Business Law concept company act 1956-MBA study material

Company

            A group of people/combination of people

            A voluntary group of people

for the attainment of a common object

            Members of a companies/promotions/subscribers

Devidable parts of a capital is called shares.

A company means “ A group of peoples/persons associated to gather for the attainment for the common objective. If a company in corporate under the companies act 1956, it is known as registered company or incorporated company"

Definition of a company:

            There are two concepts in the definition of a company those are

1.       A voluntary association of persons.

2.       An artificial person.

The company has capital which is devisable in to parts these parts are known as shares.

It is an artificial person created by process of low. It has a perpetual succession and a common seal. It doesn’t have soal it doesn’t have any body it is not visible. It exists only in the eyes of law.

 “L.J.Lindley “ defines a company as an association of many persons who contribute money to a common stock ant employ that money  in some common trade all business purpose. They share the profit or loss arising there from. The common stock is denoted in the capital of the compare the person who contribute it are known as members. The company. The proportion of the capital is divisible in to parts known as shares. These shares can be transferable from one person to another person.

Characteristics of a company:

1.       Separate legal entity

2.       Limited liability

3.       Perpetual succession

4.       Transferability of shares

5.       Common seal

6.       Seperate property

7.       Capacity to sue

Separate legal entity:

            The company has an independent corporate existence the companies money and properties belong to the company but not to the subscribers. Even through the subscribers contribute the money. Company is an artificial permission company is an invisible person company is an intangible persons. It exists only in the eyes of law.

Limited liability:

            The companies liability towards its member is to contribute to the assets of the company in the event of its vending up.

Perpetual(continuous) succession:

A company is a juristic person with a perpetual succession. The company never dies its life does not depend on the life of its member. It is not effected by mental disorder or retirement by its members. It is created by law and can be put an end only by law members may come and go but the company can go for an ever and till its dissolution.

            Perpetual succession means “ irrespective if change in the composition of its membership. The company have its continual existence. Its existence is not affected by a change in its membership”

Transferability of shares:

            The capital of the company is divided into parts known as shares. Subject to the conditions. These shares can be easily transferable. So that no shareholder is permanently wedded to company.

CAPITAL

Common seal:    Seal official signature of the company.

The company has no physical existence. It must act through its agents (representatives) all the contracts entered into by its agents must be under the seal of the company. The seal acts as the official signature of the company.

Separate property

            A company is a legal person distinct from its members. It is capable of owing, enjoying, disposing of property in its own name. Even though its capital and assets are contributed by its members. There are not the real awareness of its property. The property is control, managed, disposed of by the company only.

Capacity to sue:

            A company can sue and can be sue on its corporate name.

Types of companies/classification of companies:

Classification on the basis of in corporation:

 The companies are two types on the basis of the corporation.

i)statutory company Ex: RBI, SBI, LIC, IFC, UTI, Railways, RTC 

ii)Regd company(incorporated)

i)statutory company:

            these company are created by special act of the legislation. These are mostly concerned with public utilities. These companies have national importance

ii)Regd company:

            the companies which formed and registered under the companies act 1956 are known as registered companies or incorporated companies. These are the most commonly found companies.

                                      On the basis of incorporation

Statutory companies                                          Registered companies

ii)classification on the basis of no. of members:

            there are two types of company which are on the no . of members.

i)public company

ii)private company

On the basis of the no. of members
Categories	Private company	Public company
1.minimum no. of members 2.max no. of members 3.no. of directors 4.restriction on appointment of directors 5.restriction on invitation to subscribe for shares 6.transferability of shares 7.Special privileges 8.quarum (a min no. of be present at a marketing to make it valid 9.management remuneration	Two -the minimum no. of members required to start a private company is 2 Should not excluded 50 Must have at least two(2) The directors need not do so A private company prohibits such invitation to the public In the private company the right to transfer the share is restricted by its AOA(artificial of association) A private company enjoys some special privileges Two members personally present No such restrictive applicable to a private company	seven -the minimum no. of members required to start a public company is 7 No restriction Must have at least 3. Should take the consent of the register of the company and should sign on the undertaken bond. A public company can invite the general public to subscribe for the shares In the public ltd company. The shares are freely transferable A public company enjoys no privileges Five members personally present Total marginal remuneration cannot exceed 11% of the net profits

  

Formation of a company:

            Before a company is formed certain primary steps are necessary for example weather it should be a private company or it should be a public company. What is its capital, how to acquire the required capital. Weather it is worthwhile forming a new company or taking over the already established company.

            All the above steps are taken by certain persons known as promoters. They do all the necessary preliminary work for the formation of a company.

Incorporation of a company:

            For any public company any if or more persons, for any private company two or more persons associated for a lawful purpose. The following documents to be filled with register of a companies.

            Before a company is registered, it is advisable to take the connect from the register of a company. The name of the company is to be approved. Then the following documents duty stamped to gather with necessary fee have to be filed with the register.

Those are

1.       The MOA- Memorandum of association(consists of the names subscribers and signed by the subscribers)

2.       The AOA – Articles of association

3.       Te agreement (among the subscribers)

4.       The list of the first directors of the company & their written consent with signature.

5.       A declaration (notarized)

Then a notice of the situation of the registered office of the company who shell the record the same certificate of incorporation(C.O.I).

            If the register is satisfied with the compliance report, he registered the MOA, AOA and he filled the documents with him. The he will issue a certificate of incorporation i.e formation of a company.

            The certificate of incorporation is the date of birth of the company. It is the birth certificate of the company. The register is not required to carry of any investigation for the issuing of the C.O.I. all the legal characters of the company these are

1.       Separate legal entity

2.       Limited liability

3.       Perpetual succession

4.       Transfer ability of shares

5.       Capacity ot sue

6.       Separate property

Will be applicable to the company the time it gets the certificates of incorporation.

Promoter:

            A promoter is a person who does the recovery preliminary work incidental to the information of a company. The first persons who control the companies affairs are known as promoters. The conceives of the company. The take the necessary step like how much the share capital, how much the loan capital how to acquire the business when all these things have been done to hand-over the control of company to its directors.

Functions of a promoter:

1.       The promoter of a company decides its name and make all necessary steps that it will be accepted by the registrar of a company.

2.       He fames the details of a company MOM, AOA the nomination of directors, bankers, auditors, secretary and the registered office of the company.

3.       He arranges for the printing of the MOA and AOA

4.       He takes necessary step for the registration of the company

5.       If there is any necessity of public issue the issues the prospectors of the company

6.       He is not agent of the company he in not a trusty of the company.

Duties of a promoter:

1.       The promoter must not make either directly or indirectly any profit at the expanses of the company.

2.       The promoter must give to the company the benefit of any negotiations, contract into which he enters irrespective of the company.

3.       The promoter must make a full disclosure all the relevant facts with the company

4.       The promoter must make any unfair use of his position statues.

The memorandum of association (the MOA):

            Character – life giving document

It is the fundamental document, it is the character of a company. It is the first document which constitutes the constitution of the company. It has a great importance in relation to the proposed company. It has a great importance in relation to the proposed company. It lays down the area of the operation of the company. It regulates the external affairs of a company it shows the objects  and scope of the formation of the company.

Purpose of MOA:

                   Proposed shareholders                   out spiders (stake)

1.proposed share holders(prospective share holder) shell now the purpose for which their many is going to be used by the company and what risk their are undertaking in making investment.

2.The outsiders dealing with the company shell now about the objects of the company.

The contents of MOA:

1.       The name clause

2.       The registered office clause

3.       The object clause

4.       The capital clause

5.       The liability clause             6)The association clause

The name clause:

            The name of a company establish its identify and it is the symbol of its existence. Before going to put a name, the subscribers should take the following preparations those are

1.       Undesirable name should be avoided in the name clause i.e. too similar to the name of another company. Including titles should be avoided.

2.       As the word of the name of the company there should be ltd or pvt ltd. Ltd indicates the public limited company and pvt ltd indicates the private ltd company and pvt ltd indicates the private limited company.

3.       Prohibition of the use of certain name. The names and emblems of UNO (United nations org), UNESCO(United nations educational scientific & cultural org) WHO, Indian national flag, central & state govt emblems, precedent of India and governance embalm are totally prohibited in the under of companies names.

4.       Use of some key words according to authorized capital.

5.        Key word                                                        required authorized capital

CORPORATION                                 Rs 5 crores

INTERNATIONAL, ASIA

UNIVERSAL, CONFINENTAL   Rs 1 crores

HINDUSUTAN, INDIA,

BHARAT                                                         Rs 50lakhs

INDUUSTRIES, UDYOG                    Rs 1 crores

ENTERPRISES, PRODUCCTS

MANUUFACTURING, BUSINESS   Rs  10 lakhs

Every company shell paint of affix its name and its registered office address on the outside of every office are place in which its business is carry done. The name and regd. Office address should be mentioned in all business letters. Bill books, negotiable instruments receipt etc.

The registered office clause:

            Every company should have a registered office from the day on which it begins to carry on business all communication and notice are to be address to the registered office if there in any change in the address of the regd. Office it should be limited to the rest with in 30 day of the data change.

The objectives clause:

            The objectives of the company shall be clearly set in MOA. The scope of the company the main objectives of the company the subsidiary objectives of the company the long-term, objectives of the company the short term objectives of the company shall be clearly maintain in the objectives of the clause MOA.

 The capital clause:

            The MOA shall state the amount of the share capital with which the company is to be regd his capital is known as regd capital or authorised or nominal capital

The liability clause

            The limited liability which the members can only be called up on to pay to the company at any time.

The association of the clause:

            It states that we the several persons whole names and address are subscriber or desirous are being formed in to the company.

            We respectively agree to take the no. of shares in the capital of the company set opposite and respectively names

S.No    name of the     address of the    desorption of     no of shares             

             A.S Prasad       s/o samba           associate                 1000

                                        I.T road              MBA dept

                                       Vegavaram          (A.P)

            R.devid              s/o                      agriculture

The MOA shall be named by at least seven subscribes  in the case of public company by at least two subscribers in the case of private company. The signature of is subscribers shall be at tested by at least are witness this witness shall not be any of the other subscribers.

Conclusion:

            The MOA shall be an computer laser printer which should be neatly and legible. It shall be divided in to paragraphs the paragraphs shall be numbered consecutively this MOA shall be signed by at least seven subscribes in case of public company at least two subscribed in case of private company. At last this complete MOA shall e sent to the register of the company for its conformation and regd of the company.

The articles of association(AOA):

            It is the secondary document it is the subsidiary document AOA deals with internal affairs.

            The AOA are the next important documents to the MOA. The AOA are the subordinate to MOA. The AOA will be control by the MOA is just the rules and regulations for internal management of the affairs of they company AOA are formed with objective of carrying out the aims and objectives which are set out in MOA. The AOA shall not go beyond the MOA.

Contents of AOA:

1.       Share capital

2.       Rights of share holders

3.       Issue of share certificate

4.       Lien of shares

5.       Calls on shares

6.       Transfer of shares

7.       Fortitude of shares

8.       Transmission of shares

9.       Alteration of capital

10.    General body meetings

11.    Notion rights of members

12.     Directors

13.    Manager

14.    Secretary

15.    Dividends

16.    Accounts

17.    Audit

18.    Borrowing powers

19.    Capitalisation of profit

20.    Winding up

NOTE :- in the case of private company the AOA shall restrict the right to transfer the share. The AOA shall limit the no. ofits members to 50. The AOA shall prohibit any invitation to public to subscribe for any shares of the company.

Distinction between MOA & AOA:

MOA

AOA

It is the character of the company indicating the nature of business nationality of the company capital of the company. It defines the companies relationship with out side world(external affairs) it is the main document it defines the scope and objectives of the company. it is supreme document there are strict restrictions for the conditions with the consent of the company law board some changes or alterations can be done

there are just the rules and regulations for the internal of the company(internal mgt) it is a subsidiary documents these are the rules for carrying out the objectives of the company which were setup in MOA. it is subordinate document AOA can be altered by a special resolution in the general body meeting of the directors

Legal effect of memorandum & articles:

 The memorandum & articles bind

1.       Members to the company

2.       Company to the members

3.       Members increase

4.       Company to the outsiders

Doctrine of ultra vires:

            Generally a company has the power to do all the acts which will be acquired through the companies act 1956, which will be acquired through its memorandum(MOA-everything else is ultra vires of the company)

            Ultra = beyond

            Vires= control/power

The term ultra vires of a company means that the doing of the act is beyond the legal power and authority of the company. The purpose of these restrictions is to protect the creditors of the company. The investors have to know the objects in which their money is to be employed. Creditors have to ensure that the companies funds are not wasted in unauthorised activities. The main feature of the doctrine of alternatives is that a company being a corporate person, it should not be punished for own acts

Doctrine of indoor management:

            The outsiders dealing with the company are entitled to assume that as for as the internal procedures of the company are concerned everything has bear regularly done. They need not inquire in to the regular of the internal proceeding as required by the memorandum and articles. This limitation to the outsiders is know as “doctrine of indoor management”

            The doctrine of indoor management protect the outsider against the company. The memorandum and the articles are the public documents they are open for inspection by every body but the details of internal proceedings are not open to public inspection. An outsider can know the constitution of the company but not what may or may not have taken place with in the doors that are closed to him.

Prospectus:

            It is offer/invitation to the public

            It is circular/notice/advertisement

Any notice, circular, advertisement, document including deposits from the public for the subscription(purchase) of any shares of a company is known as prospectus. This is an invitation to the public. It is an offer to the public. A prospectus issued by a company must be dated & in working this date is taken as the publication date of the prospectus

            A prospectus can be issued by a company only when copy is to the and to the register. The registration must be made on or before the date of publication. The copy must be signed by every person who is named as director of the company.

Contents of prospectus:

            Prospectus is the window through which an investor can look into the soundness of the company. The investor must be given a complete picture of the company through its prospectus.

Part I

General information:

●      Name of the company

●      Address of registered office

●      Consent of the central govt

●      Declaration of the general central govt

●      List of stock exchange where application is made for listing of present issue

●      Date of opening of the issue

●      Date of closing of the issue

Capital structure of the company:

●      Authorized capital

●      Share capital

●      Size of public issue

Terms of the present issue

Particulars of the issue

Company management and project

Part II:

General information

Financial information

Statutory information

Part III:

Statements bu experts

Kinds of shares:

            The capital of a company is divided into no. of  equal parts is such part is known as share the owner of such a share is called a share holder are known as ‘ownership security’.

            Company’s secure capital by issue of share to the public. They issue different kinds of shares to secure the capital. The reason is that investor differ in the temperament(nature of behaviour). Some investors are very cautious. Some investors are prepared to take reasonable risks. Some investors are prepared to take great risk.

No risk    fixed deposits, NSE, Kisan    reasonable risk

mutual funds   great risk  share market

So companies issue different kinds of shares to secure capital from different people of different temperaments.

                                      Kinds of shares

Preference shares    equity shares         deferred shares

Preference shares:

            Shares which carry preferential rights with regional to the payment of dividend and repayment of capital are called preference shares.

            These shares holders are given to preference those are

1.       There is a preference of payment of dividend

2.       There is a preference in repayment

Capital at the time of liquidation of the company after outside creditors preference shares capital is returned preference share holder.

             A fixed  rate of dividend is paid on preference shares capital. Preference share holders don’t have any voting right. They have no role in the mgt of the company.

            The continues investors who does not want to take any risk but want some dividend will be suitable to purchase preference shares.

Equity shares:-/ordinary shares

            The equity shareholders are the real owners of the company. They have voting rights in the meeting of the company. They have a control over the working systems of affairs of the company. The equity shareholders the rate of dividend is not fixed. It demands on the profits of the company. When a company makes large profits, the equity shareholders have a chance to get a large percentage of dividends up to 20 to 30%.

Equity shareholders take more rule when compare with preference shareholder. When a company is wound up, equity shareholders are paid back their capital after preference share holder’s payment. As a result equity shareholders lose much of their capital in many cases. They take risk both dividend payment and return of capital payment.

Different shares / renders shares

These shares are usually issued to the founders (promoters) towards their remunerations for their services so that shares also known as founder share.

Differed shares holders will get derived after the payment of dividend to preference shareholders, equity share holders. They rank last in the payment of dividend return of capital also rank last when the company is wound up. Differed shareholders will get dividend only when the company makes huge profits deferred shareholders don’t have any voting rights.

Duties of directors:

A company is an artificial person created by the low. It has its existence only in the eyes of law it has no physical existence. It does not have its own body, its own soul. So that it can not act in its own body. it can act only through its representative known as directors. The directors are the brain of the company. They occupy a pivotal position in the structure of the company

The company can act through its directors.

            A director is a person having control or the direction, conduct, mgt superintendence of the affairs of the company.

            Only individual can be acted as director’s corporate bodies, associations, firm cannot be appointed as director of company.

No. of director:

            The no. of directors in the private company at least two where as in a public company at least three. The AOA of a company prescribes the maximum minimum no. of directors. Their appointment, their remuneration qualification, powers, proceedings will be taken care of through AOA.

The member may be increased or decreased by an order many resolution of the company in a general body meeting. Shareholder will appoint the directors in general body meeting through their AOA.

Appointment of directors:

            In the case of public or private company at least 2/3 of the company shell we liable we to retire by rotation. At the annual general meeting at which the directors retires by rotation the company may fillup the vacancy. The number my be increased or decreased by an ordinary resolution of the company in a general body marketing.

Position of directors:

            Directors play so many roles in the administration of the company. He plays an agent role. He plays a representative role. He plays an representation he plays an officer role (white collar).

Disqualification of directors:

The following persons are disqualified the appointment as directors of a company those are

1.       A person of unsound mind

2.       An insolvent person

3.       A person who has been convicted by court of law

4.       A person who is fraudulent by an order of the court

Duties of directors:

The general duties of directors will be two types.

1.       Fiduciary duties [trust]

2.       Duties of Care, skill and diligence

Fiduciary duties:

●      The directors must exercise their power mostly and bonefide for the benefit of the company

●      They should not use their position power for their personal interests

●      They must not make any create profit of their position

●      They should perform their duties with at most suitability

Duties of care, skill and diligence:

●      Directors should carry out their duties with reasonable care, skill and diligence.

●      Directors should use their knowledge and suitable up to the exportation of the company.

●      Directors have to attended the board meeting  regularly

●      Directors should not delegate their power to other

●      The copy of the prospectus registrar of the contracts minutes registrar shall be signed by all the directors who presented the meeting.

Statutory duties of the directors:

1.       Liability to third party

2.       Liability to the company

3.       Liability for breach of statutory duties

4.       Liability for acts of his co-directors

Liability to third parties:

            The director will be liable to the third party of the issues of the prospects. At the repayment of application money if minimum subscription has not been subscribed, irregular attachment of shares cheques and promissory notes issued by them.

Liability to the company:

            The directors are liable to the commonly an there negligence breach of trust. Wilful misconduct.

Liability for breach of statutory duties:

            The director should maintain proper accounts filling of it(income tax) returns, responding towards deferent tax issues in time

Liability for act of his co-director:

            A director is not liable for the acts if his co-directors provided he has no knowledge and he is not a party.

Winding up:

            It is a liquidation of a company represents last stage in the life of the company. It is a proceeding by disposed of the debates is paid off. The surplus if any is distributed among the members in proportion to their holding in the company. The two terms winding up and liquidation are used interchangeably.

            According to proof Gower, winding up of a company is a process whereby its life is ended and is property.  An administrator called liquidator is appointed by the govt and he takes control of the company he collects the events of the company he page the debts of the company.