UGC NET POINT

NET / JRF / SET

2019

Companies Act, 2013

Useful for UGC NET/JRF – COMMERCE & LAW Subject

By: Chandan Prasad

YOUTUBE – SVAROOP CLASSES

UGC NET POINT

Le-desire Complex Lalpur Ranchi – 834001
7004579780 / 8809829604
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 By – Chandan Sir

UGC NET POINTS - RANCHI Companies Act, 2013

Part - 08 Companies Act, 2013

Introduction
The review and redrafting of the Companies Act, 1956 was taken up by the
Ministry of Corporate Affairs on the basis of a detailed consultative process.
The Companies Act, 2013 was passed by Lok Sabha on the 18th of December
2012 and passed by the Rajya Sabha on 8th August 2013 and is all set to
replace the 57 year old Companies Act, 1956.
The Companies Act, 2013 received the assent of the president on 29th
August, 2013 and was notified in the Gazette of India on 30th August, 2013.

In the Companies Act 2013, various new provisions have been included
(which are not provided for in Companies Act, 1956) for better governance of
the companies. Like – OPC , Granting of More powers to Audit Committee,
Mandatory Auditing Standards etc…..

Effective date of Companies Act 2013 - from April 1'st, 2014 – according to
the notification issued by Ministry of Corporate Affairs.
Meaning of a company and his silent features of a company.
In terms of the Companies Act, 2013 (Act No. 18 of 2013) a “company”
means a company incorporated under this Act or under any previous
company law [Section 2(20)].
The Companies Act, 2013 contains 470 sections and seven schedules. The
entire Act has been divided into 29 chapters.

Companies Act, 1956 which consists of 658 sections under 13 Parts and 15
schedules.

The Companies Act, 2013 applies to the whole of India and is also
applicable to certain companies or bodies corporate governed by Special
Acts.
The Government of India has the power to notify different provisions of
the Act at different point of time.

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UGC NET POINTS - RANCHI Companies Act, 2013

Applicability of the Companies Act, 2013:

Companies incorporated under this Act or under any previous company law.

Insurance companies (except where the provisions of the said Act are inconsistent
with the provisions of the Insurance Act, 1938 or the IRDA Act, 1999)

Banking companies (except where the provisions of the said Act are inconsistent with
the provisions of the Banking Regulation Act, 1949)

Companies engaged in the generation or supply of electricity (except where the

provisions of the above Act are inconsistent with the provisions of the Electricity Act,
2003)
Any other company governed by any special Act for the time being in force.

Such body corporate which are incorporated by any Act for time being in force, and as
the Central Government may by notication specify in this behalf. E.g. Payment Bank

Silent Features of a Company:

Separate Legal Entity

• Legally separate from the members

Perpetual succession

• Change in members does not affect existence of Company : Members may die or
change, but the company goes on till it is wound up on the grounds specified by
the Act. The shares of the company may change hands infinitely but that does
not affect the existence of the company.

Limited Liability

• Liability of Company different from liability of members

Artificial Juridicial Person

• Company can act through human agency only

• Company can contract, sue and be sued in its own name

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UGC NET POINTS - RANCHI Companies Act, 2013

Others Features:
Separate property: The corporate property is clearly different from the
members’ property and members have no direct proprietary rights to the
company’s property.

Transferability of shares,

Going Concern,

Common Seal,

Incorporated Association: Company is an incorporated association of persons

created by the law of the country.,

separate management,

Termination of existence etc.

Corporate Veil Theory: (Separate Legal Entity Concept)

Corporate Veil refers to a legal concept whereby the company is identifi-
ed separately from the members of the company.

The term Corporate Veil refers to the concept that members of a

company are shielded (protect) from liability connected to the
company’s actions.
If the company incurs any debts or contravenes any laws, the corporate
veil concept implies that members should not be liable for those errors.

Thus, the shareholders are protected from the acts of the company.

The Salomon Vs. Salomon and Co Ltd. laid down the foundation of the
concept of corporate veil or independent corporate personality. e.g. case
law

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UGC NET POINTS - RANCHI Companies Act, 2013

• Classes of Companies under the Act

On the basis of Liability:

01. Company limited by shares:
Section 2(22) of the Companies Act, 2013, defines that when the liability of the
members of a company is limited by its memorandum of association to the amount (if
any) unpaid on the shares held by them, it is known as a company limited by shares.

A Memorandum of Association (MOA) is a legal document prepared in the

formation and registration process of a limited liability company .Memorandum of
association is the charter of the company and defines the scope of its activities.
E.g. Name Clause, Situation Clause, Object Clause, .Liability Clause etc.
An article of association (AOA) of the company is a document which regulates the
internal management of the company. As per Section 2(5) of the Companies
Act,2013 “articles” means the articles of association of a company as originally
framed or as altered from time to time or applied in pursuance of any previous
company law or of this Act. E.g. The articles of a company shall contain the
regulations for management of the company.

02. Company limited by guarantee:

Section 2(21) of the Companies Act, 2013 defines it as the company having the liability
of its members limited by the memorandum to such amount as the members may
respectively undertake by the memorandum to contribute to the assets of the company
in the event of its being wound up.

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UGC NET POINTS - RANCHI Companies Act, 2013

03. Unlimited company:

Section 2(92) of the Companies Act, 2013 defines unlimited company as a company
not having any limit on the liability of its members. In such a company, the liability of
a member ceases when he ceases to be a member.

On the basis of members:

Private Company:
▪ As per Section 2(68) of the Companies Act, 2013, “Private company” means a
company having a minimum paid-up share capital as may be prescribed, and
which by its articles, —
• (i) restricts the right to transfer its shares;
• (ii) except in case of One Person Company, limits the number of its
members to two hundred (Max. – 200 members)

Provided that where two or more persons hold one or more shares in a company
jointly, they shall, for the purposes of this definition, be treated as a single member:
.
Important point –
• One lakh minimum paid-up capital requirement.
• Minimum number of members – 2 (except if private company is an OPC, where
it will be 1).
• Maximum number of members – 200
• Right to transfer shares restricted.
• Prohibition on invitation to subscribe to securities of the company. Like , shares ,
bond etc..
• Small company is a private company.
• OPC can be formed only as a private company.

Public company [Section 2(71)]:

“Public company” means a company which—

(a) is not a private company;
(b) has a minimum paid-up share capital, as may be prescribed.
Important point:
• Is not a private company

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UGC NET POINTS - RANCHI Companies Act, 2013

• Shares freely transferable.

• 5 lakh minimum paid up capital requirement.
• Minimum number of members – 7. Maximum numbers of members – No limit.

Subsidiary of a public company is deemed to be a public company.

Small company

▪ Small company is a new form of private company under the Companies Act,
2013. A classification of a private company into a small company is based on its
size i.e. paid up capital and turnover.
▪ In other words, such companies are small sized private companies.

As per section 2(85) ‘‘small company’’ means a company, other than a public company,
—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher
amount as may be prescribed which shall not be more than five crore rupees.
(ii) turnover of which as per its last profit and loss account does not exceed two crore
rupees or such higher amount as may be prescribed which shall not be more than
twenty crore rupees:

Provided that nothing in this definition shall apply to—

(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
01. Q. Which company shares can be freely transferable

(a) Private Company

(b) Public Company
(c) Both (a) & (b)
(d) None of the above
02. Minimum number of members in case of public company

(a) 1
(b) 2
(c) 5
(d) 7

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UGC NET POINTS - RANCHI Companies Act, 2013

03. Liability of a member in case of a private company is

(a) Limited
(b) Unlimited
(c) Both (a) or (b)
(d) None of the above

(i) Classification on the basis of Incorporation:

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UGC NET POINTS - RANCHI Companies Act, 2013

(a) Statutory Companies: These are constituted by a special Act of Parliament or State
Legislature. The provisions of the Companies Act, 2013 do not apply to them.
Examples of these types of companies are Reserve Bank of India, Life Insurance
Corporation of India, etc.

(b) Registered Companies: The companies which are incorporated under the
Companies Act, 2013 or under any previous company law, with ROC fall under this
category.

One-person company:
▪ The Companies Act, 2013 introduced a new class of companies which can be
incorporated by a single person.
▪ Section 2(62) of the Companies Act, 2013 denes one-person company (OPC) as
a company which has only one person as a member.
▪ One-person company has been introduced to encourage entrepreneurship and
corporatization of business.
▪ OPC differs from sole proprietary concern in an aspect that OPC is a separate
legal entity with a limited liability of the member.
▪ whereas in the case of sole proprietary, the liability of owner is not restricted
and it extends to the owner’s entire assets constituting of official and personal.
▪ The procedural requirements of an OPC are simplified through exemptions
provided under the Act in comparison to the other forms of companies.
▪ According to section 3(1)(c) of the Companies Act, 2013, OPC is a private
limited company with the minimum paid up share capital as may be
prescribed and has at least one member.

OPC (One Person Company) - significant points

▪ Only one person as member.
▪ Minimum paid up capital – no limit prescribed.
▪ The memorandum of OPC shall indicate the name of the other person, who
shall, in the event of the subscriber’s death or his incapacity to contract, become
the member of the company.
▪ The other person whose name is given in the memorandum shall give his prior
written consent in prescribed form and the same shall be led with Registrar of
companies at the time of incorporation.
▪ No person shall be eligible to incorporate more than one OPC or become
nominee in more than one such company.

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UGC NET POINTS - RANCHI Companies Act, 2013

▪ Only a natural person who is an Indian citizen and resident in India (person
who has stayed in India for a period of not less than 182 days during the
immediately preceding one calendar year)-
• shall be eligible to incorporate a OPC;
• shall be a nominee for the sole member of a OPC.
▪ No minor shall become member or nominee of the OPC or can hold share with
beneficial interest.
▪ Such Company cannot carry out Non-Banking Financial Investment activities
including investment in securities of anybody corporate.

▪ Such Company cannot be incorporated or converted into a company under

section 8 of the Act. Though it may be converted to private or public companies
in certain cases.

▪ OPC cannot convert voluntarily into any kind of company unless two years have
expired from the date of incorporation, except where the paid up share capital is
increased beyond fty lakh rupees or its average annual turnover during the
relevant period exceeds two crore rupees.

(a) Holding and subsidiary companies:

e.g. -

‘Holding and subsidiary’ companies are relative terms.

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UGC NET POINTS - RANCHI Companies Act, 2013

▪ A company is a holding company in relation to one or more other companies,

means a company of which such companies are subsidiary companies. [Section
2(46)]
▪ Whereas section 2(87) denes “subsidiary company” in relation to any other
company (that is to say the holding company), means a company in which the
holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own
or together with one or more of its subsidiary companies:

For the purposes of this section —

(I) a company shall be deemed to be a subsidiary company of the holding company
even if the control referred to in sub-clause (i) or sub-clause (ii) is of another
subsidiary company of the holding company;
(II) the composition of a company’s Board of Directors shall be deemed to be
controlled by another company if that other company by exercise of some power
exercisable by it at its discretion can appoint or remove all or a majority of the
directors;
(III) the expression “company” includes anybody corporate;
(IV) “layer” in relation to a holding company means its subsidiary or subsidiaries.

Example 1: A will be subsidiary of B, if B controls the composition of the Board of

Directors of A, i.e., if B can, without the consent or approval of any other person,
appoint or remove a majority of directors of A.
Example 2: A will be subsidiary of B, if B holds more than 50% of the share capital of
A.
Example 3: B is a subsidiary of A and C is a subsidiary of B. In such a case, C will
be the subsidiary of A.

(b) Associate company [Section 2(6)]:

▪ In relation to another company, means a company in which that other company
has a significant influence, but which is not a subsidiary company of the
company having such influence and includes a joint venture company.
▪ The term “significant influence” means control of at least 20% of total share
capital, or of business decisions under an agreement. [Section 2(6)]
The term “Total Share Capital”, means the aggregate of the -
(a) Paid-up equity share capital; and

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UGC NET POINTS - RANCHI Companies Act, 2013

(b) Convertible preference share capital.

On the basis of access to capital:

(a) Listed company: As per the definition given in the section 2(52) of the Companies
Act, 2013, it is a company which has any of its securities listed on any recognised
stock exchange.
(b) Unlisted company: means company other than listed company.

Other companies:
(a) Government company [Section 2(45)]: Government Company means any company
in which not less than 51% of the paid-up share capital is held by- (i) the Central
Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more State Governments,
and the section includes a company which is a subsidiary company of such a
Government company.

Foreign Company [Section 2(42)]:

It means any company or body corporate incorporated outside India which—
(i) has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
(ii) conducts any business activity in India in any other manner
Formation of companies with charitable objects etc. (Section 8 company):
Section 8 of the Companies Act, 2013 deals with the formation of companies which are
formed to
• promote the charitable objects of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment etc.
Such company intends to apply its profit in

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UGC NET POINTS - RANCHI Companies Act, 2013

▪ promoting its objects and w prohibiting the payment of any dividend to

its members.
Examples of section 8 companies are FICCI, ASSOCHAM, National Sports Club of
India, CII etc.
Power of Central government to issue the license–
(i) Section 8 allows the Central Government to register such person or association of
persons as a company with limited liability without the addition of words ‘Limited’ or
‘Private limited’ to its name, by issuing license on such conditions as it deems fit.
(ii) The registrar shall on application register such person or association of persons as
a company under this section.
(iii) On registration the company shall enjoy same privileges and obligations as of a
limited company.
Revocation of license:
• The Central Government may by order revoke the license of the company
where the company contravenes any of the requirements or the conditions of
this sections subject to which a license is issued or where the affairs of the
company are conducted fraudulently, or violative of the objects of the company
or prejudicial to public interest.
On revocation, Central Government may direct it to,
– Converts its status and change its name
– Wind – up
– Amalgamate with another company having similar object.

Dormant company (Section 455):

▪ Where a company is formed and registered under this Act for a future project or
to hold an asset or intellectual property and has no significant accounting
transaction,
▪ such a company or an inactive company may make an application to the
Registrar in such manner as may be prescribed for obtaining the status of a
dormant company.
▪ “Inactive company” means a company which has not been carrying on any
business or operation, or has not made any significant accounting transaction
during the last two financial years, or has not filed financial statements and
annual returns during the last two financial years.
Nidhi Companies:

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UGC NET POINTS - RANCHI Companies Act, 2013

▪ Company which has been incorporated as a nidhi with the object of cultivating
the habit of thrift (cost cutting) and savings amongst its members, receiving
deposits from, and lending to, its members only, for their mutual benefit .

Public Financial Institutions (PFI):

By virtue of Section 2(72) of the Companies Act, 2013, the following institutions are to
be regarded as public financial institutions:
(i) the Life Insurance Corporation of India, established under the Life Insurance
Corporation Act, 1956;
(ii) the Infrastructure Development Finance Company Limited,
(iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking
and Repeal) Act, 2002;
(iv) institutions notified by the Central Government under section 4A(2) of the
Companies Act, 1956 so repealed under section 465 of this Act;
(v) such other institution as may be notified by the Central Government in consultation
with the Reserve Bank of India:

Conditions for an institution to be notified as PFI:

No institution shall be so notified unless—
(A) it has been established or constituted by or under any Central or State Act; or
(B) not less than fifty-one percent (51%) of the paid-up share capital is held or
controlled by the Central Government or by any State Government or Governments or
partly by the Central Government and partly by one or more State Governments.

CLASSIFICATION OF CAPITAL
▪ Nominal or authorised or registered capital
▪ Issued capital
▪ Subscribed capital
▪ Called-up capital
▪ Paid-up capital
▪ Example

(a) Nominal or authorised or registered capital:

▪ This form of capital has been defined in section 2(8) of the Companies Act,
2013.

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UGC NET POINTS - RANCHI Companies Act, 2013

▪ “Authorised capital” or “Nominal capital” means such capital as is authorised by

the memorandum of a company to be the maximum amount of share capital of
the company.
▪ Thus, it is the sum stated in the memorandum as the capital of the company
with which it is to be registered being the maximum amount which it is
authorised to raise by issuing shares, and upon which it pays the stamp duty.
▪ It is usually fixed at the amount, which, it is estimated, the company will need,
including the working capital and reserve capital, if any.

(b) Issued capital:

▪ Section 2(50) of the Companies Act, 2013 denes “issued capital” which means
such capital as the company issues from time to time for subscription.
▪ It is that part of authorised capital which is offered by the company for
subscription and includes the shares allotted for consideration other than cash.
▪ Schedule III to the Companies Act, 2013, makes it obligatory for a company to
disclose its issued capital in the balance sheet.
(c) Subscribed capital:
▪ Section 2(86) of the Companies Act, 2013 denes “subscribed capital” as such
part of the capital which is for the time being subscribed by the members of a
company.
▪ It is the nominal amount of shares taken up by the public.
▪ Where any notice, advertisement or other official communication or any business
letter, bill head or letter paper of a company states the authorised capital, the
subscribed and paid-up capital must also be stated in equally conspicuous
characters.
▪ A default in this regard will make the company and every officer who is in
default liable to pay penalty extending ` 10,000 and ` 5,000 respectively.
[Section 60].

(d) Called-up capital:

▪ Section 2(15) of the Companies Act, 2013 denes “called-up capital” as such part
of the capital, which has been called for payment. It is the total amount called
up on the shares issued.

(e) Paid-up capital

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UGC NET POINTS - RANCHI Companies Act, 2013

Paid-up capital is the total amount paid or credited as paid up on shares issued. It is
equal to called up capital less calls in arrears.

Example:
Suppose ABC Ltd. is registered with a capital of Rs 1 crore divided into shares of Rs
10 each. It issues 8 lakh shares to raise a fund of Rs 80 lakh but investors subscribe
for 6 lakh shares. The company calls for Rs 4 per share out of Rs 10 (Nominal value
of shares) and it receives payment for only 5 lakh and 50 thousands shares.
Now,
Authorized share capital (10 lakh shares of 10 each) = 1 crore
Issued share capital (8 lakh shares of 10 each) = 80 lakh
Subscribed share capital (6 lakh shares of 10 each) = 60 lakh
Called up share capital (6 lakh × 4) = 24 lakh
Paid up share capital (5 lakh and 50 thousand × 4) = 22 lakh
Call in arrears (50 thousand × 4) = 2 lakh

Shares
Shares & Share Capital
▪ Equity Share Capital
• With uniform voting rights
• With differential voting rights
▪ Preference Share Capital
Nature of shares:
Section 2(84) of the Companies Act, 2013 defines the term
‘share’ which means a share in the share capital
of a company and includes stock.
Shares are a movable property:
According to section 44 of the Companies Act, 2013, the shares or debentures or other
interests of any member in a company shall be movable property transferable in the
manner provided by the articles of the company.
• The owner of shares in the corporation is a shareholder (or stockholder) of
the corporation.
• A share is an indivisible unit of capital, expressing the ownership relationship
between the company and the shareholder.
• The income received from the ownership of shares is a dividend.
Kinds of share capital:-

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UGC NET POINTS - RANCHI Companies Act, 2013

Section 43 of the Companies Act, 2013 provides the kinds of share capital. According
to the provision the share capital of a company limited by shares shall be of two kinds,
namely:—

Shares & Share Capital

Equity Share Capital

Preference Share Capital

With differential With uniform

voting rights. voting rights .

(i) Equity share capital —

(1) with voting rights; or
(2) with differential rights as to dividend, voting or otherwise in accordance with
prescribed rules;
Example: It is to be noted that, Tata Motors in 2008 introduced equity shares with
differential voting rights called ‘A’ equity shares in its rights issue.
• There is no burden on the company, as payment of dividend to the equity
shareholders is not compulsory.
• Equity shares represent the ownership of a company and capital raised by the
issue of such shares is known as ownership capital or owner’s funds.
• Equity shares are also known as ordinary shares.
• The holders of Equity shares are members of the company and have voting
rights. Equity shares are the vital source for raising long-term capital.
(ii) Preference share capital:
▪ However, this Act shall not affect the rights of the preference shareholders who
are entitled to participate in the proceeds of winding up before the
commencement of this Act.
▪ According to explanation to section 43:
1. ‘‘Equity share capital’’, with reference to any company limited by shares, means all
share capital which is not preference share capital;
2. ‘‘Preference share capital’’, with reference to any company limited by shares, means
that part of the issued share capital of the company which carries or would carry a
preferential right with respect to—

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UGC NET POINTS - RANCHI Companies Act, 2013

(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed

rate, which may either be free of or subject to income-tax; and
(b) repayment, in the case of a winding up or repayment of capital.

BASIS FOR PREFERENCE

EQUITY SHARES
COMPARISON SHARES

Meaning Equity shares are the ordinary Preference shares

shares of the company are the shares that
representing the part ownership carry preferential
of the shareholder in the rights on the matters
company. of payment of
dividend and
repayment of capital.

Payment of dividend The dividend is paid after the Priority in payment

payment of all liabilities. of dividend over
equity shareholders.

Repayment of capital In the event of winding up of the In the event of

company, equity shares are winding up of the
repaid at the end. company, preference
shares are repaid
before equity shares.

Rate of dividend Fluctuating Fixed

Redemption No Yes

Voting rights Equity shares carry voting rights. Normally, preference

shares do not carry
voting rights..

Convertibility Equity shares can never be Preference shares

converted. can be converted
into equity shares.

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UGC NET POINTS - RANCHI Companies Act, 2013

BASIS FOR PREFERENCE

EQUITY SHARES
COMPARISON SHARES

Arrears of Dividend Equity shareholders have no Preference

rights to get arrears of the shareholders
dividend for the previous years. generally get the
arrears of dividend
along with the
present year's
dividend, if not paid
in the last previous
year, except in the
case of non-
cumulative
preference shares.

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UGC NET POINTS - RANCHI Companies Act, 2013

Memorandum of
Association

Name Situation Object Liability Capital Subscription

clause clause clause clause clause clause

▪ The Memorandum of Association is a document which sets out the constitution

of a company and is therefore the foundation on which the structure of the
company is built.
▪ It defines the scope of the company’s activities and its relations with the outside
world.
▪ The first step in the formation of a company is to prepare a document called the
memorandum of association.
▪ In fact memorandum is one of the most essential necessary conditions for
incorporating any form of company under the Companies Act,2013.
▪ According to Section 2(56) of the Act “memorandum” means the memorandum of
association of a company as originally framed and altered, from time to time, in
pursuance of any previous company law or this Act.
▪ Section 4 of the Act specifies in clear terms the contents of this important
document which is the charter of the company.
Object of registering a memorandum of association:
▪ It contains the object for which the company is formed and therefore identifies
the possible scope of its operations beyond which its actions cannot go.
▪ It enables shareholders, creditors and all those who deal with company to know
what its powers are and what activities it can engage in.
▪ A memorandum is a public document under Section 399 of the Companies Act,
2013.
▪ Consequently, every person entering into a contract with the company is
presumed to have the knowledge of the conditions contained therein.
▪ The shareholders must know the purposes for which his money can be used by
the company and what risks he is taking in making the investment.

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As per Section 4, Memorandum of a company shall be drawn up in such form as is

given in Tables A, B, C, D and E in Schedule I of the Companies Act, 2013.
▪ Table A is a form for memorandum of association of a company limited by
shares.
▪ Table B is a form for memorandum of association of a company limited by
guarantee and not having a share capital.
▪ Table C is a form for memorandum of association of a company limited by
guarantee and having a share capital.
▪ Table D is a form for memorandum of association of an unlimited company.
▪ Table E is a form for memorandum of association of an unlimited company and
having share capital.

Content of the memorandum:

The memorandum of a company shall state—
(a) the name of the company (Name Clause) with the last word “Limited” in the case
of a public limited company, or the last words “Private Limited” in the case of a private
limited company. This clause is not applicable on the companies formed under section
8 of the Act.
(b) the State in which the registered office of the company (Registered office clause)
is to be situated;
(c) the objects for which the company is proposed to be incorporated and any matter
considered necessary in furtherance thereof (Object clause)
(d) the liability of members of the company (Liability clause), whether limited or
unlimited, and also state,—
• in the case of a company limited by shares, that the liability of its members is
limited to the amount unpaid, if any, on the shares held by them; and
• in the case of a company limited by guarantee.
(e) the amount of authorized capital (Capital Clause) divided into share of fixed
amounts and the number of shares with the subscribers to the memorandum have
agreed to take, indicated opposite their names, which shall not be less than one share.
A company not having share capital need not have this clause.
(f) the desire of the subscribers to be formed into a company. The Memorandum shall
conclude with the association clause (Subscription clause). Every subscriber to the
Memorandum shall take at least one share, and shall write against his name, the
number of shares taken by him.
In the case of OPC, the name of the person who, in the event of death of the
subscriber, shall become the member of the company.

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Articles of Association:
Definition –Articles:
As per Section 2(5) of the Companies Act,2013 “articles” means the articles of
association of a company as originally framed or as altered from time to time or
applied in pursuance of any previous company law or of this Act.
Section 5 of the Companies Act,2013 deals with AOA.
The articles of a company shall contain the regulations for management of the
company.
The articles shall also contain such matters, as may be prescribed.
It shall be not prevent a company from including such additional matters in its articles
as may be considered necessary for its management.
Provisions for Retrenchment:
The articles may contain provisions for entrenchment to the effect that specified
provisions of the articles may be altered only if conditions or procedures as that are
more restrictive than those applicable in the case of a special resolution, are met or
complied with.
The provisions for entrenchment shall only be made by

Private Company • on formation of a company, or

• by an amendment in the articles
agreed to by all the members of
the company

Public company By a special resolution

Notice to Registrar:
Where the articles contain the provisions for entrenchment, the company shall give
notice to the Registrar of such provisions in Form No.INC.2 or Form No.INC.7, as the
case may be, along with the fee as provided in the Companies (Registration offices
and fees) Rules, 2014 at the time of incorporation of the company or in case of
existing companies, the same shall be filed in Form No.MGT.14 within thirty days from
the date of entrenchment of the articles, as the case may be, along with the fee as
provided in the Companies (Registration offices and fees) Rules, 2014
Form of Article :
The articles of a company shall be in respective forms as outlined below;

S.No Table Form

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1 Table F AOA of a company limited by shares

2 Table G AOA of a company limited by guarantee and having share

capital

3 Table H AOA of a company limited by guarantee and not having share

capital

4 Table I AOA of an unlimited company and having share capital

5 Table J AOA of an unlimited company and not having share capital

A company may adopt all or any of the regulations contained in the model articles
applicable to such company.
In case of any company, which is registered after the commencement of this Act, in so
far as the registered articles of such company do not exclude or modify the regulations
contained in the model articles applicable to such company, those regulations shall, so
far as applicable, be the regulations of that company in the same manner and to the
extent as if they were contained in the duly registered articles of the company.
Nothing in this section shall apply to the articles of a company registered under any
previous company law unless amended under this Act
AOA- CA,2013 Vs CA,1956:

S.No CA,2013 CA,1956

1` It is compulsory for every company to Optional for a Public company

have its own articles and file the same limited by shares.Compulsory for
with ROC for registration. other Companies

2 The articles may contain provisions for There is no such provision

entrenchment.The provisions for
entrenchment shall only be made by;

Private • on formation
Company of a
company, or
• by an
amendment
in the articles
agreed to by

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all the
members of
the company

Public By a special
company resolution

The company shall give notice to the

Registrar for entrenchment provisions.

3 The articles of a company shall be in The articles of any company, not

the respective forms specified in Tables being a company limited by
G,H,I,J in Schedule I as may be shares shall be in such Tables
applicable to such company. The liberty C,D,E in Schedule I as may be
to have articles or in a form as near applicable or in a form as near
thereto as circumstances admit, which thereto as circumstances admit.
was available in the 1956 Act is no
longer available in the 2013 Act.

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MODE OF REGISTRATION/INCORPORATION OF COMPANY

PROMOTERS: The Companies Act, 2013 denes the term “Promoter” under section
2(69) which means a person—
(a) who has been named as such in a prospectus or is identified by the company in
the annual return referred to in section 92; or
(b) who has control over the a-airs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of
the company is accustomed to act.
In simple terms we can say,
▪ Persons who form the company are known as promoters.
▪ It is they who conceive the idea of forming the company.
▪ They take all necessary steps for its registration.
▪ It should, however, be noted that persons acting only in a professional capacity
e.g., the solicitor, banker, accountant etc. are not regarded as promoters.

FORMATION OF COMPANY:
Section 3 of the Companies Act, 2013 deals with the basic requirement with respect to
the constitution of the company.
In the case of a public company, any 7 or more persons can form a company for any
lawful purpose by subscribing their names to memorandum and complying with the
requirements of this Act in respect of registration.
In exactly the same way, 2 or more persons can form a private company and one
person where company to be formed is one person company.
Public Co. • 7 or more persons

Private Co. • 2 or more persons

One Person Co. • One person

INCORPORATION OF COMPANY:
Section 7 of the Companies Act, 2013 provides for the procedure to be
followed for incorporation of a company.

(1) Filing of the documents and information with the registrar: For the registration of the
company following documents and information are required to be led with the registrar

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within whose jurisdiction the registered office of the company is proposed to be

situated-
▪ the memorandum and articles of the company duly signed by all the
subscribers to the memorandum.
▪ a declaration by person who is engaged in the formation of the company (an
advocate, a chartered accountant, cost accountant or company secretary in
practice), and by a person named in the articles (director, manager or secretary
of the company), that all the requirements of this Act and the rules made
thereunder in respect of registration and matters precedent or incidental thereto
have been complied with.
▪ an adavit from each of the subscribers to the memorandum and from persons
named as the first directors, if any, in the articles stating that-
• he is not convicted of any offence in connection with the promotion,
formation or management of any company, or
• he has not been found guilty of any fraud or misfeasance or of any
breach of duty to any company under this Act or any previous company
law during the last five years,
• and that all the documents led with the Registrar for registration of the
company contain information that is correct and complete and true to
the best of his knowledge and belief;
▪ the address for correspondence till its registered oce is established;
▪ the particulars (names, including surnames or family names, residential
address, nationality) of every subscriber to the memorandum along with proof of
identity, and in the case of a subscriber being a body corporate, such
particulars as may be prescribed.
▪ the particulars (names, including surnames or family names, the Director
Identification Number, residential address, nationality) of the persons mentioned
in the articles as the subscribers to the Memorandum and such other particulars
including proof of identity as may be prescribed; and
▪ the particulars of the interests of the persons mentioned in the articles as the
first directors of the company in other firms or bodies corporate along with their
consent to act as directors of the company in such form and manner as may
be prescribed. Particulars provided in this provision shall be of the individual
subscriber and not of the professional engaged in the incorporation of the
company [The Companies (Incorporation) Rules, 2014].

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(2) Issue of certificate of incorporation on registration: The Registrar on the basis of

documents and information led, shall register all the documents and information in the
register and issue a certificate of incorporation in the prescribed form to the e-ect that
the proposed company is incorporated under
this Act.

(3) Allotment of Corporate Identity Number (CIN): On and from the date mentioned in
the certificate of incorporation, the Registrar shall allot to the company a corporate
identity number, which shall be a distinct identity for the company and which shall also
be included in the certificate.

(4) Maintenance of copies of all documents and information: The company shall
maintain and preserve at its registered office copies of all documents and information
as originally led, till its dissolution
under this Act.

(5) Furnishing of false or incorrect information or suppression of material fact at the

time of incorporation (i.e. at the time of Incorporation): If any person furnishes any false
or incorrect particulars of any information or suppresses any material information, of
which he is aware in any of the documents led with the Registrar in relation to the
registration of a company, he shall be liable for action for fraud under section 447.

(6) Company already incorporated by furnishing any false or incorrect information or

representation or by suppressing any material fact (i.e. post Incorporation): Where, at
any time after the incorporation of a company, it is proved that the company has been
got incorporated by furnishing any false or incorrect information or representation or by
suppressing any material fact or information in any of the documents or declaration led
or made for incorporating such company, or by any fraudulent action, the promoters,
the persons named as the first directors of the company and the persons making
declaration under this section shall each be liable for action for fraud under section
447.

(7) Order of the Tribunal : Where a company has been got incorporated by furnishing
false or incorrect information or representation or by suppressing any material fact or
information in any of the documents or declaration led or made for incorporating such
company or by any fraudulent action, the Tribunal may, on an application made to it,
on being satisfied that the situation so warrants,—

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(a) pass such orders, as it may think t, for regulation of the management of the
company including changes, if any, in its memorandum and articles, in public interest or
in the interest of the company and its members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem t:
Provided that before making any order,—
▪ the company shall be given a reasonable opportunity of being heard in the
matter; and
▪ the Tribunal shall take into consideration the transactions entered into by the
company, including the obligations, if any, contracted or payment of any liability.
.
Simplified Proforma for Incorporating Company Electronically (SPICe)
The Ministry of Corporate A-airs has taken various initiatives for ease of business. In a
step towards easy setting up of business, MCA has simplified the process of ling of
forms for incorporation of a company through Simplified Proforma for incorporating
company electronically.

EFFECT OF REGISTRATION:
Section 9 of the Companies Act, 2013 provides for the effect of registration of
a company. According to section 9, from the date of incorporation (mentioned in the
certificate of incorporation), the subscribers to the memorandum and all other persons,
who may from time to time become members of the company, shall be a body
corporate by the name contained in the memorandum. Such a registered company shall
be capable of exercising all the functions of an incorporated company under this Act
and having perpetual succession with power to acquire, hold and dispose of property,
both movable and immovable, tangible and intangible, to contract and to sue and be
sued, by the said name. From the date of incorporation mentioned in the certificate, the
company becomes a legal person separate from the incorporators; and there comes
into existence a binding contract between the company and its members as evidenced
by the Memorandum and Articles of Association [Hari Nagar Sugar Mills Ltd. vs.
1 “Tribunal” means the National Company Law Tribunal (NCLT) constituted under
section 408 of the Companies Act, 2013. The NCLT is a quasi-judicial body in India
that adjudicates issues relating to companies in India. The NCLT was established under
the Companies Act 2013 and was constituted on 1st June 2016.

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EFFECT OF MEMORANDUM AND ARTICLES:

As per section 10 of the Companies Act, 2013, where the memorandum and articles
when registered, shall bind the company and the members thereof to the same extent
as if they respectively had been signed by the company and by each member, and an
agreement to observe all the provisions of the memorandum and of the articles. All
monies payable by any member to the company under the memorandum or articles
shall be a debt due from him to the company.

Doctrine of ultra vires:

▪ The meaning of the term ultra vires is simply “beyond (their) powers”. The legal
phrase “ultra vires” is applicable only to acts done in excess of the legal powers
of the doers. This presupposes that the powers in their nature are limited.
▪ It is a fundamental rule of Company Law that the objects of a company as
stated in its memorandum can be departed from only to the extent permitted by
the Act, thus far and no further.
▪ In consequence, any act done or a contract made by the company which travels
beyond the powers not only of the directors but also of the company is wholly
void and inoperative in law and is therefore not binding on the company. On this
account, a company can be restrained from employing its fund for purposes
other than those sanctioned by the memorandum.
▪ Likewise, it can be restrained from carrying on a trade different from the one it
is authorised to carry on. The impact of the doctrine of ultra vires is that a
company can neither be sued on an ultra vires transaction, nor can it sue on it.
▪ Since the memorandum is a “public document”, it is open to public inspection.
Therefore, when one deals with a company one is deemed to know about the
powers of the company.
▪ If in spite of this you enter into a transaction which is ultra vires the company,
you cannot enforce it against the company.

Example: If you have supplied goods or performed service on such a contract or lent
money, you cannot obtain payment or recover the money lent. But if the money
advanced to the company has not been expended, the lender may stop the company
from parting with it by means of an injunction; this is because the company does not
become the owner of the money, which is ultra vires the company. As the lender
remains the owner, he can take back the property in specie. If the ultra vires loan has
been utilised in meeting lawful debt of the company then the lender steps into the

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shoes of the debtor paid o_ and consequently he would be entitled to recover his loan
to that extent from the company.

Doctrine of Indoor Management

Section 399 of the Companies Act, 2013, specifies the rules and regulations governing
the inspection, production, and evidence of documents with the Registrar. In this article,
we will look at the doctrine of constructive notice, the doctrine of indoor management,
and exceptions to the indoor management rule.
Doctrine of Constructive Notice
▪ Section 399 allows any person to electronically inspect make a record, or get a
copy/extracts of any document of any company which the Registrar maintains.
There is a fee applicable for the same. The documents include the certificate of
incorporation of the company.
▪ By now we know that the Memorandum and Articles of Association are public
documents. This section confers the right of inspection to all.
▪ Before any person deals with a company he must inspect its documents and
establish conformity with the provisions. However, even if a person fails to read
them, the law assumes that he is aware of the contents of the documents. Such
an implied or presumed notice is called Constructive Notice.
▪ In simpler words, if a person enters into a contract which is beyond the powers
of a company, then he has no right under the said contract against the
company. The Memorandum of Association defines the powers of the company.
Also, if the contract is beyond the authority of the directors as defined in the
Articles, the person has no rights.

Doctrine of Indoor Management

The doctrine of indoor management is an exception to the earlier doctrine of
constructive notice. It is important to note that the doctrine of constructive notice does
not allow outsiders to have notice of the internal affairs of the company.
Hence, if an act is authorized by the Memorandum or Articles of Association, then the
outsider can assume that all detailed formalities are observed in doing the act. This is
the Doctrine of Indoor Management or the Turquand Rule. This is based on the
landmark case between The Royal British Bank and Turquand . In simple words, the
doctrine of indoor management means that a company’s indoor affairs are the
company’s problem.
Therefore, this rule of indoor management is important to people dealing with a
company through its directors or other persons. They can assume that the members of

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the company are performing their acts within the scope of their apparent authority.
Hence, if an act which is valid under the Articles, is done in a particular manner, then
the outsider dealing with the company can assume that the director/other officers have
worked within their authority.
Exceptions to the Doctrine of Indoor Management
The Turquand rule or the law of indoor management is not applicable to the following
cases:
The outsider has actual or constructive knowledge of an irregularity
In such cases, the rule of indoor management does not offer protection to the outsider
dealing with the said company.
The outsider behaves negligently
The rule of Indoor management does not protect a person dealing with a company if
he does not initiate an inquiry despite suspecting an irregularity. Further, this rule does
not offer protection if the circumstances surrounding the contract are suspicious. For
example, the outsider should get suspicious if an officer purports to act in a manner
outside the scope of his authority.
Forgery
The doctrine of indoor management is applicable to irregularities that affect a
transaction except for forgery. In case of a forgery, the transaction is deemed null and
void.
Solved Question for You
Q: Peter receives a share certificate of ABC Limited issued under the seal of the
company. The company’s secretary issues the certificate after affixing the seal and
forging the signature of the two directors. Peter files a lawsuit claiming that the forging
of signatures is a part of the internal management of the company. Further, he
requests the court to estop the company from denying the genuineness of the
document. Is Peter’s claim valid?
Answer: According to the exceptions to the doctrine of indoor management, a
transaction involving forgery is null and void. Hence, the court holds the document null.
Peter’s claim is not valid.

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Prospectus

• Prospectus has been defined as any document described or issued as a

prospectus and includes a red herring.
• prospectus referred to in section 32 or shelf prospectus referred to in section 31
or any notice, circular, advertisement or other document inviting offers from the
public for the subscription or purchase of any securities of a body corporate.
• One of the ingredients of a prospectus is to make invitation to the public to
subscribe for securities of a body corporate which is construed as including a
reference to any section of the public, whether selected as members or
debenture-holders of the company or as clients of the person issuing the
prospectus. However, there are exceptions to it.
• All public companies making public offer issue a prospectus.
• Shelf prospectus means a prospectus in respect of which the securities or class
of securities included therein are issued for subscription in one or more issues
over a certain period without the issue of a further prospectus.
• Red herring prospectus means a prospectus which does not include complete
particulars of the quantum or price of the securities included therein.
• Companies Act and SEBI guidelines provide for contents and disclosures
required in a prospectus.
• No application form can be issued for securities unless it is accompanied by a
memorandum containing such salient features of prospectus as may be
prescribed.
• A company is responsible for a statement in prospectus only if it is shown that
the prospectus was issued by the company or by some one with the authority of
the company. The company is also liable if though the prospectus is issued by
the promoters, the Board ratifies and adopts the issue.
• A person who subscribed for securities on the faith of a false prospectus may
claim from directors or promoters damages for fraudulent misrepresentation,
compensation, damages for non-compliance with the requirements of the Act.
• Where a prospectus includes any untrue statement, every person who has
authorised the issue of the prospectus shall be punishable with imprisonment,
fine or both.

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• The right to claim compensation for any loss or damage sustained by reason of
any untrue statement in a prospectus is available only to a person who has
subscribed for securities on the faith of the prospectus containing untrue
statement.

Shelf Prospectus
Definition of Shelf Prospectus –
As per the Explanation given in Section 31 of the Companies Act, 2013, the expression
“shelf prospectus” means a prospectus in respect of which the securities or class of
securities included therein are issued for subscription in one or more issues over a
certain period without the issue of a further prospectus.
Filing of Shelf Prospectus –
Any class or classes of companies, as the Securities and Exchange Board may provide
by regulations in this behalf, may file a shelf prospectus with the Registrar at the
stage of the first offer of securities. The validity of the Shelf Prospectus shall be for a
period not exceeding one year which shall commence from the date of opening of the
first offer of securities under that prospectus. In respect of a second or subsequent
offer of such securities issued during the period of validity of that prospectus, no further
prospectus is required.
For any subsequent issue, the company shall file an “Information Memorandum”. This
information memorandum shall contain all material facts relating to –
• new charges created; and
• changes in financial position of the company from first or previous offer to this
subsequent offer of securities under this Shelf Prospectus.
According to Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules,
2014, the information memorandum shall be prepared in Form PAS-2 and filed with the
Registrar along with the fee as provided in the Companies (Registration Offices and
Fees) Rules, 2014 within one month prior to the issue of a second or subsequent offer
of securities under the shelf prospectus.
It may be possible that a company or any other person has received applications for
the allotment of securities along with advance payments of subscription before the filing
of Information memorandum. In these cases, the company or other person shall
intimate the changes to such applicants and if they express a desire to withdraw their
application, the company or other person shall refund all the monies received as
subscription within fifteen days.
When an offer of securities is made on shelf prospectus, the information memorandum
together with the shelf prospectus shall be deemed to be a prospectus.

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The concept of shelf prospectus will save expenditure and time of the companies in
issuing a new prospectus every time they wish to issue securities to the public within a
period of one year.

Meetings

MEETINGS OF THE BOARD

1. Frequency of Meeting:
– First Meeting: First Meeting of Board of Directors within 30 (Thirty) days from
the date of Incorporation of company. –
– Subsequent Meetings:
One person Company, Small company and Dormant company:
• At least one meeting of Board of directors in each half of calendar year
• Minimum Gap B/W two meetings at least 90 days.
Other than Companies mentioned above:
• Minimum No. of 4 meetings of Board of Director in a calendar year
• Maximum Gap B/W two meetings should not be more the 120 days.
2. Calling of Meeting: Meeting of Board of Director should be called by giving 7 days
notice to Directors at his registered address through:
• By hand delivery
• By post
• By Electronic means
Meeting at shorter Notice: A meeting of Board of Directors can be called by shorter
notice subject to the conditions:
• If the company is require to have independent director:
– Presence of at least one Independent director is required.
– In case of absence, decision taken at such meeting shall be circulated to all the
directors, and
– shall be final only on ratification thereof by at least one Independent Director
• If the company doesn’t require to have independent director: The meeting can be
called at a shorter notice without any conditions to be complied with.
3. Quorum of Board Meeting:
• 1/3 rd of total strength OR 2 (Two) Directors, whichever is higher.
• Where meeting of Board could not be held for want of quorum, the meeting
shall

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automatically adjourn to same time, same place at next week (Not being national
holiday).
• If number of directors reduced below quorum, then the remaining directors may
hold the meeting for the following purposes:
o To call a General meeting
o Increase the number of directors.
• Quorum in case of Interested Directors:
o If interested director exceed or equal to 2/3 of total strength the remaining
directors not being less than 2 (two) shall be the quorum.
Note:
1. Total strength shall not include directors whose places are vacant.
2. Interested director means, a director interested in accordance with section 184(2).
3. Director participating in a meeting through video conferencing or other audio
visual means shall be counted for the purpose of quorum, unless he is to be
excluded for any items of business under any provisions of the Act or the rules.
4. OPC Having One Director: Provision of Section 173 and 174 shall not apply to
an OPC having one director.
4. Participation of Directors in Board Meetings: directors may, apart from attending the
meeting physically, participate in the meeting by way of video conferencing & other
audio visual means.
• Matter which can’t be dealt at a meeting held though Video conferencing:
o Approval of the annual financial statements;
o Approval of the Board’s report;
o Approval of the prospectus;
o Audit Committee Meetings for consideration of accounts; and
o Approval of the matter relating to amalgamation, merger, demerger,
acquisition and takeover.
• Procedure for conducting of meeting through Video Conferencing:
Requirements before Meeting:
• The notice of the meeting shall, inform regarding the option available to
participate through video conferencing mode and provide all the necessary
information to enable the directors to participate through video conferencing.
• A director intending to participate through video conferencing or audio visual
means shall communicate prior intimation sufficiently in advance to the
Chairperson or the company secretary of the company, so that company is able
to make suitable arrangements in this behalf.

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• Alternatively a director may intimate at the beginning of the calendar year his
desire, to participate through the electronic mode, which shall be valid for that
calendar year.
Duties of
COMPANY: to make necessary arrangements to avoid failure of video or audio visual
Connection.
CHAIRMAN & COMPANY SECRETARY:
(I) To safeguard the integrity of the meeting by ensuring sufficient security and
Identification procedures;
(II)To ensure availability of proper equipment or facilities for providing transmission of
the communications for effective participation at the Board meeting;
Requirement during the Meeting:
• The Chairperson shall take a roll call where every director participating through
video conferencing shall state Name, Location, confirmation of receipt of agenda
and non-presence of any person other than the concerned director.
• Chairperson or Company Secretary shall, inform the Board about persons other
than the directors who are present for the said meeting with the request of the
chair and confirm the presence of quorum.
• Every participant shall identify himself for the record before speaking on any item
of business on the agenda.
• If a motion is objected to and there is a need to put it to vote, the Chairperson
shall call the roll and note the vote of each director.
• At the end of discussion on each agenda item, the Chairperson of the meeting
shall announce the summary of the decision taken on such item along with
names of the directors, if any, who dissented from the decision taken by
majority.
• PLACING & SIGNING OF STATUTORY REGISTERS: The statutory registers
which are required to be placed in the meeting shall be placed at the scheduled
venue and where registers are required to be signed by the directors, the same
shall be deemed to have been signed by the directors participating through
electronic mode, if they have given their consent to this effect and it is so
recorded in the minutes of the meeting.
Post Meetings Requirements:
• The minutes shall disclose the particulars of the directors who attended the
meeting through video conferencing.

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• CIRCULATION OF DRAFT MINUTES & COMMENTS THEREON: The draft

minutes shall be circulated among all the directors within fifteen days of the
meeting either in writing or in electronic means.
• Every director who attended the meeting shall confirm or give his comments in
writing, about the accuracy of recording of the proceedings of the meeting in the
draft minutes, within seven days or some reasonable time as decided by the
Board. If no confirmation or comments received within the stipulated period,
approval shall be presumed.
• DUTIES OF COMPANY SECRETARY: To record proceedings and prepare the
minutes of the meeting; To store for safekeeping and marking the tape
recording(s) as part of the records of the company at least before the time of
completion of audit of that particular year.
Note:
1. Persons who are differently abled may make request to the Board to allow a
person to accompany him.
2. If a statement of a director in the meeting through video conferencing or is
interrupted, the Chairperson or Company Secretary shall request for a repeat or
reiteration by the Director.
3. Meeting of Committees can also be conducted through video conferencing.
5. Passing of Resolution by Circulation: A company may get approval on a resolution
by Board of Director without conducting a board meeting; company can do it by
passing of resolution by circulation. PROCEDURE OF PASSING OF RESOLUTION BY
CIRCULATION:
i. The company will circulate draft resolution along with necessary papers, if any to all
the directors at their registered address through.
• Hand Delivery
• Post
• Electronic Means
ii. Resolution should be approved by majority of Directors, who are entitled to vote on
the resolution.
iii. Resolution passed by circulation shall be noted at a subsequent meeting of the
Board and made part of the minutes of such meeting.
Note: If before passing of resolution request is made by 1/3 of total number of
directors to decide such matter at meeting, the chairperson shall put the resolution to
be decided at meeting of the Board.
6. POWER EXERCISABLE BY BOARD:

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• The Board of Directors of a company shall be entitled to exercise all such

powers, and to do all such acts and things, as the company is authorized to
exercise and do. In exercising such power or doing such act or thing, the Board
shall be subject to the provisions of this Act, or the memorandum or articles, or
regulations made by the company in general meeting:
• POWERS TO BE EXERCISED ONLY AT BOARD MEETING:
– UNDER THE ACT:
• Make calls on shareholders in respect of money unpaid on their shares;
• Authorize buy-back of securities under section 68;
• Issue securities, including debentures, whether in or outside India;
• Borrow monies;
• Invest the funds of the company;
• grant loans or give guarantee or provide security in respect of loans;
• Approve financial statement and the Board’s report;
• Diversify the business of the company;
• Approve amalgamation, merger or reconstruction;
• Take over a company or acquire a controlling or substantial stake in another
company;
– UNDER RULES:
• Make political contributions;
• Appoint or remove key managerial personnel (KMP);
• Take note of appointment(s) or removal(s) of one level below the Key
Management Personnel;
• Appoint Internal auditors and secretarial auditor;
• Take note of the disclosure of director’s interest and shareholding;
• Buy, sell investments held by the company (other than trade investments),
constituting five percent or more of the paid up share capital and free reserves
of the investee company;
• Invite or accept or renew public deposits and related matters;
• Review or change the terms and conditions of public deposit;
• Approve quarterly, half yearly and annual financial statements or financial results
as the case may be.
NOTE:
1. The power to invest, borrow and grant loan / guarantee / security can be
exercised by a committee duly authorize by the board.
2. The resolution in pursuance of powers of the board mentioned above shall be
filed with the registrar in form MGT-14 within 30 days of passing such resolution.

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UGC NET POINTS - RANCHI Companies Act, 2013

Annual General Meeting under Companies Act, 2013.

A Company is a separate legal entity different from its members. So, its affairs are
generally done by Board of Directors. The Board of directors provides a road map
within its limited power for the progress of a Company. Certain powers are controlled
by the boards after getting consent of the company at their general meeting. The
shareholders as the owner of the company control over the proceeding of the meeting.
The Annual General Meeting gives them opportunity to know the condition of the
company and also make suggestion for its improvement and progress.
Annual General Meeting:-
As per Section 96 of the Companies Act , 2013,
• Every Company other than One person Company must hold a general meeting
in each year apart from other meetings as Annual General Meeting (AGM).
• Every Company has to set up a managing Committee to run its smooth working
of managerial works.
• Every Company , apart from One person Company ( OPC ) must have to hold
in addition to other meetings, by giving a notice about the meeting, not more
than 15 months in between the date of AGM to the next. A Company may hold
its first AGM within the period of 9 months from closing of its first financial year
otherwise in other cases within the period of 6 months. [Section 96(1) of the
Companies Act,2013]
As per the above , if a company hold its meeting, then it has no need to call an AGM
in the year of its incorporation.
However , the registrar may extend the period within any AGM ( not being the first
AGM) shall be held, not exceeding 3 months under section 96(1).
• Every AGM shall be called during business hours ( i.e. 9 a.m. to 6 p.m.) on any
day not a national day declared by the Central Government , and also held I the
registered office or in any place within the city ,village, or town in which the
registered office is situated.
• According to Section 129(2), at every AGM board of directors of the company
shall lay before the meeting financial statement for the financial year.
• Moreover, Section 129(3) says, where the company has one or more
subsidiaries, then they have to prepare in addition to the statement under section
129(2) a consolidated financial statement and of all subsidiaries in same format
and also present before the AGM of the Company with the prescribed statement
under section 129(2).

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• There is no provision for extension of 1st AGM but in other cases it can be
extended for period of three months by ROC.[ Second proviso to Section 96 of
the Companies Act,2013]. However , if such first AGM is not held, NCLT can
order holding of General Meeting under section 97 of the Act. Application for
extension of time should be submitted electronically in e-form no. 61.
• After the ending of the financial year i.e. 31 st March, all the auditing processes
must be completed within three-four months. But the AGM must be held within
six months from the closing date of financial year. A notice of 21 days has to
be sent to all members. So, the audited accounts, directors report has to be
closed on 31st March and been posted by first week of September.
• Business to be transacted:-
As per section 102(2) of the Companies Act, 2013,the following business es may be
transacted during AGM:-
1) Ordinary Business [Section 102(2)], i.e.
a. Consideration of financial Statements and reports of board of directors and Auditors.
b. Declaration of any Dividend
c. Appointment of directors in place of retiring one
d. Appointment of and Fixation of the remuneration of the auditors.
2) Special Business [Section 102(b)], : Apart from the above businesses , the rest are
deemed to be a Special business , transacted during the AGM.
Annual General Meeting is compulsory if,
• Business of the Company was taken over by Government.
• Company did not function.
• Accounts of the Company are not ready.
Defaulting in holding Annual General Meeting:
If a Company not holding an Annual General Meeting as per Section 166 , or not
complying with any direction of the Central Government, then the Company and its
every officer come in the Category under section 168 of the Company Act ,2013 and
punishable with fine which may extend to Rs. 50000 and for regular basis it may
extend to Rs.2500 for every day .[ Section 168]
Further , as per section 167 of The Companies Act ,1956 provides for the power of the
Company Law Board (CLB) to call AGM in the following circumstances:
• As per section 94, if Company fails to hold Annual General Meeting, any
member of the company can request to NCLT (powered with CLB) for calling
AGM.[ Section 97(1)]
• The CLB can give any ancillary or consequential directions which are expedient
in relation to the calling, holding and conducting the meeting. [ Section 167(1)]

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• Apart from the above, CLB also directs that one member of the company
present in person or by proxy, which shall be deemed to constitute a meeting.
• A general meeting held as per the direction of the CLB, deemed to a n annual
general meeting of the company.

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UGC NET POINTS - RANCHI Companies Act, 2013

Winding up of a company
INTRODUCTION
The entire procedure for bringing a lawful end to life of company is divided into two
stages. These two stages are winding up and dissolution. Winding up of company is
defined as a process by which the life of a company is brought to an end and its
property administered for benefit of its members and creditors. It is the last stage,
putting an end to life of a company. The main purpose of winding up is to realize the
assets and make the payments of company’s debts fairly. Thus, winding up is the
process by which management of a company’s affairs is taken out of its directors, its
assets are realized by a liquidator and its debts are discharged out of proceeds of
realization.
Difference between winding up and dissolution

WINDING UP
DISSOLUTION

Winding up is a proceeding by means of

which company is dissolved and in course of
The legal existence of company is
dissolution, assets are realized, liabilities are
brought to an end by dissolution
paid off and surplus is distributed among
members.

It is the final stage where the

Winding up precedes the dissolution. existence of company is withdrawn by
law.

Once the order of dissolution is made

The liquidator can present the company in
by the Court, liquidator cannot
winding up proceeding.
represent the company.

Winding up proceeding can be started without For the dissolution of the company,
the intervention of the court. order of the court is essential.

No proceedings can be started

Any person can proceed against the company
against the company which has been
which is being wound up.
dissolved.

Difference between winding up and insolvency

Winding up Insolvency

It is a process by which company is It is inability of a debtor to pay debts

dissolved. The assets are collected, liabilities as they fall due. A person is said to

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are paid off out of assets or from be insolvent when his liabilities
contributions by members and if surplus left, it exceeds his assets and against
is distributed among members whom Court makes order of
adjudication.

An individual can be adjudged as

A company cannot be adjudged as insolvent
insolvent

A person can be adjudged as

A company can be wound up even if it
insolvent when he is unable to pay
financially sound.
his liabilities.

In insolvency proceedings, the assets

During winding up proceeding, the property is
of person are vested in Official
vested in the Company.
Receiver.
After completion of proceedings, the
After completion of proceedings, the Company
insolvent person is discharged from
is dissolved.
liabilities.

Winding up by the Court

Winding up by the court or compulsory winding up is initiated by application by way of
petition to appropriate Court for a winding up order. Section 10 of the Companies Act,
1956 deals with the jurisdiction of for entertaining winding up petition.
The High court has jurisdiction in relation to the place at which the registered office of
the company is situated, or
The District Court in which jurisdiction has been vested either by the Act or by
notification of Central Government.

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GTC Industries Ltd v. Parasrampuria Trading, it was held that only High Court where
the registered office is situated has jurisdiction in winding up, even if there was
agreement between parties will be resolved before High Court where registered office is
not situated.
CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP BY THE COURT
The Companies Act, provides for the circumstances in which company can be wound
up-
• If the company has resolved that the company be wound up by the Court by
passing special resolution; or
• If the company has defaulted in delivering the statutory report to the Registrar or
in holding the statutory meeting; or
• If the company does not commence its business within a year from its
incorporation, or suspends its business for a whole year; or
• The number of its members in public company is reduced below seven and in
private company below two; or
• The company is not able to pay the debts; or
• The Court is of the opinion that company should be wound up on just and
equitable grounds; or
• The company has defaulted in filing balance sheet or annual return with the
Registrar for any 5 consecutive years; or
• If the act of the company goes against the interests of sovereignty, integrity and
security of India, friendly relation with foreign states, public order, decency or
morality; or
Inability to pay debts –

Just & Equitable Grounds – Court has complete discretion to decide just & equitable
grounds for winding up of a company. Some of the grounds on which court ordered the
winding up of company under this clause,
• When the object of the company was fraudulent,
• When substratum of the company has disappeared i.e original object become
impossible to attain;
• The object for which the company is formed is illegal or becomes illegal by
change in law;
• The object for which company was incorporated has been completed;
• Deadlock in management due to differences among rival group and disagreement
cannot be resolved in general or board meeting;

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• There has been mismanagement and misapplication of funds by directors of

private company.
Who may file petition for winding up
Companies Act, deals with the persons who can file the petition for winding up of a
company,
• The directors can make a petition in the name of the company with the sanction
of general meeting by way of special resolution.
• The creditors can make a petition if the company is unable to pay the debts.
The creditors include assignee of debt, a decree holder, a secure creditor, a
debenture holder or trustee of debenture holders.
• A contributory can present winding up petition if number of members in case of
public company is reduced below 7 and below 2, in case of private company.
• The Registrar of companies, after obtaining prior sanction of the central
government, can present a petition on winding up of company
Distinction between Members’ voluntary winding up and creditors’ voluntary winding
up
Members’ Voluntary Winding up Creditors Voluntary Winding up

Where a company is solvent, the

Where a company is solvent & declaration of
declaration of solvency is not made
solvency is made by the directors, it is called
by the directors, it is called as the
members’ voluntary winding up
creditors’ voluntary winding up.

In creditors’ winding up, dominant

Dominant control remains in the hands of the
control remains in hands of the
members of the company.
creditors.

In creditors’ winding up, meetings of

creditors have to be called at the
There is no meeting of creditors and the
beginning and subsequently the
liquidator is appointed by the company.
liquidator is appointed by the
creditors.

The liquidator can do so with the

The liquidator can exercise some of his
sanction of the court or the
powers with the sanction of a special
Committee of inspection or of
resolution of the company.
meeting of creditors.

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UGC NET POINTS - RANCHI Companies Act, 2013

WINDING UP UNDER COMPANIES ACT, 2013

There are two modes of winding up under the Companies Act, 2013 provides for the
provisions relating to commencement of winding up.
Winding up by Tribunal
• National Company Law Tribunal can be initiated by an application by way of
petition for winding up order.
• It should be resorted to only when other means of healing an ailing company
are of absolutely no avail.
• Remedies are provided by the statute on matters concerning the management
and running of the company.
• It is primarily the NCLT which has jurisdiction to wind up companies under the
Companies Act, 2013.
• There must be strong reasons to order winding up as it is a last resort to be
adopted.
Grounds on which a Company may be wound up by the Tribunal
Under Section 271, a company may be wound up by the tribunal if-
• Company is unable to pay the debts;
• If the company has, by special resolution, resolved that the company be wound
up by the Tribunal;
• If the company has acted against the interests of sovereignty and integrity of
India, the security of the State, friendly relations with foreign States, public order;
• If the Tribunal has ordered the winding up of the company under Chapter XIX;
• If on an application made by the Registrar or any other person authorized by
the Central Government by notification under this Act, the tribunal is of opinion
that affairs of the company have been conducted in a fraudulent manner or the
company was formed for fraudulent or unlawful purpose or the persons
concerned in formation misfeasance or misconduct in connection therewith and
that it is proper that company be wound up;
• If the company has made default in filing with the Registrar its financial
statements or annual returns for immediately preceding five consecutive financial
years;
• If the tribunal is of the opinion that it is just and equitable that the company
should be wound up.
Inability to pay debts – A company is deemed to be unable to pay the debts under
Section 271 (2) of the Companies Act, 2013 if a creditor to whom company has to pay
an amount exceeding Rs. 1 lakh has served a notice at the registered office of the
company by registered post or otherwise, which requires the company to pay the due

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amount and the company has failed to pay the sum within 21 days or If any execution
or other process issued by decree of court or order in creditor’s favour is returned
unsatisfied in whole or in part or if the tribunal is satisfied that the company is unable
to pay its debts and the Tribunal shall take into account the contingent and prospective
liabilities of the company while determining whether the company is unable to pay its
debts.
Who may file petition for winding up
A petition for winding up may be presented by any of the following persons under
Section 272 of The Companies Act, 2013-
• The company; or
• Any creditor or creditors, including any contingent or prospective creditor or
creditors; or
• Any contributory; or
• All or any of the above three specified parties; or
• The Registrar; or
• Any person authorised by Central Government in this behalf;
• By the Central Government or State Government in case of Company acting
against the interest of sovereignty and integrity of India.
As per Section 272 of the Companies Act, 2013, within the meaning of creditor comes
a secured creditor, holder of debentures, trustee for holder of debentures.

A contributory can present the petition of winding up of company even if he may be

holder of fully paid up shares or that company may have no assets or no surplus to
distribute among shareholders after the satisfaction of its liabilities and some shares
were originally allotted to him or have been held by him and registered in his name for
6 months during immediately preceding 18 months before commencement of winding
up.
A petition for winding up shall be admitted by the Tribunal only if it is accompanied by
statement of affairs in such form and in such manner as may be prescribed.
Under this section, a copy of the petition shall also be filed with the Registrar who
shall submit his views to the Tribunal within 60 days of receipt of petition.
Powers & Functions of the Tribunal

As per Section 274 of the Companies Act, 2013 on the filing of petition for winding up
by any person other than the company, if the tribunal is satisfied, it shall direct the

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company by an order to file objections along with statement of affairs within 30 days,
which could get extended by another 30 days in special circumstances.
As per Section 275 of the Companies Act, 2013 an official liquidator or a liquidator
from panel shall be appointed by the Tribunal at the time of passing of winding up
order. A panel consisting of CS/CS/Advocates and other notified professionals with at
least 10 years’ experience in company matters is maintained by the Central
Government.

As per Section 281 of the Companies Act, 2013, a report shall be submitted by
Liquidator within 60 days to the Tribunal, containing details such as-
Nature and details of assets of company with their location and value; amount of
capital issued, subscribed & paid up; the existing and contingent liabilities of the
company including names and other details; the debts due to company and names,
address; list of contributories with amount details; details of trademark, intellectual
properties, if owned by company; details of contracts, joint ventures and collaborations,
if any; details of holding and subsidiary company, if any; details of legal cases filed by
or against the company; any information which the tribunal may direct or liquidator may
consider necessary.

On consideration of the report of Liquidator, Tribunal shall fix the time limit within which
entire proceedings shall be completed and company be dissolved. The Tribunal may
also order a sale of Company as a going concern or its assets or part thereof[2]. After
passing of winding up order by the Tribunal, the Tribunal shall settle list of
contributories, cause rectification of register of members in all cases where required
and shall cause assets of the company to be applied to discharge its liability[3].
Voluntary Winding up
In voluntary winding up, Company and its creditors settle their affairs without going to
Court. One or more liquidators are appointed by company in general meeting for
purpose of winding up. A voluntary winding up commences from date of passing of
resolution for voluntary winding up, a petition is presented for winding up by the Court.
Section 304[4]deals with the circumstances in which a company may be wound up
voluntarily-

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UGC NET POINTS - RANCHI Companies Act, 2013

CHANGES IN WINDING UP AFTER THE INSOLVENCY AND

BANKRUPTCY CODE, 2016
The Insolvency & Bankruptcy Code, 2016 consolidate and amend the laws relating to
insolvency of companies, partnership firms, limited liability partnership into a single
legislation. It aims to provide time bound resolution and empowered the creditors to
initiate the insolvency resolution process if default occurs.
After the MCA wide notification no. S.O. 3453 E of November 15 th, 2016, section 255
of Insolvency & Bankruptcy Code, 2016 amended following sections of the Companies
Act, 2013
In the definition of Winding up, new insertion was made which makes it as winding up
means winding up under this Act or liquidation under the Insolvency & Bankruptcy
Code, 2016 as applicable.
Section 270 of the Companies Act, 2013 regarding the Modes of winding up, has been
deleted after the enforcement of this Code. It has been substituted by Winding up by
Tribunal
Section 271, companies Act, 2013 which deals with Circumstances in which company
may be wound up by Tribunal has been substituted namely- A company may be wound
up by the Tribunal, on petition under Section 272, if the company has resolved by
special resolution that company be wound up by the Tribunal; if the company has
acted against sovereignty, integrity, security of India friendly relations with foreign states,
public order, decency, morality; if the tribunal is of opinion that acts of the company
are fraudulent or the object for which it was formed was fraudulent or unlawful or
persons concerned in formation and management have been held guilty of fraud,
misconduct and it would be proper for it to be wound up; if the company defaulted in
filing financial statement for the immediately preceding last financial years with the

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Registrar; if Tribunal is of opinion that company should be wound up on just and

equitable grounds.
The sub-section has been substituted in Section 275 of the Companies Act, 2013 as
Section 275(2) which deals with Company Liquidators and their appointment as per
which Tribunal shall appoint the provisional or the Company Liquidator from amongst
the insolvency professionals registered under the Insolvency & Bankruptcy Code, 2016.
Section 304 of the Companies Act, 2013 that deals with the circumstances in which
company may be wound up voluntarily has been omitted by the Insolvency &
Bankruptcy Code, 2016 along with other sections relating to voluntarily winding up
under the Act
Transfer of proceedings – On December 7th, 2016, the MCA issued Companies
(Transfer of Pending Proceedings) Rules, 2016 for transfer of pending legal proceedings
from High Court to National Company Law Tribunal bench
Retained with High
Subject Matter Transferred to NCLT
Court

Winding up under supervision

No Yes
of court

New cases to be filed with

NCLT w.e.f 1st April, 2017
Provisions relating to For cases filed up to
Voluntary Winding up
voluntary winding up under 31st March, 2017
Companies Act, 2013 has
been omitted.
Where petition has not been Where petition has
Winding up for inability to pay served, it has to be treated been served on the
as an application under IBC. Respondent.

Only those cases where Where petition has

Winding up by the Court petition has not been served been served on
on Respondent Respondent.
On March 31st, 2017the Insolvency and Bankruptcy Board of India has notified the
Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations,
2017. The voluntary winding up of companies was governed by Companies Act, 1956
as the mentioned provisions in Companies Act, 2013 had never been notified. Now the
Voluntary Liquidation in both the Companies Act 1956 and Companies Act, 2013 has
been repealed by Government.

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Chapter V of Part II of the Insolvency and Bankruptcy Code contains Section 59 that
deals with voluntary liquidation. Moreover, the distinction between members’ voluntary
winding up and creditors’ voluntary winding up has been eliminated.
As per Section 59 of the Code, the voluntary liquidation process can only be initiated
by a corporate person, which has not committed any default. Default here includes
those debts that are not repaid and has become due and payable. The compliances of
some requirements are necessary.
• Declaration by directors that winding up is not to defraud any person;
• Liquidator can be insolvency professional who fulfils criteria under the
regulations;
• Registers to be maintained and preserved in prescribed manner;
• Liquidators to receive claims of stakeholders only in specified forms;
• Within twelve months from commencement of voluntary winding up, the affairs of
corporate person to be wound up;
• Reports by Liquidator to be submitted to corporate person, Registrar of
Companies and Insolvency and Bankruptcy Board of India.
• The time period to comply the requirements has also been reduced to expedite
the process.
PROCEDURE FOR WINDING UP UNDER NEW REGULATIONS
STEP 1: One has to submit a declaration to Registrar of Companies, stating that
company will pay its dues and liquidation is not to defraud any person;
STEP 2: Within 4 weeks of such declaration, special resolution has to be passed for
approval of proposal of voluntary liquidation and appointment of liquidator;
STEP 3: Within 5 days of such approval, public announcement in newspaper and
website of company has to be made for inviting claims of stakeholders;
STEP 4: Within 7 days of such approval, intimation should be given to ROC and
Board;
STEP 5: Submission of preliminary report containing capital structure, estimates of
assets and liabilities, proposed plan of action within 45 days to a corporate person;
STEP 6: Verification of claims within 30 days and preparation of list of stakeholders
within 45 days from the last date of receipt of claims;
STEP 7: For receipt of money due to corporate person, bank account needs to be
open in name of corporate person having words ‘in voluntary liquidation’ after its name.
STEP 8: Sale of assets and recovery of due money, uncalled capital is realised;
STEP 9: The proceeds from realization to be distributed within 6 months from receipt of
amount to the stakeholders;

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STEP 10: The final report by the liquidator has to be submitted to corporate person,
ROC, the Board and application to NCLT.
STEP 11: The order of NCLT regarding dissolution to be submitted within 14 days of
receipt of order.

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