PLEASE READ THIS PASSAGE WITHOUT FAIL ———— | (( SPECIALLY PREPARED STUDY MATERIALS i IN ENGLISH & TAMIL FOR YOUR LAST MINUTE PREPARATION FOR LL.B / B.L. EXAMINATIONS OF ALL UNIVERSITIES ‘fo help you prepare effectively for the university examinations in the last minute, Usha Jaganath Law Series hhave prepared the most expected aind often repeated 20 CHAPTERS with short notes and model questions in simple language and in fullscape papers with laser printing for each university separately. THE COST FOR EACH SUBJECT IS Rs.700/- (RUPEES SEVEN HUNDRED ONLY) You can ENSURE your SUCCESS by studying th most important chapters / questions/ shor! chapters /questions / sho: for the expected and examination. questions are different for every universit Orders may be placed through Draft/Cheque favouring | P, JAGANATHAN’ payable at Madurai, or deposit in the specified Bank Account. For Further details contact ~ UJLS, 22, Nermadha Nathi Street, Mahathma Gandhi Nagar, Madurai - 625014. Celi No. 9994449005, 9600700655 & 9944939308, 12 20 chapters - Question and Answer Module are only d questions and hence UJLS and the Authors are not! the chapters/ questions do not appear| | | | | i | (Understand Law & Achieve Wisdom) Uignorance of law is no excuse) COMPANY LAW (Tae comrantes act, 1956) (Tue Compantes (amenpMent) act 2002) FULL SYLLABUS COVERED WITH ANSWERS FOR PREVIOUS YEAR UNIVERSITY QUESTIONS AUTHORS P. Jaganathan, MA., MBA., MMM., ML.(Contracts), ML.(Admn., & Labour Laws)., (Gold Medalist, & Madras University Rank Holder in Law for all the three years of B.L. Course) Usha Jaganathan, MA., ML., J.P. Arjun MA., MBA., LLB., Advocates Price: 220/-8.3. Powers of court 8.4. Consequeaces of winding up order, 8.5, Voluntary winding up by members and creditors, 8.6., Winding up,subjett to.supervision. of court . 8.7. Liability of past members 8.8. Payment of liabilities preferential payments 8.9. Unclaimed dividends 8.10.Winding up of unregistered company UNIT 9 9. Law and Multinational Companies: 9.1, Collaboration, agreements for technology transfer 9.2. Control and regulation of foreign companies, taxation of foreign companies, share capital in'such companies i ‘UNIT 10 10. Law Reforms GENERAL - INDEX B.L| S.No ‘TOPICS P. PART I- INTRODUCTORY NATURE OF A COMPANY OR CHARACTERISTICS OF A COMPANY (Lifting the corporate veil) NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL KINDS OF COMPANIES. OR CLASSIFICATION OF COMPANIES PRIVATE COMPANY AND PUBLIC COMPANY PART If- INCORPORATION OF COMPANY FORMATION / INCORPORAION / REGISTRATION OF A COMPANY PROMOTERS - DUTIES, STATUS AND LIABILITIES : (Contracts Mabe ow ‘Beate OF Tue Company) VTA 18 31 37 43xviii BL] S.NO ‘TOPICS P.NO fj 8 | 5. MEMORANDUM OF ASSOCIATION 48 2) 6 ARTICLES'oF Association” 60 5 | 7. DOCTRINE OF INDOOR MANAGEMENT OR RULE IN ROYAL BRITISH BANK VS. TURQUAND (Rule of constructive notice) 66 4] 8 DOCTRINE OF ULTRA ViRES (Rule in Riche Vs. Ashburry Railway Carriage and Iron Co. Ltd.) 72 PART III RAISING OF CAPITAL 5 |9. PROSPECTUS 78 9-A. BROKERAGE //BROKER. 94-8 3 | 10. _ TYPES OF SHARE CAPITAL AND REDUCTION OF SHARE CAPITAL 95 PART IV - SHAREHOLDERS OF COMPANY 2 | 11 MEMBERSHIPIN A COMPANY 105 14, ITA. I7B. 17-C. 17D. TYPES OF SHARES ALLOTMENT OF SHARES CALLS OF SHARES AND FORFEITURE, OF SHARES TRANSFER AND TRANSMISSION OF SHARES PART V - CONTRACTS, BORROWING LOANS AND INVESTMENTS: DEBENTURES, BORROWING POWERS OF A COMPANY PART VI- MANAGEMENT AND ADMINISTRATION DIRECTORS AND THEIR APPOINTMENT. POSITION OF DIRECTORS POWERS OF DIRECTORS DUTIES OF DIRECTORS 158 163 166 170Peete zoxi LL.B| B.L| S.No TOPICS P.NO 1 17-B, LIABILITIES AND DISABILITIES OF ~ PART Vil - COMPROMISE, ARRANGEMENT DIRECTORS a RECONSTRUCTION AND WINDING UP 3(/2"|18-a. ¥bsdor MeEtiNes *” we yg 23:''A. COMPROMISE, ARRANGEMENT AND RECONSTRUCTION 233 3.| 1 [18-B. sTaTuTORY MEETING 183 1.] J23-8. AMALGAMATION: < 236 2 18. ANNUAL GENERAL MEETING 186 h : 2 24. DISSOLUTION AND WINDING UP OF ACOMPANY 240 18-D. EXTRA‘ORDINARY GENERAL MEETING 193 1 | 1 ]18-8. ESSENTIALSOFAVALIDMBETING 196 Se eee Se eT j : ; (Compulsory winding up) 242, 2 | 3 }19. RIGHTSAND DUTIES OF AUDITORS — 206 7 1 | 6|26. MEMBERS AND CREDITORS VOLUNTARY WINDING UP 252 1] 1 |19-a pivipenps ; 212-0 i n 1 | 2|27. POWERS OF THE OFFICIAL | 20. INVESTIGATION BY INSPECTORS “213 LiquipaToR ie 6 | 7 [21 THE MAJORITY RULE AND MINORITY Seca oe PROTECTION (Minority share holders) a Cee eee eceerporee) 220 29. CONSEQUENCES OF WINDING UP ami 2 | 3 |22. PREVENTION OF OPPRESSION.AND 1 . MISMANAGEMENT 226 30. WINDING UP SUBJECT TO SUPERVISION OF COURT 275WINDING UP OF INSOLVENT COMPANIES 276 "/32.°" " WINDING UP OF UNREGISTERED COMPANIES 277 33. OFFENCES RELATING TO WINDINGUP 279 iv OFFENCES UNDER THE COMPANIES ACT, 1956 282 38. COMPANY LAW BOARD "285 LL.B.: The number under LL.B column denotes the number of imes - the chapter has been asked in the previous TEN year University question papers of Bangalore University. The number under B.L. column denotes the number of, nes - the chapter has been asked in the previous TEN year University question papers of Dr. Ambedkar University xxiii SHORT NOTES S.NO ‘TOPICS “Advantages "of incorporation ‘- Advantages against Partnership firm : Allotment of shares Alteration of Articles Alteration of Capital Alteration of name clause Alteration of object clause Alternate Director Amalgamation of Companies Annual General Meeting Appellate Tribunal Appli¢ation money Appointment of Directors Arrangement : Articles of Association Auditor Bearer debentures P.NO 1 13 122 61 98 55 57 161 236 186 L7-A 127 159 235 60 206 15)wxxiv ‘TOPICS ‘P.NO Binding effect of memorandum 55 Blank transfer 143 Bonus ‘shares “421 Borrowing powers of a Company 155 Brokers o4-A, Brokerage O4-A Buy back shares 94-8 Call 131 Called up Capital A 9o7 Capacity to sue and be sued 10 Capital Clause 54 Certificate of incorporation -~ 39 Certificate. of share (Share Certificate), 132 Certification pf transfer “441 Chairman ‘of Meeting 200 Change in Capital Clatise 59-B Change in Liability Clause 59-B Change of Name 7 7 56 Change of Registered Office 57 Chartered Company 20° 7 sow, TLB/ Bx] S.No TOPICS P.NO 37. Class meetings 182 38. Common seal 9 ‘3139. “Company Law Board ~~” 285 40. Company limited by guarantee 21 41. Company limited by shares 21 42. Company not a citizen 8 43. Compromxise 233 44. Compulsory winding up 242 45. Conclusiveness. of Certificate of Incorporation. 39 4/46 Constructive notice 67 47. Contents of Articles 61 48. Contents of prospectus 78-D 1 1 {49. Contributories 267 50. Convérsion of Private to a Public Company. 35 51. | Conversion of Public Company to Private Company 36 52. Convertible debentures 183 53. Convertible preference shares 120°bo. 61. 62. 63. 64, 65. 66. 67. Corporate ethics Corporate personality Corporate veil’ Creditors’ voluntary winding up Cumulative preference shares Dead lock Debenture Trust Deed Debentures Deemed public company Default in holding Statutory Meeting Defunct Companies Difference between Company and Partnership Difference between- Members and Shareholders Difference between Memoraridum of Association and Articles of Association Difference between Private Company and Public Company 243 30-B 13 106 64 32 68. 69. 70: 7h. 72. 73. 74. 78. 76. 77. 78. 79. 80. S.NO TOPICS Difference between Share Warrant and Share Certificate, 135 Difference between Shareholder and Debenture Holder 154 Directors as agenits ofthe company 164 Directors as Organs’ (Officials) of the Company 165 Directors as Quasi — ‘Trustees of the Company 165 Directors as Trustees of the Company 164 Disqualification of Directors 162 Dissolution of a Company 240 Distinction ‘between transmission and transfer of shares _ 145 Dividend 212-8 Doctrine of Ultra Vires 72 Dummy Company (Company is a sham) 6 Duties of Directors 170xxviii Ba, 85. 87. 88. 89. or. 95. 96. 97. Effect of Irregular Allotment «Effects -of registration. x equity share’ capital Equity shares Exceptions to the Doctrine of Ultra Vires Extraordinary General Meeting Failure to commence bisiness Fidkiciary position of a Promoter Final Report by Inspectors and its effect First Director Fixed Charge Floating Charge Foreign Companies Forfeiture of shares Forged transfer Fraud on the minority General’ Meetings 121 76 193, 243 42, 219 159 148 149 25 136 142 222 182 wx Trs]B1[sno TOPICS P.NO 398. Golden Rule for framing : Préspectiis ~~ 79 1 | 8 |99. Government Companies 24 100, Holding: Subsidiary Company 28 2 | |101. Megal Association 7 1 ]102. Inability to pay debts 244 103. Incompetency of Board 167 104, Incorporated: Companies 19 105. Independent Corporate Pérsonality 3 2 |106. Indoor management 66 * | 1 |107, Investigation by Inspectors 213 | |108. tesue of Certificate of Incorporation 39 1 |109. Issue of shares at discount 130-B 1110, Issue-of shares at premium 130 Lil, Issued-dnd Subscribed Capital 96 |112 . Just and equitable grounds 245 113, Liabilities and disabilities of Directors 175 114, Liabilities for mis-statements 84 in a prospectussox LL.B/B.L| S.No TOPICS P.NO ee eee CeCe ean 115, Liability Clause 54 116, Lien.on, shares | 2 d37 117. Lifting or piercing the corporate 7 veil ~ 5 118. Limited liability 9 2 119. Liquidator 259 120. Majority rule and minority protection _ 220 121. Malafide act of Directors 167 122. Meetings 181 1/123. Members voluntary winding up - 254 124. Membership by transmission or succession » ai 1/125. Membership 'in a Company 108 a 126. Memorandum of Association 48 127. Methods to become a member of a Company 110 3 |128. Minimum subscription 94,126 1 | 1129. Minority protection (Share holder) 223 11130. Minutes 199 P.NO S.No: ‘TOPICS 131. Modes of winding up 241 132, Name Clause _ 51 133. National Company Law Tribunal 17-A 134, Nominal or authorised capital 96 135. Non application of the Companies Act 1956 16 :136. Non-convertible preference shares 120 137. Non-cumulative preference shares 119 138. Non-participating preference shares 120 139. Notice 197 140. Objects Clause 52 141. Offences relating to winding up 279 142. Offences under the Companics Act 1956 : 282 143. Official Assignee or Receiver of Contributory 269 144. Official Liquidator 259 145. “One man Company” Case (Salomon Vs. Salomon Company Lid) 3BAL S.No TOPICS. 146. his 149. 150. 151. 152. 153. 154, 155. 156. 157. 258. 159. 160. 161. 162. 163. 148:. Oppression and Mismanagement Ordinary resolution Paid up capital . Participating preference shares . Perpetual debentures Perpetual succession, Powers of Directors Powers of the Inspector Pre Incorporation Contracts Preference share capital Preference shares Preferential payments Present and past members Prevention of oppression and mismanagement Private company Privileges of a private company Promoter .Proper authority P.NO 226 56,189 97 119 151 9 166 218 45 O7 118 273 269 226 30-B 34 41 196 Gistasiivs, rox Property acquired. by ultra vires contract Prospectus - Civil Liability Prospectus - Criminal Liability Prospectus Provisional Liquidator Proxies / Proxy Qualification Shares Quorum Reappointment of Directors Reconstruction ' Redeemable Debentures Reduction in membership Reduction of share capital Registered Compatiy Registered Debentures Registered Office Clause Removal of Auditor Requisites of a valid meeting * Reserve Capital 78 80 89 738 260 202 162-B 197 162 235 151 244 98 “21 152 52 208 196 97xxiv soy ‘TOPICS S.No TOPICS P.NO 183. .Residuary powers 168 201. Special privileges to the private 184.. Resolutions : 188 Companies’ i 33 185.. Restriction on voting power™ “" * 205 ue eee Gee : aa ae 185. Role of a company secretary —-180-A re 186. Rights of Proxies 202 203. Statement in licu of prospectus 78-C 187. Rule in Royal British Vs. 204. Statutory Compariy 20 auialicna oo 205. Statutory meeting 183 188. Rule'in Foss Vs. Harbottle 221 206. Statutory: report 184 189, ‘Rule in Riche Vs. Ashburry 207. Stocks and Shares ‘47 Railway Carriage and Iron Co. Ltd 73 208. Subsidiary company 26 190. Rule regarding prospectus 78-0 209. Surrender of shares 137-A 191, Secured creditors 272 209. Termination of membership 112 192. Secured debentures 152 210. Transfer of shares isa ba eee ‘ i 211. Transferability shares 9 1 | 2 |194.. Share capital : 96 : ; 1 |195. Share Certificate +. 182 Fee teas iat 196. Share premium Account 130-A prea aes ~ 72 3 |197. Share qualification of Directors 162 214. Ultra vires contracts 78 198. “Share warrant 134 215: Ultra vires torts 7s 199. Showing of hands - 203 216. Unealled capital 97 200. Special privileges to an independent 217. Under writing commission 94-C* private company of 34 218. Unincorporated Companies 20200i Unlimited Company 23 ., Unlimited liability of Officers 272 | Unsecured creditors - 272 HCE Halo eeateatt HeSH Ee 152 Voluntary Winding-up 254 Voting and poll : 203 Voting by poll 204 Winding up 240 ‘Winding up of insolvent companies 276 Winding up of unregistered companies : . 277 Winding up subject to supervision of Court . 275 fr SG LL.B.: The number under LL.B column denotes the number of times - the Short Note has been asked in the previous TEN year University question papers of Bangalore University B.L.: The number under B.L. column denotes the number of times - the Short Note has been asked in the previous TEN year University question papers of Dr. Ambedkar Law Univers xxvii CASE Laws 1L.B[B.L| s.No ToPIcs lL 10. A.D. Thapa Naidu Vs. Universal Mutual Aid and Poor House _ Association, Anand Biharilal Vs. Dinshaw Company ‘Ashbury Railways Carriage and Iron Co. Ltd Vs. Riche ‘ Bacha P.Gzdar Vs. Commissioner of Income Tax, Bombay Barium, Chemical Ltd Vs. The Company Law Board Bennet Colemann Vs. Union of India -Booth Vs. New‘Africander Gold Mining Brown Vs. British Abrasive Wheel Company * Cook Vs. Deeks Clerk Vs. Urguhart P.NO 247 70 73 114 217 3LA 223 170 84<<: TOPICS ia. 12° 13. Jaa. 15. 16. 17. 18. 19. 20. 21 22. 23. 24, 25. Deihi Automobiles Pvt Ltd., Vs. Maruti Ltd Deity Vs. Peek Dixie coal mining & Mfg. Co.Vs. Williams Dove Vs. Cosy Edgington Vs. Fitznaurice Elder Vs. Elder & Watson Lid Erlanger Vs. New Sombrero Phosphate Co., 1978 LR 3AC 1218 Foss Vs. Horbottle . Gajarbal Vs. Patny Transport Co German Date Coffee Co. Re Gilfod-Meber Co Ltd. Vs. Horne Harmer Ltd: Vs. Re . Hindustan’ Co-operative Insurance Society Ltd Vs. Re Hindustan Comimercial . Bank Vs. H.G.E. Corporation Horbel Vs. Phillips 227 | 27. 28. 31 35, 36. 37. 38. 39, 40. 26. 29. 30. 32. 33. 34, Household Fire Insurance Company Ltd. Vs. Grant “Howard Vs. Patent Inory Co Indian Chemical Products Ltd. Vs. State of Orissa In Re Sir Dinshaw Manekji Petit Jones Vs. Lipman Jubilee Cotton Milis Ltd Vs. Lewis Kasthurmal Bandya Vs.State Kington Cotton Mills Company case Kotla Venkataswamy Vs. Rammurthy | Kreditbane Cassel Vs.Schekers Lakshmi Ratanlal Cotton Mills Vs. JK, ute Mills Ltd Lakshmana Swamy Mudaliar A. Vs. Life Insurance Corporation of India Lee Vs. Lee's Air farming Co. Ltd. London General Bank Case London Oil'Storage Co. Case 124 69 4 39 187 211 71 70 7 73 211 212xl LL.B|B.L|s.NO ‘TOPICS P.NO l4t. Macaura Vs. Northiern Assurance Co 10 Fe Coapes ye amon oe adi (Bank-Nationalisation Case) 8 42... Marsha] Waregear and Co. Ltd Ramachandra & Sons, Vs. State 187 ; Vs. Maniting: Weardale Co.Ltd. 167 i 143. Marwari stores Ltd., Vs. Ramabhai Vs. Ghasi Ram 124 Gowri Shankar Goenka LoL Ratina Velu Swamy Vs. 44. Menier vs. Hoopers Manikka Velu Chettiar 197 ‘Telegraph works 222 Re English and Colonial 1 |45. Metropolitan Coal Consumer’s Produce Co. Ltd. 46 i Association, Re Karberg’s Case 85 Re German Date Coffee Company 246 Hl 1 |46. Moosa Goolam Ariff Vs. Ebrahim Re John Beauforte London Ltd 74 | Goolatn Ariff 40 Riche Vs. Ashbury Railways | 47, Muralidhar Vs. Bengal Steamship Co 243 Carriage and Iron Co. Ltd 73 48. Nagappa Chettiar Vs. The Madras Royal British Bank Vs. Turquand 67 | Race Club | i 197 Ruben Vs. Great Fingall Ltd 70 | 49.. New Brunswick Company Vs. Sabapathi Rao Vs. Sabapathi Muggeriage. 81 Press Ltd 247 50. Peale Vs. National Bank of India 101. Salisbury gold mining Co. Ltd. < Is1. Peek Vs. Gurney 83 Vs. Hathorn + 201 1 |52. Peel Vs. London N.W. Railway Co., Sharp Vs. Davies 198 Soloman Vs. Solomon Company 3 (Peels Case} . 20367. | Sulaiman Bhai Vs. Official Liquidator - 110 68." “United States Vs. Mitwaukes |” Refreigerator Transit Co., 5 69... Vishwanathan Vs.Tiffin V.A. and P.Ltd. 168 70. | Weeks Vs! Probert 75 71. Wood, Vs.:Odeesa Water Works Ltd 63 72. Yenidje Tobacco Co.Ltd. 245 EL.B.: The niumber under LL.B column denotes the number of times - the Case law has been asked in the previous Ten years University question papers of Bangalore University B.L.: The number under BL, column denotes the number of times - the Case law has been asked in the previous Ten years University question papers of Dr. Ambedkar Law University SOLVED PROBLEMS met Chapter. NOS "FOPICS Problem. NOS 1, INDEPENDANT CORPORATE PERSONALITY, 2 2. LIFTING THE CORPORATE VEIL 6,18,24,30,| 31 noah 3. DUTIES OF DIRECTORS 14,19 4 INCORPORAION OF A COMPANY 32,38 5S. PRE INCORPORATION CONTRACTS 544,21 6. MEMORANDUM OF ASSOCIATION 47 7.” ARTICLES OF ASSOCIATION 33 -e DOCTRINE OF INDOOR MANAGEMENT 3,28 9, BSSENTIALS OF A VALID MEETING 27,40,49 DOCTRINE OF ULTRA VIRES 10,11,34,46,47S.NO lL. 12. 13. 14. 15, 16. a7. 18, ‘TOPICS P.NO PROSPECTUS, _ 18,17,20,37 " quioment Or suares | fi aa ‘TRANSFER AND TRANSMISSION OF SHARES 29 eee 8 ANNUAL GENERAL MEETING 42 INVESTIGATION BY INSPECTORS 12,26 ‘THE MAJORITY RULE AND THE MINORITY PROTECTION 1,22,48 PREVENTION OF OPPRESSION AND MISMANAGEMENT 23,25,41 WINDING UP BY COURT 9,16,39,45,51 CONTRIBUTORIES 13 20. IMPORTANT NOTE: Karnataka State Law University STUDENTS ARE ADVISED TO REFER ‘THIS INDEX / PAGE NUMBERS ONLY’ ror, THE PURPOSE, OF EASY, STUDY OF THEIR SYLLABUS. Il- SEMESTER - (COURSE I) INDEX S.NO ‘TOPICS UNIT -1 THE COMPANIES ACT, 1956 1. CORPORATE PERSONALITY AND ITS KINDS 18 & 2. PROMOTERS 3. REGISTRATION / INCORPORATION 4, MEMORANDUM OF ASSOCIATION 7 * UNIT — 11 5. ARTICLES OF ASSOCIATION 6. PROSPECTUS P.NO 31 a3 37 48 787 xvi xlvii S.No ‘TOPICS P.NO. S.NO TOPICS P.NO 7. , “DIRECTORS, 158 - 180 19, DIFFERENT MODES OF WINDING UP a OF COMPANIES 240-281 8, 9, 10. iL 18. We MEBTINGS. 2 20 ROLE OF COMPANY SECRETARY DIVIDENDS eae ANALYSIS OF CORPORATE ETHICS ‘UNIT — IL ISSUE OF SHARES: TYPES OF SHARES DEBENTURES ~ PROCEDURE FOR ALLOTMENT OF SHARES AND DEBENTURES SHARE CAPITAL RIGHTS AND PRIVILEGES OF SHAREHOLDERS THE MAJORITY RULE AND MINORITY PROTECTION PREVENTIONS OF OPPRESSION AND MISMANAGEMENT 181 - 205. 179-A 212-4 36-A 122 116 146 122 220 220 226 19-A. 19-c. 19-D. 19-E. 19-F. 19-3. DISSOLUTION AND WINDING UP OF A.COMPANY |. WINDING UP BY COURT. {COMPULSORY WINDING UP) MEMBERS AND CREDITORS VOLUNTARY. WINDING UP POWERS OF THE OFFICIAL LIQUIDATOR CONTRIBUTORIES CONSEQUENCES OF WINDING UP ; WINDING UP SUBJECT TO SUPERVISION OF COURT |. WINDING UP OF INSOLVENT COMPANIES WINDING UP OF UNREGISTERED COMPANIES OFFENCES RELATING TO WINDING UP 242 252 259 267 271 275 276 277 279xiviii TOPICS P.NO UNIT -IV (Company Law = 1) THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) 1-43 ‘THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) 44-94 jor secorems cownencrs (REGULATION) RULES 1957 95-117 UNIT-V (Company Law-11) THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (42 OF 1999) 118-159 THE COMPETITION ACT, 2062 (12 0F 2003) 160-228 BUSINESS PROCESS OUTSOURCING 229.234 LEGAL PROCESS OUTSOURCING 235-238 der Se Sri VenKATESwara UNIVERSITY Sruvents ARE ADVISED TO REFER ‘THIS INDEX / PAGE | NUMBERS ONLY’ ror THE PURPOSE.OF. EASY STUDY OF THEIR SYLLABUS. IMl SEMESTER - (PAPER III) INDEX S.No 7 ‘TOPICS P.NO UNIT 1 1.** MEANING OF COMPANY (Various theories of Corporate Personality; Creation and Extinction of company) ‘UNIT 2 FORMS OF CORPORATE AND NON - CORPORATE ORGANIZATIONS 2.** CORPORATIONS, PARTNERSHIPS AND OTHER ASSOCIATIONS OF PERSONS 3.* STATE CORPORATIONS (Government companies, Public Sector, Small Scale, Co ~ operative, Corporate and Join Sectors, Foreign Collaboratio: ° role functions and accountalS.NO 1 ‘TOPICS P.NO 4. et 7s gee oe COMPANIES AND THE RULE OF LAW (Their Civil and Criminal Liability, their ‘Esséitial Characteristics) ‘UNIT 3 FORMALITIES OF A COMPANY: LAW RELSTING TO COMPANIES (Public and Private companies Act, 1956) NEED OF COMPANY FOR DEVELOPMENT, (Formation of a company; Registration and Incorporation) MEMORANDUM OF ASSOCIATION © (Various clauses) ALTERATION THERE IN: DOCTRINE OF ULTRA VIRES. ARTICLES OF ASSOCIATION: (Binding force; Alteration; its relations with Memorandum of Association) 31 37 48 72 S.No 10.** uw 12.* 13." 14. 15." li ‘TOPICS DOCTRINE OF CONSTRUCTIVE NOTICE AND INDOOR MANAGEMENT, EXCEPTIONS PROSPECTUS, (Issue — contents- liability for misstatements - Statement in lieu of prospectiis) PROMOTERS - POSITION - DUTIES AND “ABILITIES ‘UNIT 4 SHAREHOLDERS AND DIRECTORS SHARES, GENERAL PRINCIPLES OF ALLOTMENT, STATUTORY RESTRICTIONS SHARE CERTIFICATE, ITS. OBJECTS AND, TRANSFER OF SHARE, (Restrictions on transfer, Procedure for transfer, refiisal of transfer, role of public financial institutions, relationship between transferor and transferee, isstie’ of shares at premium and discount) 78 122 116 138lii_- 16.** s+ 20.* ‘TOPICS P.NO SHAREHOLDER (Who can be and who cannot be a shareholder? Modes of becoming’a shareholder) 105 CALLS ON SHARES (SHORT NOTE) (Forfeiture and Surrender of Shares, up on Shares, Rights and Liabilities : of Shareholder) 131 SHARE CAPITAL (Kinds, Alteration and Reduction of share capital, further issue of capital) 95 CONVERSION OF LOANS AND DEBENTURES INTO CAPITAL, DUTIES OF COURT TO PROTECT THE INTERESTS OF CREDITORS AND SHAREHOLDERS 146 DIRECTOR'S POSITION 163 APPOINTMENT, QUALIFICATIONS, VACATION O? OFFICE, REMOVAL, RESIGNATION, 158 liii TOPICS P.NO nase 25.4" 26.* 27 280* POWERS AND DUTIES OF DIRECTORS 166 & 170 MEETING, REGISTERS, LOANS oe (Remuner: ns of directors, Role of Nominee Directors, Compensation for loss of office, Managing Directors and other managerial personnel} 175 UNIT 5 DIVIDENDS MEETINGS 181, 183,186,193 KINDS, PROCEDURE, VOTING 196 DIVIDENDS, PAYMENT CAPITALIZATION OF BONUS SHARES 212 AUDIT AND ACCOUNTS 206 ‘UNIT 6 DEBENTURES, BORROWING POWERS DEBENTURES (Meaning, need, Floating charge, Kinds of debentures, Shareholder and Debenture holder, Remedies of debenture holders) 146S.NO 29.44 + 30.* 31 33.* 34" liv ‘TOPICS PROTECTION OF MINORITY RIGHTS PREVENTION‘OF OPPRESSION | ~: (And who can apply?, when can he apply? powers of the court and of the Central Government?) BORROWING POWERS dhtiects of unauthorized borrowing chatges and mortgages, Loatis to other companies’ investments, contracts by companies) ‘UNIT 7 OTHER ALLIED ASPECTS PRIVATE COMPANIES (Nature, advantages conversion into public company) FOREIGN COMPANIES, (Government companies, Holding and Subsidiary Companies} INVESTIGATIONS, POWERS , Ww TOPICS RECONSTRUCTION AND AMALGAMATIONS, > DEFUNCT COMPANIES (SHORT NOT) * ‘UNIT 8 WINDING UP. ‘TYPES (By Court, Reasons, Grounds, who can apply? PROCEDURE POWERS OF LIQUIDATOR POWERS OF COURT CONSEQUENCES OF WINDING UP BY COURT ORDER ee VOLUNTARY WINDING UP BY MEMBERS: AND CREDITORS WINDING UP SUBJECT TO SUPERVISION OF COURT(SHORT NOTE) P.NO 236 =) (240,242 256 259 251 271 252 275wi _ S.NO ‘TOPICS P.NO 44, LIABILITY OF PAST MEMBERS(SHORT NOTE) 268 45. PAYMENT OF LIABILITIES PREFERENTIAL PAYMENTS (SHORT NOTE) 273 UNCLAIMED DIVIDENDS 212-8 & “47. WINDING UP OF UNREGISTERED COMPANY (SHORT NoTE) 207 UNIT 9. LAW AND MULTINATIONAL COMPANIES: 48. COLLABORATION (Agreements for technology transfer Control and regulation of forcign companies, taxation of foreign companies, share capital in such companies) 24 UNIT 10 49, LAW REFORMS 282 ee SG a wii AN OUTLINE TO COMPANY LAW .. The subject of Company Law is divided into seven. parts. The various topics are drrariged coherently ih the © above parts. This enable a student to understand the subject clearly. Part I deals with the Introductory chapters like Nature of a company, kinds of companics and their classifications. The definition of a company and the various characteristics of a company are given in the first chapter to understand clearly the meaning of a company. The difference between a company and partnership is also given. Chapter 1-A deals with National Company Law Tribunal and Appellate Tribunal which were introduced by the Amendment Act 2002 in the place of Company Court (High Court) and Company Law Board. ‘The second chapter deals with the various kinds of companies, and the third chapter exclusively deals with the provisions regarding public and private company and the conversion of one to the other. Part If deals with Incorporation of a company. ‘The fourth chapter gives the procedure for Incorporation of a company, effects of its registration, and duties and liabilities of a promoter. The Memorandum of Association is the fundamental document of a company.iii The fifth chapter discusses the purpose of Memorandum of Association, its contents and the procedure of its alteration. The Articles of Association are the regulations or the.laws which control the ‘internatorganization and’ cofdict ‘of*a*éompany’ ‘The various clauses of the Articles, their alterations, and the difference between the Memorandum and Articles are given in the Sixth chapter. ‘The- Memorandum of Association and Articles of Associalion are termed as public documents and any alteration in the documents can be made only after due information to third parties. Third parties are:not affected by the irregularity in the internal management of the company. This rule is called the Doctrine of Indoor management. : This is explained ini the seventh chapter. The eighth chapter deals with the doctrine of ultra vires. The object clause of the Memorandiim defines the territory beyond which a.company cannot act. Such a provision is called “ the doctrine of ultra virus”. The chapter also deals with the effect_of such ultra virus transaction and exceptions to the Doctrine of ultra vires. Part III deals with Raising the capital of a company. The nineth chapter describes the concept of “prospectus” of a company. Prospectus is any document which invites offer from the public for subscription or purchase of any shares or debentures of the company. dix Only a public company is entitled to issue a prospectus. The provisions regarding contents of the prospectus, liabilities for misstatements in a prospectus (civil and criminal) are detailed in this chapter. Chapter 9-A deals with Brokerage Commission for the brokers who sell the company shares to the subscribers. Share capital means the capital raised by a company by the issue of shares. The types of capital, share capital, alteration and reduction of share capital are all discussed in the tenth chapter. Part IV deals with the shareholders of a company, allotment of shares, transfer and transmission of shares, The eleventh chapter deals with differences between members and. shareholders of a company, and who can become members of a comipany, their qualification shares, etc. ‘The types of shares are explained in the twelfth chapter. The first allotment of shares, and subsequent allotment of shares are explained in the Thirteenth (A) chapter, Allotment isa division of the entire share capital into definite shares, each of particular value and of different classes. The thirteenth (B) chapter deals with “calls on. shares” and “forfeiture of shares”. A call is a demand by the company on its sharé holders to pay the whole or part of the balance remaining unpaid on each share. This chapter gives the meaiting and essentials of a validx call, the meaning of share certificate, and the difference between. share ‘certificate and share warrant. The shares are freely transferable, unless there’ sis a restriction .on“théir ‘transfer ‘in’ theArticles of” Association. They aré like movable property transferable in the manner prescribed in the Act. All the provisions regarding transfer of shares, powers of Directors to reject a transfer, forged and blank transfers are explained in the Fourteenth Chapter. On the death or insolvency of an individual member or if the member is a limited Company, on its going into liquidation, transmission of shares take place. The differences between transfer of shares and transmission of shares are also dealt in this chapter. Part V deals with Contracts, Borrowing loans and Investments of a Company. Gencrally.a Company requires huge loans for running its business and as such huge amount of loans is not possible from a single lender. It is split into several units and for each unit carrying a nominal value with floating charge on the assets of the Company, a document is made acknowledging the loans. It is called debenture. The definition, essentials, types of debentures, etc., are explained in detail in the fifteenth chapter. Ixi ‘The borrowing powers of a Co. and method of borrowing are discussed in the sixteenth chapter. Part VI deals with Management and Administration of a Company. 7 The Seventeenth Chapter from (A) to (E) deals with the appointment of Directors, their position, powers, duties and liabilities. Though the management of the Company is done. by the diréctors,, the final control of the actions of the Board is with the members. So the members must from time to time to ratify or express any disapproval.There are various types of meeting like General meetings, Class meetings, etc., chapters 18 (A) to (C) deal with the various meetings and the essentials of a valid meeting. The persons who are ini charge of the affairs of the Company are termed as Directors. They are collectively known as Board of Directors. : An Auditor is a servant of the shareholders and he examines the affairs of the Company on their behalf at the end of a year and gives a report. An Auditor is employed in order to make the subscribers know how their money is used by the company and the affairs of the company and the present value of their investments. Chapter nineteen gives the necessary qualification of an Auditor, his appointment, position, rights and duties.| | Axii Chapter 19-A deals with the dividends which are declared in the Annual General Meeting on the basis of profits carned by the company. . Chapter.twenty enumerates how an Inspector. appointed for investigating a. company’s affairs. Efficient functioning of the Company is possible only by constant checks on the wrongs and abuses of the Company officers powers. The procedure of appointment of an. Inspector, his powers, etc., aré given in this chapter. rnb Company’s Act contains provisions to protect. the interests of minority share holders on the principles of natural justice and fair play: These provisions are explained in detail in the chapter twenty one, Sometimes the majority may act. prejudicially as to affect the interests of the minority share holders. ‘The minority share trolders are provided ‘with remedies to prevent oppression and mismanagement of Company’s affairs. These provisions are detailed out in the chapter twenty two. : - Part VIL deals with Compromise, Arrangements and Reconstruction, Winding up of a Company, ete. Chapter twenty three (A) provides the provisions regarding Compromise (which is settlement of claims in a dispute) Arrangement (which includes Compromise and Re-organisation of Share Capital) and reconstruction (which means reconstitution-of company by transfer of i xlifi whole of its undertaking and property to a néw company) in detail. Amalgamation is combination of two or more companies or businesses of two or more Companies into one company or ii the control of one company. Chapter twenty three (B) exclusively gives the meaning of Amalgamation and the procedure of amalgamation of a Company. Lastly, Chapter twenty four’start the provisions regarding winding up of a-company. Winding up is the process’ by which the life of.the Company. is ended and its property is administered for the benefit of the creditors and shareholders. « There are three modes of winding up; which are explained in detail in the chapters twenty five and twenty six (A) & (B). In order to carry the’ proceedings of winding up, the High Court appoints the: Official Liquidator on the direction of the Central Government. The powers, duties & liabilities of the liquidator are contained in the Chapter twenty seven. ; Any person who is liable to contribute to the assets of the company during its winding up is called a Contributory. The persons liable as Contributory are listed in Chapter twenty eight. Consequences of winding up as to share holders, officers, creditors, servants and officers, etc. are dealt in Chapter twenty nine.Ixiv Chapter 30 deals with the winding up process subject to supervision of the Court and the advantages of the order-of supervision by the Court. The winding up of Insolvent. companies and unregistered. companies are dealt in-chapter 31-and.32, . mea The offences relating to Winding up of companies, punishable with fine and imprisonment are enumerated in the Chapter 33. Also: offence of falsificati on of books, maintenance of books, fraud by officers and fraudulent conduct of business are clearly dealt im|this chapter. ‘ Chapter 34. deals with the offences under the Companies Act 1956 in detail. It gives the provisions regarding as to who can give complaint éf offences, the offence of false statement, false evidence, wrongful withholding of property, etc. Chapter 35 deals with the Company Law Board which was established for better administration of Companies Act, but by the/Amendment Act, 2002, the Company Law Board has replaced by National Company Law Tribunal. With this, the study of Company Law ends. . QUESTIONS: “1. Discuss the nature of an incorporated company. Distinguish 1 COMPANY LAW PART I- INTRODUCTORY 1. NATURE OF A COMPANY OR CHARACTERISTICS OF A COMPANY - (MOST IMPORTANT) a Company from a Partnership. 2. “A Company on Incorporation acquires a personality of its own, separate and distinct from its members”. When is such personality disregarded? Substantiate your answer with decided cases. 3. a. “A joint stock company is an artificial person created by law with a perpetual succession and a common seal”. Explain. b. Discuss the characteristics of a company registered under the Company’s Act 4. Discuss the various-circumstances under which the corporate veil of a company is lifted. 5. Whatis Company? Distinguish a company registered under the companies Act from partnership ” & Joint stock company is an artificial person created by law with a perpetual succession and a common seal “- Do you agree with this definition of a company? 7. What are the advantages of incorporation of a Company? What consequences would flow if a large partnership is not registered ?2 8. Short Notes on : - a) Lifting the corporate veil. b) Perpetual Succession. ©) Salomon Vs. Salomon, SYNOPSIS: A. Introduction. B. Characteristics: 1. Independent Corporate Personality (or) Separate Legal Lifting the Corporate Veil . Formality and Expenses Company not a Citizen Limited Liability Perpetual Succession and a Common Seal Transferability of Shares Separate Property Capacity to sue and be sued |. Difference between Company and Partnership . Non-application of the Companies Act 1956 DORMAwHE ES A. INTRODUCTION : A company is defined as a voluntary association of persons formed for the purpose of some business for’ | benefit with the capital divisible into transferable shares, limited liability, a distinctive name, having a corporate body, a personality separate and distinct from its members, and a common seal. 3 The company’s definition put forth the following characteristic features: . Independent Corporate Personality. 2, Limited Liability. 3.:Perpetual Succession: _ : Transferable Shares. . Separate Property. . Capacity to sue and be sued. . Common Seal. . Minimum number of members. . Memorandum and. Articles of Association. B.CHARACTERISTICS : 1, Independent Corporate personality or Separate Legal Entity A company is a legal pétson. Once the company is registered under Companies Act, it becomes independent and distinct from its members. It gains a corporate personality. A member cannot be held liable-for the acts of the conipany even if he holds virtually the entire share capital. The above famous principle was laid down by the House of Lords in the leading case Salomon vs. Salomon Company Ltd. Salomon Vs. Salomon company Ltd : {one man company case} Salomon was a boot manufacturer. He incorporated @ company in the name of Salomon Company Limited. He transferred his personal business to the company. There were seven members all from his own family. The Company had an investment of 40000£. Salomon took 200008 shares of each and debentures for 10,0008.4 The company had debts of 17000€. The Company was wound up within one year and assets of the company were 6000£ for himself. The creditors contended, that the company had no independent existence and it was infact his own business..The House of Lords held. that Salumén ‘was entitled’ to get ‘the ‘whole assets of the company since he had fulfilled all the requirements for a valid company. The Principles of Separate Corporate Personality has many Important Consequences:- i, ‘The member of a company has no insurable interest in the property of the company. ii. Even when the member dies, the. company continues in existence. Only bis share vest in personal representatives and not the assets of the company. iii, The nationality of the company does not depend on. the nationality of the member. ‘The characteristics of separate corporate personality of a company was emphasised by Chief Justice Marshall of the U.S.A., and he defined a company ‘as person, artificial, invisible, intangible and existing ONLY IN THE EYES OF THE LAW’. E Lee Vs. Lee’s Air farmitig Co. Ltd., 1961 AC 12: Lee formed a company and he became its Managing Director. While he has been flying, he met with an air accident and died. His wife sued for compensation under Workmen’s Compensation Act for the death of her husband in an accident occurréd in the course of employment. The Court held that he could act both as a master (Managing! Director) and ‘as a servant (Flight operator) at the same time, because of the corporate personality of the company. i 5 Disadvantage of Incorporation: a. Lifting or Piercing the Corporate Veil: ‘According to the principle laid down in Salomon Vs. “Salomon, a company is a legal person distinct from its members. But if.the corporate personality is abused, the veil is lifted in order to see that corporate personality is not blatantly used as a cloak for fraud or improper conduct United States Vs. Milwaukes Refrigerator Transit Co: AS a general rule, a Corporation is a legal entity. But if it affects public convenience, justifies wrong, protects fraud or defends crime, the corporation is regarded only as an association of persons. ‘There are certain circumstances, when it becomes necessary to break through the corporate veil or crack the shell of corporate or its personality. In such cases, the court may disregard the corporate entity and-this is, known as “Lifting or piercing the corporate veil”: The following are the various cases in which the corporate veil will be lifted:- i.Protection of Revenue: Ifa company is used for tac evasion or to circumvent tax obligation, then the Court, sierces the corporate veil. If the resident of a company is ti for tax purpose, then the Couit will lift out where its Central management is. be determined veil and find In Re Sir Dinshaw Manekji Petit: The assessee transferred his investments to four private Companies which trdnsferred the income to D as a pretended loan. Held the Company formed by the assessce was purely a means of avoiding tax liability, and it did not carry on business.fi v. Company acting as agent or trustee of the share holders: 6 ii.Prevention of fraud or Misconduct: If the machinery of Incorporation appears to ‘have been used for some purpose of fraud like avoiding Jegal obligation or defrauding creditors, etc., then the legal personality of a epmpany ‘ay be disregarded. If a company is acting as an agent for its shareholders, they will be liable for the acts of the +. company.-There may'-be: an.express agreement, or it may be implied from the circumstances of the case. Jones Vs, Lipman : Lipman agreed to sell a land to Jones for £5,250, but afterwards changed his mind. To. avoid specific performance of the contract, he created a Company and sold the land to it. The Court ignored the transfer and ordered the land to be conveyed to Jones. A Government Company is not an agent of the state but it will be regarded as an agent of the state, if it performs governmental or sovereign and not merely commercial function. Company isa sham (dummy company) ft If the Company is a mere clock or sham to avoid individual responsibility, the Court shall lift the veil. vi.Determination of the character of a company (Whether it is enemy or not) When a person’s in defacto control of the affairs of a company are residents in an enemy country, then a company. may assume an enemy character. In-such a case, the Court disregards the corporate ‘fiction and declares it to be an enemy company. Dixie coal Mining & Mfg. Co Vs William: Ross operated a mining business of a Company just as his private business except that he used the corporate name. There were no share holder or Directors’ meeting and all acts were done by Rose in name of the Company. All personal liability of Ross was transferred to the company and at the same time the benefit and profit were kept for the sole use of Ross. So, Ross was individually held liable to. pay compensation‘ to the dependents of William who died by accident arising ot vii. Holding. subsidiary Company relationship: Generally a holding company dominates the activities of the subsidiary cor 1pany and ‘the latter acts like an agent of the parent company. In such a case, ~ of and in the course of his employment. 7 the parent company is liable for torts committed by the Gilford Meber Co., Ltd., q subsidiary company. Horne was a former employee of a company and | was subject to a covenant not to solicit its customers. viit.Public Interest: : ‘He formed a company to carry on a business; which if . : he had done pefsonally would be breach of the covenant. In public interest, the Court may examine the The Court held that the company was a device or character of a person in the company. Eg- determination. strategy to enable the defendant to breach the covenant of residence of a company for tax purposes, enemy status and hence ordered to wind up the business. + or jurisdiction.8 b.Formality and Expenses : If the company is made just as a formality and for the purpose of tax privilege, such formalities like registration, the validity of the company ete., ‘will be ignored by the Court: Bach Director js individyally liable, eventhough the company has followed all the formalities and procedure of registration ¢.Company not a citizen: A company cannot have the privilege of a citizen. It has no right:to vote or has‘no fundamental right. Though it has legal. gnitity it i$ not a natural person to avail these rights.(Wallace Vs. G.T. Commissioner) ‘Though a company’ has no citizenship, it can have nationality, domicile and residence R.C. Cooper Vs. Union of India: (Bank Nationalisation case} ‘The Supreme Court held that the petitioner who is a shareholder of a company can petition on behalf of the Company, where the legislative measures directly touch the Company. If his rights are impugned, the Court con entertain the petition under Articlé 32 of the Constituticn: Thus an individuals right is not lost if he is a shareholier of a Company. Bennet Colemann Vs. Union of India ‘The rights of shareholders as, citizens are not lost when they associate to form a company. . thei : 9 2.Limited Liability: The main advantage of a company is its limited liability. The members are liable only to the extent of shares in; the company, het ee Their personal properties are in no way liable for the debts of the Company. As justice Buckley observes the fantastic growth of the companies is mainly due to the limited liability of its members. It is both an encouragement for large capitals and increasing the wealth of the company. 3.Perpetual Succession and a Common Seal : An incorporated company never dies. What is death is unknown to it. Members may come and go but the Company goes on for ever. It enjoys legal immortality. It is created by law and so can be put to an end by a process of law. Even a hydrogen bomb cannot destroy a company. The death or insolvency of all the company members cannot end the life of the company. The river ‘Thames is still the same river though the parts which compose it are changing every instant 4.Transferability of Shares: The capital of a company is divitied into parts called “Shares”. These shares can be transferred very easily. It is just like a moveable property which can be sold in the open market. The transferable shares in the company make a special distinction from the partnership. It is a unique advantage of a company unaffecting its capital structure.10 5. Separate Property: ‘The company being a legal persort can own and enjoy separate property in its own name, No member can claim the ownership of a company’s properties. J.Walton observes that the property of the company is not the properly Gf the shareholder. It is ‘the™propérty of the company. Macaura Vs. Northern Assurance co. Ltd:- Macaura held all the shares in a Timber Company and was also a substantial creditor of the company. He insured the company’s timber in his own name and the timber wad destroyed by fire, The Insurance company was not liable to him as the Shareholder had no right to any item of property of the company. The property of the compariy is not the property of the shareholder: 6.Capacity to Sue and be sued: ‘The-compaiy can sue and be sued in its own name. It can sue its members, creditors, debtors and outsiders and vice versa." Exception to the Rule in Salomon’s case:- Under certain circumstances, the advantages of limited liability and distinct entity may not be permitted to be enjoyed. : “j. Falling of the number of members below the statutory minimum: if the number of members falls below 7 in case of public company an 2 in case of private company and after reduction in membership if the companycarries on business for more than 6 months, every member shall ! ll be jointly and severally liable to the creditors for the payment of the company’s debts. Even one member may be liable for the whole debt of the company. 2. If a company has been carried on with intention to defraud creditors of. the company, or afy:other. person, then on the. application of the Official Liquidator or the creditor or contributory of thé company, the Court may hold the parties personally liable 3. During investigation of a company, if it is necessary to investigate the holing or subsidiary company, then the Inspector has the power to. do so, eventhough in the eyes of law the holding and subsidiary companies are separate entities. 4. If an officer of a company enters into a contract or does any act without properly mentioning-name and address of its registered officer, then he will be held personally liable. Thus, if a bill of exchange, hundi, promissory tiote, cheque etc., are signed by an officer of the company without'the company’s name on it, he is personally-liable to the holder of the bill, note, etc. 7 5. “A holding company caf be ‘compelled to disclose the accounts of its subsidiaries to its shareholders. 6. Directors of private companies are personally liable for the tax liabilities of such private companies. Advantages of Iicorporation:- 7 Instead of carrying on business in partnership, there are many advantages in forming a company.2. 12. In the case of company, the liability of the members is limited, whereas in the case of partnership, the liability of all the members is unlimited and they are personally liable for the debts of their partnership busineds. In a company, the maximum number is not limited to” twenty as in partnership. For Private company, the number cannot exceed 50. For public limited Co. there is no limit at all of the number of members. Shares can be transferred from one company to another without consent of all the other members. But in pajtnership the consent of all the other partners, should bé sought for admission of a new partner. A company is‘not affected by the death or insolvency of a member, as it is a separate legal entity from its members. But a partnership is dissolved by death or insolvency of a partner. : As the shares of the partners are not freely transferable, the control of partnership cannot be acquired: on the other hand by acquiring the majority of the shares carrying the voting power, the control of a eompany can be secured. ‘The proprietor of a company can relieve “himself of the management retaining his control in the business; while it is not. possible in the case of partnership. Loans between'the members of a company and the company is possible without difficulty as the company is a separate legal entity, but in partnership business loans between the firm arid the partners pose problems as the firm is not separate from the partners. 12-4 Disadvantages of Incorporation: Though incorporation of a company has got many advantages, it has also got certain disadvantages. The following are the disadvantages: 1..Too much, formalities and high expenses: ate ‘The process of incorporation of a company involves a lot of formalities and the expenses to be incurred, unlike in other types of business concerns, are relatively high. 2. Strict Compliance of Provisions of Companies Act: After incorporation of a company, the company has to comply witht the provisions of Companies Act and other allied laws and rules made thereunder. 3. Lifting the Corporate Veil: Since the incorporated company enjoys advantages, such advantages will no longer be available, if such incorporation of the company is to be used for fraudulent and dishonest purposes. In such circumstances, the corporate veil is lifted and the members of the company are identified separately. (For further explanation, please Refer P.No.5) 4. Company. is not a Citizen: ‘Though a company, after incorporation becomes a legal person, it is not a citizen. ft can act only through natural persons (human beings). It cannot have the voting right in elections. 5. Higher Rate of Income Tax: 7 ‘The rates of taxation is higher for the corporate bodiés than the individual business persons and firms.12-B 6. Personal Liability of Directors & Members: ‘Though incorporation of the company makes the company as an independant personality with limited liability of sharcholders/merbers/directors, under the following eight circumstances, the directors/members aré personally liable. 1. Unrra vires Acts: ‘The directors of a company is personally liable for all those acts done by them on behalf of the company if’ they are ultra vires the company. n. Repuctiof or Memnessurr (Szorion 45): If, at any time, the number of members of a company falls below the.statutory minimum, i.e., seven in case of a public company. and two in the case of a private company, and if the company carries on businéss for more than six months while the number is so reduced, then every person who is a member. of that’ company during the ‘time the company so carries on business after those’ six-months and is aware of that fact, is pérsonally liable for the payment of company’s debts contracted during that time. i. MISREPRESENTATION IN Prospectus (SecTiox 62}: In case of misrepresentation in the prospectus of a company; every director; promoter, and every:other person who authorises issue of stich prospectus, incurs liability towards those who subscribe for shares on the faith of untrue statement. 4 1. Faure To Return Arruicanow Money {(Srcrion“69(5)]: athe 'Sompany has ‘not repaid within’ 130 days in the everit oF minimum ‘substiiption:not having beer } 12-C received or ‘the company not having obtained certificate of commencement of business, then the director of a public company personally liable to pay the money with interest. V.,MISDESCRIPTION OF waMe (Spetion 147}: . = If any officer of a company signs on behalf of the company: any contract, bill: of exchange, hundi, promissory note, cheque or an order for money goods, such person is personally liable to the holder if the name of the company is not fully or properly mentioned in the instrument. vi. Sunswiagy Company (Secrio#s 212 anv 214): A holding cémpany has to disclose to its members, the accounts of its ‘subsidiaries. Though as per law, a subsidiary company is a separate legal entity, under certain circumstances, the court may-not treat. the subsidiary company as an independent entity. vu. FRAUDULENT CoxpUCT oF BUSINESS (SECTION 542): During winding up of a company, if it appears that any business of the company has been carried on with intent to. defraud creditors of the company, then those who were knowingly parties to such conduct of business are personally liable without any limitation as to liability of the debts of the company. vin. Now-pavaten oF TAX: In the event of winding up of a private company, if any tax assessed on the company cannot be recovered, every person who was director of that company at any time during the relevant previous year, is jointly and severally liable for payment of tax.13 C.DIFFERENCE BETWEEN COMPANY AND PARTNERSHIP : Company PARTNERSHIP 1. ‘A company isa group.of 1. A partnership is the persons’ associated relation“ “bétween together for the persons who have attainment of common, agreed’ to share the end, social or economic. _ profits of a business carried on by all or any of them, acting for ail. 2. A company must be 2. Partnership need not compulsbrily registered necessarily be under Company's Act registered. It is 1956.It is governed by . governed by. Indian Indian Companies Act Partnership Act 1932. 1956. 3. It is a legal body having 3. A firm is not a distinct Icgal status and distinct. _ person but made up of personality. partners who compose it. 4. The liability of the 4. The liability of each members is limited and _/ partner is. both joint the contributed amount , and several and is alone is liable to be unlimited. Even the attached for company’s _privaté properties are debts and liabilities. attached towards firm’s debts and liabilities. 5. The. shares of “the 5. The share of a partner company are freely cannot. be transferred transferablé.The consent without the consent of of other share holders is other partners. not necessary. . 10. ‘The share holder is not an agent of the company. ‘The company’s. powers are managed by Directors or Managing Directors or Managers. The company’s powers are limited by the object clause of the Memorandum of Association. A member of a company can enter irito contract with the company. The winding up of a company does. not make the share holders insolvent. Maximum number ‘of shareholders in a private company is 50, but fora public company there is no. limit. 14 6. Each partner is both an agent and principal of the firm. 7. Every partner may take part in the management of the firm. 8. Partnership activities can be unlimited if all the partners consent to it. A partner cannot enter into contract with the firm. 9. The insolvency of the firm means insolvency of all the partners. 10.The maximum number of partners in banking business is 10 and in any other business is 20.\L.A- company has perpetual succession. Even the death of all members cannot destroy it 12.The members’ of ‘a company are not personally liable for its contracts, debts or wrongs done by it. 13.The property of a company belongs to the company and not to individual members or shareholders. 14.If a company owes debt to any member he can claitn payment out of its assets when it is wound up rateably with its other creditors 15.In the company, arrangement between members | are not allowed. 11 12 13. 14. The’ partnership is terminated by déath or insolvency of a partner. In the case of a partnership at will, it-can be ‘terminated at any time. Here, the partners are liable Here the. property is the joint property. of the partners who are collectively entitled to it. Here, if the member is owed debt by the firm, he. cannot . prove against firm’s assets in competition with its other creditors. In partnership, any private arrangement among themselves may be made 16 D. NON APPLICATION OF THE COMPANIES ACT 1956: The Companies Act 1956 does not apply to the following Corporation, Companies, ete. :- 1.Chartered Corporatjon:- “Created by a’Royal’ Charter ér Letters Patent, E.g., East India company, Bank of England, British Broad Casting Corporation, etc. 2.Statutory Corporation:- Incorporated’ by Acts of Legislature, E.g. Reserve Bank of India, The State Bank of India, the Damodar valley ‘Corporation, the. Industrial Finance Corporation,etc. 3.Trade Unions: Associations for regulating relationship between workmen and employers or between workmen and workmen or between employers and employer.They are registered. under the: Trade Unions Act. 4. Co- Operative Society:- Formed under and ‘regulated by the Co-operative societies Act 1912.” 5.Partnershi, Formed by agreement between 2 or more persons to conduct business and share the proceeds. It is governed by’ the Indian Partnership Act 1932. 6.Registered Societies: Registered under the Societies registration Act 1860 and formed for charitable purpose, for promotion of science, literature or fine arts.7 7.Unincorporated companies: They are considered as large partnership and constituted by contract. 8.Clubs: association for gain. The members keep on changing. 9. Illegal Association (Sec 11) ; Any Association or partnership or company consisting of more than 10 persons in the case of banking business and more than 20 persons in the case of any other business mst be compulsorily registered under the Company’s Akt. If it is not so registered, it will be deemed to be an illegal association. However, a H.J.F. business is an exception. The object of compulsory. registration is to prohibit the formation of large numbers of the unincorporated associations or groups and to prevent mischief or cheating by such groups or associations. However, any association formed for the purpose: of promotion of art, charity, religion, science ete., and not for commercial purposes or for profit, need not be registered even if the number of members exceeds 20. Every member of an illegal’ association is liable for all the: liabilities of association or partnership or group. He is also punishable with fine extending up to Rs.1000/- The illegal association cannot enter into any contract. It cannot also sue its member or outsiders. Similarly outsiders cannot also sue the debt uncured by such association. The provisions of Company’s Act are not applicable to illegal association and so it cannot be wound up as. per the provisions of Company's Act. ek They die néither ‘Comipanies nor partnerships’ but. 17-A 1:A. NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL ‘The Companies (Second Amendment) Act, 2002 provides’ for thé establishment of National Company-Law Tribunal (NCLT} termed - the’ ‘Tribunal’ and the ‘Appellate Tribunal’, ‘The ‘Tribunal’ deals with all mattcrs which were earlier dealt with by the Company Courter by the Company Law Board. ‘The ‘Appellate Tribunal’ (National Company Law Appellate Tribunal, i.c., NCLAT) has been established to deal with appeals filed by the.persons aggrieved by the orders of the Tribunal. The appeals against the decisions of the Appellate Tribunal lies to the Supreme Court ‘Thus, the High Court has been deprived of its jurisdiction by this Amendment Act of 2002. So, all the pending matters with the High Court will now be transferred to the Tribunal. In respect of Sick Industrial Companies,“the powers which were exercised by the BIFR, ie., the Board for Industrial and Financial Reconstruction will be exercised by the Tribunal. Since the Company Law Board has been abolished, the matters pending with the Company Law Board are now transferred to the Tribunal. Orders already passed by the Company Law Board could be enforced by the High Court.17-B 7 For all matters falling within the jurisdiction of tribunal, the jurisdiction of Civil Courts are barred. The Tribunal is headed by the President of the rank of High Court Judge and other judicial and technical” miembérs not éxctéding sixty ‘two int number. The term of the President and members are three years. The Tribunal can have benches and there can be a single member bench . The; orders of the tribunal can be reviewed within two years lfrom the date of passing the order. The appeal lies to the appellate tribunal within forty five days from the date of receipt of copy of the order. ‘The Appellate Tribunal is headed by a chair person of the rank of the Judge of the Supreme Court or the Chief Justice of High Court. The Chair person and the members hold the office for three years. Further appeal from the order of the appellate tribunal oh question of law t to the Supreme Court within sixty days from the date of communication of the order. 18 2. KINDS OF COMPANIES : OR : CLASSIFICATION OF COMPANIES QUESTION: 1! Unide? What Circuinstarteds. the felationship'of holding ~ - Company and Subsidiary Company will be established * between two Companies ? a. What are the different kinds of companies that can be incorporated under the Act?.b.Describe the procedure to be followed for the formation of a company. (For answer for 2(b) pl: Refer Chapter No. 4) SYNOPSIS : , A. Incorporated Companies. . B. Unincorporated Companies. a C. Types. of Incorporated companies. 1. Chartered Company. 2.. Statutory Company. 3. Registered Company. D. Type of Registered Companies. 1. Company Limited by shares. 2. Company Limited by guarantee. 3. Unlimited Company. BS —. Government: Companies. © F. Foreign Companies. G. Holding and Subsidiary Company. * H. Finance Companies | I. Private and Pul Company. J. Defunct Companies19 Companies are classified into various kinds as shown. below: Companies Incorporated Unincorporated Incorporated Chartered + Statutory Registered Company | Company Company Registered (Company Existing Company before Companies Act 1956. Newly formed Company Under Companies Act 1956. Company limited Company limited Unlimited by shares. by Guarantee. Company. Public Private Public Private Public private Co, Co., Co, Co., Co., Co. A. INCORPORATED COMPANIE:! It is one which.is. formed for carrying on business arid incorporated under Companies Act 1956, or a Companies Acts before that. 20 It includes all kinds of Companies. In addition to all the above kinds, the following are also recognised: 1. Foreign Companies. 2. Government Companies. 3. Existing Companies. . UNINCORPORATED COMPANIES: ‘These are large partnerships. They are not distinct entities separate from the members. Shares are transferable but liability of members is unlimited. They continue even after the death or insolvency of a member. Management is done by a sclect body of directors to the exclusion of members. ©. TYPE OF INCORPORATED COMPANIES 1.Chartered Company : ‘The Companies incorporated by a special charter granted by the Crown of England is called Charted Companies. Such companies are governed by the provisions of its charter which defined the nature, constitution, functions and objects of the company. Such companies existed in India before independence. For eg. East India Company, 'the Bank of England21 2. Statutory Company: The companies credited by special Acts of the parliament of India are called statutory companies. Such companies are mostly concerned with public utility -services. The companies aré regulated by the spécial Acts which created them. . However, the provisions of Companies Act would also apply to them in so far as they are consistent with the provision of Spécial Acts. Eg. Reserve Bank of India, Railways, ‘ramways, Gas and Electric’ Company, ete. 3. Registered Company : The Companies formed and registered under Companies Act, 1956 or earlier Companies act are termed registered companies. All associations consisting of more than 10 members in the case of banking business and 20 members in the case of any other business must be compulsorily registered under the Companies: Act. Otherwise they are termed as illegal associations. D. TYPES OF REGISTERED COMPANIES: 1, Company Limited by shares: When the liability of the members of the company is limited by the amount of unpaid shares, then such 22 company is known as a company limited by shares. It may be a public company or private company. The companies of these are the most common ones. 2. Company Limited by Guarantee: When the liability of a company is limited to an amount as the members undertake to pay in case of winding up, then such company is called company limited by guarantee. It may or may not have share capital. If it has share capital, it may be public or private company. If it has share capital, the liability of the members arises only when the company gets. into winding up. Such companies are generally called for the promotions of art, science, culture, sports etc., Foreign Indian Chamber of Commerce, Indian Institute of Chartered Accountants, Indian Institute of Company secretaryship, ete. If the Company is wound / up, every member should contribute towards: i) Payment of liability“of company contracted before he ceases to be a member. ii) Costs of winding up. iii) For adjustment of rights of the contributories among themselves.23 3. Unlimited Company A company formed by 7 or more members without __ limited liability, is knowp as Unlimited liability, There is. no limit on the liability of its members. Individual liability is in proportion to his intezest in the company. Tt may or may not have share capital. If it has share capital, it- may be a-public br private company. It must have -its oyn Arti¢les of Association. It must state the number of members with which the company is to be registered. A If the company has a Share Capital, the Articles must also state the amount of Share Capital with which the company is to be registered. : The disadvantage of an unlimited company is that its members are liable, like the partners of a firm, for all its trade debts without any limit. ‘There are certain advatnages also for unlimited company. For example, an unlimited company need not have any share capital. And if it has, it may increase or reduce its capital without any restriction. It may purchase its own shares. An unlimited company can gét itself re- registered as a limited liability company. 24 E. GOVERNMENT COMPANIES : If, in any company more than 51% of the paid up shae Capital is held by the Central or State Government or partly by the Central Governnient and partly-by orie“or more State Governments, then it is called a Government Company. The subsidiary of a Government Company is also a Government Company. Rules : 1. The Auditor for a Government Company shall be appointed by the Central Government on the advice of the Comptroller’ and Auditor General of India. ‘The Comptroller and Auditor General may direct the manner in which the company’s accounts shall be audited. 2 The auditor of Government Company should submit a copy of his audit report to the Comptroller and Auditor General of India. 3 If the Central Government’ is a member of a Government Company, an annual report on the working and affairs of the company is to be prepared within 3 months of its Annual General Meeting and before which the audit report is placed. ‘The report shall be submitted to both the Houses of-Parliament together with a copy of the audit report.25 4 The Central Government may, by notification in the Official Gazette, direct that any of the provisions of the Companies Act shall not apply to any Government Company, or Apply to any’Government Company with exceptions and modifications. The Government Company is a distinct entity and not an agent of Government. F, FOREIGN COMPANIES: Companies iricorporated outside India, after 1 April 1956 but having a place of business within India or Companies registered before 1% April 1956 outside India having a place of business within India and continued to have the same place of business within India on 1 April 1956 are termed foreign companies. If atleast 51% of the paidjup shares of guch foreign companies are held’by one or more citizens of India or one or more corporate bodies registered in India, then the provision of Company’s Act would apply to them as if they were registered in India. “ There are special provisions in the Companies Act regarding foreign company under Secs. 592 to 602. _ 26 Requirements of a Foreign Company : 1, Documents :. : - Every foreigri- company: establishing a place “of business. in India after April 1, 1956, must file with the Registrar at New Delhi and the State for registration within 30 days of the establishment of such business, the. following documents: a) A certificated copy of the Charter, statutes or Memorandum and Articles of the Company and translations of the documents if they are’ not in English. : b) List of Directors and Secretary of the company. ¢) Full address of the Registered or Principal office of the company. d) The names and addresses of any person or persons resident in India authorised. to accept ‘service of processes and notices on behalf of the company. 2. Name :- A foreign company must exhibit outside every office, the name of the Company and the country where it is incorporated, in English and local language. Also bill heads, letter pads, etc., should bear the name of the Company.27 3. Accounts: ‘The provisions relating to books of account are the same as any other company. The books of account should “be atthe principal office and-cépies ofeach should ‘be . delivered to the Registrar and also a list of all places of business in India. 4, Registration of charges: The prqvisions relating to registration of charges will also apply td foreign companies in respect of charges on property created in India., 5. Prospectus: The provisions relating to Prospectus of foreign companies are same of that of companies incorporated in India. The following particulars, should be mentioned in the prospectus: a) Instrument constituting or defining its constitution date and country of incorporation and the law under which it was incorporated abroad. b) Name of the Company in English and XN 28 ¢) The country in which it is incorporated . d) The liability of the members whether limited or unlimited. 6. Winding up : The provisions relating to winding up are the same _ as the provisions regarding winding up by any unregistered company. G. HOLDING AND SUBSIDIARY COMPANY: ‘The term ‘holding and subsidiary companies’ are correlative. The company is deemed to be the holding company of another if that other company is subsidiary. A company is deemed to be subsidiary company if it satisfies any one of the following conditions. 1. If the composition of the Board of Directors is controlled by another company, then the former company is subsidiary company and ‘the latter one is holding company. 2. If half of the nominal value of the equity’share capital of a company is held by another company, the other company is a holding company and the former company is subsidiary.29 3. Ifa company is a subsidiary of another company which itself is a subsidiary company to a third company, then the first company is a subsidiary company of the third company. A subsidiary company has a separate legal entity having separate seal with a separate corporate veil. Control of the composition of Board of Directors of a company means that the holding company has power to appoint or{ remove all or majority of Directors of the subsidiary company without any other person’s consent. ‘An Indian private company which is a subsidiary of a foreign company is treated at par with a private company which is a subsidiary of an Indian public company. In determining whether a company is a subsidiary of another, shares held or power exercisable in the following cases shall not be regarded: 1) Any shares held in a fiduciary capacity or powers exercisable in a fiduciary capacity. 2) Any shares held or power exercisable by any person as a nominee for the company. 3) Any shares held or powers exercisable by any person by virtue of the provision of any debentures or of trust 30 deed for securing any issue of such debentures of the other company. Holding’ company and its subsidiaries are Separate “<[' \ “Tegal entities and have separate cotPorate veil. Hi. FINANCE COMPANIES : A “Finance Company” means a non- banking company, which is a financial institution as per Section 45(1) (c) of the Reserve Bank of India Act, 1934. A finaricial institution is a non banking institution, which carries on any of the following activities. i. The financing, whether by way of making loans or ativances or otherwise, or any activity other than its own. 7 ii. The acquisition of shares, stocks, bonds, debentures, or securities issued by a Government or a local authority or other marketable securities of similar nature. ; . ili. The letter or delivery of any goods to a hirer under a hire-purchase agreement as defined in Section 2(c) of the Hire-Purchase Act,1972. iv. Carrying on any class of insurance business.: 30-A v. Managing, conducting or supervising agency of chits or kuries etc. under the Jaw for the time being in force. vi. Collecting monéy in lump-sum or otherwise, by way of subscription or by sale of units or other instruments or awarding prizes, ‘gifts, whether ‘in cash of, kind or disbursing money ini any other form to persons from whom money is collected or to-any other person. ‘The dastidition carrying on following activities! are, however, ‘riot included within the definition of financial institution’ under the Act: a. An industrial concérn as defined in Section 2(c) of the Industrial Development Bank of India Act, 1964. ’. An institution carrying on activities of agricultural operations, or purchase or sale of any: gocds(other than securities) or: providing-any services, or purchase, sale or construction: of imimoveable property. Section 4-A of the Companies Act, 1956 states that * thefollowing institution shall be regarded as ‘Public Finance: Institutions’, : i. ‘The industrial Credit and Investment Corporation of India; 30-B ii. The Industrial Finance corporation of India; iii, The Industrial Development Bank of. India; iv. The Life Insurance Corporation of India; v.. The Unit Trust of India vi. Infrastructure Development Finance Company Ltd. I. PRIVATE AND PUBLIC COMPANY: PI. Refer Chapter No, 3- (Public and Private Company) J. DEFUNCT COMPANIES : Defunct company is a company which is not carrying on business of which is not in operation. Sec. 260 provides that if the Registrar has reaso 1able cause to believe that a company ‘has become defun >t, he can send a letter to enquire whether the company carries on business or not. . If the Registrar does not receive any reply within one month, he must send a second letter within 14 days of the expiry of such one month. In the second letter, the Registrar * must state that if no reply is sent within one month, the company’s name will be struck off from the register.30-C If he receives no reply or receives a reply stating that the company is not carrying on the business, the Registrar may inform the company that its name will be struck off from the register at the expiration of 3 months from thé date of‘notice. Peet wee Even though the company stands dissolved, the liability of Director, Manager and other officials continue and may be enforced as if the company has not been dissolved/ If the company or ‘any member or Creditor of the company is aggrieved by the striking off from the register by the Registrar, he may apply to the Court within 29 days to restore the name in the register. If the Court is satisfied that the company was carrying on business at the time of the striking off, it would give directions to restore its name in the register of companies. The restoration operates retrospectively. 31 3.PRIVATE COMPANY AND PUBLIC COMPANY (Important) QUESTIONS: H 1. What are the characteristics of Private Company and special privileges of a Private Company? 2. What is a Private Company? How can a Private ‘Company becomes a Public Company? SYNOPSIS: A. Introduction B. Difference between a Private Company and’ Public Company : C. Special Privileges to Independent Private Companies {including Subsidiary of a Public Company) D. Special Privileges to an Independent Private Company E. Conversion of Private Company into a Public Company F. Conversion of Public Company into a Private Company A.ANTRODUCTION: According to Sec. 3 iii), as amended by the Companies (Amendment) Act, 2000, a ‘Private Company’ mcans a company - i. which has a minimum paid up capital of one lakh rupees or such higher paid up capital as prescribed and31-A by its articles - a. restricts its right to transfer its shares, _. bi limits the numer. of members. to fifty (excluding persons have been in the employmenit of the Company) If two or moié*personé hold to two or more shares in a company jointly, then they are treated as a single member. ¢. prohibitg any invitation to the public to any shares in or deberjtures of the company, and | d. prohibits any invitation’ or acceptance of deposits from persons, other than its members, directors or their relatives The above tequirements were introduced by the Companies (Amendment) Act, 2000. ‘The term ‘Public’ in thé definition includes any section of public whether members or debenture holders of the _company. 7 But if the offer is a domestic concern of the persons making and receiving it, then such person making and ing it, then such persons do not constitute public. rec In Booth Vs. New Afrikander Gold Mining Company Ltd. It was held that the offer by the Liquidator of a company inviting subscription of shares was not an offer “to the public. 32 . DIFFERENCE BETWEEN PRIVATE COMPANY AND PUBLIC COMPANY: Private Company Public Company . The minimum umber | “1: "The minimum humber of persons required to form a private company is two. of persons required to form public company is seven. . The maximum number 2. No, restriction in should not exceed 50 in a biiate ‘company. maximum number of members. | A private company 3. A. Public Company must have atleast two must have atleast Directors. three Directors. . In the.case of a private 4, In’a Public Company company;the Directors need not file with the the Directors: must file with the Registrar a consent to act as Directors of to sign the Memorandum. of Association. Registrar a consent to act. as Directors or entering into any contract or Association. . A private company is 5. A “Public Company prohibited from inviting invites subscription to any subscription to take shares or take shares or debentures from. the debentures from the. public. public.3. . The right to-transfer 33 6. In a public Company, shares are transferable. share by a shareholder can be restricted by freely “Articles of Association - ina private Coiiipaliy. ” - A private company 7. A public company does enjoys some ‘special not enjoy such privileges privileges. A privafe company may 8. In a Public Company, give any sum of money’ total as remuneration to remuneration cannot Managers and, its exceed 11% of the net Directors, profits. managerial SPECIAL PRIVILEGES TO ALL THE PRIVATE COMPANIES: (including Subsidiary of a Public Company) Two members are sufficient to constitute a private company. . The private company can commence the allotment of shares even before the subscription of minimum shares. It may allot shares without issuing a prospectus or delivery to the Registrar a statement in lieu of prospectus. 34 - 4. A private company may issue any kind of shares as it thinks fit. 5. It can commence its business immediately after its incorporation. 6~.[t need not keep an index of its members. 7. Even two Directors are sufficient for constituting a privaté company 8. The rules regafding Directors are liberal in private companies. 9. A private company is not prohibited from purchasing its own shares in the company. 10.It need not offer new shares to the holders of equity shares, 1LA transferor or transferee of shares in a private company has no right of appeal to Central Government against refusal by company to register transfer of its shares. 12.The provisions for several meetings can be made by Articles of Association. It need not hold statutory meeting .or file with the Registrar, a statutory Report 13.Only members. 6f the private company can inspect or obtain the copies of profits and loss accounts, the balance sheet, etc. D. SPECIAL PRIVILEGES TO. AN INDEPENDENT PRIVATE COMPANY: An independent Private Company has the following privileges:- 1. It can give financial assistance for the purchase of or subscription for shares in the company itself, 2. It need not offer new shares to the holders of the equity shares of the company.