Background

The companies act, 1956 came into force on the 1st April,1956 Bhaba Company Law Committee, March,1952 Based on English Companies act, 1948 Major Amendment Acts 1957,1960,1963,1965,1966,1969,1974,1977,1985,1988, 1996,2000,2002

Definition of Company
Lord Justice Lindley Defines: "By a company is meant an association of many persons who contribute money or money worth to a common stock and employ it in some trade or business, and who share the profit and loss (as the case may be) arising there from, The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it, or to whom it belongs, are called members. The proportion of capital to which each member is entitled is his share. Shares are always transferable although the right to transfer them is often more or less restricted."
Section 3. Definitions of "company", "existing company", "private company" and "public company" (1) In this Act, unless the context otherwise requires, the expressions "company", "existing company", "private "company" and "public company" shall, subject to the provisions of subsection (2), have the meanings specified below: (i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii);

Components of Formation of Company

Association of like minded persons Contribution of Fund/ Money to constitute Stock/ Capital To conduct Business or trade Through legally prescribed Governance format To share profit or loss ( as the case may be)

Charateristics
      Incorporated Association Artificial person Separate legal entity Limited liability Perpetual existence Common seal

Types of Companies

France Auto-Entrepreneur: =sole proprietorship SNC (Socit en nom collectif):= general partnership SCS (Socit en commandite simple):= limited partnership SARL, (Socit responsabilit limite):= private limited company (Ltd.) SA (Socit anonyme):= public limited company SPASocit par actions: =joint stock company (JSC) USA Corp., Inc. (Corporation, Incorporated): LLC, LC, Ltd. Co. (limited liability company): LLP (limited liability partnership): PLLC (professional limited liability company): Sole proprietorship:
http://en.wikipedia.org/wiki/Types_of_business_entity

Types of Company
Royal Charter/Chartered Companies Statutory Companies Registered Companies By Liability
Companies limited by shares.(Sec12 (2) (a) Companies limited by gaurantee. Sec12 (2) (b) Unlimited CompaniesSec12 (2) (c) By Numbers Private Companies, Sec3 (1) (iii) Public Companies, Sec3 (1) (iv) By Control Holding Company, Sec4 (4) (iv) Subsidiary Company, Sec4 (1) By Ownership Government Company Foreign Company One man Company

Partnership LLP Sole Proprietorship

Difference
Private minimum paid up capital >= 1Lac 2<Members<50 cannot invite public to subscribe its share capital The right to transfer its shares is restricted by its Articles Private Limited at the end of its name. Legal controls are less Directors are allowed to borrow from the private companies Less, restrictions on the remuneration of director Directors need not to be retire at 70 Public >=5Lac Members>7 invites the public to subscribe to share capital its shares are freely transferable limited Legal controls, restrictions are more and strict Directors cannot borrow from the public companies There are restrictions on the remuneration to be paid to its directors Directors need to retire at 70

 The following types of entities are available for foreign investors/foreign companies doing business in India: Liaison Office Representative Office Project Office Branch Office Wholly owned Subsidiary Company Joint Venture Company

Advantages of a Limited Company

A limited company has following advantages: Members' (the directors and shareholders) financial liability is limited to the amount of money they have paid for shares. The management structure is clearly defined, which makes it easy to appoint, retire or remove directors. If extra capital is needed, it can be raised by selling more shares privately. It is simple to admit more members. The death, bankruptcy or withdrawal of capital by one member does not affect the company's ability to trade. The disposal of the whole or part of the business is easily arranged. High status.

Disadvantages of a Limited Company

A limited company has following disadvantages: Requirement to register the company with the registrar of companies and provide annual returns and audited statement of accounts. All details of the company are available for public inspection so there can be no secrecy. There are penalties for failing to make returns. Can be more expensive to set up. May need professional help to form. As a director, you are treated as an employee and must pay tax. The advantages of limited liability status are increasingly being undermined by banks, finance house, landlords and suppliers who require personal guarantees from the directors before they will do business.

Importance of Memorandum of Association:

1. A Company cannot be registered without filing this document 2. The limits or boundaries of the Company are determined by the memorandum 3. Informs the object of the business 4. Informs the name, address, and capital of the company 5. The provisions of the document cannot be altered without adopting a special resolution.

Characteristics of MOA
The Memorandum of Association is the basic document of the company. It is called the Charter of the company. The superstructure of the company is based on it. It is the constitution of the company as it defines its limitations and spheres of activities. It cannot be altered by the company accept by fulfilling the conditions laid down in the companies act and for specific activities and situations. It defines scope of companies activities and all acts beyond its scope are ultra vires It is a public document and is open o all those who deal with the company. It defines companys relation to outside individual and its activities in relation to them.

Form of Memorandum
Section 14 of Companies Act defines Form of memorandum: The memorandum of association of a company shall be in such one of the Forms in Tables B, C, D and E in Schedule I as may be applicable to the case of the company, or in a Form as near thereto as circumstances admit. Different forms as under: 1) Limited company by sharesTable B 2) Limited company by guarantee without share capitalTable C 3) Limited company by share capitalTable D 4) Non-limited companyTable E

Legal requirements of MOA

As per section 15 the memorandum shall be printed be divided into paragraphs numbered consecutively, and be signed by each subscriber (who shall add his address, description and occupation, if any,) in the, presence of at least one witness who shall attest the signature and shall likewise add his address, description and occupation, if any.

Subject matter of MOA

Section 13 of companies act prescribes contents of MOA. There are many clauses related to the memorandum of association. Some of them are as follows:
1-Name Clause:

A company may adopt any name but it should not be identical to the name of an existing company registered with the registrar of the company.
Section 20- 24.

The name of every private company shall contain as its last words, the words Private Limited and every public company shall contain in its last word Limited. Section 25. It is an offence under Sec. 631 (Rs.500 per Day)to carry on any business or trade using the word Limited as a part of the name where the person using the name is not entitled to do so. This kind of illegality does not invalidate contracts made in the ordinary course of business and trade.

2- Situation Clause: Change of registered office: one place to another in same city=30 days Notice to the Registrar/ From one town to another= Special Resolution, 30 days Notice to Reg: From one state to another section17 3-Object Clause: The company cannot carry on any activity which is not authorised by its MOA. This clause must specify:i. Main objects of the company to be pursued by the company on its incorporation ii. Objects incidental or ancillary to the attainment of the main objects iii. Other objects of the company not included in (i) and (ii) above.

Doctrine of Ultra vires

Any transaction which is outside the scope of the powers specified in the objects clause of the MOA and are not reasonable incidentally or necessary to the attainment of objects is ultra-vires the company and therefore void. No rights and liabilities on the part of the company arise out of such transactions and it is a nullity even if every member agrees to it.
Directors, & C. of the Ashbury Railway Carriage and Iron Company (Limited) v Hector Riche, (1874-75) L.R. 7 H.L. 653

Ashbury Railway Carriage and Iron Company (Limited)

Consequences of an Ultra vires transaction

1.The company cannot sue any person for enforcement of any of its rights. 2.No person can sue the company for enforcement of its rights. 3.The directors of the company may be held personally liable to outsiders for an ultra vires

 However, the doctrine of ultra-vires does not apply in the following cases :1. If an act is ultra-vires of powers the directors but intra-vires of company, the company is liable. 2. If an act is ultra-vires of the articles of the company but it is intravires of the memorandum, the articles can be altered to rectify the error. 3. If an act is within the powers of the company but is irregualarly done, consent of the shareholders will validate it. 4. The lender of the money to a company under the ultra-vires contract has a right to make director personally liable.

 4-Liability Clause:
This clause of memorandum contains the declaration that the liability of the shareholders is limited to the extent of the value of shares held by them. A declaration that the liability of the members is limited in case of the company limited by the shares or guarantee must be given. The MOA of a company limited by guarantee must also state that each member undertakes to contribute to the assets of the company such amount not exceeding specified amounts as may be required in the event of the liquidation of the company. A declaration that the liability of the members is unlimited in case of the unlimted companies must be given. The effect of this clause is that in a company limited by shares, no member can be called upon to pay more than the uncalled amount on his shares. If his shares are already fully paid up, he has no liabilty towards the company.

5- Capital Clause: This clause is required to specify the amount of share capital with which the company proposes to be registered and Secondly the divisions of that capital into shares of a fixed amount. The amount of share capital with which the company is to be registered divided into shares must be specified giving details of the number of shares and types of shares. A company cannot issue share capital greater than the maximum amount of share capital mentioned in this clause without altering the memorandum.
Capital refers to the amount invested in the company so that it can carry on its activities. In a company capital refers to "share capital". The capital clause in Memorandum of Association must state the amount of capital with which company is registered giving details of number of shares and the type of shares of the company. A company cannot issue share capital in excess of the limit specified in the Capital clause without altering the capital clause of the MA.

 6-Subscription Clauses: This clause contains a statement by the subscribers that they are eager of forming themselves into a company and agree to have a number of shares written against their respective names. A declaration by the persons for subscribing to the Memorandum that they desire to form into a company and agree to take the shares place against their respective name must be given by the promoters.

Article of Association
The internal constitution of a limited company, setting down conditions relating to officers, meetings, etc Articles of Association are the rules, regulations and bye-laws for the internal management of the affairs of a company (2) "articles" means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act, including, so far as they apply to the company, the regulations contained, as the case may be, in the Table B in the Schedule annexed to Act No. 19 of 1857 or in Table A in the First Schedule annexed to the Indian Companies Act, 1882 (6 of 1882), or in Table A in the First Schedule annexed to the Indian Companies Act, 1913 (7 of 1913), or in Table A in Schedule I annexed to this Act,

In the United Kingdom, model (and default) articles of association known as Table A have been published since 1865. The Companies Act 2006, which received Royal Assent on 8 November 2006 but will not be fully implemented until October 2009, provides for a new form of model articles of association for companies incorporated in the United Kingdom.

Content of Article of Association

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Share Capital, rights of Share holder, variation of these rights, payment of under writing Lien on Shares Call on shares Transfer of Shares Transmission of Share Forfeiture of shares Conversion of shares in to stock Share warrants Alteration of capital General Meeting/proceeding Voting rights of members/voting/process/proxy Director= Appointment remuneration qualification,powers /proceedings of BOD Managers/Secretary Account Audit/Borrowing powers Capitalization of profit Winding up

Companies which must have their own Articles (Sec26)

A) Unlimited Companies B) Companies limited by Guarantee C) Private Companies Limited by shares Public Company may have its own AOA ,if not may adopt Table A Schedule-I Article shall be Printed/devided in to paragraphs/ signed by the Subscribers of the Memorandum/ Address/Occupation

Alteration of AOA
Can alter by Special Resolution Copy of the Resolution shall be submitted to the ROC within 30 days of its pasing Validity of such change= as original

Limitations to Alteration
Inconsistency with Company Act / MOA [Sec. 31(1) ] Not to legitimatize any Illegality Not for detriment of the Company interest ( Brown v. British Abrasive Wheel Co Ltd (1919) 1 Ch 290 Not to increase liability By only special Resolution [ Evans v. Chapman,(1902)18 LT506) Approval of Central Govt when Public company is converted into Private Company[ Proviso of Sec. 31(1) Court can not alter AOA [ Scot v. Frank Scot (London) Ltd(1940)1 Ch794 Retrospective operation [ Allen v. Gold Reefs of West Africa Ltd(1900) 1 Ch 656]

 Doctrine of Constructive Notice [T.R.Prat(Bombay) Ltd v. E.D.Sasoon & Co Ltd AIR 1936 Bom. 62] Doctrine of Indoor Management [Royal British Bank v.Turquand (1856) 6E & B 327]

The Prospectus
The Companies Act defines Prospectus as any Prospectus, notice, circular, advertisement or other invitation offering to the public for subscription or purchase of any share, in, or debentures of, a body corporate. The object of a prospectus is to arouse the interest of the investors in the proposed company and induce them to invest in its shares or debentures. If the company can make arrangements for raising the capital privately so that pubic appeal is unnecessary, the company is required to prepare a Statement in lieu of Prospectus.

 The following provisions of the law regarding issue of the Prospectus are to be noted: 1. A copy of the Prospectus must accompany each from of application for shares offered to the public. 2. A Prospectus must be dated and signed by the directors. 3. A copy of the Prospectus together with the consent of the expert whose statement is included in it, a copy of every contract appointing or fixing remuneration of managerial personnel and any other material contract not entered into in the ordinary course of business must be filed with the Registrar on or before the date of the Prospectus. The Prospectus must be issued to the public within 90 days of its date.

59. Penalty and interpretation (1) If any prospectus is issued in contravention of section 57 or 58, the company, and every person, who is knowingly a party to the issue thereof, shall be punishable with fine which may extend to 1[fifty thousand rupees]. (2) In sections 57 and 58, the expression "expert" includes an engineer, a valuer, an accountant and any other person whose profession gives authority to a statement made by him. 1. Subs. by Act 53 of 2000, sec. 20, for "five thousand rupees" (w.e.f. 13-12-2000).

Persons who could be held liable for Misstatement

Any misstatement made in an advertisement inviting deposits made via Section 58-A of the Act would also attract the applicability of liability provisions vis--vis prospectus. 2.2 Persons who could be held liable every person who is a director of the company at the time of the issue of the prospectus; every person who has authorised himself to be named and is named in the prospectus either as a director, or as having agreed to become a director, either immediately or after an interval of time; every person who is a promoter of the company; every person who has authorised the issue of the prospectus; an expert: the liability of an expert surrounds around Section 57 & 58 of the Act.

Sec 63.Criminal liability for Misstatements in Prospectus

(1) Where a prospectus issued after the commencement of this Act includes any untrue statement, every person who authorized the issue of the prospectus shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both, unless he proves either that the statement was immaterial or that he had reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the statement was true. (2) A person shall not be deemed for the purposes of this section to have authorized the issue of a prospectus by reason only of his having given (a) the consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an expert, or (b) the consent required by sub-section (3) of section 60.

Civil Liability
Section 62 of the Act incorporates the provision relating to the civil liability for misstatement in prospectus. It provides very clearly that where a prospectus invites persons to subscribe for shares in or debentures of a company liability accrues to pay compensation to every person who subscribes for any shares or debentures on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement included therein. Every person who, becomes liable to make any payment by virtue of such misrepresentation may recover contribution as in cases of contract from any other person who, if sued separately would have been liable to make the same payment unless the former person was and the latter person was not guilty of fraudulent misrepresentation. The measure of damages for the loss suffered by reason of the untrue statement, omission etc. is the difference between the value which the shares would have had but for such statement or omission and the true value of the shares at the time of allotment. In applying the correct measure of damages to be awarded to compensate a person who has been fraudulently induced to purchase shares, the crucial criterion is the difference between the purchase price and their actual value. It may be appropriate to use the subsequent market price of the shares after the fraud has come to light and the market has settled.The period prescribed for a suit for damage by shareholder is 3 years as per Article 113 of the Limitation Act, 1963.

 since the heading of section 62 makes mis-statement in prospectus a civil liability, by no means it can be treated as criminal liability and therefore, criminal compliant under section 62, that too by ROC, would not be maintainable. Bhupinder Kaur Singh v. Registrar of Companies [2008] 85 SCL 135 (DELHI)

Board of Directors

Director
Section 252 323 of the Companies Act, 1956 deal with the appointment of directors, remuneration of directors, disqualification of directors, vacation of office by directors, Meeting of Board of Directors Section 2(13)"director" includes any person occupying the position of director, by whatever name called;.

 Board of Directors is the brain and the only brain of the company which is the body, and the company can does act only through the board of directors. A director is a person who has control over the direction, conduct, management, or superintendence of the affairs of the company. Only an individual can be appointed as a director. An association or a firm cannot be appointed as director of a company.

Number of Directors
Public Company= Minimum 3 Directors Public Company(with Paid up Capital of 5 Crore or more and 1000 or more small share holders may have a Diector. A private company =at least 2 directors Section 581-O Producer Company=5.>15 Inter-state Coperative Producer Company= >15 (more than one Year) AOA sets standards for Increase/ decrease (Sec 258) >12 Approval of the Central Government(Sec 259)

Appointment of Directors
First Director=AOA or authorise the subscribers (if not) Sec254 by default comes in and Subscribers of MOA are deemed to be first Directors untill they are appointed in accordance with 255 In case of Producer Company (Sec 581-N), members who signed the MOA as first Director untill they are appointed in accordance with Sec 581-P Directors to be elected within 90 day of registration/Interstate Cooperative society (365 days)

 Appointment of Directors by members at General Meeting Reappointment of Retiring Directors at Annual General Meeting Appointment of Directors by Board Appointment of Alternative Director Appointment of Directors by Central Government Appointment of Nominee Directors Appointment of Directors for small share holders

APPOINTMENT OF DIRECTOR
Any Person Can Be Eligible For Appointment To The Office Of Director At Any Annual General Meeting, If He himself or some member intending to propose that person as a director. Gives a sign notice in writing to company. Signifying that persons for the office of director Along with a deposit of Rs. 500/- which is refundable subject to appointment as a director

Removal Of Directors
Removal Of Directors Is Conferred Upon Shareholders, Central Government And Company Law Board A company may, by ordinary resolution, remove a director (not being a director appointed by the Central Government in pursuance of section 408) before the expiry of his period of office. This provision shall not apply where the company has availed itself of the option given to it of proportional representation on the Board of Directors to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation. Special notice shall be required of any resolution to remove a director, or to appoint somebody instead of a director so removed at the meeting at which he is removed.

Meaning: A share warrant is a bearer document of title to shares and can be issued only by public limited companies and that to against fully paid up shares only. A share warrant cannot be issued by a private company, because the share warrant states that its bearer is entitled to a number of shares mentioned there in. It is a negotiable document and is easily transferable by mere delivery to another person. The holder of the share warrant is entitled to receive dividend as decided by the company. A share warrant is accompanied by attached coupons for the payment of future dividends. There are three parts of a share warrant: (1) The counter foil. (2) Share Warrant proper. (3) The dividend coupons. Conditions for the issue of a share warrant: (1) Only public limited companies: Share warrant can be issued by the public limited companies. It cannot be issued by private companies. (2) Against share certificate of fully paid up shares: A share warrant is only issued against share certificate of fully paid up shares. (3) Provision in the Articles: There must be a provision in the Articles of Association regarding the issue of share warrant. If there is a provision, the company can issue a share warrant. If there is no provision in the Articles, the company cannot issue a share warrant. (4) Permission of the Central Government: Prior permission from the Central Government is necessary for the issue of share warrant. (5) Share warrant not issued originally: Share warrant are not issued originally at the time of initial issue. (6) AT the request of the share holder: A share warrant is issued at the request of the Shareholders / member and not by the company at its own initiative.