come into being. It is issued after all the registration formalities are fulfilled

6. When does a Company legally come into existence?

Ans: If all the documents related to incorporation of a Company, filed with the Registrar of Companies are found to be in order, the Registrar of Companies will issue a Certificate of Incorporation of the Company. This document is the birth certificate of the company and is proof of the existence of the company. The Registrar shall enter the name of the Company in the Register of Companies maintained by him. The Company then comes into existence as a legal person distinct from its members.

7. Briefly explain the different types of Companies.

Ans: There are two types of companies. They are Private companies and public companies. These companies may be again a limited liability company or unlimited liability companies. Limited companies are again divided into 3 types. They are : a) Limited by shares b) limited by guarantee c) limited by guarantee having a share capital Apart from abovementioned, Companies may be classified as follows :- a) Statutory Companies b) Existing Companies c) Registered Companies d) Association not for profit e) Government Companies f) Foreign companies g) Holding and subsidiary companies h) Investment Companies i) FERA Companies

8. State the features of a Limited Company.

Following are the most important features of a Limited Company:-
i) Incorporated Association - It means an association of person must be registered or incorporated under the Companies Act. If the Association is not registered, it becomes an illegal Association.
ii) Separate Legal entity A Company is a separate legal entity, separate and distinct from its members.
iii) Artificial person A Company is a juristic person, which exists only in contemplation of law it depends on natural persons like Directors, Officers etc. for its work being done.
iv) Limited Liability The members of a Company have limited liability.
v) Perpetual Succession A Company being a separate legal entity does not have fixed span of life. Members may come and members may go but the Company remains forever. A company can be brought to an end by dissolutions or winding up.
vi) Common Seal A Common Seal is an official signature of a Company. Its affixation indicates authenticity of the documents. Common seal of the Company is to be affixed by the person duly authorised by the Company. The seal has the name of company engraved in legible characters.
vii) Separate Property A company being a legal person entirely distinct from its members is capable of enjoying and disposing of property in its own name.
viii) Regulations It is governed and regulated by MOA and AOA. A company cannot exceed the power conferred upon it by its MOA. It has to alter the same to exceed the powers conferred in it.
ix) Capacity to sue A company being a body corporate can sue and be sued in its own name.

9. What is a Government Company?

Ans: A Government Company means any company in which not less than 51% of the paid up share capital is held by the Central Government or any State Government or partly by the Central Government and partly by the one or more State Governments and includes a company which is a subsidiary of a government company. Government Companies are also governed by the provisions of the Companies Act. However, the Central Government may direct that certain provisions of the Companies Act shall not apply or shall apply only with such exceptions, modifications and adaptions as may be specified to such government companies.

10. What is are Holding & Subsidiary Companies?

Ans:. A Company is a holding Company of another if the other is its subsidiary.
A company shall be deemed to be subsidiary of another company if :-
That other company controls the composition of its board of directors ;
or that other company holds more than half in face value of its equity share capital

The control of the composition of the Board of Directors of the company means that the holding company has the power at its discretion to appoint or remove all or majority of directors of the subsidiary company without consent or concurrence of any other person.

11. What is a Company limited by guarantee?

Ans: A company limited by guarantee is a registered company having the liability of its members limited by its memorandum of association to such amount as the members may respectively thereby undertake to pay if necessary on liquidation of the company. The liability of the members to pay the guaranteed amount arises only when the company has gone into liquidation and not when it is a going concern. A guarantee company may be a company with share capital or without share capital.

12. State the meaning of a public Company.

Ans: As per section 3(1)(iv) of the Act, the public company means a company that is an association consisting of not less than 7 members and registered under the Companies Act, 1956 and is not a private company. Any member of the public who is wiling to pay the price may acquire shares or debentures in it. The shares and debentures of a public company may be quoted on a Stock Exchange. There is no restriction as in the case of a private company with regard to the maximum number of members in a public company.

13. What is a statutory company?

Ans: A Statutory Company can be defined as a Company created by a special Act of Legislature and whose activities are governed by the special Act under which they are established.



14. What do you mean by the term Association not for profit?

Ans: An Association which has been formed for promoting commerce, art, science, and religion charity of any other useful object but not for the purpose of earning profits is known as an Association not for profit. It can be registered as a company under the Companies Act, 1956 and it enjoys all the privileges of a limited Company. This type of company may be registered without paying any stamp duty on its memorandum and articles. It is subject to its entire obligation except those in request of which exception is granted by the Central Government. It should not pay any dividend to its members but should apply its profits or other income in promotion of its objects.

15. Mention 4 important characteristics of a Private Company.

Ans: In terms of Section 3(1)(iii) of the Companies Act, 1956 and articles of association of the Company, the characteristics of a Private Company are :-
Restricts the right of members to transfer its shares
Limits the number of its members to fifty. In determining this number of 50, employee-members and ex-employee members are not to be considered.
Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company
Any invitation or acceptance of deposits from persons other than its members, directors or relatives is hereby prohibited.

16. State the privileges of a Private Company.

Ans: The following are the privileges of a Private Company:
a.No. of members is 2 (unlike 7 in a public company).
b.Allotment before minimum subscription.
c.Prospectus or a statement in lieu of prospectus.
d.Issue of new shares without any complexities.
e.Kinds of shares.
f.Commencement of business right after incorporation.
g.Index of members may not be kept.
h.It need not hold statutory meeting or file statutory report with the Registrar of Companies.
i.The rules of overall maximum managerial remuneration does not apply.
j.It need not have more than two Directors.
k.Rules with regard to Directors appointment, resignation etc. are less stringent.

17. Define Joint Stock Company. Explain its characteristics briefly.

Ans: Section 566 of the Companies Act, 1956 defines Joint Stock Company as a company having a permanent paid-up or nominal capital share capital of fixed amount divided into shares also of fixed amount.
A joint stock company may be a :
a.Private Limited Company
b.Public Limited Company.

18. When does a Private Company become a Public Company.

Ans: A Private Company can be converted into a Public Company:
By its volition.
By default.
By operation of law.

19. How can a Private Company be converted into a Public Company?

Ans: A Private Company can be converted into a Public Company by the following ways:
A.By its volition: This means that a Private Company has an option to convert itself into a Public Company. The procedure for conversion is as follows:
i)A Board Meeting has to be convened to consider and approve the proposal for conversion of the Company into a Public Company.
ii)Thereafter an Extra-ordinary General Meeting (EGM) of the members has to be convened.
iii)At the EGM, a special resolution has to be passed by the members altering the Articles of Association by deleting the restrictive provisions which are applicable only to Private Companies.
iv)Later within 30 days after passing the resolution:
a. A printed copy of the special resolution along with the explanatory statement if any, and Form No. 23 should be filed with Regsitrar of Companies after paying requisite fee.
b. A Statement in lieu of Prospectus drawn up in the prescribed form.
c. Steps to be taken to increase the no. of members to alteast seven. Similarly the number of Directors should be increased to atleast three.

B.By default: According to Sec. 43 of the Companies Act, 1956 if a Private Limited Company fails to comply with any of the four restrictive provisions required by Section 3(1)(iii) , the Company ceases to be a Private Company and ceases to have the privileges and exemptions conferred on it by the Act as a Private Company. It becomes a Public Company.

20. Write a note on commencement of business certificate.

Ans: When a public company complies with section 149 of the Companies Act, 1956, the Registrar of Companies will issue a certificate that the company is now entitled to commence business. Any contract made by a company before the date of entitlement to commence business shall be provisional and become binding on the date it is entitled to commence business. If any public company commences business or borrows money before obtaining the certificate to commence business, every person who is responsible for doing this is liable to a fine.

21. What is a Deemed Public Company?

Ans: A private company will be treated as a deemed public limited company in any of the following circumstances :-
a.Where at least 25% of the paid up share capital of a private company is held by one or more bodies corporate, the private company shall automatically become the public company on and from the date on which the aforesaid percentage is so held.
b.Where the annual average turnover of the private company during the period of three consecutive financial years is not less than Rs 25 crores, the private company shall be, irrespective of its paid up share capital, become a deemed public company.
c.Where not less than 25% of the paid up capital of a public company limited is held by the private company, then the private company shall become a public company on and from the date on which the aforesaid percentage is so held.
d.Where a private company accepts deposits after the invitation is made by advertisement or renews deposits from the public (other than from its members or directors or their relatives), such companies shall become public company on and from date such acceptance or renewal is first made.


IV. PROSPECTUS

1. State the meaning of prospectus. State its contents.
Ans: Section 2(36) of the Act defines a prospectus as any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public for the subscription or purchase of any shares in or debentures of a body corporate.

The prospectus consists of:
There must be an invitation to public
The invitation must be made by or on behalf of the Company or in relation to intended Company
The invitation must be to subscribe or purchase.
The invitation must relate to shares or debentures or such other instrument.
The contents of the prospectus are:

a)Objects of the Company
b)Number and classes of shares
c)Names, addresses and occupations of Directors, Managing Directors, Secretaries, Managers etc.
d)Qualification shares of Directors.
e)Subscribed capital
f)Minimum Subscription.
g)Names and addresses of Auditors
h)Terms of Underwriting
i)Voting rights of members
j)Financial information of the Company.
k)Terms and particulars of issue.
l)Restrictions on transfer and transmission of shares.

2. When does a Company issue a statement in lieu of prospectus?

Ans: In case, the promoters of the Company have raised capital through private contracts and not through issue of shares to public, a prospectus need not be issued. Instead the Company must file a statement in lieu of prospectus with the Registrar of Companies.

All public companies either issue a prospectus or file a statement in lieu of prospectus with the concerned Registrar. A copy of the statement in lieu of prospectus has to be filed with the Registrar of Companies, 30 days before any allotment of shares/debentures is made. A Private Company need not produce such a document.


V. SHARE CAPITAL

1. What do you mean by share?

Ans: As per Section 2 (46) of the Companies Act, 1956, share means share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied. Further, the capital of a company is divided into the number of indivisible units of fixed amount. These units are known as shares.

2. What are the different kinds of shares?

Ans: The shares of a company can be classified into three kinds:
a) Equity or Ordinary shares b) Preference shares c) Deferred shares.
However, after the commencement of the Companies Act, 1956, only two kinds of shares can be issued by the company i.e. Equity Share Capital, and Preference Share Capital.

3. What is a Share Certificate?

Ans: A share certificate is a document issued by the company stating that the person named therein is the registered holder of specified number of shares of a certain class and they are paid up upto the amount specified in the share certificate..

The conditions for Issue of Share certificates are:
The share certificates shall be issued in pursuance of a Board resolution.
The share certificate must bear the common seal of the company and also must be stamped under the relevant stamp act.
One or more directors must sign the share certificate. It should state the name as well as occupation of the holder and number of shares, their distinctive number and the amount paid up.

4. What is Registered Capital?

Ans: Nominal, authorised or registered capital means the sum mentioned in the capital clause of Memorandum of Association. It is the maximum amount which the company can raise by issuing the shares and on which the registration fee is paid. This limit cannot be exceeded unless the Memorandum of Association is altered.

5. What is a Bonus Share?

Ans: When a Company has accumulated large free reserves and is desirous of bridging the gap between the capital and fixed assets, it issues bonus shares to its equity shareholders.

6. What is a Preference Share?
Ans: A preference share is one that fulfills both following criteria:

(a)It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the holders of the equity shares can be paid dividend.
(b)It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital.

The types of preference shares are:
i)Participating or non-participating
ii)ii) Cumulative and non-cumulative
iii)Redeemable and Irredeemable.

7. Define a share warrant.

Ans: A share warrant is a bearer document of title to the specified shares. A Public Limited Company, authorized by its Articles of Association may in respect of fully paid shares, issue under its common seal, share warrants. Private Company, on the other hand cannot issue share warrants.

8. Explain the rules that must be satisfied before a public company can issue shares.

a.Preparation of Prospectus.
b.Issue of prospectus & invitation for subscription.
c.Receiving minimum subscription.
d.Allotment of Shares.

9. Define Debenture

Ans: A Debenture is a document given by the Company under its seal as an evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge. A debenture is therefore a document that either creates debt or acknowledges it.

10. What are the different types of debentures that a Company can issue?

Ans: The different types of debentures that a Company can issue are:
a.Redeemable Debentures.
b.Irredeemable debentures.
c.Mortgage debentures. (Charge on assets)
d.Simple debenture. ( No Charge on assets)
e.Registered debenture.
f.Bearer debenture.
g.Convertible debenture. (Can be converted into equity)
h.Unconvertible debenture.

11. Differentiate between Shares and Debentures.

Share
Debenture
a) Shares are part of the capital of a Company
a) Debentures constitute a loan
b) Shareholders are members of the Company
b) Debenture holders are creditors
c) Shares have no charge on assets of the Company.
c) Debentures have a charge on assets of the Company.
d) Rate of dividend varies depending on the profit of the Company.
d) Rate of interest is fixed.
e) Shareholders enjoy voting rights.
e) Debenture holders have no voting rights.

12. What do you mean by forfeiture of shares ?

Ans: Usually the Company may provide in its Articles powers to forfeit the shares of a member who fails to pay calls or installments of the issue price of his shares within a certain time after the same had fallen due for payment. Forfeiture of shares does not amount to reduction of share capital.

13. What are the rules to be followed in connection with forfeiture of shares ?

Ans: The rules that may be followed in connection with forfeiture of shares :
a)It must be in accordance with the provisions contained in the Articles of Association of the Company.
b)Proper notice should be served before forfeiting shares.
c)Board resolution should be passed for forfeiting the shares.
d)Power of forfeiture must be exercised bona fide and in good faith.


13. What are the effects of forfeiture of shares?

The effects of forfeiture of shares are as follows :
a)Ceases to be a member.
b)Liability of the member ceases if and when the Company receives the payment in full in respect of the forfeited shares.
c) Past members shall be liable to pay calls if the liquidation takes place within 1 year of the forfeiture.
d)The forfeited shares becomes the property of the Company on forfeiture and the Company can re-issue or dispose of such shares in such manner as it thinks fit.

14. What do you mean by sub-division of shares ?

Ans: A company may if authorised by its Articles, to sub-divide its share capital by an ordinary resolution passed in the General Meeting. By sub-division, it means that the shares may be split into shares having smaller nominal value. An unlimited company would have to alter its capital clause by a special resolution for sub-dividing its shares.

15. What do you mean by surrender of shares?

When any shareholder voluntarily returns his shares to the Company for cancellation, then it is known as surrender of shares. No provisions are being contained in the Companies Act or in Table A for surrender of shares. No consideration should be paid by the Company in exchange of surrendered shares, since it would amount to purchase of shares by the Company itself..

16. What is irregular allotment?

Ans: An allotment is irregular if it is made without complying with the provisions of Section 69 and 70 of the Companies Act, 1956 pertaining to a regular allotment of shares.

16. What is meant by split-up of shares?

Where joint holders of shares want the shares to be split up and registered in their individual names, it essentially amounts to transfer of shares from joint ownership to individual ownership.

17. What is meant by Rights Issue of Shares.

Ans: If, at any time after the expiry of two years from the date of incorporation of the company or after one year from the date of first allotment of shares, whichever is earlier, a public company limited by shares issues further shares within the limit of authorised capital, its directors must first offer such shares to the existing holders of equity shares in proportion to the capital paid up on their shares at the time of further issue. This is commonly known as "Rights Issue of shares".

18. Explain the Issue of shares at discount

Ans: A company may issue shares at a discount i.e at a value below its par value. The following conditions must be satisfied in connection with the issue of shares at a discount :-
The shares must be of a class already issued
Issue of the shares at discount must be authorised by resolution passed in the general meeting of company and sanctioned by the company law board.
The resolution must also specify the maximum rate of discount at which the shares are to be issued
Not less than one year has elapsed from the date on which the company was entitled to commence the business.
The shares to be issued at discount must issued within 2 months after the date on which issue is sanctioned by the company law board or within extended as may be allowed by the Company Law Board.
The discount must not exceed 10 percent unless the Company Law Board is of the opinion that the higher percentage of discount may be allowed in special circumstances of case.

19. Explain the Issue of shares at premium.

A company may issue shares at a premium i.e. at a value above its par value. The following conditions must be satisfied in connection with the issue of shares at a premium:-

The amount of premium must be transferred to an account to be called share premium account. The provisions of this Act relating to the reduction of share capital of the company will apply as if the share account premium account were paid up share capital of the company.

Share premium account can be used only for the following purposes :-
1.In issuing fully paid bonus shares to members.
2.In Writing off preliminary expenses of the company.
3.In writing off public issue expenses such as underwriting commission, advertisement expenses, etc
4.In providing for the premium payable paid on redemption of any redeemable preference shares or debentures.
5.In buying back its shares.

20. What is Underwriting Commission?

Ans: Underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them. Underwriters are paid in the form of payment of commission for the risk they expose themselves to in placing of shares before the public.

21. What is Minimum Subscription?

Ans: As per the SEBI Guidelines, if the Company on public issue of shares, does not receive 90% of the issue amount from public subscription within 120 days from the date of issue, the amount of subscription is required to be refunded to the applicants. Thus a minimum subscription of public issue of shares is mandatory before allotment of shares.

22. What are the different ways by which a company can raise its capital?

Ans: Companies limited by shares can raise its capital by issue of shares in three ways: i) By private placement of shares ii) By book building procedure iii) By public issue or rights issue.

23. What do you mean by allotment of shares? What are the general principles regarding allotment of shares?

Ans: Offer for shares are made by application forms supplied by the company. On acceptance of such application, it amounts to allotment of shares

General principles to be considered regarding allotment of shares are:

Proper authority: Allotment of shares should be made by a proper authority. Any allotment made without proper authority will be invalid.
Written application: No allotment can be made without a written application for allotment of shares. Application should be made in application forms supplied by the company.
Other law: Allotment should not be made in contravention of any other law.
Reasonable time: Shares should be allotted within a reasonable time either in dematerialized or in certificate form
Unconditional: Allotment of shares must be absolute and unconditional.

24.What are the voting rights of Equity Shareholders?

Ans: Every member of the company who holds an Equity share capital of the company, however small it may be, shall have a right to vote in respect of such capital on every resolution placed before the company and his voting rights on a poll shall be in proportion to his share in the paid-up equity capital of the company. A company cannot by its Articles or otherwise deny the voting rights of any member.

25. What do you mean by Call-on-Shares?

Any demand made by the Company for payment of part of issue price of the shares is known as Call-on-Shares. These are installments other than application and allotment money payable on issue of shares.

The power to make calls-on-share can only be exercised by passing a resolution by the Board. The Board must observe that the provisions contained in the Articles are duly complied before exercising the power to make call-on-shares.

26. What are the requisites of a valid call?

Ans: Requisites of a valid call are as follows :- a) It should be made at a duly convened meeting of Board of Directors. b) Directors must be duly appointed and qualified in making a call. c) Quorum should be present. d) Proper resolution should be passed in making the call duly specifying the amount called up on each share along with time and place of payment. e) It must be dated. f) Proper entry of the same is made in the Minutes.



27. What are the different ways by which a company can reduce its share capital?

Ans: A Company limited by shares or limited by a guarantee and having a share capital, if so authorised by its Articles, may, by a special resolution subject to confirmation by the Court, reduce its share capital in the following way :

a)It may extinguish or reduce the liability of members for uncalled share capital.
b)By paying off or returning capital which is in excess of the wants of the Company.
c)It may pay off certain paid-up capital with the understanding to call the same if required.


VI. TRANSFER & TRANSMISSION OF SHARES

1. What is the form of instrument of transfer? What are the conditions which are to be satisfied before registering transfer of shares?

Ans: An instrument of transfer of shares shall be in form 7B of the Companies (Central Governments, General Rules and Forms, 1957)

A company can register transfer of shares only if the following conditions are satisfied:
i) there is a proper instrument of transfer
ii) the instrument is duly stamped
iii) the instrument is executed by or on behalf of the transferor and by or on behalf of the transferee
iv) the instrument specifies the name, address and occupation, if any, of the transferee
v) the instrument of transfer is delivered along with the share certificate or letter of allotment relating to the shares or debentures

2. What is transmission of shares? Can a transmission of shares be refused?

Ans: Transmission of shares refers to transfer of property or title in shares by law. Under this case, the shares of the deceased member may be transferred to his legal representatives. In the case of a bankrupt member, the shares may be transferred to his official receiver. In the case of a lunatic member, the shares are transferred to his administrator, appointed by the Court.

Transmission of shares takes place by operation of law and therefore cannot be generally refused. However the transmission of shares requires succession certificate to be issued.

3. Is succession certificate necessary for transmission of shares?

In case of transmission of shares, the succession certificate is required to establish the status of the person who is claiming to be the rightful heir. However, in case of controversy or dispute as to the actual legal heirs, the company may ask the legal heirs to produce a letter of succession order, probate of a will or a letter of administration.

4. What is blank transfer?

Ans: When a Transfer Form is executed without filling in the name of the transferee and the date of execution and it is handed over to the transferee along with the share certificate to enable him to deal with the shares, it is known as Blank Transfer. Shares are generally transferred in blank in case of pledging. However, a transferee holding blank transfer deed is not considered to be a member of the Company until his name is entered in the register of members.

5. What is Certification of Transfer?

Ans: Where a shareholder sells only part of his shares mentioned in the share certificate, the share certificates is not handed over to the buyer along with instrument of transfer. Both these documents are lodged by the transferor at the Companys registered office. The company retains the share certificate, endorses the instrument with the words, certificate lodged and return it to the transferor. This process is called certification of transfer.

6. What is a Forged Transfer?

Ans: An instrument on which the signature of the transferor is forged, is called a forged transfer. It does not have any legal effect. It cannot transfer ownership from one person to another, however genuine the transaction may appear.

7. Differentiate between transfer & transmission of shares.

Ans:
Transfer Transmission
1. It is voluntary. 1. It is as per the law.

2. A duly executed instrument 2. No need for instrument of transfer.
of transfer is essential. But a letter of request with Succession
Certificate should be enclosed.

3. Consideration is essential. 3. No consideration is essential.

4. Shares are transferred 4. It happens only in case of events such
irrespective of happenings death etc.
such as bankruptcy, lunacy
or death of members.

5. Stamp duty is mandatory. 5. No Stamp duty is necessary.


VII. MEMBERS

1. Who is a member?

Ans: Following persons are considered to be the member of a company pursuant to section 41 of the Companies Act, 1956.

A subscriber to the memorandum of association becomes a member on registration of the company.
A) Every person who agrees in writing to become a member of the company and where name is entered in the register of members.
a)By subscribing i.e. making an application and getting shares on allotment
b)By transfer of shares
c)By purchase of shares or acquisition (in case of takeover, renunciation of rights)
d)By transmission of shares
e)By conversion of debentures or loan into the shares of the company

B) Every person who is holding the equity share capital of a company and whose name is entered into register, as beneficial owner in the records of the depository shall be deemed to be the members of the company.

2. Differentiate between a member and shareholder
Member

Shareholder
a) Holder of share warrant will not a member as his name struck off from the register of members
a) Holder of share warrant is a shareholder.
b) Legal representative of a deceased member is not a member till he applies for registration and his name is entered in the Register of members
b) A legal representative of a deceased member is a shareholder.
c) A registered member may not be a shareholder.
c) A registered shareholder is a member


3. Mention the contents of Register of members.

Ans: The Register of members is a prima facie evidence of its contents including that of membership. Section 150 of the Companies Act, 1956 lays down:
i) Every Company shall keep in one or more books a register of its members and enter therein the following particulars:
The name & address, occupation, if any of each member.
In the case of a Company having share capital, the shares held by each member, distinguishing each share by its number, except where such shares are held with a depository and the amount paid or agreed to be considered as paid on those shares.
The date on which each person was entered in the register as a member.
The date at which a person ceased to be a member.

Provided that where the Company has converted any of its shares into stock and given notice of the conversion to the Registrar, the Register of Members shall indicate the amount of stock held by each of the members concerned instead of the shares so converted that were previously held by him.

4. What are the the rights of a member of a Company?

Ans: a). A member has the right to inspect books/statutory registers of a company:
Register of Charges
Register of Members, Debenture holders and Index Registers
Shareholders Minutes Book
Register of Contracts
Register of Directors
Register of Directors Shareholdings
Register of investments
Register of loans to other companies
Debenture trust deed
Annual Returns

b) Right to receive copies of abridged balance sheet and profit and loss account in case of listed company and balance sheet and profit and loss account, copies of MOA & AOA.
c) Right to receive copy of contract of appointment of managing director/manager
d) Right to receive notice of general meetings
e) Right to attend meetings of the shareholders and exercising voting rights at these meetings either personally or through proxy.
f)Right to receive dividend when declared
g)To have right shares
h)To transfer shares
i)To receive share certificates as title other holdings.

5. Mention any four circumstances under which a member of a Company terminated (Cessation of Membership).

Ans: A person ceases to be a member of a Company when his name is removed from its register of members in any of the following manner:

i)He transfers his shares to another person, the transfer is registered by the Company and his name is removed from the register of members;
ii)His shares are forfeited;
iii)His shares are sold by the Company to enforce a lien;
iv)He dies;
v)He is adjudged insolvent;
vi)The Company is wound up;
vii)He rescinds the contract of membership on the ground of fraud o misrepresentation or a genuine mistake.

6. What is meant by lien on shares?

Ans: Lien means that right to retain anything belonging to another until his claims are satisfied. The AOA of a Company provides that the Company shall have a first and paramount lien upon all the shares registered in the name of each member. This enables the Company to secure and recover any debts due from a member.



VIII. MEETINGS, QUORUM & RESOLUTIONS

1. Enumerate the different kinds of Company Meetings.

Ans: When two or more persons join together to discuss certain business, then it is known as meeting. Meeting convened to transact certain business of the Company, is known as company meeting. There are six types of Company Meeting :-
i) Shareholders/ Members meeting
(a)Statutory Meeting
(b)Annual General Meeting
(c)Extraordinary General Meeting
(d)Class meeting
ii) Board Meeting
iii) Meetings of the Committees of the Board
iv) Meetings of Debenture holders
v) Meeting of creditors
For winding up
For purposes other than winding up
vi) Meetings of contributories in winding up.

2. What are the different types of meetings conducted by a Company. Explain the provisions thereof.

Ans: The different kinds of Meetings are:

a). Board Meeting: The Board of Directors must meet atleast four times a year, i.e. atleast once every quarter of the year. The quorum of the Board meeting is one-third of the total number of Directors.
b. Statutory Meeting: It is the first general meeting of the members of the Company that is held within a period of not less than one month and not more than six months from the date of commencement. This meeting is held to discuss matters related to formation of the Company.
c. Annual General Meeting: This is held every year for adoption of the annual accounts and appointment of auditors and directors. The first meeting should be held within 18 months from the date of incorporation of the Company.
d. Extra-ordinary General Meeting: This is held when some urgent business is to be conducted such as enhancement of authorized capital, change of name of the Company etc. before the ensuing Annual General Meeting.

3. What are the requisites of a valid general meeting?

Ans: Requisites of a valid meeting are :
(i)It should be properly convened, which means proper notice should be given by the proper authority to every person entitled to receive the notice.
(ii) It should be properly constituted, which means that a proper person should be there in the chair and the company should follow proper quorum along with other rules.
(iii) It should be properly conducted, which means the meeting should be conducted in the manner of law as prescribed under the Companies Act 1956.
4. Who are required to hold a Statutory Meeting?

Every public company which is limited by shares and every company limited by guarantee and having a share capital or a private company which is a subsidiary of a public company is required to hold a general meeting of the members of the company within a period of not less than one month but within six months from the date from which the company is entitled to commence its business. This meeting is known as statutory meeting of the company.

5. What are the objects of holding statutory meeting of the Company?

Ans: Objects for holding the statutory meeting of the company are:
(i)To acquaint the members of the company with the matters relating to promotion and formation of the company.
(ii)To acquaint the members regarding details of receipts and expenditure of the company.
(iii)To provide the shareholders an opportunity for discussing on the proper appraisal of the management methods, procedure and the future prospect of the company.


6. What is Statutory Report?

Ans: The Board of Directors must prepare and send to every member a report called the "Statutory Report" at least 21 days before the day on which the statutory meeting is to be held.
Contents of Statutory Report must provide the following particulars:-
(a)The total number of shares allotted,
(b) The total amount of cash received by the company in respect of all shares allotted;
(c) An abstract of the receipts and payments upto a date within 7 days of the date of the report and the balance of cash and bank accounts in hand, and an account of preliminary expenses.
(d) Any commission or discount paid or to be paid on the issue or sale of shares or debentures must be separately shown in the aforesaid abstract.
(e) The names, addresses and occupations of directors, auditors, manager and secretary, if any, of the company and the changes which have taken place in the names, addresses and occupations of the above since the date of incorporation.
(f) Particulars of any contracts to be submitted to the meeting for approval and modifications done or proposed


7. Draft notice and agenda of a first board meeting.

ABC PRIVATE LIMITED
Regd. Office: 22, Vijayanagar, Bangalore-56 0 040

Notice is hereby given that the First Meeting of the Board of Directors of the Company will be held on Wednesday 11th June 2002 at 10.00 A.M. at the Registered Office of the Company to consider thereat the businesses as per the enclosed agenda.

AGENDA


BUSINESS TO BE TRANSACTED

SUBMITTED TO BOARD FOR . . . .

1 Election of Chairman


2 Confirmation of Quorum


CONFIRMATION
3 Certificate of Incorporation and Memorandum & Articles of Association of the Company

NOTING
4. Appointment of First Directors

NOTING
5 Register of Contracts

NOTING
6. Adoption of Common Seal

APPROVAL
7. Allotment of X No. of Equity Shares of Rs.Y/- each to the Subscribers of the Memorandum And Articles Of Association

APPROVAL
8. Printing of Share Certificates
APPROVAL

9. Issue of Share Certificates to the Subscribers
APPROVAL

10. Fixation of Financial Year of the Company

APPROVAL
11 Appointment of Auditors

APPROVAL

12.Situation of Registered Office

APPROVAL

13. Appointment of Essential Staff

APPROVAL

14. Opening of Bank Account at XYZ Bank, Bangalore

APPROVAL

15. Procedure of recording of Minutes of Board Meeting and General Body Meeting

APPROVAL

16. Pre-Incorporation and Pre-Operative Expenses incurred by the Promoters

APPROVAL

17. Registration with various Statutory Authorities

APPROVAL

18. Date of next Board Meeting


19. Vote of Thanks



FOR ABC PRIVATE LIMITED

DIRECTOR

Date: 10.06.2002
BANGALORE

8. What is meant by Notice of a meeting?

Ans: A meeting cannot be held unless a proper notice has been given to all persons entitled to attend the meeting at the proper time, containing the necessary information. A notice convening a general meeting must be given at least 21 clear days prior to the date of meeting. However, an annual general meeting may be called and held with a shorter notice, if it is consented to by all the members entitled to vote at the meeting. In respect of any other meeting, it may be called and held with a shorter notice, if at least members holding 95 percent of the total voting power of the Company consent to a shorter notice.
Notice of every meeting of company must be sent to all members entitled to attend and vote at the meeting. Notice of the AGM must be given to the statutory auditor of the company

9. What do you mean by Quorum.

Ans: Quorum means the minimum number of persons required to be present at a meeting for transacting corporate business. In the absence of a quorum the proceedings of the meeting will be a nullity.

10. What is the quorum for the Board meeting of a company?

In terms of the Companies Act, 1956, quorum for a board meeting is 1/3rd of the total strength of the board (any fraction containing that 1/3rd being rounded off as one) or two whichever is higher.

Total strength means the total strength of the board as determined in pursuant of the Act after deducting there from the number of directors, if any, whose places may be vacant at the time .


11. What is disinterested quorum for a Board Meeting?

A quorum must be a disinterested quorum i.e. while counting total strength of interested director is not to be considered. Provided, where at any time number of interested directors exceeds or is equal to 2/3rd of its total strength, in such a case the number of non-interested directors present at the meeting who shall not be less than 2, shall be quorum during such time.

12. What happens if the quorum is not present in the Board meeting?

A board meeting is not valid unless the requisite quorum is present. If Quorum of board meeting is not present, then unless the Article otherwise provide, the meeting shall automatically stand adjourned till the same day in the next week, at the same time & place, or if that day is a public holiday till the next succeeding day which is not a public holiday at the same time and place.

13. Differentiate between Motion and Resolution.

Ans: Motion means a proposal to be discussed at a meeting by the members.
A resolution may be passed accepting the motion, with or without modifications or a motion may be entirely rejected.
A motion, on being passed as a resolution becomes a decision.
A motion must be in writing and signed by the mover and put to the vote of the meeting by the chairman.
Only those motions which are mentioned in the agenda to the meeting can be discussed at the meeting.
Generally, a motion is proposed by one member and seconded by another member.

14.. How many types of resolutions are there?

There are three types of resolutions

a)Ordinary
b)Special
c) Resolutions requiring special notice.

15. Mention any four items that require special resolution.

Ans: They are:
Alteration to Articles of Association of the Company.
Change of name
Change of Registered Office from one State to another State.
Amendment to Memorandum of Association of the Company.
Issue of Bonus Shares/ Issue of Sweat shares.
Conversion from Public Limited Company to Private Limited Company.


16. Differentiate Special resolution and Resolution requiring special notice.

Ans: Special Resolution: A resolution is said to be a special resolution if the intention to move the resolution as a special resolution is specified in the notice for the meeting, the text of the resolution has been given in the notice, the required notice for convening the meeting has been given as provided under the Act, further votes cast in favour of the resolution are not less than three times number of votes cast against the resolution, if any. The resolution has to be filed with the Registrar of Companies in form number 23 within 30 days of its passing of the same, duly certified by an officer of the company.

Resolutions requiring special notice: Certain resolutions require special notice. Where a special notice is to be given for any resolution, notice of the intention to move the resolution shall be given to the company not less than 14 days before the meeting at which it is to be moved, exclusive of the day on which the notice is served or deemed to be served and the day of the meeting.

17. Draft specimen resolution for appointment of Companys bankers i.e. opening of bank account in the name of the Company.

Ans: RESOLVED that the current account in the name of the Company be opened with XYZ Bank, PQR Branch, Bangalore.
FURTHER RESOLVED that the said Bank be and is hereby authorized to honour all cheques, drafts, bills of exchanges, promissory notes, and other negotiable instruments drawn signed, accepted or made on behalf of the Company, jointly and severally by Mr. A, Director and Mr. B, Director of the Company and act upon accounts at any time or times kept or to be kept in the name of the Company with the Bank. Whether any such accounts of the Company be for the time being in credit or overdrawn by any payment of or in relation thereto or otherwise and to act on any instructions relating to the accounts, affairs or transactions of the Company provided they are signed by the above official on behalf of the Company and such signatures shall be sufficient authority to bind the Company including those specifically referred to herein.

FURTHER RESOLVED that the resolution shall remain in force until notice in writing of its withdrawal or cancellation is given to the Bank by any Director of the Company.

FURTHER RESOLVED that the certified true copy of the aforesaid resolution be forwarded to the Bank and be requested to act thereupon.

18. Who is the Chairman of a Meeting?

Ans: Generally the AOA of a company provides who can be appointed as a chairman of the general meeting. The Companies Act, 1956 provides for appointment of chairman of the meeting. It states that unless the article of the company otherwise provide the members present in person at the meeting shall elect one of themselves as the chairman of the meeting on a show of hands. If a poll is demanded on the election of the chairman the same should be taken immediately in accordance with the provisions the Act.


19. State the duties of the Chairman of the Meeting.

The chairman is the head of the meeting. Without the chairman, a meeting is incomplete. The chairman is the regulator of the meeting.

His duties include the following:
He must ensure that the meeting is properly convened and constituted i.e. that proper notice has been given, that the required quorum is present, etc.
He must ensure that the provisions of the act and the articles in regard to the meeting and its procedures are observed.
He must ensure that business is taken in the order set out in agenda
He must impartially regulate the proceedings of the meeting and maintain discipline at the meeting.
The chairman has the power to adjourn the meeting
He must exercise his power to order a poll correctly and must order it to be taken when demanded properly.
He must exercise his casting vote bonafide in the interest of the company.

20. What do you understand by Minutes?

Ans: The Minutes are a record of the discussions made at the meeting and the final decisions taken thereat. Every company must keep minutes of the proceedings of general meetings and of the meetings of board of directors and its committees. The pages of the minute books must be consecutively numbered and the minutes must be recorded therein within 30 days of the meeting. Each page of every such minutes books must be initialed or signed and last page of the record of proceedings of each meeting in such books must be dated and signed by :-
in the case of the meeting of the Board of directors or committee thereof, by the chairman of that meeting, and
in the case of a general meeting, by the chairman of the same meeting within the aforesaid 30 days or in the event of the death or inability of that chairman within the period, by a director duly authorised by the Board of directors for the purpose.

21. What is meant by proxy?

A proxy is a person who is being authorised by a member of the company to attend and vote on his behalf at the meeting. The term is also used to mean the instrument by which such person is appointed (Section 176). He can be described as an agent of the shareholder to act on his behalf at the meeting.

22. Who is entitled to appoint a proxy?

Every member of a company having share capital is entitled to appoint a proxy to attend and vote on his behalf at the meeting. The proxy need not be a member of the company. A member can appoint one or more proxies to vote in respect of the different shares held by him. However, a member of a private company can appoint only one proxy for one meeting, unless its Article expressly enables appointment of more than one proxy.

23. What are the rights of a proxy?

A proxy is entitled to attend the meeting but he cannot participate in the proceedings or speak at the meeting unless the Articles of a Company provides for the same. He can demand a poll and can vote if a poll is demanded. However, he cannot vote on show of hands.

DIVIDEND

1. What is dividend?

Ans: Dividend is a distribution to shareholders out of profits or reserves available for this purpose.It is a return given to shareholders of the company in respect of shares held by them and is paid out of the profit of the company. In other words it is distribution of corporate earning & profits to the shareholders of shares of the company. In case of winding up, it denotes distribution of the companys assets, in cash or in kind after discharging all the assets and liabilities of the company.

2. Is it mandatory to pay dividend every year?

Ans: No, it is not mandatory to pay dividend every year. It is the prerogative of the Board to recommend the dividend. If Board does not recommend the dividend shareholders cannot force them to do so.


DIRECTORS & COMPANY SECRETARY

1. Who can be a Director of a Company? How is he appointed?

Ans: Any individual who is not disqualified under Sec. 274 of the Companies Act, 1956 or by the Articles of the Company can be appointed as a Director of the Company.
He should have the following qualifications:
a.He should hold the prescribed number of qualification shares within two months of his appointment or as per the articles of AOA of the Company.
b.He should not be of unsound mind.
c.He should not be an undischarged solvent.
d.He should not have any insolvency petitions against him.
e.He should have criminal background.
f.He should not have calls in arrears for six months.
g.He should not be guilty of offence U/s. 203 for fraudulent promotion, formation or winding up of a Company.

As per Section 253 of the Companies Act 1956, only individuals can be appointed as directors of a company. No body corporate, associations or firm can be appointed as director

2. What should be the minimum and maximum number of directors in a Public Limited Company and a Private Limited Company?

The Board of a Public Limited Company (other than deemed Public Company) must have at least 3 directors. The board of a Private Limited Company (including deemed Public Company) should consist of not less than 2 directors.

3. How is a director appointed?

Ans: Directors may be appointed in the following ways: -
i. By subscribers to the MOA;
ii. By shareholders in General Meeting;
iii. By Board of Directors
iv. By Central Government
v. By third parties

4. Discuss the qualification of Directors

Ans: No qualification is being prescribed under the Companies Act, 1956 for appointment of any person as director of a company except in case of appointment of managing director/whole time director certain qualifications are being prescribed under Schedule XIII Part I of the Companies Act 1956.

Further, if the directors are required to have share qualification as per the AOA of the company than such persons are required to obtain such share qualification within 2 months of his appointment.

5. When does a Director vacate his place of office?

A director of the company vacates the place of office if he is disqualified under section 283 of the Companies Act, 1956 in the following cases:
a)When a director fails to obtain the share within the time specified in the Act or any time thereafter as mentioned in the Article of the Company;
b)He is found to be of unsound mind by a Court of competent jurisdiction;
c)He applies to be adjudicated and insolvent;
d)He is convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months;
e)He fails to pay any call money in respect of the shares of the company held by him, whether alone or jointly with others, within six months from the last date fixed for the payment of the call unless the Central Government has, by notification in the official gazette, removed disqualification incurred by such failure;
f) He absents himself from three consecutive meetings of the board of directors, or from all meetings of the board for a continuous period of three months, which ever is longer, without obtaining leave of absence from the board;
g)He becomes disqualified by an order of Court under section 203; x) He is removed in pursuance section 284.

6. Who is the Managing Director?

Ans: Managing Director as defined under the Companies Act, 1956 means a director who by virtue of an agreement with the company or by a resolution passed by the company in the general meeting or by the board of director or by its MOA or AOA of the company is entrusted with substantial powers to manage the affairs of the company which would not otherwise be exercisable by him. Managing Director of a company can be appointed under section 269 of the Companies Act 1956.


7. Distinguish between Manager and Managing Director.

Managing Director
Manager
He is appointed either under an agreement or by a resolution of the board or general meeting or under the provisions of the memorandum of association.
He is appointed either under a contract of service or by the board of directors.
He must be a director
He may or may not be a director.
He is interested with substantial power of management
He has the management of whole of the affairs of the company
The grounds of disqualification of managing director remain effective for whole life and cannot be waived by Central Government
The grounds of disqualification of a manager are only for 5 years and can also be waived by the Central Government


8. Who is a Company Secretary? Who appoints the Secretary of the Company?

Ans: As an officer of the Company and at the centre of the decision-making process, the Company Secretary is in a powerful position of influence. The Company Secretary should not only assist and guide the directors in their pursuit of profit and growth, but should also act with integrity and independence to protect the interests of the company, its shareholders and its employees.
The Board of Directors appoints the Company Secretary of the Company.

9. Mention any three duties of a Company Secretary.

Ans: The role of the Company Secretary concerns three main areas viz. the Board, the Company and the Shareholder.

The Board: The Secretary must ensure that the procedure for the appointment of directors is properly carried out and he should assist in the proper induction of directors, including assessing the specific training needs of directors/executive management. He should also facilitate the acquisition of information by all board and committee members so that they can maximise their ability to contribute to board meetings, discussions etc. He need to assist in the compilation of board papers, notices of meetings, Board MInutes and to filter them to ensure compliance with the required standards of good governance.

The Company: The Secretary should ensure compliance with all relevant statutory and regulatory requirements and that due regard is paid to the specific business interests of the company, for example, a manufacturing company may require a different approach from that of a bank or a financial services company or from that of a charitable company. He also assists in the implementation of corporate strategies by ensuring that the Boards decisions and instructions are properly carried out and communicated.

The Shareholder: The Company Secretary needs to communicate with the shareholders as appropriate and to ensure that due regard is paid to their interests. He also acts as a primary point of contact for institutional and other shareholders, especially with regard to matters of Corporate Governance.


AMALGAMATION & RECONSTRUCTION

1. What does it mean by Amalgamation?

Amalgamation is blending of two or more existing undertakings into one undertaking, the new undertaking may be one of the amalgamating companies or a new company formed for the purpose. The shareholders of each blending company becomes substantially the shareholders in the company which is to carry on the blended undertaking.

2. What are the different types of amalgamation?

i) Absorption : When one or more undertaking blends with another undertaking it is known as absorption. Existing undertaking absorbs another undertaking.
ii) Merger : When two or more undertakings blend to form new undertaking it is know as merger. Here the different undertakings loose their respected identities to form a new undertaking. Merger is an arrangement whereby the assets of two (or more) companies become vested in, or under the control of one company (which may or may not be one of the original two companies), which has as its shareholders, all or substantially all the shareholders of the two companies. Many Companies have resolved to business restructuring through mergers.

3. What are the different ways by which reconstruction or amalgamation may take place?

Reconstruction or amalgamation may take place in the following three ways: i) by sale of undertaking ; ii) by sale of shares; iii) by a scheme of arrangement;

4. What does it mean by Reconstruction?

When a Company resolves to wind up its business and it is proposed to form a new Company, with only the old shareholders as its members to take over its undertaking it is known as reconstruction. The old Company ceases to exist in point of law and its assets are transferred to a new Company. In reconstruction substantially the same business would be carried on substantially by the same persons. Reconstruction includes reorganization, arrangement, amalgamation etc.

5. What are the differences between reconstruction and amalgamation?

Reconstruction refers to formation of a company to take over the assets undertaking of the old company. In case of reconstruction same business shall be carried on by the same persons.
Amalgamation refers to the process of blending up of two or more different companies. In case of amalgamation business and the persons carrying on the business may not be the same.

AUDIT & ACCOUNTS

1. What are the books of accounts a Company is bound to maintain under the Companies Act, 1956?

Ans: Under the Companies Act, 1956, every company shall keep proper books of account with respect to:
All sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place.
All sales and purchases of goods by the company.
The assets and liabilities of the company.
A company engaged in production, processing, manufacturing or mining activities, should also maintain the cost records if required by the Central Government. Such cost records would include particulars relating to utilisation of materials ; utilisation of labour ; or other items of cost as may be prescribed.

2. When does a company need to circulate its Balance Sheet and Profit and Loss Account?

As per Section 219 of the Companies Act, 1956, a company is required to circulate a copy of the Balance Sheet, Profit and Loss Account, Auditors Report and every other document required to be annexed or attached to the Balance Sheet to the members of the Company, at least 21 days before the date of Annual General Meeting of the Company.

3. Is it mandatory to attach to every Balance Sheet a report by its Board of Directors?

Pursuant to section 217 (1) of the Companys Act, a report by Board of Directors is to be attached with every Balance Sheet of the company. The report of directors forms part of the annual report of the company so it is to be attached to the balance sheet and not to be annexed to the balance sheet.

4. What should be the content of a Directors Report of the Company?

A Directors Report of the Company should contain the following matters: a) The state of the companys affair. b) The amounts if any, which it proposes to carry to any reserves in such balance sheet. c) The amount if any which it recommends should be paid by way of dividend; d) Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the balance sheet relates and the date of the report; e) The conservation of energy, technology absorption, foreign exchange earning and outgo, in such manner as may be prescribed.

5. Discuss the powers, duties, and rights of an auditor under the Companies Act, 1956.

Ans: It is the duty of the auditor to conduct the audit of the books of accounts of the company and to make his report to the members of the company on the accounts examined by him, and on every balance sheet, every profit and loss account and on every other document declared by the Act to be part of or annexed to the balance-sheet or profit and loss account and laid before the company in general meeting during his tenure of office. The auditors report, besides other things necessary in any particular case, must expressly state-
(i)whether, in his opinion and to the best of his information and according to explanation given to him, the accounts give the information required by the Act and in the manner as required;
(ii)whether the balance-sheet gives a true and fair view of the company's affairs as at the end of the financial year and the profit and loss account gives a true and fair view of the profit or loss for the financial year;
(iii)whether he has obtained all the information and explanations required by him for the purposes of his audit;
(iv)whether in his opinion, the profit & loss account and balance sheet referred to in his report comply with the accounting standards recommended by the Institute of Chartered Accountants of India;
(v)whether, in his opinion, proper books of account as required by law have been kept by the company, and proper returns for the purposes of his audit have been received from the branches not visited by him;
(vi)whether the company's balance sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns.
In case any of the above matters is answered in the negative, the auditor's report must state the reason for the same.

Only the person appointed as auditor of the company or where a firm of auditors is so appointed, only a partner of that the firm practising in India, can sign the auditor's report or sign or authenticate any other document of the company required by law to be signed or authenticated by the auditor.


WINDING UP

1. What is winding up of a company?

Winding up is a process whereby the affairs of the company are being wound up, its assets are realized to pay off the debts of the company. The whole process brings a lawful end to the life of the company. An administrator known as liquidator is appointed to take control of the company, to realize the assets and discharge the liabilities of the company. At the end the company will be dissolved.

2. What are the different types of winding up of a Company?

Ans: Different modes of winding up of a company pursuant to the Companies Act, 1956 are:
i) Compulsory winding up (by the court)
ii) Voluntary winding up: a) Members ; b) Creditors
iii) Winding up subject to supervision of court

3. What is Compulsory Winding up? State the circumstances a Company can be wound up by Court of Law?

Winding up by court is also called compulsory winding up and the court may on the application of any persons mentioned under the Companies Act, 1956, may order for compulsory winding up of the company.
Grounds for compulsory winding up are provided under Section 433 of the Companies Act, 1956 and are as follows :
(i)By passing of a special resolution to wind up the company by the Court.
(ii)ii) If default is made by the company in holding the Statutory meeting or delivering the statutory report to the Registrar a company may be wound up.
(iii)If a company fails to commence its business within a year of its incorporation or it suspends its business for the whole year than it may be ordered to wind up . The Registrar can make the petition for winding up provided it has obtained the prior approval of the Central Govt.
(iv)On reduction of number of members of a company below the statutory minimum i.e. below seven or two in case of public company or private company respectively; or
(v)On inability of the company to pay its debts; or
(vi)On just and equitable reason

4. What is Voluntary Winding up a Company?

Ans: A company may be wound up voluntarily if it is decided so by its members or creditors. In voluntary winding up, the company and its creditors are free to settle their affairs without going through the court, but the members or creditors may apply to the court for any directions or orders if and when necessary.

A company as per Sec. 484, may be wound up voluntary in the following cases:

1) By passing an ordinary resolution in the general meeting
a)When the period, if any, fixed for the duration of the company by the articles has expired, or
b)The event on the happening of which the articles provide for the dissolution of the company has occurred.
2) By passing a special resolution, a company may be wound up voluntarily A company may be wound up voluntarily even, if it is solvent, if the shareholders decide so.


5. Distinguish between the compulsory & voluntary winding up of the company?

Particulars
Compulsory
Voluntary
Significance
Settlement of affairs by the Court
Settlement of affairs without intervention of Court
Grounds
As specified under Section 433 of the Act.
As specified under Section 484.
Commencement
From the date of presentation of petition
From the date of passing of the resolution
Liquidators
Official liquidator eventually becomes liquidator and act under courts supervision
Liquidator is appointed by members in case of members voluntary winding up, and in other case both the creditors and the members appoint their own nominee.
Prosecution against delinquent members/director
Liquidator can prosecute such person only with the approval of the court.
Liquidator has no power to prosecute such person he can just report to the registrar for appropriate action.
Share transfer after commencement of winding up
Void unless the court order otherwise
Share transfer is valid if the same is made with the sanction of the liquidator

Source: Mr.Nagarajan, Company Secretary

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