FACULTY OF COMMERCE

2024 – 25

SEMESTER 6

SUBJECT: Advanced Company Law and Practices

Unit-1: COMPANY FORMATION AND CONVERSION

COMPILED BY

DR. AASHAL BHATT CA CS DR. DEVARSH GANDHI

STUDY MATERIAL FOR REFERENCE ONLY

 SUBJECT: ADVANCED COMPANY LAW AND PRACTICE
UNIT 1 COMPANY LAW – COMPANY FORMATION AND CONVERSION

INDEX:
SR. NO. TOPICS
1 FORMATION – INTRODUCTION OF A COMPANY
2 CHARACTERISTICS OF A COMPANY
3 CLASSIFICATION OF COMPANIES
4 MEMORANDUM OF ASSOCIATION (MOA) AND ARTICLES OF
ASSOCIATION (AOA)
5 DOCTRINE OF ULTRA VIRES
6 DOCTRINE OF INDOOR MANAGEMENT
7 PROSPECTUS
8 RED HERRING PROSPECTUS
9 SHELF PROSPECTUS
10 PRIVATE OFFER AND PUBLIC PLACEMENT
11 LEGAL PROVISIONS OF CONVERSION OF A COMPANY
12 LONG QUESTIONS
13 SHORT QUESTIONS
14 MULTIPLE CHOICE QUESTIONS

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INDIAN COMPANIES ACT – FORMATION OF A COMPANY
INTRODUCTION TO COMPANY

• Originally AOP- Association of Persons who took their meals together. During such
gatherings they used to discuss business problems and arrive at feasible solutions
Over a period of time they realized business decisions taken as a group were more
effective. Hence the concept of Company was born.

• The word Company is derived from a latin expression,

• COM – TOGETHER
• PANI - BREAD

COMPANY
Definition of a company
According to LORD JUSTICE LINDLEY,
A company means
❖ An association of many persons
❖ Who contribute money or money’s worth
❖ To a common stock
❖ And employ it for a common purpose
❖ And share profits or losses arising therefrom.

CHARACTERISTICS OF COMPANY

SEPARATE LEGAL ENTITY

ARTIFICIAL PERSON

COMPULSORY INCORPORATION

SEPARATE PROPERTY

COMMON SEAL

PERPETUAL SUCCESSION

SEPARATE MANAGEMENT

TRANSFERABILITY OF SHARES

DIFFUSION OF OWNERSHIP

NUMBER OF MEMBERS

VOTING RIGHTS

TAX LIABILITY

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SEPARATE LEGAL ENTITY

A company has an individual corporate legal existence. Company and its members are
separate. The property of the company and that of the members are separate. Suits (cases)
are filed in its own name

ARTIFICIAL PERSON

A company is a juristic person. It has a domicile but it is not treated as a citizen. It is a

creation of law, an artificial person, it has no soul, no body, no conscience. It can sue and be
sued in its own name

COMPULSORY INCORPORATION

It must be incorporated or registered under the Companies Act. Company takes birth due to
law and comes to an end by the procedure of law. It comes into existence when ROC –
registrar of companies enters its name in the register and issue a certificate of incorporation

SEPARATE PROPERTY

As a company is a legal person distinct from its members it is capable of owning, enjoying
and disposing of property in its own name. Although its capital and assets are contributed
by its shareholders, they are not the private and joint owners of its property. The company
is the real person in which all its property is vested and by which it is controlled, managed
and disposed of.

COMMON SEAL

Company being an artificial person has to work through the agency of human beings such as
directors, managers and employees. So it cannot sign documents for itself. Official signature
of the company. Ofcourse signatures of 2 directors as witnesses are necessary in addition to
the common seal. The seal is affixed on the contracts, share certificates, documents and day
to day transactions of the company

PERPETUAL EXISTENCE (OR SUCCESSION)

Member may come and go but the company can go on forever. It continues to exist even if
all its members are dead. The existence of company can be terminated only by law. Ex. All
members of a private company were killed by a bomb while in a general meeting held, the
company continues to exist through the legal heirs of the deceased parties or member.

SEPARATE MANAGEMENT

Company is the only form of business organization where ownership and management are
in two different hands. Shareholders are the people who own and board of directors are the
people who manage.

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TRANSFERABILITY OF SHARES

A share of a company is a movable property and can be transferable. A member can enjoy a
statutory right to sell his shares and get them transferred in the name of the buyer. Shares
are the liquid asset and can be readily converted into cash. Transferability is subject to the
provisions of company law and its articles of association. However, in private company there
are certain restrictions on transferability of shares.

LIMITED LIABILITY

In case of the company limited by shares, the liability of the shareholders is limited upto the
extent of face value of shares. In case where the company goes into winding up and the
shares are fully paid up the shareholder doesn’t have any liability but where the shares are
partly paid up the shareholders liability will be upto the unpaid value of shares.
In case of the company limited by guarantee, the liability of the shareholder will be limited
upto the guaranteed amount agreed upon.

DIFFUSION OF OWNERSHIP

Total capital of a company is divided into small portions / units known as shares.
Private company - Finance is contributed through mutual agreement by members
Public company - Collects capital from general public by the sale of shares. Ownership of the
company is in the hands of a large number of people called shareholders

NUMBER OF MEMBERS

Private company - minimum – 2 and maximum – 200

Public company - minimum – 7 and maximum – no limit
OPC - one person company - only one member

VOTING RIGHTS

Voting right depends on number of shares.

The members of company can vote as per number of shares they hold.
If they hold more share, they can exercise more control over the management.

TAX LIABILITY

In comparison to sole proprietorship and partnership tax liability is very low in case of a
company. Also, there are tax-related incentives as well.

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 CLASSIFICATION OF COMPANIES

MODE OF INCORPORATION

STATUTORY COMPANY
▪ It is incorporated under special act of the parliament or the state legislature
▪ This companies are intended to carry on some business of national importance
▪ Ex: RBI, SBI, Food Incorporation of India, UTI
▪ Powers of such companies are defined by the Acts constitution them

INCORPORATED OR REGISTERED COMPANY

▪ A company registered under companies act
▪ All existing companies except statutory companies are incorporated company
▪ However some companies are governed by the provisions of their special act
▪ Ex: insurance companies – Insurance Act,1938; IRDA act, 1999; Banking Regulation
Act,1949
▪ Electricity companies – Electricity Act, 2003
▪ Provisions of Companies Act are applicable to limited extent only.

NUMBER OF MEMBERS / TRANSFERABILITY OF SHARES

PRIVATE COMPANY

▪ A company must specify following conditions:

▪ There is restriction on the right of members to transfer its shares
▪ The minimum number of members required – 2

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 ▪ Maximum number is 200 (excluding employees)
▪ Use of the word ‘Private Limited’ at the end of its name
▪ Prohibition to invite the public subscription for any type of securities of the company

PUBLIC COMPANY

▪ A public company must not be a private company

▪ It must not be a subsidiary of a private company
▪ It does not have any restriction on the transfer of shares
▪ Minimum 7 members are required
▪ It does not have an upper limit of members
▪ It may invite public for the subscription of its securities
▪ A private company which is a subsidiary of a public company shall be deemed to be a
public company.

ONE PERSON COMPANY

▪ In Companies Act 2013, for the first time has introduced the concept of ‘one person
company’
▪ A company which has only one person as a member
▪ The person in an OPC shall be a natural person
▪ An OPC may be formed for any lawful purpose by one person by subscribing his
name to MOA
▪ An OPC is registered as a private company
▪ The member has limited liability
▪ Moa must indicate the name of the nominee who shall become member of the
company in case of death or incapacity of the subscriber
▪ The word ‘OPC’ shall be mentioned in bracket below the name of the company
▪ OPC can be converted into public or private companies in certain cases

LIABILITY OF MEMBERS

▪ COMPANIES LIMITED BY SHARES

▪ The liability of the members is usually limited to face value of shares that he/she
holds.
▪ Every member knows in advance the magnitude of risk or loss.
▪ In case of liquidation or extraordinary loss incurred, private property of the member
is not attachable.
▪ A shareholder shall not have any further liability if he owns a fully paid-up share.
▪ A member cannot be held personally liable for the debt of the company.
COMPANIES LIMITED BY GUARANTEE
▪ The company in which the liability of its members is limited by the amount they
guarantee to contribute.
▪ They are liable to pay the guaranteed amount at the time of liquidation of the
company.

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ON THE BASIS OF CONTROL

HOLDING AND SUBSIDIARY

▪ Holding Cos hold more than 50% of shares of subsidiary Cos
▪ Holding Co controls the management of the Sub Co
▪ Holding co prepares, in addition to its financial statements, a consolidated financial
statement of the company and all its subsidiaries – to present true and fair view of
the state of affairs of the group as a whole.

▪ Tata Sons Ltd is the holding co of the tata group

▪ Tata AIG, Tata Communications, TCS, TCE all are subsidiaries

FOREIGN COMPANY

▪ A company incorporated outside India which

( a ) has a place of business in India
Whether by itself or through an agent, physically or through electronic mode &
( b ) conducts any business activity in India in any other manner

GOVERNMENT COMPANY

▪ Any company
▪ In which not less than 51% of the paid - up share capital of any government
▪ Is held by Central Govt. or by any State Govt.
▪ Or partly by Central & partly by one or more State Govts.
▪ & includes a company which is a subsidiary company of such a Govt.
▪ Ex. BHEL, GAIL are Govt Cos.

ASSOCIATE COMPANY

▪ In Companies Act, 2013 – this concept has been introduced for the first time
▪ A company in which that other company has a significant influence,
▪ But which is not a subsidiary company of the company having such influence &
▪ Includes a joint venture company
▪ “Significant Influence” means control of at least 20% of total share capital, or of
business decisions under an agreement.

SMALL COMPANY

▪ In Companies Act, 2013 – this concept has been introduced for the first time
▪ It’s a sub category of private company
▪ It means a company other than a public company
( a ) whose paid – up share capital does not exceed 50 lakhs Rs. Or such higher amount as
may be prescribed which shall not be more than 5 crore Rs., or
( b ) whose turnover as per its last P & L account does not exceed 2 crore Rs. Or such higher
amount as may be prescribed which shall not be more than 20 crore Rs.

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DORMANT COMPANY

▪ A company which is formed for a future project

▪ Or to hold an asset
▪ Or intellectual property
▪ & has no significant accounting transaction
▪ Such an inactive company may make an application to registrar for obtaining the
status of a dormant company

COMPANIES WITH CHARITABLE OBJECTS (SECTION 8)

▪ An association of persons can register itself as a company under section 8 of the

Companies Act 2013 (earlier known as section 25 companies)
▪ Promoters have to obtain a license from Central Government
▪ Objects are to promote art, sports, education, religion, charity, protection of
environment
▪ Intends to apply its profits in promoting the objects
▪ Intends to prohibit the payment of any dividend to its members
▪ Ex: Infosys foundation, Reliance foundation, Tata foundation

MEMORANDUM OF ASSOCIATION

▪ It is the primary document of the company

▪ Also called the charter or constitution of the company
▪ It defines the relationship of the company with the outsiders
▪ It defines the powers of the company
▪ The company cannot act beyond the powers of the MOA
▪ Any action outside the scope of MOA shall be void and inoperative
▪ The purpose of MOA is to enable the shareholders, creditors and those who deal
with the company to know what is its permitted range of activities
▪ It is a mandatory document to get the company registered
▪ Any activity outside MOA will be treated as ultra vires (beyond the powers).

NAME CLAUSE

▪ A company is a distinct legal entity having an identifiable name

▪ A suitable name is to be chosen
▪ If the company is limited by shares and guarantee, the last words as ‘Ltd.’ or ‘Pvt.
Ltd.’ as the case may be
▪ In case of OPC, the name of the nominee who shall become the member, in case of
death of the subscriber shall be mentioned in MOA
▪ The name:
( a ) must not be too identical or similar to the name of existing
company already registered
( b ) must not be such that constitutes an offence

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( c ) must not be undesirable in the option of Central Govt.
( d ) must not indicate an impression that the company is connected to
central govt. or state govt. or local authority
( e ) must not be words like president , prime minister , central municipal , panchayat etc.

The name, along with the address of the registered office must appear on the outside of
every office of the company.
The company shall print on all its letters, notices & other official publications its name.
In case of one person company, the word “OPC” must be mentioned in the bracket

REGISTERED OFFICE CLAUSE

▪ It is necessary to fix the domicile of the company that is the place of registration
▪ It is the place at which the statutory books of the company are kept
▪ (register of debenture holders, minutes book, register of members)
▪ It is the place at which notices and other communications are sent
▪ Company must furnish to roc for verification of registered office within 30 days of its
incorporation
▪ Also called as situation clause

OBJECT CLAUSE

▪ This clause states the aims and objectives for which a company is proposed to be
incorporated
▪ It indicates the sphere of its activities
▪ It is necessary to protect the financial interest of the members of the company
▪ Also to protect the interest of public at large who deal with the company
▪ The company cannot do anything beyond the objects and any act done beyond will
be considered as null and void.
▪ Any act done ultra vires – beyond the powers cannot be ratified by the whole body
of shareholders.
▪ The clause must mention main objects and ancillary objects to the attainment of
main objects.
▪ The object of the company must not be illegal
▪ The object of the company must not be against the provisions of cos act
▪ The object must not be against public policy
▪ The object must be stated clearly and definitely, they should not be ambiguous.

THE LIABILITY CLAUSE

It states the nature of liability of members.

In case of a company with limited liability, it must state that liability of members is limited
by shares or by guarantee.
If the shares are fully paid up, liability is limited upto the face value of shares.
In case of partly paid – up shares, the liability will be for unpaid value of shares.

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In case of a company limited by guarantee, this clause must state the guaranteed amount
which every member undertake to contribute to the assets of the company in case of
winding up of the company

CAPITAL CLAUSE

▪ It must state the amount of capital with which the company is registered or
authorised
▪ In case of a company with share capital, moa must state the amount of share capital
with which the company is to be registered & division into shares of a fixed amount.
▪ The clause must also state the number of shares that the subscribers agree to
subscribe, which shall not be less than 1 share

ASSOCIATION OR SUBSCRIPTION CLAUSE

▪ It is a type of declaration by the promoters.

▪ Minimum 7 in case of a public company & 2 in case of a private company have to
give a statement with there signature that they desire to establish a company.
▪ It states about “declaration of association”.
▪ This declaration is made by the signatories of moa in presence of a witness
alongwith their names, designations and signatures.

DOCTRINE OF ULTRA -VIRES

▪ It is a concept relating to MOA

▪ Particularly relates to the Object Clause of MOA
▪ The powers of the company should be within the objects specified in MOA
▪ The word ‘ ULTRA ’ means beyond the range & ‘ VIRES ’ means powers.
▪ ‘ULTRA VIRES’ means beyond the limit.
▪ ‘ULTRA VIRES’ is a latin term & it indicates “Beyond one’s legal power or authority ”
▪ Any decisions or action outside the companies act & MOA are ‘NULL’ & ‘ VOID ’

ASHBURY RAILWAY CARRIAGE & IRON COMPANY LTD.V/S RICHE

▪ To protect the investors of the company so that they may know the objects in which
their money are employed
▪ To protect the creditors by ensuring that the funds of the company are not utilized
in any unauthorized activities

RATIONALE OR JUSTIFICATION OF THE DOCTRINE

▪ It restricts the behavior of company’s directors and managers
▪ It is based on the fact that company is an artificial person and so cannot think in its
own interest
▪ So it is advisable to confine the boundary of its behaviour
▪ Company basically deals via human beings

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PURPOSE OF THE DOCTRINE

▪ It aims at protecting the shareholders and creditors money in general

▪ The object is to make directors and officers dealing with outsiders more alert and
conscious.
▪ It puts restrictions on directors to make unlawful transactions
▪ It is a desirable doctrine for all parties whether directly or indirectly dealing with the
company
▪ This doctrine states that promoters should be very careful in framing the object
clause as to what is ultra vires and intra vires

ULTRA VIRES V/S INTRA VIRES

▪ 1. Acts Intra Vires Directors & Intra Vires Company – valid

▪ 2. Acts Ultra Vires Directors & Intra Vires Company – can be ratified by the
shareholders
▪ If shareholders don’t ratify – personal liability of the directors
▪ 3. Acts Ultra Vires Directors & IV Company – void (cannot be ratified even by all the
shareholders)

EFFECTS OF ULTRA VIRES TRANSACTIONS

▪ Personal liability of directors

▪ Ultra vires acquired property
▪ Ultra vires contract
▪ Injunction of the court
▪ Personally liable to third parties
▪ Ultra vires lending
▪ Ultra vires torts

DOCTRINE OF CONSTRUCTIVE NOTICE

▪ Both MOA and AOA are public documents

▪ So outsiders must have the knowledge about the contents of MOA and AOA
▪ So any person entering into a contract with the company are bound to follow the
contents and anything done ultra vires will be void
▪ This doctrine protects the company in the sense outsiders have to be careful as MOA
and AOA are public documents.
▪ According to Sec. 610, every person dealing with the company is deemed to have
read MOA and AOA and understood the contents thereof in the correct perspective.

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 DOCTRINE OF INDOOR MANAGEMENT

The rule was first laid down in the case of Royal British Bank V. Turquand.
Rule of Indoor Management is an exception to the Doctrine of Constructive Notice.

It lays down that person dealing with a company having satisfied themselves that the
proposed transaction is not in its nature inconsistent with the MOA and AOA, are not bound
to inquire the regularity of any internal proceeding.

CASE: ROYAL BRITISH BANK VS. TURQUAND

The directors of a company had issued a bond to T. They had the powers under the AOA to
issue such bond provided they were authorized by a resolution passed by the shareholders
at a general meeting of the company. No such resolution was passed by the company.
Held, T could recover the amount of the bond from the company on the ground that he was
entitled to assume that the resolution had been passed.
Thus doctrine of indoor management seeks to protect the outsiders of the company.

EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT

1. Knowledge of irregularity
2. Negligence on the part of the outsider
3. Forgery
4. No knowledge of articles
5. Acts outside apparent authority

PROSPECTUS

According to Section 2 (36) of the Companies Act, “Prospectus means any document
described or issued as a prospectus and includes any notice, circular, advertisement or other
document inviting deposits from the public or inviting offers from the public for the
subscription or purchase of any shares in, or debentures of, a body corporate’.

▪ It is an important document for a public company

▪ It is a should when a company wants to raise fund from the public
▪ Interest of public to subscribe for shares & debentures depends upon it
▪ It is not merely an advertisement, it is a circular or notice
▪ Any document is a prospectus if it satisfies following 2 conditions:
A) it invites subscription or purchase of shares or debentures
B) invitation is made openly to the public
▪ A prospectus should not draw a rosy picture in the mind of prospective investors

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OBJECTS

▪ To arouse the interest of the potential investors in the company

▪ Induce them to invest in shares and debentures
▪ To protect the investors there are a large number of statutory provisions in the
preparation and presentation of prospectus
▪ A private company is not required to issue a prospectus.
▪ A public ltd company has to issue a prospectus when it desires to raise fund from the
public through public offer. It means a ‘public offer’

RED HERRING PROSPECTUS

▪ It is a rough draft of the company ’s prospectus.

It includes the description of company ’s business, financial condition, strategy,
management, litigation & risk factors.
It does not include details of issue such as number of shares and price per share.
It is a preliminary prospectus filed by a company with SEBI in connection with
company’s initial public offering.

MEANING AND DEFINITION

A thing that draws attention away from something important

Definition:
A Red – Herring Prospectus,
▪ As a first or preliminary prospectus,
▪ Is a document submitted by a company (issuer)
▪ As a part of a public offering of securities [ either stocks or bonds ]

PROVISIONS

▪ A company proposing to make offer of securities may issue this prospectus prior to
the issue of main prospectus
▪ Company shall file it with the registrar atleast 3 days prior to the opening of the
subscription list and offer
▪ It shall carry the same obligations as that of a prospectus
▪ Upon closing of the offer of securities, the details which are not mentioned in the
Red-herring Prospectus. Are to be filed with ROC and SEBI.

PURPOSE

▪ When company want to offer its securities on the basis of market perception,
instead of at fixed price, it can issue a red-herring p.
▪ The basic difference between final and red herring prospectus is
A) Price of share
B) Number of shares
C) Issue size
Are kept blank[.]

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 SHELF PROSPECTUS

▪ It is a prospectus valid for more issues of securities within the given time limit
▪ It minimizes the unnecessary burden of frequently preparing and registering
prospectus.
▪ A company is not required to prepare prospectus at every issue during the valid
time.

MEANING AND DEFINITION

▪ A prospectus in respect of which the securities or class of securities included therein

are issued for subscription in one or more issues over a certain period without the
issue of further prospectus

RATIONALE

▪ Sometimes a company may make frequent issues of securities during a specified

period
▪ It is time consuming and costly to issue a fresh prospectus at every issue.
▪ As per the provisions of the Act, a shelf prospectus is valid for a period of one year.
▪ This provision is a special significance in case of developmental financial institutions
like IDBI and ICICI, who raise money through issue bonds in a series.

PROVISIONS

1. As per SEBI regulation, any class or classes of companies may file a shelf
prospectus with ROC at the stage of the first offer of securities included therein.
It will be valid for one year from the date of opening of the first offer of securities.

2. At the time of subsequent offer of securities within the valid period of shelf
prospectus, the company has to file an ‘information memorandum’ containing all the
material facts relating to new changes created and changes in the financial position
since the first offer of securities.

3. An ‘Information Memorandum’ shall be filed with ‘Shelf Prospectus’.

An ‘updated information memorandum’ filed every time an offer of securities is
made together with shelf prospectus shall be deemed to be a prospectus. There is
no need to issue of further prospectus.

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 PUBLIC OFFER AND PRIVATE PLACEMENT

▪ A public company may issue securities to public through

A) Prospectus
B) Private Placement
C) Rights issue or bonus issue in accordance with the provisions of the Act

A private company may issue securities by way of

A) Rights issue or bonus issue in accordance with the provisions of the Act
B) Private Placement by complying with the provisions of the Act

PUBLIC OFFER

▪ Any sale of securities to more than 200 people is deemed to be a public offering.
▪ The term public offering is equally applicable to a company’s initial public offering
(IPO) as well as subsequent offerings.
▪ Thus, if any company invites subscription or allots any security to 200 or more
persons in a financial year, it will be said to have made a public offer.

Initial Public Offering refers to the selling of shares by a private company to the
public for the first time. Initial Public Offering is a source of funds raised from the
primary market. All subsequent public offerings are known as Follow-on Public
Offerings or Secondary Market Offerings.

An IPO is an abbreviation for Initial Public Offer (IPO). When a company goes public
for the first time or issues a fresh stock of shares, it offers it to the public directly.
This happens in the primary market. The primary market is where a company makes
its first contact with the public at large.

PRIVATE PLACEMENT

▪ It is the sale of securities to a relatively small number of selected investors as a way

of raising capital.
▪ Investors are usually large banks, mutual funds, insurance companies and pension
fund.
▪ Private placement (or non-public offering) is a funding round of securities which are
sold not through a public offering, but private.
▪ A private placement is an agreement for equity investment in a business made
directly between the business and the investor.
▪ Private Placements are, in the simplest terms, a way for businesses to raise capital by
selling securities to private investors. Rather than making shares in a company
available to the general public (as with an initial public offering).
• A private placement makes shares available to only a limited number of suitable
individuals.
• It doesn’t require underwriters or registration with the SEBI.

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 • While often used by small companies, private placement is equally beneficial to
companies of all sizes because they require less time and expense than a public
offering.
• ‘Private Placement’ is opposite to ‘public offer’.

PROVISIONS OF CONVERSION OF COMPANY

The conversion of a company in India is governed by the Companies Act, 2013, and involves the
transformation of a company from one type or structure to another, such as a private company
to a public company, or vice versa. Below are the key provisions and steps involved:

1. Conversion of Private Company to Public Company

Relevant Provisions: Section 14 and Rule 33 of the Companies (Incorporation) Rules, 2014

Key Steps:
1. Board Resolution: Pass a Board resolution approving the conversion.
2. Alteration of Articles of Association (AoA):
•Modify the AoA to remove restrictions applicable to private companies
(e.g., limits on the number of members, transferability of shares).
3. Special Resolution in General Meeting:
•Obtain approval from shareholders by passing a special resolution.
4. Filing with Registrar of Companies (RoC):
•File Form MGT-7A (Annual Return) and Form MGT-14 (Special Resolution).
•File Form INC-27 for conversion along with altered AoA.
5. Certificate of Incorporation:
•Obtain a new certificate from the RoC reflecting the change.

2. Conversion of Public Company to Private Company

Relevant Provisions: Section 14 and Rule 41 of the Companies (Incorporation) Rules, 2014

Key Steps:
1. Board Resolution: Pass a resolution for conversion and alteration of AoA.
2. Approval from Shareholders: Pass a special resolution in the General Meeting.
3. Approval from the National Company Law Tribunal (NCLT):
•Apply for approval to the NCLT in Form INC-23.
4. Filing with RoC:
•Submit altered AoA, special resolution (Form MGT-14), and other required documents.
5. Certificate of Incorporation:
•Upon approval, the RoC issues a new certificate.

3. Conversion of Private Company to One Person Company (OPC)

Relevant Provisions: Rule 7(4) of the Companies (Incorporation) Rules, 2014

Key Steps:
1. Eligibility: The company must meet OPC criteria, i.e., a paid-up capital of ₹50 lakh or less
and turnover of ₹2 crore or less.
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2. Special Resolution: Pass a resolution for conversion.
3. Filing with RoC: File Form INC-6 along with required documents and altered
Memorandum of Association (MoA) and AoA.
4. Certificate of Incorporation: Obtain a certificate reflecting the new status.

4. Conversion of OPC to Private/Public Company

Relevant Provisions: Rule 6 of the Companies (Incorporation) Rules, 2014

Key Steps:
1. Eligibility: Mandatory conversion if paid-up capital exceeds ₹50 lakh or turnover exceeds
₹2 crore.
2. Special Resolution: Pass a resolution for conversion.
3. Filing with RoC: File Form INC-6 along with other required documents.
4. Certificate of Incorporation: Obtain a new certificate of incorporation.

5. Conversion of Section 8 Company to a Normal Company

Relevant Provisions: Section 8(4) and Rule 21 of the Companies (Incorporation) Rules, 2014

Key Steps:
1. Special Resolution: Pass a special resolution in a general meeting.
2. Approval from the Central Government: Submit an application to the Regional Director in
Form RD-1 along with supporting documents.
3. Filing with RoC: After approval, file the altered MoA and AoA with the RoC.
4. Certificate of Incorporation: Obtain a new certificate.

General Documents Required for Conversion:

•Copy of Board and Special Resolutions.
•Altered MoA and AoA.
•Proof of payment of fees.
•NOC from creditors (if applicable).
•Financial statements and other relevant documents.

KEY POINTS TO REMEMBER:

1. Ensure compliance with statutory requirements and filing timelines.

2. Obtain all necessary approvals, including NCLT or Central Government, where applicable.
3. The conversion does not affect the existing liabilities or obligations of the company.

LEGAL PROVISIONS:

Provisions of the Indian Company Law on the conversion of companies under the Companies
Act, 2013, along with step-by-step procedures for different types of conversions:

1. Conversion of a Private Company to a Public Company

Relevant Provisions:
• Section 14 of the Companies Act, 2013.
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 • Rule 33 of the Companies (Incorporation) Rules, 2014.

Key Steps:

1.Board Meeting:
•Convene a Board meeting to pass a resolution approving the conversion.
•Fix the date, time, and venue for the General Meeting to pass a special resolution.

2.Amendment of Articles of Association (AoA):

•Remove restrictive clauses in the AoA, such as:
•Limitations on the number of members (not more than 200 for private companies).
•Prohibitions on public share subscriptions.

3.Shareholder Approval:
•Conduct an Extraordinary General Meeting (EGM) to pass a Special Resolution
approving the conversion and the alteration of AoA.
•File Form MGT-14 within 30 days of passing the resolution.

4.Filing with RoC:

•Submit Form INC-27 (Conversion Form) with the following documents:
•Copy of Special Resolution.
•Altered MoA and AoA.
•List of members and directors.
•Minutes of the EGM.

5.Certificate of Incorporation:
•The RoC will review the documents and issue a new Certificate of Incorporation,
reflecting the company’s status as a Public Company.

Effects Of Conversion:
•Removal of restrictions on share transferability.
•The company can now issue shares to the public.
•Compliance with additional regulations for public companies under the Companies Act,
2013.

2. Conversion of a Public Company to a Private Company

Relevant Provisions:
•Section 14 of the Companies Act, 2013.
•Rule 41 of the Companies (Incorporation) Rules, 2014.

Key Steps:
1. Board Meeting:
• Pass a Board resolution for conversion.
• Approve the notice for an EGM.
2. Special Resolution:
• Convene an EGM and pass a special resolution to alter the AoA.
• Include restrictions required for private companies:
• Limit the number of members to 200.
18
 • Restrict the transfer of shares.
3. Approval from NCLT:
• File an application with the National Company Law Tribunal (NCLT) using Form
INC-23 for approval of conversion.
• Submit supporting documents:
• Altered AoA.
• List of creditors with their consent or No Objection Certificate (NOC).
• Affidavit verifying application content.
4. Filing with RoC:
• Once NCLT approval is obtained, file the altered AoA and other documents with
the RoC using Form MGT-14 and Form INC-27.
5. Certificate of Incorporation:
• The RoC will issue a new Certificate of Incorporation after conversion.

Effects of Conversion:
• Imposition of restrictions applicable to private companies.
• The company can no longer raise capital from the public.

3. Conversion of a Private Company to a One Person Company (OPC)

Relevant Provisions:
• Rule 7(4) of the Companies (Incorporation) Rules, 2014.

Eligibility:
• Paid-up capital must not exceed ₹50 lakhs.
• Turnover must not exceed ₹2 crores in the last financial year.

Key Steps:
1. Board Meeting:
• Pass a resolution for conversion.
2. Shareholder Approval:
• Pass a special resolution in an EGM authorizing conversion.
3. Filing with RoC:
• Submit Form INC-6 along with the following:
• Altered MoA and AoA.
• Copy of the special resolution.
• Financial statements and declaration of eligibility.
4. Certificate of Incorporation:
• Upon satisfaction, the RoC issues a new Certificate of Incorporation.

Effects of Conversion:
• The company will now have only one member.
• The company must include “One Person Company” in its name.

4. Conversion of One Person Company (OPC) to a Private/Public Company

Relevant Provisions:
• Rule 6 of the Companies (Incorporation) Rules, 2014.
Eligibility: Mandatory conversion if the OPC’s paid-up capital exceeds ₹50 lakhs or turnover
exceeds ₹2 crores.
19
Key Steps:
1. Board Meeting:
• Pass a resolution for conversion.
2. Special Resolution:
• Pass a special resolution for conversion and alteration of AoA.
3. Filing with RoC:
• Submit Form INC-6 along with the required documents.
4. Certificate of Incorporation:
• Obtain the new Certificate of Incorporation from the RoC.

Effects of Conversion:
• The company can now have more than one member.
• It must comply with the provisions applicable to private/public companies.

5. Conversion of Section 8 Company to a Normal Company

Relevant Provisions:
• Section 8(4) and Rule 21 of the Companies (Incorporation) Rules, 2014.

Key Steps:
1. Special Resolution:
• Pass a resolution in the General Meeting to approve the conversion and amend
the MoA and AoA.
2. Approval from the Central Government:
• Submit an application to the Regional Director in Form RD-1 with:
• Copy of the resolution.
• Amended MoA and AoA.
• Statements of financial position.
3. Filing with RoC:
• Submit the Central Government’s approval along with amended MoA/AoA.
4. Certificate of Incorporation:
• RoC will issue a new certificate.

Effects of Conversion:
• The company loses its privileges as a Section 8 company (e.g., tax benefits).
• It must operate as a normal company.

20
SECTION A - LONG QUESTIONS / SHORT NOTES
1. Define Company and discuss its Characteristics.
2. Discuss the Classification/Types of Companies on the basis of Incorporation.
3. Discuss the Classification/Types of Companies on the basis of Liability.
4. Discuss the Classification/Types of Companies on the basis of Number of Members /
Transferability of Shares.
5. Discuss the Classification/Types of Companies on the basis of Control.
6. Discuss Memorandum of Association (MOA) with its various Clauses.
7. Discuss the case of Ashbury Railway Carriage & Co. Vs Riche OR Write a note on:
Doctrine of Ultra-Vires.
8. Discuss the case of Royal British Bank Vs Turquand OR Write a note on: Doctrine of
Indoor Management with Exceptions. OR Write a note on Turquand’s Rule.
9. What do you mean by Red-herring Prospectus.
10. State the provisions of Shelf Prospectus.
11. Write a note on: Prospectus.
12. Mention the provisions of Public Offer.
13. State the provisions of Private Placement.
14. Discuss the legal provisions of Conversion of Company.

SECTION B – SHORT QUESTIONS

1. What is doctrine of Constructive Notice.
2. Discuss the case of Salomon Vs Salomon & Co. Ltd. OR What do you mean by the
term Separate Legal Entity in case of a Company.
3. What do you mean by Holding Company.
4. Mention the objects of Prospectus.
5. What do you mean by One Person Company.
6. Mention the basic provisions of Foreign Company.
7. State the provisions of Government Company.
8. What is Dormant Company.
9. What do you mean by Associate Company.
10. Mention the provisions of Name Clause.
11. Write a note on: Key points of Conversion of Company.
12. State the provisions of converting Sec. 8 Company into a Normal Company.
13. State the provisions of converting One Person Company (OPC) to Public/Private
company.

21
SECTION C - MULTIPLE CHOICE QUESTIONS
1) The Companies Act, 2013 extends to
(a) Whole India (b) Whole India Excludes J&K
(c) Whole India Excluding State Of Bihar (d) Whole of India excluding J&K

2) Which of the following case clearly established the principle that company is legal
person distinct from its members.
(a) Salman vs. Salman & Co. Ltd. (b) Salomon vs. Salomon & Co. Ltd.
(c) Salman vs. Salman & Co. Ltd. (d) Smith vs. Anderson & Co. Ltd.

3) Which of the following are characteristics of a company?

(a) Limited Profit (b) Corporate Personality
(c) Limited Succession (d) None of the above

4) Characteristics of a company are:

(a) Capacity to sue and to be sued (b) Limited Liability
(c) Common seal (d) All of the above

5) The liability of the members of a company is limited to the extent of the of the
shares held by them
(a) Nominal Value (b) Market Value
(c) Exchange value (d) Value as decided by SEBI
6) Company has succession.

(a) Limited (b) Perpetual (c) Not continue (d) Longer

7) In case of a company limited by guarantee, the members are liable only to the extent of
the by them and not beyond
(a) Nominal value of shares (b) Amount guaranteed
(c) Market value of shares (d) Rs. 5 lakh
8) Perpetual succession means,

(a) Members may go and members may go but the goes on forever
(b) Members may come and members may come but the company goes on forever
(c) Members may come and members may go but the company goes on forever
(d) Members may go and members may come but the company cannot go forever

9) Shares of company are said to be

(a) Immovable property (b) Movable Property

(c) Tangible Property (d) Permanent Property

22
10) Shares of Public company are

(a) Not freely transferable

(b) Freely transferable
(c) Freely transferable subject to permission of Govt.
(d) Freely transferable subject to permission of other shareholders in GM.

11) On incorporation a company acquires legal entity with perpetual succession and a

(a) Seal which is optional (b) Common seal which is compulsory

(c) Rubber stamp which is compulsory (d) Common seal which is optional

12) Common seal of the company acts as the official signature of a .

(a) Managing Director (b) Company
(c) General Manager (d) Compliance officer

13) Which of the following is a distinct legal person

(a) Sole Proprietor (b) Partnership Firm (c) Company (d) All of the above
14) A private company cannot have more than members.

(a) 500 (b) 1000 (c) 200 (d) 100

15) In a Public company there must not be less than .

(a) 2 person (b) 7 person (c) 6 person (d) 10 person

16) have homogeneous member.

(a) Partnership Firm (b) Company (c) Co-operatives (d) HUF

17) In a Private Company there must not be less than

(a) 2 person (b) 7 person (c) 6 person (d) 10 person

18) Registration of a company is .

(a) Optional (b) Compulsory

(c) Compulsory in Some Cases (d) Optional but compulsory in some cases

19) Which of the following is an advantage of incorporation of Company?

(a) Restriction on transfer of shares (b) Capacity not to sue

(c) Unlimited liability (d) Separate property

20) Which of the following is a disadvantage of incorporation of company?

(a) Detailed winding up procedure (b) Greater tax burden

(c) Greater social Liability (d) All of the above

23
21) Where 2 or more persons hold one or more shares in a private company jointly, they
shall be counted as a member.
(a) single (b)dual (c)one and half (d)separate

22) Public company means a company which is not a

(a) Public company (b) Private company

(c) Statutory company (d) Deemed public company

23) Private company, which is a subsidiary of public company, is treated as a

.

(a) Public company (b) Private company

(c) Statutory company (d) Deemed public company

24) Maximum number of members of a Private company are:
(a) 100 (b) 200 (c) 500 (d) Unlimited

25) The minimum number of members in a private company and public company are

(a) 3 and 7 (b)2 and 7 (c) 2 and 3 (d) none of the above
26) in relation to another company, means a company in which that other
company has a significant influence.

(a) Associate Company (b) Joint Venture Company

(c) Subsidiary Company (d) Holding Company

27) While calculating the maximum number of members in case of a private company which
of the following will not be included?

(a) Employees who are members (b) Members + Employees who are members
(c) Members (d) None of the above

28) A public company must have at least and a private company must have at least
.
(a) 5 Directors, 3 Directors (b) 2Directors, 3 Directors

(c) 3 Directors, 2 Directors (d) 10 Directors, 4 Directors

29) A company may be

(a) Limited by shares (b) Limited by Guarantee (c) A or B (d) A but not B

30) Which type of company does not have any limit on the liability of its members?

(a) Limited company (b) An unlimited company

24
 (c) Company limited by Guarantee (d) none of the Above

31) A is a company, which is incorporated in a country outside India under the Law of
that other country and has established a place of Business in India.
(A)Domestic Company (b) Foreign Company
(c) Alien Company (d) All of the Above

32) Company should be formed for

(a) Unlawful purpose (b) Lawful Purpose

(c) Illegal Purpose (d) A, B, But not C

33) Who conceives the idea of the business of company?
(a) Shareholders (b) Directors (c) Auditors (d) Promoters

34) Promoter Means

(a) Who undertakes to form a company with reference to a given object and to set it
going?
(b) Who takes the necessary steps to incorporate company

(c) Who performs the preliminary duties and develops the idea and includes others to
join.

(d) All of the above

35) Function of Promoter is .
(a) To decide the company’s name

(b) To settle the details of the company’s MOA &AOA

(c) To print the MOA & AOA

(d) All of the above

36) Who stands in a fiduciary relation to the company?

(a) Promoter (b) Creditor (c) Equity Shareholder (d) Debenture Holder
37) Promoter can make a profit .
(a) Even if he does not make full disclosure (b) If he make full disclosure
(c) If he make part disclosure (d) All of the above

38) The First step towards incorporation of a company is

(a) To print MOA & AOA (b) To have certificate of incorporation

(c) To adopt a suitable name (d) To appoint director

39) A company is identified by the name with which it is registered and such name of the
company is stated in
(a) POA (b) MOA (c) Prospectus (d) Share application form

25
40) For ascertaining as to whether the proposed name is available for adoption, the
promoters are required to make an application to the
(a) Regional director (b) ROC (c) CG (d) SG
41) A process of examining carefully the contents of documents from legal point of view is
known as
(a) Scanning (b) Vetting (c) Reading (d) Verifying

42) The Articles constitute a contract between the company and its inter se.
a) creditors b)Members c) Debtors d) Debenture holder

43) All public companies can file a rough draft known as

a) in lieu of prospectus b) information memorandum

c) Red herring prospectus d) none of the above

44) What shall be given in advertisement of issue of prospectus?
a) Objects of the company b) liabilities of members

c) names of the signatories to the MOA d) all of the above

45) The memorandum and articles must be
a) Divided into paragraphs b) Numbered consecutively

c) Both A&B d) Both A or B

46) In the case of companies having share capital the subscriber to the memorandum
should take at least each.
a) 1 share b) 5 Shares c) 10 Shares d) 100 shares

47) Who will grant license under section 8 of the Companies Act , 2013
a) CG b) Regional Director c) ROC d) Chief Secretary to State Govt.

48) A promoter is
a) not an agent of the company b)not a trustee for the company
c) Occupies a fiduciary position d) All the above

49) If the Registrar is satisfied that all requirements, have been compiled with, he will
register the company and issue the
a) Certificate of Commencement of business b) Certificate of incorporation

c) Compliance certificate d) Certificate to act as a director

50) A prospectus with the Registrar at the stage of the first offer of
securities included therein which shall indicate a period not exceeding one year as the
period of validity of such prospectus commencing from the date of opening of first offer.

26
a) Shelf b) Red herring c) Abridged d) Deemed

51) Table A of schedule 1 to the companies Act 2013, contains thereof

a) MOA of company limited by guarantee having share capital

b) MOA of company limited by guarantee not having share capital

c) MOA &AOA of Company limited by shares

d) MOA of Company limited by shares

52) Table C of schedule 1 to the companies Act 2013, contains thereof
a) MOA of unlimited company

b) AOA of company limited by guarantee having share capital

c) MOA of company limited by guarantee having share capital

d) MOA of OPC
53) Doctrine of Ultra-Vires means of MOA.

(a) beyond the powers (b) beyond the rights

(c) beyond the liabilities (d) none of the above

54) Indoor Management means of the Company.

(a) Powers (b) Rights (c) Liabilities (d) internal affairs

55) What is deemed prospectus?

a) any document by which offer for sale of securities is made to the public
b) any document by which offer for sale of assets is made to the public

c) any document by which offer for sale of Land and Building is made to the public

d) any of the above

56) Which one of the following is not the content of the MOA?
a) Name clause b) Registered Office clause
c) Objects clause d) BOD clause

57) Promoters of the Company are

a) an agent of the company b) a creditor c) an employee d) none

58) What shall be stated in prospectus?

a) Main object, Capital Structure and Bank Account details

b) Main object, Capital Structure, Key personnel details, procedure for allotment and bank
account details

27
c) Main object and Bank Account details

d) Main object, Capital Structure, Procedure for Allotment and Bank Account details
59) The MOA and AOA of the company shall be signed by each subscriber to the MOA, who
shall add his , if any.
a) Name and address b) Name, address and disability

c) Name, address and occupation d) Name, address and ability

60) Which information regarding capital shall be stated in capital clause of MOA of
company?
a) Nominal capital b) Subscribed capital
c) Issued capital d) Authorized capital and total number of shares

61) The doctrine of ultra vires was first applied in case of

a) Ashbury Railway Carriage Co. vs. Riche

b) Lee vs Lee Air Farming Ltd.

c) National Telephone Co. vs. St. Peter Constables

d) Madhav Ram Chandra Kamath vs. Canara Banking Corporation

62) Which doctrine is an exception to the doctrine of Constructive Notice?

a) Doctrine of Indoor Management

b) Doctrine of Constructive Management

c) both of the above

d) none of the above

63) Which Doctrine was decided in case of Royal British Bank vs. Turquand?

a) Doctrine of Indoor Management

b) Doctrine of Constructive Notice

c) Doctrine of ultra vires

d) Doctrine of substance

64) Which Doctrine is also known as Turquand rule?

a) Doctrine of Indoor Management

b) Doctrine of Constructive Notice

c) Doctrine of ultra vires
d) Doctrine of substance

28
65)⁠ ⁠Under the Companies Act, 2013, which of the following entities can be converted into a
private company by altering its Memorandum of Association (MoA) and Articles of Association
(AoA)?
a) Public Company b) One Person Company (OPC)
c) Limited Liability Partnership (LLP) d) Partnership Firm

66) ⁠What is the minimum time period a company must exist as an OPC before applying for its
conversion into a private or public company?
a) 1 year b)2 years c)3 years d) No specific period

67)⁠ ⁠When a private company is converted into a public company, which of the following
requirements must be fulfilled?
a) Increase in minimum paid-up capital to ₹1 crore
b) Adoption of a fresh certificate of incorporation
c) Approval from all existing shareholders
d) Appointment of new directors

68) ⁠What is the mandatory compliance for an OPC converting into a private company?
a) Passing a special resolution in a general meeting
b) Notifying the Registrar of Companies within 60 days
c) Increasing the number of members to at least 2
d) Filing a board resolution with the Ministry of Corporate Affairs

69)⁠ ⁠In the case of conversion of a private company into a public company, who must approve the
alteration of the Articles of Association (AoA)?
a) Board of Directors
b) Registrar of Companies (RoC)
c) Central Government
d) Shareholders through a special resolution

70).⁠ ⁠Which of the following is NOT a condition for the conversion of an OPC into a private or
public company under the Companies Act, 2013?
a) The OPC’s paid-up share capital exceeds ₹50 lakhs.
b) The OPC’s annual turnover exceeds ₹2 crores in the preceding three financial years.
c) A special resolution must be passed in the general meeting.
d) The company must have a minimum of three directors.

29
Note: The above material has been compiled from the below mentioned
reference books

REFERENCE BOOKS

SR. AUTHOR/S PUBLICATION

NO.
1 CA VIJAY RAJA COMMERCIAL
2 CA G. SEKAR AND CA B. SARAVANA PADHUKA
PRASATH
3 ANIL KUMAR TAXMANN
4 N.D. KAPOOR SULTAN CHAND & SONS
5 STUDY MATERIAL OF ICAI ICAI

30
 FACULTY OF COMMERCE

2024- 25

SEMESTER 6
SUBJECT: ADVANCED COMPANY
LAW AND PRACTICES

UNIT-2: COMPANY LAW PROECDURE

FOR ISSUE OF SECURITIES

PREPARED BY,
DR.BHAVIK U SWADIA CA DR.DEVARSH GANDHI

STUDY MATERIAL FOR REFERENCE ONLY

 UNIT 2

COMPANY LAW : PROCEDURE FOR ISSUE OF SECURITIES

Unit Contents:

■ Introduction

■ Definitions of Stock Exchange

■ Nature (or Features) of Stock Exchange

■ Role/importance of Stock Exchange

■ Listing of Securities

■ Meaning and Definition Listing

■ Objective of Listing

■ Advantages of Listing the Securities

■ Exercises

STOCK EXCHANGE

INTRODUCTION

Banking, insurance, capital market, commodity markets, pension funds, etc., are
components of financial system. SEB1, RBI, 1R.DA (Insurance Regulatory and Development
Authority) and PFRDA (Pension Fund Regulatory and Development Authorities) are regulatory
authorities of Indian Financial System. Stock exchange is one of the important constituents of
Indian Financial System (IFS). Stock market deals with only equity securities. Capital markets
include both equity (stock) markets and debt (bond) markets. Stock market, thus, is a part of a
capital market. Stock exchange deals with both types of securities, stocks and bonds.
Stock exchange has drawn unusual public attraction in the recent past. Stock market is now
considered as a mirror of economic condition of a nation. Stock exchange plays a crucial role in
economic development of a nation. The National Stock Exchange (NSE) and theBombay Stock Exchange

2
(BSE) are two major Indian stock exchanges.

The Exchange Board of India (SEB1) is the direct authority to regulate functioning of stock
exchanges. The SEB1 powers and functions are expressed in terms of registration, regulation,
prohibition, and promotion activities relating to securities market. Since many years, the securities can
be traded at any place through online (or electronic) trading system. Only the listed shares and
securities are traded through stock exchange.

New York Stock Exchange (NYSE) in America, Tokyo Stock Market (Nikkei) in Japan, Landon Stock
Exchange in Landon, Sanghai Stock Exchange in China, Toronto Stock Exchange in Canada, Australian
Securities Exchange in Australia, etc., are among world’s ten leading stock exchanges.

DEFINITIONS OF STOCK EXCHANGE

1. The Security Contracts (Regulation Act), 1956, defines a stock exchange as: “Stock exchange is
an association, organisation, or a body of individual, whether incorporated or not, established
for the purpose of assisting, regulating, and controlling of business in buying, selling, or dealing
in securities.”

2. More clearly, the term can be defined as: Stock exchange (also referred to as stock market or
share market) is a platform fortrading the listed stocks and other securities. Stock exchange is an
important constituent of financial system. It is a mirror of economic conditions.

NATURE (OR FEATURES) OF STOCK EXCHANGE

Stock exchange is an important constituent of financial system. It is a mirror of economic

conditions. Let us discuss nature of stock exchange in terms of its basic features.

1. Meaning

A Stock means is a security with ownership rights and an exchange means buying and
selling the securities. Stock exchange (also referred as share market) is a platform for trading
listed companies’ stocks and other securities..

2. Mode of Operations

Stock exchange is a particular market place where authorised brokers come together
daily to conduct trading activities. However, modem stock exchanges work through online or

3
 electronic mode through Internet. The prices of different securities traded are shown on a
screen of electronic gazettes (computer, cell phone, laptop, tablets, etc.) Online transactions
through electronic mode facilitate trading activities with stock exchange from any palace
through Internet. At present the stock exchange operates from 9.15 AM to 3.30 PM from
Monday to Friday (except holidays). After the working hours market is closed.

3. Deal with the Secondary Securities

A stock exchange deals in second hand securities. It deals with shares, debentures,
bonds and such securities already issued by the companies. In short, it deals with existing or
second hand securities and hence it is called secondary market. The stock exchange involves
buying and selling of securities - shares, debentures, bonds, and other debt instruments. The
stock exchange transactions are made either for the purpose of investment or for speculation.
For equity shares, stock exchange deals with cash transactions and futures and options (F&O)
transactions.

4. Objectives of Stock Exchange

A stock exchange is a multipurpose organisation (or system). The primary objectives of

stock exchange are (1) to provide a reliable platform for buying and selling securities, (2) to
maintains stock prices on the basis of fundamentals and demand-supply mechanism, (3) to work
as mediator between investors and companies to manage their financial requirements, (4) to
create investment opportunities, (5) to provide a base for listing of securities, (6) to protect
inventors’ financial interest, and (6) to perform any type of task as may be necessary for
protecting economic interest of country and countrymen.

5. Facilitating System or Platform

Stock exchange is a market, where securities of corporate bodies, government and semi-
government bodies are bought and sold. Note that stock exchange does not buy or sell any
securities on its own account. It merely provides the necessary infrastructure and facilities for

4
 trading in securities to its members, brokers, and investors. It is a facilitating system to those
who want to list, buy, or sell securities. Stock exchange is, thus, a meeting place of the stock
buyers and sellers. Investors have to buy or sell the securities at the stock exchange through the
authorised brokers only.

6. Leading Stock Exchanges

India’s premier stock exchanges are the Bombay Stock Exchange (BSE) and the National

Stock Exchange (NSE). The New York Stock Exchange (NYSE) in America, the Tokyo Stock
Market (Nikkei) inJapan, the Landon Stock Exchange in Landon, the Sanghai Stock
Exchange in China, the Toronto Stock Exchange in Canada, the Australian Securities Exchange in
Australia, etc., are among world’s ten leading stock exchanges.

. Regulatory Authorities

The Central Government is the final authority to grant recognition to a stock exchange.
It directs and regulates the exchanges in the country. The Securities Contracts (Regulation) Act
(SERA), 1956, empowers the Central Government to (1) grant and withdraw recognition to any
stock exchange, (2) suspend business of the stock \ exchange, (3) approve and amend by-laws,
(4) supersede governing body of the stock exchange, (5) regulate listing of securities, and (6)
take any action against stock exchange for the interest of the investors and economy.

The most of the powers of the Central Government are exercised by the SEBI. The SEBI
is a direct regulatory authority to supervise and control functioning of the stock exchange.-
Buying and selling transactions in securities at the stock exchange are governed by the rules and
regulations of stock exchange as well as SEBI Guidelines.

Basic Functions Stock Exchange

Stock exchange performs several functions. Major functions are (1) serving as hub for
buying and selling securities, (2) providing continuous market for securities, (3) evaluating of
securities, (4) mobilising savings and funds, (5) ensuing healthyspeculation, (6) protecting
investors, (7) helping Capital formation, (8) maintaining liquidity, (9) functioning as economic
barometer, (10) attracting foreign capital, (11) exercising control on companies, (12) assisting

5
 the SEBI and the Government to implement regulatory provisions and corporate polices.

. Main Parties in Stock Exchange

Stock Exchange is platform for trading of securities. Main participants are : (1) the
clients, whose securities are listed, (2) investors and traders, who buy or sell securities, (3) the
brokers, who provides services to the investors and traders in buying and selling securities at
commission, (4) stock exchange authorities or personnel, who regulate the stocks transactions,
(5) bankers, who perform financial transactions on behalf of investors, traders, and brokers, (6)
the SEBI officials, who guide, regulate and control functioning of stock exchange, and (7) the
Government, who work as the final authority to formulate and implement regulatory provisions.

Management of Stock Exchange

Each stock exchange is managed by an Executive Committee (also called Council of

Management or Governing Body). The Central Government empowers to nominate some
members in the committee. The stock exchange operates as per the provisions of laws
prescribed by the Government. Any recognised stock exchange can make its bylaws (i.e., rules),
subject to prior approval of the SEBI, for the regulation and control of contracts. Every
recognised stock exchange has to furnish the Central Government with a copy of the annual
report containing all the particulars as prescribed.

ROLE/IMPORTANCE OF STOCK EXCHANGE

1. Pricing of the Securities

The stock exchange is a mechanism to value companies’ shares on the basis of valid
criteria. Buying, holding, and selling of securities depend on the past and current financial
performance and growth plans of the issuers (i.e., companies, Government, and other
institutions). The securities of profitable and growth oriented companies are valued higher as
there is more demand for such securities. The valuation of securities is useful for investors,
government and creditors. Stock exchange continuously updates information on different
securities and the latest developments in companies’ operations.

2. Education to Inventors and Brokers

The stock exchange authorities also play an active role to educate the inventors and

6
 other key participants of stock markets. Continuous updating through exchange authorities and
experts about companies’ financial performance on several public media help the investors
know the price changes through the price quotations. Live and open discussion by the experts
during the stock exchange session on business channels reveals valuable and useful details.

3. Liquidity and Transferability

The main function of stock market is to provide a ready market and continuous market
for sale and purchase of securities. Investorscan swift from one security to another as per risk
and prospect factors. The presence of stock exchange gives assurance to investors that their
investment can be converted into cash whenever they want. The investors can invest in long
term investment projects without any hesitation of blocking of their money in securities. To
ensure liquidity, the stock exchange permits a healthy speculation of securities

4. Appreciation for Better Performance

Stock market serves as reliable evaluator of companies’ stocks. The shares of good
companies are quoted at higher prices and are actively traded on the stock exchange.
Appreciation or depreciation of share values depends on company’s financial performance. So,
good companies are continuously appreciated and bad companies are depreciated on the stock
exchange. The companies with good performance can easily raise fresh capital from the public.
The general public hesitates to invest in securities of loss making companies. So stock exchange
facilitates allocation of the investor’s fund to profitable channels. It motivates companies to
continuously improve their financial performance.

5. An Inevitable System

One cannot imagine today’s financial system without functioning of stock exchange. It is
an important component of the financial system and also of whole economy. It is a base for
many financial activities, like raising fund, investing fund, channelising investment, and listing
and delisting shares. The stock exchange is capable of attracting more foreign funds. It has
inevitable role in modern economies. Its satisfactory functioning is a precondition for growth
and development of corporate sector.

6. Raising Capital for Businesses

7
 Any economic development in any country requires huge capital to achieve the required
growth rate. The stocks markets help channelise funds lying with individuals and financial
institutions. Investors subscribe companies’ IPOs of shares and debentures because they are
listed and traded through the stock exchange. Stock market serves as a reliable platform for
mobilising savings for investment. It helps and encourages investing in share and debentures.
People’s savings becomes a capital for corporate houses. It benefits to all threeparties - the
company, inventors, and nation.

7. Protection to Investors (Corporate Governance)

Stock exchange is also a regulatory body. Its first priority is to safeguard investors’
economic interest. Stock exchange ensures safe security transactions. In stock market, only the
listed securities are traded. Only genuine companies are allowed to list their securities in stock
exchange. Stock exchange authorities enter the company’s names in the trade list only after
carefully verifying the soundness of company. The listed companies have to follow stick rules
and regulations to keep their securities listed with the stock exchange. It takes every possible
step to safeguard interest of the investors. The stock exchange transactions are made publicly
under well defined rules and regulations and bye-laws. This factor ensures a great measure of
safety and fair dealings to the average investors.

8. Control over Companies

One of the major functions of stock exchange is to exercise control over the listed
companies. The companies listing their securities in the stock exchange have to submit their
annual report and audited balance sheet to the stock exchange. Thus, only genuine companies
are allowed to list their securities for trading. The companies, which want to get their securities
listed in the stock exchange, should have to follow strictly certain rules and fulfill certain
conditions. The companies fail to comply the norms are black listed and they will find it difficult
to raise their capital. Thus, a stock exchange ensures transparent transactions and safeguards
the interest of the investing public.

9. Barometer of the Economy

A stock exchange is a reliable barometer to measure the economic condition (or health)
of a country. The stock exchange maintains the stock indices which are the indicators of the

8
 general trend in the economy. It also regulates the stock price fluctuations. Every major change
in country and economy is reflected in the prices of shares. The rise or fall in the share prices
indicates the boom or recession cycle of the economy. Satisfactorily functioning of stock
exchanges and their continuous growth in a country indicate the sound health of economy. This
situation can globally improve nation’s corporateimage. Foreign investors rely heavily on stock
indices. Stock exchange is also a mirror to reflect effectiveness of Government’s economic
policies. Business communities across the globe consider the stock exchange as the most
reliable indicator of economic condition. Thus, the stock exchange is considered as a barometer
of economy.

10. Development of Other Sectors

Directly or indirectly, the stock exchange contributes to growth and development of

other sectors. It creates business opportunities for bankers and other private and public
financial institutions. It is a platform for a number of brokerage and security depository
companies. If it functions properly, it can significantly contribute to economic prosperity of a
nation. Public issues, listing of securities, underwritings, and daily trading activities bring huge
business opportunities for many small and big companies, agencies, and individuals.

LISTING OF SECURITIES

INTRODUCTION

When a public company raises capital through public issue/offer, it has to get its shares listed in
recognised stock exchange(s). A company can list its security' in more than one stock exchange.
Securities include equity shares, debentures, bonds, etc. The company planning for listing its securities
in the stock exchange has to fulfill certain conditions and observe the rules as specified by stock
exchange and the SEB1. The Central Government has established Securities Contracts (Regulation) Act
(SERA), 1956, to regulate listing and trading of securities. The Central Government exercises its powers
through the Securities and Exchange Board of India (SEBI). Listing procedure is regulated by the norms of
the stock exchanges and the rules and regulations of the SEBI. The Companies Act, 2013 also specifies
certain norms for listing procedure and listed companies. The companies have to company with certain

9
norms to get and continue the securities listed with the recognised stock exchanges. Any listed security
can be delisted by the exchange authorities on the order the SEBI.

MEANING AND DEFINITION LISTING

1. Listing (of securities) refers to the admission of a security of a public limited company on a
recognised stock exchange for trading. The prime objective of listing the securities on the
exchange is to provide liquidity’ and marketability to securities and also to provide a mechanism
for effective control and supervision of trading.

2. Listing of securities refers to the sanction of rights to a company to trade the securities on the
stock exchange. The listing rights are granted by the stock exchange in accordance with the
norms specified by the regulatory authorities.

OBJECTIVES OF LISTING

Listing of securities on recognised stock exchanges is a multipurpose practice. Listing is desirable

for investors, companies, and the regulatory authorities. Listing is aimed at following objectives’

1. Offer ready marketability and liquidity of a company’s securities.

2. Facilitate free negotiability to stocks.

3. Raise capital and channelize savings.

4. Protect shareholders and investors interests by assuring a full discloser

5. Provide a mechanism for effective control and supervision of trading.

6. Mobilise savings for economic development.

7. Avail a higher collateral value for purpose of bank credit.

8. Get benefits of wide publicity.

9. Create mandatory obligations on listed companies for timely disclosures of crucial information.

10. Create a platform for healthy speculations.

ADVANTAGES OF LISTING THE SECURITIES

10
1. High Level of Liquidity

A listed security is a liquid asset. Listed securities enjoy high level of liquidity. High level
of liquidity offers a lot of benefits to the security holders. The security holders can convert their
securities into cash by selling securities and get their money back as and when they need. Thus,
listing offers liquidity, marketability, and free and easy transferability of securities on a stock
exchange. Listed securities are as good as cash in hand.

2. Best Price of Securities

Shares and other securities are traded openly on the stock exchange(s). Listing enables
the investors to get the best possible price for their securities. Constant availability of
information from companies and experts can help the investors buy and hold securities till the
best price is realised. Timely update by the stock exchange, also help to opt for entry or exit in
particular stocks.

3. Scope for Healthy Speculation

Only listed securities are freely, openly, and transparently traded on the stock exchange.
Listing offers attractive opportunities to those who are able to intelligently speculate security
prices. Healthy speculation keeps the stock exchanges, traders, and investors live and active.
Healthy (without any organised conspiracy) speculation increase volume of traded transactions.
High volume of stock transactions is good for all participants - companies, investors, traders,
advisors, and the government. Higher traded volume indicates the sound health of economy.

4. Protection of Investors Interest

Listing of securities safeguards the investors’ interest. For protecting economic interest
of the investors, the stock exchange and the SEBI authorities also work as the vigilance authority
for listed securities. They keep a constant and close watch on activities of listed companies. The
listed companies have to provide clear and timely information to the stock exchanges regarding
their financial performance, dividends, new issue of share capital, bonus shares, plans for
mergers and acquisitions, and expansion and diversification ol business. In case of any default by
the company to comply with theprescribed standards, the shares are delisted. The authorities
try to protect the investors’ interest in all possible ways.

11
5. Investor Confidence

Transactions of listed securities are conducted in an open and transparent manner, and
are subject to well-defined code of conduct. The companies have to comply strictly with the
listing requirements. Therefore, investors are assured of fair dealings. Listed shares enjoy better
liquidity, transferability, and marketability. Similarly, the stock exchange compels the issuer to
comply with high standards. These all aspects can enhance the investors’ confidence. Investors’
confidence can positively affect price of shares. This is the reason why the listed securities are
preferred by the investors. Investors’ confidence becomes the base for listed companies to
easily raise further capital for expansion and diversification of business.

6. Better Investment Decisions

The transactions of the listed securities are published widely in leading newspapers and
journals in terms of working results, dividends, and expansion and diversification plans. Stocks
and their financial performance are widely discussed on business channels, and on the BSE and
the NSE web portals. Live discussions and expert comments on the stocks on the business
channels continually update the investors’ knowledge. This information enables investors to
take informed decisions. Listed securities offer the investors the best investment options and
opportunities. They can buy or sell or buy securities at the most desirable price.

10. Other Benefits

Listing also offers a other benefits to the companies and investors. They have been
listed below:

(i) Tax Benefits to listed companies

(ii) Effective merger and acquisition decisions

(iii) Additional obligation for listed companies to company specific norms in the interest of
investors and other stakeholders

Listing Procedure

The SEBI and stock exchange are the authorities to deal with listing formalities. The stock
exchange is the direct authority to allow companies to list their securities for open trading. The

12
following are the steps to be followed in listing of a company’s securities in a stock exchange:

1. Decide on listing

2. Contact authorities of stock exchanges

3. Discuss eligibility criteria for listing with authorities

4. Submit proposed documents to stock exchange for verification and receive consent

5. Prepare final documents

6. Submit listing application with certified copies of documents

7. Issue and allocate shares

Listing Requirements (Rules or Conditions)

Listing of securities is a lengthy process. Listing process starts before the company is
incorporated. If promoters are planning to incorporate a public company, they should take necessary
steps along with the company formation process. Listing of securities on recognised stock exchange
requires the companies to fulfill following conditions:

1. Raising of capital by public offer

2. Inclusion of necessary provisions of listing in the Memorandum and the Articles

3. Compliance of mandatory provisions regarding listing in the Prospectus

4. Allocation of shares must be as per the present Rules and Regulations of the SEBI

5. Fulfillment of minimum paid up capital criterion as specified by the stock exchange

6. Application for listing along with certified copy of documents as may be prescribed

7. Furnishing necessary details as demanded by the stock exchange

8. Payment of requisite fees in accordance with the size of equity capital

9. Consent of stock exchanges in case when shares to be listed in more than one exchange

10. An agreement with the stock exchange.

13
 EXERCISES

SECTION A

1. Define term ‘stock exchange.’ Also briefly describe nature of stock exchange.

2. What is listing? Enlist listing objectives.

3. Write an explanatory note on advantages of listing of securities.

4. Describe the importance of share market from investor’s point of view.

5. State steps in listing procedure.

6.Discuss mode of Operations of Stock market.

SECTION B

SHORT QUESTION

1.Define Stock Market.

2. Define Listing of Securoties.

3.Define Capital Market.

4. Who is the Regulatory body of Banking Institutions.

5. Who is Regulatory body Of Share market.

6.Define Primary Market.

SECTION C

Multiple Choice Questions

14
1. Capital market
(a) mainly consists of stock markets
(b) security market consists of government agencies
(c) comprises share market only
(d) is meant for debt securities only.

2. Stock exchanges are

(a) places where people become rich over night
(b) indices of economic progress of the country
(c) controlled by controller of capital Issues
(d) controlled by SEBI

3. Indian stock exchanges are

(a) places in which trading rings are provided
(b) corporatized and demutualized in recent years
(c) constituents of SEBI
(d) are not governed by SCRA, 1956

4. Listing of securities
(a) means registering securities with Government of India
(b) means registering the securities with SEBI
(c) means registering the securities with recognized stock exchanges
(d) is not compulsory for the securities to be dealt with.

5. All stock exchanges are managed by

(a) Governing body as they are associations of persons
(b) Board of Directors as they are incorporated as a joint stock company
(c) SEBI to protect the interest of investors
(d) A committee of shareholders of stock exchanges

6. All recognized stock exchanges are controlled by

(a) The Acts of parliament like SCRA, 1956 or Companies Act only.
(b) Department of Company Affairs of the Government of India
(c) SEBI by issuing various guidelines and directives, etc.
(d) Comptroller and Auditor General of India (CAG)

7. The leading stock market indices of India are _______ and ____________.
(a) Sand 500 Index
(b) BSE Sensex
(c) Nasda 9100
(d) Nifty

15
8. The listing requirements are applicable to every company making ___________ offer of
Securities.
(a) private
(b) personal
(c) public
(d) none of the above

9. The company shall make an application to one or more Recognized Stock Exchanges to obtain
permission for ____________ of Securities.
(a) application
(b) listing
(c) allotment
(d) none of the above

10. For listing of Securities, the company shall make an application to one of more Recognized Stock
Exchanges before making the ___________ offer.
(a) private
(b) public
(c) personal
(d) none of the above

11. For listing of Securities, the company shall make an application to one of more
___________________ before making the public offer.
(a) The Acts of parliament like SCRA, 1956 or Companies Act only.
(b) Department of Company Affairs of the Government of India
(c) Recognized Stock Exchanges
(d) Comptroller and Auditor General of India (CAG)

12. ________________ should state the Name of the Stock Exchange in which Securities shall be
dealt.
(a) Prospectus
(b) MOA
(c) AOA
(d) Certificate of Incorporation

13. Prospectus should state the ___________________ in which Securities shall be dealt.
(a) Name of the Stock Exchange
(b) Name of the company
(c) Name of the country
(d) None of the above

14. __________________ of Securities can be made, only if Listing permission is granted.

16
 (a) Application
(b) Allotment
(c) Appeal
(d) None of the above

15. Allotment of Securities can be made, only if ________permission is granted.

(a) Listing
(b) Appeal
(c) Application
(d) None of the above

16. If listing permission is denied, ______________ can be made.

(a) no allotment of securities
(b) no application
(c) no appeal
(d) none of the above

17. If listing permission is denied from Recognized Stock Exchange, within ____ days an appeal can
be made to Securities Appellate Tribunal (SAT).
(a) 20
(b) 30
(c) 15
(d) 10

18. If listing permission is denied from ________________, within 15 days an appeal can be made to
Securities Appellate Tribunal (SAT).
(a) The Acts of parliament like SCRA, 1956 or Companies Act only.
(b) Department of Company Affairs of the Government of India
(c) Recognized Stock Exchanges
(d) Comptroller and Auditor General of India (CAG)

19. If listing permission is denied from Recognized Stock Exchange, within 15 days an ________ can
be made to Securities Appellate Tribunal (SAT).
(a) allotment
(b) application
(c) appeal
(d) none of the above

20. If listing permission is __________ from Recognized Stock Exchange, within 15 days an appeal
can be made to Securities Appellate Tribunal (SAT).
(a) given
(b) made available

17
 (c) denied
(d) none of the above

21. After appeal to SAT, if the order is favourable, the Company shall ______ the Securities.
(a) allot
(b) apply
(c) appeal
(d) none of the above

22. After appeal to SAT for listing of Securities, if the order is not favourable, the Company shall not
______ the Securities.
(a) allot
(b) apply
(c) appeal
(d) none of the above

23. After appeal to SAT for listing of Securities, if the order is not favourable, the Company shall
__________________ the Application Money.
(a) accept
(b) refund
(c) deposit
(d) none of the above

24. After appeal to SAT for listing of Securities, if the order is not favourable, the Company shall
refund the _______________ Money.
(a) Allotment
(b) Application
(c) Call
(d) None of the above

25. Failure to receive permission from even by one of the several Stock Exchanges named in the
Prospectus, the entire allotment will be _________.
(a) valid
(b) void
(c) illegal
(d) voidable

26. Permission should be granted by each of the ______________________ named in the

Prospectus for listing of Shares to which application has been made.
(a) Stock Exchanges
(b) Appellate Tribunal
(c) Companies

18
 (d) None of the above

27. Failure to receive permission from even by one of the several Stock Exchanges named in the
_______________, the entire allotment is void.
(a) MOA
(b) AOA
(c) Prospectus
(d) None of the above

28. ______________ of Securities refers to the admission of a security of a public limited company
on a Recognized Stock Exchange for trading.
(a) Application
(b) Allotment
(c) Listing
(d) None of the above

29. The prime objective of Listing of Securities on the exchange is to provide

(a) liquidity to securities
(b) marketability of securities
(c) both (a) and (b)
(d) none of the above

30. Listing of Securities provides a mechanism for effective control and supervision of __________.
(a) selling
(b) buying
(c) trading
(d) none of the above

31. The listing rights are granted by the ________________ in accordance with the norms specified
by the regulatory authorities.
(a) stock exchange
(b) Government
(c) RBI
(d) None of the above

32. Listing is aimed for

(a) raising capital and channelize savings
(b) protect the interests of shareholders and investors
(c) create a platform for healthy speculations
(d) all the above

19
33. The listed companies enjoy special _________ over the unlisted ones.
(a) disadvantages
(b) advantages
(c) limitations
(d) none of the above

34. In case of listed securities, high level of _____________ offers a lot of benefits to the security
holders.
(a) liquidity
(b) stagnancy
(c) rigidity
(d) none of the above

35. Listing enables the ___________ to get the best possible prices for their securities.
(a) investors
(b) competitors
(c) liquidators
(d) none of the above

36. Listing creates a platform for healthy __________________ of security prices.

(a) speculation
(b) transaction
(c) purchase
(d) sale

37. Listing of securities is a __________________ process.

(a) short
(b) lengthy
(c) occasional
(d) none of the above

38. Allocation of shares must be as per the present rules and regulations of ______________.
(a) SIDBI
(b) IDBI
(c) SEBI
(d) None of the above

39. Only _____________ companies will be allowed to list its securities in the stock exchange.
(a) private
(b) public
(c) mixed undertaking
(d) none of the above

20
40. Listing of securities refers to _________________ of a security of a public limited company on a
recognized stock exchange for trading.
(a) admission
(b) exit
(c) combining
(d) none of the above

41. When the securities are listed in _________________ the company has to comply with the
requirements of the exchange.
(a) Stock exchange
(b) Share exchange
(c) Security exchange
(d) None of the above

42. _____________ are regulatory authorities of Indian Financial System.

(a) SEBI
(b) RBI
(c) IRDA
(d) All of the above
43. Capital markets include ___________ and ____________ markets.
(a) equity
(b) debt
(c) both (a) and (b)
(d) none

44. Stock market is considered as a ________________ of economic condition of a market.

(a) mirror
(b) reflection
(c) both (a) or (b)
(d) none

45. The _____________ and _______________ are two major Indian Stock Exchanges.
(a) NSE
(b) BSE
(c) Both (a) and (b)
(d) None

46. Those who buy and sell stock are called ____________.
(a) clients
(b) brokers
(c) buyers

21
 (d) sellers

47. Those who facilitate in buying and selling transactions are called _________________.
(a) clients

(b) brokers
(c) buyers
(d) sellers

48. Clients and brokers may be _____________.

(a) individuals
(b) associations
(c) corporate houses
(d) all of the above

49. The stock exchange operates from ____________.

(a) 9.15 am to 3.30 pm
(b) 12noon to 6pm
(c) 10am to 5pm
(d) 9am to 5pm

50. Securities include ______________.

(a) shares
(b) debentures
(c) bonds
(d) all of the above
51. Stock exchange is a __________________ organization.
(a) individual
(b) multipurpose
(c) government
(d) dual aspect

52. ______________ are amongst world’s leading stock exchanges.

(a) NYSE
(b) NIKKEI
(c) London Stock Exchange
(d) All of the above

53. Continuous upward movement is called ______________ trend.

(a) bullish
(b) bearish
(c) both (a) and (b)

22
 (d) none

54. Continuous downward movement is called _______________ trend.

(a) bullish

(b) bearish
(c) both (a) and (b)
(d) none

55. Most of the powers of the ______________ government are exercised by the SEBI.
(a) State
(b) Central
(c) District
(d) Both state and district

56. Main participants of Stock Exchange are ____________________.

(a) clients
(b) brokers
(c) bankers
(d) all of the above

57. The __________________ are whose securities are listed.

(a) clients
(b) brokers
(c) stock exchange authorities
(d) bankers

58. The __________________ are who provide services to the investors in buying and selling
securities at commission.
(a) clients
(b) brokers
(c) stock exchange authorities
(d) bankers
59. The __________________ regulates stock exchange transactions.
(a) clients
(b) brokers
(c) stock exchange authorities
(d) bankers

60. __________________ performs financial transactions on behalf of the investors.

(a) clients
(b) brokers

23
 (c) stock exchange authorities
(d) bankers

61. _____________ is a reliable barometer to measure the economic condition of a country.

(a) stock exchange
(b) RBI
(c) Economic exchange
(d) Statistical Bureau

62. ________________ is a prime determinant of international reliability of an economy.

(a) stock exchange

(b) RBI

(c)Economic exchange

(d) Statistical Bureau

63. _________________ promotes healthy climate for investments and channelization of funds.
(a) stock exchange

(b) RBI

(c) Economic exchange

(d) Statistical Bureau

64. _______________ provides an efficient mechanism to price securities on the basis of key
parameters and demand and supply of securities.
(a) stock exchange

(b) RBI

(c) Economic exchange

(d) Statistical Bureau

65. Allocation of shares must be as per the present rules and regulations of _________________.
(a) SEBI
(b) IRDA
(c) NIEM
(d) NAEM

24
66. Fulfillment of minimum paid up capital criterion is specified by
(a) SEBI
(b) IRDA
(c) NIEM
(d) Stock Exchange

67. The transactions of listed securities are published widely in leading newspapers and journals in
terms of ______________.
(a) working results
(b) dividends
(c) expansion plans
(d) all of the above

68. A listed security commands ________________ collateral value for the purpose of bank credit.
(a) Higher
(b) Lower
(c) Negligible
(d) None of the above

69. Listed securities are _______________ quoted on the stock market.

(a) regularly
(b) occasionally
(c) never
(d) all of the above

70. Listed companies _________________ for preferential treatment for investment by institutional
investors and foreign companies.
(a) quantify
(b) qualify
(c) nullify
(d) ratify

25
Note: The above material has been compiled from the below mentioned
reference books
REFERENCE BOOKS

SR. AUTHOR/S PUBLICATION

NO.

1 CA VIJAY RAJA
COMMERCIAL
2 CA G.SEKAR AND CA B. SARAVANA PADHUKA

3 ANIL KUMAR TAXMANN

4 N.D.KAPOOR SULTAN CHAND & SONS

5 STUDY MATERIAL OF ICAI ICAI
 FACULTY OF COMMERCE

2024 – 25

SEMESTER 6

SUBJECT: ADVANCED COMPANY LAW AND

PRACTICE

UNIT 3: Company Law – Directors and Managerial

Personnel

Dr. Bimal Solanki

Dr. Devarsh Gandhi

STUDY MATERIAL FOR REFERENCE ONLY

 FACULTY OF COMMERCE
SEMESTER- 6
ADVANCED COMPANY LAW AND PRACTICE.
DIRECTORS AND MANAGERIAL PERSONNEL
SR. NO PARTICULARS
1 DIRECTORS
2 COMPANY AUDITORS
3 COMPANY SECRETORY
4 LONG QUESTIONS
5 MULTIPLE CHOICE QUESTIONS

DIRECTORS:
1. Under the Indian Companies Act 2013, a "Director" refers to any person appointed to
the board of directors of a company. The board of directors is responsible for the
overall management and decision-making of the company.
2. Appointment of Directors:
3. First Directors: The first directors of a company are typically mentioned in the
company's Articles of Association. They are appointed by the promoters or
subscribers to the Memorandum of Association at the time of incorporation.
4. Subsequent Directors: After the incorporation, directors can be appointed by the
shareholders in a General Meeting or by the existing directors in a Board Meeting,
subject to the provisions of the Articles of Association.
5. Qualifications to be a Director: To be eligible for appointment as a director in an
Indian company, a person must fulfill the following basic qualifications:
6. Age: The person must be at least 18 years old.
7. DIN (Director Identification Number): Every director must obtain a unique Director
Identification Number from the Ministry of Corporate Affairs.
8. Consent: The person must give his/her consent to act as a director and must not be
disqualified under the Act.
9. Other qualifications: Specific qualifications or disqualifications may be mentioned in
the Articles of Association of the company.
10. Disqualifications for being a Director: The Companies Act 2013 specifies various
disqualifications that prevent a person from being appointed as a director. Some
common disqualifications include:
11. Insolvency: An undischarged insolvent is not eligible to be appointed as a director.
12. Conviction: A person convicted of certain offenses or involved in any fraudulent
 activities is disqualified.
13. Unsound Mind: Persons of unsound mind and those who have been declared
incapable by a court are disqualified.
14. Disqualification by Other Authorities: Certain regulatory authorities may disqualify a
person from being a director due to non-compliance with their regulations.
15. Non-Compliance: A person who has failed to file financial statements or annual
returns for a continuous period of three financial years is disqualified.
16. Disqualification by Court: A court may disqualify a person from being a director in
certain circumstances.
17. It is essential for directors and the company's management to ensure that all the
directors appointed comply with the eligibility and disqualification criteria mentioned
in the Companies Act 2013 to maintain the company's legal status and good
governance.

The legal position of a director in a company is one of significant responsibility,

authority, and fiduciary duty. Directors play a crucial role in the management and decision-
making process of the company. They are entrusted with the duty to act in the best interest of
the company and its stakeholders while ensuring compliance with applicable laws and
regulations.

Here are some key aspects of the legal position of a director:

1. Fiduciary Duty: Directors owe a fiduciary duty to the company, which means they must
act honestly, in good faith, and in the best interest of the company. They must exercise their
powers and duties with due care, skill, and diligence, putting the company's interests above
their personal interests.

2. Duty of Care: Directors are expected to act with reasonable care and skill in the
performance of their duties. They should make informed and prudent decisions, exercise
independent judgment, and stay updated on the company's affairs.

3. Duty of Loyalty: Directors must avoid situations that may create a conflict of interest
between their personal interests and the interests of the company. If any such conflict arises,
directors must disclose it and refrain from participating in decisions where they have a
personal interest.
 4. Compliance: Directors are responsible for ensuring that the company complies with all
applicable laws, regulations, and corporate governance standards.

5. Decision-making: Directors participate in board meetings and collectively make

significant decisions affecting the company's strategy, financials, and operations.

6. Liability: Directors can be held personally liable for any breach of duty or violation of
laws, resulting in losses to the company or stakeholders. They may also be held liable for
certain acts of the company if they were aware of or party to the wrongdoing.

7. Removal and Resignation: Directors can be removed by the shareholders through an

ordinary resolution at a General Meeting, subject to certain conditions. They may also resign
from their position by providing notice to the company.

8. Indemnification and Insurance: Companies may provide indemnification or directors'

liability insurance to protect directors from certain legal liabilities arising from their role as
directors, subject to the provisions of the law.

Overall, the legal position of a director comes with substantial duties and responsibilities, and
failure to fulfill these duties can lead to legal consequences. It is essential for directors to act
prudently, ethically, and in accordance with the law to ensure the well-being of the company
and its stakeholders.

Rights and duties of a director

As a director in a company, individuals have both rights and duties. These rights and duties
are crucial for ensuring effective governance, protection of stakeholders' interests, and the
smooth functioning of the company. Here are the key rights and duties of a director:

Rights of a Director:

1. Right to Information: Directors have the right to access all relevant information about the
company, its financials, operations, and management. They should have access to board
papers, minutes of meetings, and other essential documents.
2. Right to Participate: Directors have the right to participate in board meetings and other
relevant company meetings, where they can contribute to decision-making and provide their
insights.
3. Right to Remuneration: Directors are entitled to remuneration for their services as per the
company's Articles of Association and the shareholders' approval.
4. Right to Vote: Directors can vote on resolutions presented in board meetings and shareholder
meetings, influencing the outcome of important decisions.
5. Right to Inspect Books and Records: Directors have the right to inspect the company's
books, records, and financial statements to ensure transparency and compliance.
6. Right to Indemnification: Directors may be entitled to indemnification by the company for
any legal expenses or liabilities incurred while acting in their official capacity, subject to
certain conditions and as permitted by law.

Duties of a Director:

1. Fiduciary Duty: Directors owe a fiduciary duty to the company, which requires them to act
in good faith, with honesty, and in the best interests of the company and its stakeholders.
2. Duty of Care: Directors must exercise due care, skill, and diligence while making decisions
and performing their roles. They should stay informed and act reasonably in the best interest
of the company.
3. Duty of Loyalty: Directors should avoid conflicts of interest and must not use their position
to gain personal benefits or advantage at the expense of the company.
4. Compliance: Directors must ensure that the company complies with all applicable laws,
regulations, and corporate governance standards.
5. Duty to Act in Good Faith: Directors should act in good faith and with the belief that their
actions are in the best interest of the company. They should not misuse their position for any
wrongful purpose.
6. Duty to Prevent Insider Trading: Directors are responsible for ensuring that the company
and its employees comply with insider trading regulations and prevent the misuse of price-
sensitive information.
7. Duty to Preserve Confidentiality: Directors must maintain the confidentiality of the
company's sensitive information and trade secrets.
8. Duty to Report: Directors may be required to report any conflicts of interest or potential
misconduct to the board or relevant authorities.
Understanding and adhering to these rights and duties are essential for directors to fulfill their
responsibilities effectively and maintain the trust of stakeholders in the company's
management.

Disability of a director

The disability of a director refers to a situation where a director becomes unable to fulfill their
duties and responsibilities due to a physical or mental impairment. Disabilities can be
temporary or permanent and may arise from various medical conditions or accidents. When a
director becomes disabled, it can have significant implications for their role within the
company.

Here are some key points to consider regarding the disability of a director:

1. Impact on Director's Ability to Function: Depending on the nature and severity of the
disability, a director's ability to actively participate in board meetings, decision-making, and
other managerial tasks may be affected.

2. Fiduciary Duty Remains: Despite a disability, the director's fiduciary duty to act in the
best interest of the company and its stakeholders generally remains intact.

3. Absence from Board Meetings: If the disability prevents the director from attending
board meetings regularly, the board may need to make arrangements to accommodate the
director's condition, such as providing remote participation options.

4. Temporary Disability: In the case of temporary disabilities, the director may take a leave
of absence until they are physically or mentally fit to resume their duties. During this time,
the board may appoint an alternate director or use other mechanisms to manage the director's
responsibilities.

5. Resignation or Removal: If a director's disability is severe and long-term, and they are
unable to fulfill their duties, they may choose to resign from their position. Alternatively, the
board or shareholders may consider removing the director if they are unable to perform their
responsibilities adequately.

6. Appointment of Additional Directors: In some cases, the board may decide to appoint
additional directors to ensure that the company's governance and decision-making processes
are not hindered due to the disability of a director.

7. Director's Liability: Directors with a disability continue to be subject to their legal

obligations and liabilities despite their condition. They should still act diligently and
responsibly in their capacity as directors.

8. Confidentiality and Privacy: The company and the board must respect the disabled
director's privacy and maintain confidentiality regarding their medical condition unless
required by law or other compelling reasons.

It is essential for the company's board and management to handle situations of director
disability with sensitivity and empathy while ensuring that the company's operations and
governance continue to be carried out effectively. This may involve seeking legal advice,
making necessary accommodations, and ensuring compliance with applicable laws and
regulations.

AUDITORS:

The appointment of an auditor for a company is a critical process that ensures an independent
and unbiased examination of the company's financial records and statements. Auditors play a
crucial role in providing an objective assessment of the company's financial health,
compliance with laws and regulations, and the accuracy of its financial statements. Here's
how the appointment of an auditor typically takes place:

1. First Auditor at Incorporation: When a company is incorporated, the first auditor is

usually appointed by the board of directors within 30 days from the date of
incorporation. The appointed auditor will hold office until the conclusion of the first
Annual General Meeting (AGM).

2. Subsequent Appointment: After the first auditor, the subsequent appointment of the
auditor is done by the shareholders at the AGM3. Eligibility of Auditors: The auditor
must be a practicing Chartered Accountant (CA) or a firm of Chartered Accountants
eligible to conduct statutory audits under the relevant laws. The Companies Act
prescribes certain qualifications and disqualifications for auditors.
 3. Rotation of Auditors: As per the Companies Act, certain classes of companies are
required to rotate their auditors after a specific period. For example, listed companies
and certain other specified companies need to rotate their auditors every five years.

4. Resolution for Appointment: The appointment of an auditor is done by passing an

ordinary resolution at the AGM. The proposed auditor's consent to act as an auditor is
required before the resolution is passed.

5. Notice to Registrar of Companies (ROC): After the appointment, the company must
file Form ADT-1 with the ROC within 15 days of the AGM, informing them of the
auditor's appointment.

6. Casual Vacancy: If the office of the auditor becomes vacant between AGMs due to
resignation, disqualification, or any other reason, the board of directors must appoint a
new auditor to fill the casual vacancy. The auditor appointed in such a case will hold
office until the conclusion of the next AGM.

7. Removal of Auditor: The shareholders may remove the auditor before the expiry of
their term by passing a special resolution at a general meeting. The company must also
inform the ROC about the removal and the reasons for it.

It is essential for companies to appoint qualified and independent auditors to ensure

transparency, accountability, and the integrity of the company's financial reporting. The
process of appointing an auditor should be in compliance with the relevant laws and
regulations governing companies and auditors in the jurisdiction where the company operates.

Rights and Duties of an Auditor

As an independent professional appointed to examine and report on a company's financial

statements, auditors have specific rights and duties to ensure the accuracy, reliability, and
transparency of the financial information. These rights and duties are essential for
maintaining the integrity of financial reporting and building stakeholders' confidence in the
company's financial affairs. Here are the key rights and duties of an auditor:

Rights of an Auditor:
1. Access to Information: Auditors have the right to access all relevant financial records,
books of accounts, vouchers, documents, and other information necessary for conducting
the audit.
2. Access to Employees and Officers: Auditors can communicate with company employees
and officers to gather information and explanations about financial transactions and
practices.
3. Attendance at General Meetings: Auditors have the right to attend and be heard at the
company's Annual General Meeting (AGM) and any other general meetings where
financial statements are presented.
4. Independent Judgment: Auditors have the right to form their independent professional
judgment while conducting the audit and preparing the audit report.
5. Right to Report: Auditors have the right to report any material misstatements,
irregularities, or fraud detected during the audit to the company's management, the board
of directors, and, if required, to the regulatory authorities.
6. Protection from Liability: Auditors have the right to be protected from any legal action
when acting in good faith during the performance of their duties.

Duties of an Auditor:

1. Auditing Financial Statements: The primary duty of an auditor is to audit the company's
financial statements to ensure they present a true and fair view of the company's financial
position, performance, and cash flows.
2. Independence and Objectivity: Auditors must maintain independence and objectivity in
their work, ensuring that their judgment is not influenced by any undue pressure or
conflicts of interest.
3. Compliance with Auditing Standards: Auditors are required to conduct the audit in
accordance with the applicable auditing standards, which vary depending on the
jurisdiction and professional body.
4. Detecting Errors and Fraud: Auditors have a duty to detect material misstatements,
errors, or fraud that may impact the accuracy of the financial statements.
5. Reporting: After completing the audit, auditors are responsible for preparing an audit
report, which includes their opinion on the financial statements' accuracy and compliance
with accounting principles.
6. Communication with Stakeholders: Auditors may need to communicate with
stakeholders, such as the company's board of directors and shareholders, regarding the
results of the audit and any significant issues identified.
7. Confidentiality: Auditors have a duty to maintain confidentiality regarding the
information they gather during the audit, except when disclosure is required by law or
professional standards.

The rights and duties of an auditor are critical for ensuring the credibility and reliability of
financial reporting. An auditor's impartial and thorough examination of the company's
financial records helps protect the interests of shareholders and other stakeholders by
providing an independent assessment of the company's financial health and performance.

Status of an auditor
The status of an auditor is that of an independent professional appointed to examine and
report on the financial statements of a company or an organization. Auditors play a crucial
role in the financial reporting process and act as watchdogs to ensure the accuracy and
reliability of the financial information provided by the company.

The key points regarding the status of an auditor are as follows:

1. Independence: Auditors are required to maintain independence and objectivity in their

work. They should not have any financial or personal interest in the company they are
auditing, to avoid any potential conflicts of interest.

2. Professional Qualifications: Auditors must possess the necessary professional

qualifications and meet the requirements set by the relevant regulatory authorities or
professional bodies. In many countries, auditors are typically Chartered Accountants (CAs)
or Certified Public Accountants (CPAs) who have completed specialized training and
obtained the necessary certifications.

3. Legal Obligations: Auditors have legal obligations to perform their audit work in
accordance with the applicable auditing standards, laws, and regulations of the country
where the company operates.

4. Scope of Work: The scope of an auditor's work is determined by the auditing standards
and the engagement letter between the auditor and the company. The auditor's primary
 responsibility is to provide an independent opinion on the fairness and accuracy of the
financial statements.

5. Reporting: After completing the audit, the auditor prepares an audit report, which
includes their opinion on the financial statements. The report states whether the financial
statements present a true and fair view of the company's financial position and performance.

6. Professional Liability: Auditors may have professional liability for any negligence or
failure to detect material misstatements in the financial statements during the audit process.
They may be held legally accountable if their work does not meet the required standards.

7. Rotation and Appointment: In some jurisdictions and for certain types of companies,
there may be regulations regarding the rotation of auditors to promote independence and
avoid long-term associations.

8. Relationship with the Board and Management: While auditors interact with the board
of directors and management during the audit process, it is essential for them to maintain
their independence and avoid any influence that could compromise the integrity of their
audit work.

9. Protection from Retaliation: Auditors should be protected from any retaliation or

adverse actions by the company for raising genuine concerns during the audit process.

In summary, the status of an auditor is that of an independent professional who plays a

critical role in ensuring the accuracy, reliability, and transparency of a company's financial
reporting. Their work helps to build stakeholders' confidence in the company's financial
statements and contributes to the overall integrity of the financial markets.

A company secretary is a senior executive responsible for ensuring the company's compliance
with legal and regulatory requirements, maintaining corporate governance standards, and
facilitating effective communication between the board of directors, management, and
shareholders. The role of a company secretary is crucial in ensuring the smooth functioning
and administration of a company.

Appointment of a Company Secretary:

The appointment of a company secretary is governed by the laws and regulations of the
 country where the company is incorporated. In many jurisdictions, it is mandatory for certain
types of companies to appoint a company secretary. The following steps are typically
involved in the appointment process:

1. Eligibility: The person being appointed as a company secretary must meet the eligibility
criteria specified in the relevant laws and regulations. This may include educational
qualifications, professional certifications, and experience requirements.
2. Board Approval: The board of directors of the company must approve the appointment of
the company secretary. They may appoint an individual as a whole-time company secretary
or engage the services of a firm to provide company secretarial services.
3. Filing with Regulatory Authorities: In some countries, companies are required to file the
appointment details of the company secretary with the appropriate regulatory authority, such
as the Registrar of Companies.
4. Roles and Responsibilities: The roles and responsibilities of the company secretary are
defined by the laws of the country and the company's Articles of Association. The company
secretary acts as the principal advisor to the board on matters of corporate governance,
compliance, and legal requirements.
5. Continuous Compliance: Once appointed, the company secretary must ensure the company
complies with all relevant laws, regulations, and corporate governance codes. This involves
organizing and conducting board meetings, preparing minutes, maintaining statutory records,
and ensuring timely filing of required documents with regulatory authorities.
6. Resignation or Removal: The company secretary may resign from the position by providing
notice to the board of directors. Alternatively, the board may remove the company secretary
by following the procedures outlined in the company's governing documents.
7. Professional Qualifications: In many jurisdictions, company secretaries are required to be
members of professional bodies or institutes for company secretaries, such as the Institute of
Company Secretaries of India (ICSI) in India or the Institute of Chartered Secretaries and
Administrators (ICSA) in the UK.

COMPANY SECRETARY

The appointment of a company secretary is critical for ensuring the company's compliance
with legal and regulatory requirements and maintaining high standards of corporate
governance. The company secretary plays a vital role in supporting the board of directors and
 senior management in making well-informed decisions and adhering to best practices in
corporate administration.

Qualifications and disqualifications of a company secretary

The qualifications and disqualifications of a company secretary are governed by the laws and
regulations of the country where the company is incorporated. Different countries may have
varying requirements for the qualifications and disqualifications of company secretaries. Here
are some common qualifications and disqualifications:

Qualifications of a Company Secretary:

Educational Qualifications: In many countries, individuals aspiring to become company

secretaries must possess specific educational qualifications. For example, in India, they must
have a minimum educational qualification of a degree from a recognized university.
Professional Certification: Company secretaries typically need to be members of a
recognized professional body for company secretaries, such as the Institute of Company
Secretaries of India (ICSI) in India, the Institute of Chartered Secretaries and Administrators
(ICSA) in the UK, or similar bodies in other countries. Obtaining membership from such an
institute often involves passing a qualifying examination.
Knowledge and Skills: Company secretaries should have a strong understanding of
corporate laws, regulations, governance practices, and financial management. They should
possess good communication, organizational, and leadership skills.
Continuous Professional Development: Company secretaries are expected to engage in
continuous professional development by attending relevant training programs and workshops
to stay updated with the latest developments in corporate laws and regulations.

Disqualifications of a Company Secretary:

1. Insolvency: A person who is an undischarged insolvent is generally disqualified from acting

as a company secretary.
2. Conviction: Individuals convicted of certain offenses or involved in fraudulent activities may
be disqualified from being a company secretary.
3. Disqualification by Regulatory Authorities: Certain regulatory authorities may disqualify a
person from being a company secretary due to non-compliance with their regulations or
professional misconduct.
4. Conflict of Interest: A person may be disqualified from acting as a company secretary if
they have a conflict of interest with the company or its management.
5. Disqualification by Court Order: A court may disqualify a person from being a company
secretary in specific cases of non-compliance or misconduct.

It is essential for individuals aspiring to become company secretaries to be aware of the

qualifications and disqualifications specified by the relevant laws and regulations in their
country. Additionally, company secretaries should adhere to the code of conduct and ethical
standards set by their professional body to maintain the integrity of their role and profession.

LONG QUESTIONS.
1. State the qualifications and disqualifications of an auditor as per
provisions of thecompany’s act 2013.
2. Explain the duties of an auditor.
3. Explain the provisions of the companies act regarding the Removal of
an auditor.
4. Rights and Duties of a Company Auditor.
5. Appointment and Reappointment of a Company auditor.
6. Rules regarding Appointment and removal of Director.
7. Qualifications and Disqualifications of a company Director..
8. Legal Position of the Director.
9. Powers of the
managing Director.
10.Directors
Remuneration.
11. Define a company
Secretary.
12. Write A short note on Qualifications of a company secretary.
13. Duties of a Company secretary.
14. Detailed note on Role of a company Secretary.
OBJECTIVE QUESTIONS:

UNIT 3 [A] DIRECTORS

1) One person Company shall have _

a) 5 Directors b) 3 Directors c) 2 Directors d) 1
Director

2) What is the maximum number of directors that can be

appointed by thecompanies as per Companies Act, 2013

a) 12 Directors b) 15 Directors c) 16 Directors d) 18

Directors

3) Company may appoint more than directors after passing

a) OR in GM b) SR in GM c) OR in BM d) SR
in BM
4) As per Section 165 of the Companies Act, 2013 maximum number
of directorships, including alternate directorship a person can hold is _
a) 15 b) 20 c) 18 d) 10
5) Section 149(3) of the Companies Act,2013 has provided for
residence of a director in India as a Compulsory i.e. every company
shall have at least one director who has stayed in India for a total
Period of not less than in theprevious calender year
a) 182 days b)180 days c) 160 days d) 172 days
6) Section 2(47) of the Companies Act,2013 prescribed “Independent
Director” means an independent Director referred to in sub section (5) of of the Act.
a) Sec 152 b)Sec 151 c) Sec 150 d) Sec 149
7) An independent director means a director other than a who does
nothave any material Or pecuniary relationship with the company /directors

a) Managing director b)Whole

time director c)Nominee director
d)All of
the above

8) Who can be appointed as director of any company??

a) Body corporate b) Association c)Firm d)Individual

9) Any corporate body or firm can be appointed as director of the

company. Thisstatement is
a) False b) True c) Partly False d) Party True
(a) No company shall appoint or re-appoint any individual as director
of thecompany unless he has been allotted
a)Permanent Account Number b)Director
Identification Number c)Permanent Identification Number
d)Director account Number

11) Every public company shall have at least _ .

 a) 2 Directors b)3 Directors c)4 Directors d)5 directors

12) According to Section 151 of the Companies Act,2013 every listed

company
have one director elected by such small shareholders.
a) May b)Should c)Must Not d)None of the above

13) How many directors must be appoint by the private company????

a) 2 Directors b)3directors c)4 directors d) 5 Directors
16) Every listed public company shall have at least of the
total number ofdirectors as independent directors

a) ¼ b) 2/3 c)1/3 d)3/4

17) Directors may be appointed by

a) Provision in articles b) BOD c) shareholders in GM d)All
of the above

18) The first directors are usually named in the

a) Memorandum b)Article c)Prospectus d) Shelf prospectus

19) If first director are not named in the Article, the subscribers to the
aredeemed to be the Directors
a) Memorandum b)Memorandum of who
are individualsc)Article who are individuals d)Article

20) How many directors can be permanently appointed out of the total
number ofdirectors in case of Public company?
a) 2/3 b) 1/3 c)3/4 d) 1/5

21) In the case of public company, out of the total number of directors
_ _directors are liable to retire by rotation
a) 2/3 b) 1/3 c)3/4 d) 1/5

22) XYZ Ltd has total 6 directors. Directors liable to retire by rotation should
bea) 3 b)4 c) 5 d) 6

23) XYZ LTD. has total 7 directors. Directors liable to retire by rotation
should bea)3 b)4 c) 5 d) 6

24) XYZ LTD. has total 8 directors. Directors liable to retire by rotation
should bea)3 b)4 c) 5 d) 6
25) XYZ LTD. has total 9 directors. Directors liable to retire by rotation
should bea)5 b)6 c) 7 d) 8

UNIT 3 [B] COMPANY AUDITOR

1. Which of the following is not correct in respect of qualification of an

Auditor.

a. A person who is a CA as per the Chartered Accountant Act 1949

b. A body corporate.

c. A partnership firm where all the partners qualified for appointment.

d. A person holding a certificate under the "Restricted Auditor Certificate".

2. Which of the following is not correct in respect of qualification of an

Auditor.
a. A person who is a CA as per the Chartered Accountant Act 1949
b. An officer or an employee of the company.
c. A partnership firm where all the partners qualified for appointment.
d. A person holding a certificate under the "Restricted Auditor Certificate".
3. Which of the following is not correct in respect of qualification of an
Auditor.
a. A person who is a CA as per the Chartered Accountant Act 1949
b. A person who is a partner or employment officer of the company.
c. A partnership firm where all the partners qualified for appointment.
d. A person holding a certificate under the "Restricted Auditor Certificate".

4. First Auditor of a company appointed by

a. BOD
b. Central Government.
c. State Government.
d. None of the Above.

5. First Auditor of the company appointed at

a. Extra ordinary general meeting.
b. AGM
c. Administrative meeting.
d. None of the Above.

6. The regular appointment of Auditor done by _

a. BOD
b. Central Government.
c. State Government.
d. None of the Above.

7. Where at an AGM the company fails to appoint Auditor then _

a. BOD
b. Central Government.
c. State Government.
d. None of the Above.

8. If company fails to appoint an Auditor in AGM then it has to give a

notice tothe Central Government in _ days.
a. 6 Days.
b. 7 Days.
c. a and b both.
d. None of the Above

9. Auditors appointed by
a. BOD
b. Central Government.
c. State Government.
d. a and b both

10. If an AGM the company fails to appoint or Re-appoint an Auditor then

will appoint Auditor.
a. BOD

b. Central Government.
c. State Government.
d. None of the Above.

11. If company fails to appoint or re-appoint an Auditor in AGM then it has

to givea notice to the Central Government in _ days.
a. 6 Days.
b. 10 days
c. 30 days.
d. None of the Above.

12. The Auditor of a Government Company is appointed or re-appointed by

a. State Government
b. Central Government.
c. Share Holders
d. BOD

13. _ can be passed a special resolution for

appointment ofAuditors.
a. Private company
b. Partnership firm
c. Public financial institutions.
d. None of the Above.

14. can be passed a special resolution for

appointment ofAuditors.
a. Private company
b. Partnership firm
c. A Government Company.
d. None of the Above.

15. _ can be passed a special resolution for a

appointment ofAuditors.
a. Government company
b. Central or State Government.
c. Public financial institutions.
d. All of the Above.

16. _ can be passed a special resolution for a

appointment ofAuditors.
a. A nationalized Bank
b. General insurance business
c. Both a and b
d. None of the Above.

17. The retiring Auditor who is re-appointed at the AGM is entitled to get the
remuneration as he was getting previously.

a. same.
b. more than
c. less than
d. None of the Above.

18. Which one of the following is not correct in regard to the

Rights of anAuditor?
a. Right to attend the BOD meetings
b. Right to receive Remuneration.
c. Right to be identified.
d. Right to get "Expert Advice".

19. Which one of the following is correct in regard to the Rights of an

Auditor?
a. Right to attend the BOD meetings
b. No Right to receive Remuneration.
c. No Right to be identified.
d. No Right to get "Expert Advice".

20. Which of the following statements are not correct with reference to
auditor'sduties under Judicial Decisions.
a. To be not acquainted with the Articles.
b. To be not verify the substantial accuracy of accounts.
c. Not to verify certain Assets Personally.

d. To clearly mention the deficiency in reports.

21. Which one of the following statements is not correct in regard to the
“Rightsof an Auditor”?
a. Right to receive remuneration
b. Right to be identified
c. Right to get Expert Advice
d. Right to attend the Board of Directors’ Meetings

22. Which of the following statements is correct in respect of

qualification of anAuditor of a Joint Stock Company?
a. A body corporate company
b. An officer or employee of the company
c. Where all the partners of the firm of auditors practicing in India are
qualified forappointment as aforesaid.
d. Any ICS degree holder.
23. The first auditor of the company is appointed by the BOD of the
company within month of its registration, who remain till the
completion ofthe first AGM.
a. 3
b. 2
c. 1
d. 5

24. Which one of the following statements is not correct in regard to the
Rights ofan Auditor?
a. Right to attend AGM
b. Right to inspect books of accounts and vouchers.
c. Right to management of BOD Meeting.
d. Right to obtain information and explanation

25. is the representative of the shareholders.

a. Company Secretary
b. Company Auditor
c. Company Register
d. None of the Above

UNIT 3[C] COMPANY SECRETARY

1. The CS act was passed in a. 1980

b. 1949
c. 1956
d. 1932

2. The person who is a become a C.S.

a. member of CS
b. member of CS of India.
c. member of CA of institute
d. None of the Above

3. _ can be only appointed as a CS.

a. An Individual
b. Body Corporate
c. Firm
d. None of the Above

4. cannot be appointed as a CS.

a. An Individual
b. Body Corporate
c. Firm
d. None of the Above

5. cannot be appointed as a CS.

a. An Individual
b. Firm
c. Insurance Company
d. None of the Above

6. CS certifies
a. Share Transfer
b. Resolution of meeting
c. MOA
d. None of the Above

7. As per Section BOD appoint

whole time CS.a. 203(2)
b. 202
c. 201
d. None of the Above

8. CS have a types of duties.

a. 3
b. 2
c. 4
d. None of the Above

9. Company have to appoint a whole time CS.

a. Listed
b. Unlisted
c. Private
d. All of the Above

10. CS conducts all the correspondence with _

a. Stake Holders
b. Share Holders
c. Directors
d. All of the Above

11. The company’s act specifies the types of companies that require
appointing
CS.
a. Whole time
b. Part time
c. temporary
d. None of the Above

12. A listed company having a paid up capital of rs or more

mustappoint CS.
a. 5 crore
b. 10 crore
c. 15 crore
d. 20 crore

13. A unlisted company having a paid up capital of rs or more must

appoint CS.
a. 5 crore

b. 10 crore
c. 15 crore
d. 20 crore
14. A Private company having a paid up capital of rs or more must
appoint CS.
a. 5 crore
b. 10 crore
c. 15 crore
d. 20 crore

15. Company have to appoint CS having paid up

capital of rs 5crore or more.
a. Unlisted
b. Private
c. Listed
d. both a and b

16. _ company have to appoint CS having paid up capital of

rs 10 croreor more.
a. Unlisted
b. Listed
c. Private
d. None of the Above

17. A listed company having _ of rs 10 crore or more

have to appointCS.
A. subscribed capital
b. authorized capital
c. both a and b
d. paid up capital

18. CS is appointed by
a. BOD
b. Central Government
c. State Government
d. None of the Above

19. The whole time CS cannot hold of his in any other company accept in its

a. holding company
b. government company
c. subsidiary company
d. None of the Above

20. The appointment of CS must be recorded in the _

a. register of share holders
b. register of debenture holders
 FACULTY OF COMMERCE
2024 - 25
SEMESTER 6

SUBJECT: ADVANCED COMPANY LAW

AND PRACTICE

UNIT NO-4
COMPANY LAW- COMPANY MEETINGS

COMPILED BY
Dr. Aashal Bhatt Dr. Shimoni Trivedi

STUDY MATERIAL FOR REFERENCE

 UNIT 4 COMPANY LAW - COMPANY MEETINGS

INDEX:

1. INTRODUCTION – COMPANY MEETINGS

2. CONDITIONS/REQUISITES OF A VALID MEETING
3. TYPES OF COMPANY MEETINGS
4. STATUTORY MEETING
5. ANNUAL GENERAL MEETING (AGM)
6. EXTRAORDINARY GENERAL MEETING (EGM)
7. BOARD MEETING
8. OTHER KINDS OF MEETINGS
9. PROVISIONS RELATING TO QUORUM AT COMPANY MEETINGS
10. MINUTES BOOK
11. DIFFERENT VOTING SYSTEMS IN COMPANY MEETINGS
12. PROVISIONS RELATING TO PROXY AT THE MEETING

INTRODUCTION
• Meetings are the part of a decision-making system in the company.

• The BOD takes decisions of various matters of company management

through meetings.

• Company being a separate legal entity has to work through human

intermediaries.

MEANING
• A meeting refers to a gathering or assembly or getting together of a number
of persons for transacting a lawful business.

• There must be at least 2 persons to constitute a meeting.

• A meeting is an important component of company management.

• Most of the decisions (resolutions) of the company are passed in the

meetings.

• PROPOSAL – MOTION - RESOLUTION

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CONDITIONS – REQUISITES OF A VALID MEETING
1. MEETING MUST BE DULY CONVEYED

2. MEETING MUST BE PROPERLY CONSTITUTED

3. MEETING MUST BE PROPERLY CONDUCTED

PROPER AUTHORITY TO CALL THE MEETING

• Meeting must be conveyed by Proper Authority.

• Three authorities: BOD, Shareholders and Tribunal.

• AOA of a Company empowers BOD to convene general meetings.

• If notice is given without the sanction of BOD it is invalid.

• In certain circumstances, the shareholders or members of the company

have the right to insist on calling an EGM.

• In case of any default in holding the AGM, on petition of member, the

TRIBUNAL may direct the company to call AGM.

PROPER NOTICE

A. NOTICE TO WHOM – it should be given to every member or shareholder,

auditor, legal representative of the deceased member, each of the directors
and every such person who is entitled to attend the meeting.

B. LENGTH TIME FOR NOTICE – At least 21 clear days’ notice must be given
to the members. A general meeting may be called after giving a shorter
notice if consent is given in writing or by electronic mode by not less than
95% of the members entitled to vote at such meeting

C. CONTENTS OF NOTICE – The notice for the meeting must specify the place,
day and time of the meeting. It must contain the agenda (a statement of
business to be transacted at the meeting)

D. HOW TO CONVEY THE NOTICE? - The notice can be sent by hand, post,

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 courier, fax or E-mail.

STATEMENTS TO BE ANNEXED TO NOTICE

• A statement containing material facts for each item of special business to

be transacted at a general meeting shall be annexed to the notice.

• A proxy form must be attached with the notice.

• Any default in following the provisions of notice will hold every promoter,
director & manager punishable with fine which may extend to Rs. 50,000 or
5 times the amount of benefit, whichever is more.

POSTPONING OR CANCELLING MEETING

• Meeting conveyed upon due notice shall not be postponed or cancelled.

• If necessary, the Board may reconvene the meeting to transact the same
business, after giving 3 days intimation to the members.

• It shall be sent either individually or published in a vernacular newspaper.

PROPER CHAIRMAN

• The chairman is the person who has been designated or elected to preside
over & conduct the proceedings of the meeting.

• He is usually a member of the Board.

• The articles designate the chairman of the board of directors to preside

over the general meeting of the company.

• If the chairman is absent, the meeting itself can elect a temporary chairman
to preside over a meeting.

• The members personally present at the meeting shall elect 1 of them to be

the chairman by show of hands.

• Members can also demand poll as per provision of the Act.

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 TYPES OF COMPANY MEETINGS
SHAREHOLDER’S MEETINGS

1. STATUTORY MEETING

• The first general meeting of the members by a public company is called

statutory meeting.

• It should be called within six months from the date on incorporation

2. ANNUAL GENERAL MEETING (AGM)

• It is an annual meeting of body of members

• Every company – Public or Private, having share capital or not, Ltd. Or

Unlimited – must hold AGM

• A company other than OPC has to hold in each year a AGM

• A company must hold one meeting in each calendar year

TIME PERIOD

For the first AGM

• It shall be held within 9 months from the date of the closing of the first
financial year of the company

• No extension of time can be allowed for first AGM

Subsequent AGMs

• AGM must be hold within 6 months from the closing of the financial year

• The gap between 2 AGMs need not be more than 15 months

• Where the first AGM of the company has been held within 9 months from
the date of closing its financial year, then it need not to hold another AGM
in the year of incorporation

• Registrar may for any reason extend its time not exceeding 3 months
within which any AGM shall be held. (this extension is not available for first

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 AGM)

• Day, hour and time of AGM

• Generally during business hours (9am to 6pm)

• On any day that is not a national holiday

• Shall be held at the registered office of the company or at some other place
within the city, town or village in which the regd. Office of the company is
situated

POWER OF TRIBUNAL TO CALL AGM

If any default is made in holding the AGM of a company, tribunal may, on

the application of any member of the company, call or direct the calling of
an AGM.

PROVISIONS FOR DEFAULT IN COMPLYING WITH PROVISIONS

• If any default is made in holding AGM,

• The company and every officer of the company, who is in default, shall be
liable

• Fine which may extend to 1 lakh Rs and in case of continuing default –

further fine of 5000 Rs every day during which such default continues

BUSINESS TO BE TRANSACTED AT AGM

• The term business means major activity to be discussed or major decisions

to be taken in the meeting.

• The business to be transacted at AGM may comprise of ordinary business

and special business.

ORDINARY BUSINESS:

• The ordinary business is of routine nature. The ordinary business to be

transacted at the AGM may include the following items:

1. Consideration of financial statements and the report of the and auditors.

2. The declaration of dividend.

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 3. The appointment of directors in place of those retiring.

4. The appointment of and fixing up of the remuneration of auditors.

SPECIAL BUSINESS:

Any business other than mentioned in the ordinary business scheduled to

be transacted at the meeting are deemed to be special business.

3. EXTRAORDINARY GENERAL MEETING (EGM)

• All general meetings other than AGMs shall be called EGMs.

• EGMs are conveyed by the company at any time

• The business transacted at an EGM comprises anything which cannot be

postponed till the next AGM.

• For eg. Changes in MOA or AOA, reduction or reorganization of share

capital, issue of debentures, etc.

• All business transacted at these meetings are ‘special business’.

EGM MAY BE CALLED

(1) by the BOD on its own accord

(2) by the directors on the requisition of shareholders

(3) by the requisitionists (members) themselves

(4) by the tribunal

(1) BY THE BOD ON ITS OWN ACCORD

The board whenever deem fit, call an egm

The meeting is called by giving 21 days clear notice

(2) BY THE DIRECTORS ON THE REQUISITION OF SHAREHOLDERS

Who can be valid requisitionists?

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 (a) in case of company having share capital – such number of members
who hold not less than one-tenth of such shares of the paid-up share capital
of the company as on that date carries the right of voting

(b) in case of company not having share capital – such number of members
who hold not less than one-tenth of the total voting powers of the all the
members having on the said date a right to vote

Requirements of requisition

• The requisition made shall set out the matters for consideration of which
the meeting is to be called.

• It means the requisition must state the objects of meeting.

• It must be signed by the requisitionists and sent to the registered office of

the company.

(3) BY THE REQUISITIONISTS (MEMBERS) THEMSELVES

• The board must fix a date of calling the meeting –

• Within 21 days from the date of receipt of valid req

• The date of meeting must be fixed on a day not later than 45 days

• If the board fails to fix the date of meeting within the aforesaid period, the
meeting may be called by req themselves within a period of 3 months from
the date of deposit of req.

• Any reasonable expenses incurred by the req shall be reimbursed by the

company

(4) BY THE TRIBUNAL

• If for any other reason, it is impractical to call a meeting of the company,

other than an AGM, the tribunal may direct the company to call and hold
meeting

(1) on its own motion

(2) on an application of any director

(3) on application of any member, who is entitled to vote at a meeting

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 BOARD MEETINGS
Company is an artificial person and so has to act through human
intermediaries, who are called directors of the board.

They take active part in the board meetings.

Decisions are taken on the basis of majority rule.

LEGAL PROVISIONS OF BOARD MEETINGS

• FIRST MEETING AND SUBSEQUENT MEETING

First board meeting shall be held within 30 days from the date of its
incorporation

So minimum 4 meetings of BOD every year

Subsequent Meeting shall not have more than 120 days interval between
two meetings (one in a quarter – one in every 3 months)

MANNER OF HOLDING MEETING

• The participation of directors in a meeting may be either in person or

through video conferencing or other audio-visual means

• It must be capable of recording and recognizing the participation of the

directors as well as the proceedings of the meetings.

VALID NOTICE FOR THE BOARD MEETING

• A meeting of the Board shall be called by giving not less than 7 days’ notice
in writing to every director at his registered address.

• Such notice shall be sent by hand delivery or by post or by electronic

means

PENALTY FOR DEFAULT IN CONVEYING NOTICE

Every officer of the company whose duty is to give notice under this section
and fails to do so shall be liable to a penalty of Rs. 25,000.

QUORUM FOR BOARD MEETING

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 • It shall be one-third of the total strength or 2 directors, whichever is higher.

• Any fraction of a number shall be rounded off as one.

• Participation of directors by video conferencing or other audio-visual

means shall also be counted for the purpose of quorum

• Due to lack of quorum if meeting couldn’t be conducted, the meeting shall

stand adjourned to the same day, same time and place in the next week

PASSING OF RESOLUTION BY CIRCULATION

No resolution shall be deemed to have been passed unless it has been

approved by a majority of the directors or members who are entitled to
vote on the resolution.

DEFECT IN APPOINTMENT OF DIRECTORS AND VALIDITY OF ACTIONS

No act done by a person as a director shall be deemed to be invalid by

reason of any defect or disqualification regarding the appointment of the
director, noticed subsequently.

OTHER MEETINGS
1. Meetings of the Committees of the Board

2. Meeting of Debenture holders

3. Meeting of Creditors

4. Meeting of Contributories in winding up

MEETING OF THE COMMITTEES OF THE BOARD

• The company appoints various committees for various purposes

• Committee Meetings are held individually or the BOD call meeting of all
committee members and their chairman

• Committees include – Remuneration Committee, CSR Committee, Audit

Committee or Shareholders Relationship Committee, etc.

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 MEETING OF DEBENTURE - HOLDERS

• A company maintains a Register of debenture-holders.

• BOD can call meeting of debenture holders at any time.

MEETING OF CREDITORS

• Creditors are those persons, organizations and agencies from whom the
company has borrowed funds.

• The meeting of creditors is called at the time of 2 events:

(a) for purposes other than winding up

(b) for winding up

MEETING OF CONTRIBUTORIES IN WINDING UP

• Contributories are those persons or agencies who contributed to

company’s assets

• At the time of winding up of a company, the liquidator calls tue meeting of

contributories.

QUORUM
• It is a Latin word.

• It means the minimum number of members that must be present at the

meeting.

• In other words, a quorum is the specified minimum number of qualified

persons (members or directors) whose presence is necessary for
transacting legally binding business (decisions) at the meeting

• Only effective members constitute the quorum at the meeting.

• Effective members are those who are entitled to vote at the meeting.

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 QUORUM FOR PUBLIC COMPANY

(1) 5 members personally present if the number of members as on the date

if meeting is upto 1000

(2) 15 members personally present if the number of members as on the

date if meeting is more than 1000 but upto 5000

(3) 30 members personally present if the number of members as on the

date if meeting exceeds 5000

QUORUM FOR PRIVATE COMPANY

2 members personally present - shall be the quorum

IMP RULES REGARDING QUORUM

(1) MEMBERS PRESENT IN PERSON – Proxies are not counted

(2) JOINT HOLDERS – Treated as a single member

(3) DUAL ROLE MEMBERS – Members present in two or more capacities

(individual member and as a trustee, may be treated as 2 members
personally present for the purpose of quorum)

(4) GOVERNMENT REPRESENTATIVE – If the President of India or a

Governor of State hold shares and appoint a person to act as his
representative at a meeting of that company, such person shall be deemed
to be a member present in person and counted for quorum.

(5) COMPANY AS A MEMBER – If a company is a member of another

company, the member company may authorize a person as its
representative at a meeting of the latter company. In this case, a person
shall be deemed to be a member present in person and counted for the
purpose of quorum.

(6) 2 OR MORE COMPANIES – If 2 or more companies have appointed a

single person as a representative at the meeting, each of the company will
be counted in the quorum

QUORUM WHEN TO BE PRESENT

• No business shall be transacted at any general meeting unless a quorum of

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 members is present at the time when the meeting proceeds to business.

• Full presence (mandatory standard).

• Quorum shall be present throughout the meeting, it should not only be

present at the time of commencement of the meeting but also while
transacting business.

QUORUM NOT BEING PRESENT

• If the quorum is not present within half an hour of the appointed time of
the meeting

(a) MEETING SHALL STAND ADJOURNED – at the same time, place, same
day next week

(b) IF MEETING IS CALLED BY REQUISITIONISTS – shall stand cancelled

• If at the adjourned meeting also, quorum is not present within half an hour
of the appointed time, members present at the meeting shall be the
considered the quorum

MINUTES BOOK
• The term ‘minutes’ refers to a concise and accurate official record of the
business or dealings transacted at the company meetings.

• The minutes of meeting include the resolutions actually passed.

• The minutes as recorded in a minute’s book.

• Only important resolutions are recorded not the discussions and

deliberations of members. A minutes book must be a bound book and
cannot be a loose-leaf binder.

• The pages of book must be consecutively numbered.

• Each page of every such book has to be signed and last page of record of
proceeding of such meeting shall be dated and signed.

• There is a statutory obligation on every company to cause minutes of the

proceedings of every general meeting of any class of shareholders or
creditors and every passed by postal ballot and every meeting of its BOD or
of every committee of the board to be recoded.

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• The minute books of general meetings shall be kept at the registered office
of the company and shall be preserved permanently and kept in the
custody of the CS.

• Every company shall prepare minutes of the proceedings of every type of

meetings and resolutions passed therein.

• The minutes should be entered within 30 days of conclusion of every

meeting and passing of resolution in the minute’s books.

DIFFERENT VOTING SYSTEMS IN COMPANY MEETING

1. VOTING RIGHTS

Voting Rights of Equity Shareholders

(a) Every member of a company limited by shares and holding equity

share capital therein, shall have a right to vote on every resolution

(b) His voting right on a poll shall be in proportion to his share in the
paid-up equity share capital of the company

Voting Rights of Preference Shareholders

Every member of a company limited by shares and holding any preference

share capital shall have a right to vote only on resolutions placed before the
company

(a) Which directly affect the rights attached to his preference shares

(b) Any resolution for the winding up of the company or for the
repayment or reduction of its equity or preference share capital.

2. VOTING METHODS AT THE GENERAL MEETING

(a) By Acclamation

(b) By Voice Vote

(c) Show of Hands

(d) By Division

(e) By Ballot

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 (f) By Poll

3. VOTING IN THE FIRST INSTANCE BY SHOW OF HANDS

It shows what the members wish in respect to the issue. If the resolution is
passed through voting by show of hands shall be treated as valid. Minutes
of particulars relating to any resolution passed through show of hands can
be recorded in the minute’s books.

4. DEMAND FOR POLL

The chairman may insist for the poll when is demand is made in this behalf
by the specified person. The demand for a poll shall be valid only if the
person or proxy is entitled for demanding poll.

5. TIME OF TAKING POLL

The chairman must order to take poll immediately when demand for the
poll relates to adjournment or election of chairman of the meeting. If the
poll relates to any other question, it must be taken with 48 hours from the
demanded time.

6. VOTING BY COMPANIES AND GOVERNMENT AS MEMBERS

Companies and Government normally attend the meeting of the company

through their representatives. The person nominated shall hold the
position of a proxy but is counted for the purpose of quorum as the
member personally present.

7. PARTICIPATION BY SHAREHOLDERS IN GENERAL MEETINGS BY

ELECTRONIC MODE (VIDEO CONFERENCING)

Company having equity shares listed on a recognized stock exchange or a

company having not less than 1000 members shall provide to its members
facility to exercise their rights to vote on resolution proposed to be
considered at the general meetings by electronic means.

8. PASSING RESOLUTION BY POSTAL BALLOT

Voting by postal ballot refers to voting by the post of through electronic

mode. In case of crucial items to be decided at the meetings, like alteration
of object clause of MOA, alteration of AOA, Buy-back of shares, election of a

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 director, changes in registered office, etc., voting through postal ballot is
required.

PROXY AT THE MEETING OF A COMPANY

A proxy is a person representing a shareholder at the meeting of the

company. He may be described as the authorized agent of the
shareholder to attend and vote at the meeting.

PROVISIONS RELATING TO PROXY

(a) Right of member to appoint proxy

A proxy shall not have the right to speak and shall not be entitled to vote at
the meeting

(b) Notice of Permitting Proxy

For each meeting a separate proxy is required. A proxy need not be a

member of a company

(c) Instrument of Appointing Proxy

It shall be in writing and be signed by the appointer

(d) Time limit of depositing Proxy Instrument

It must be deposited with the company 48 hours before the meeting.

SECTION A - LONG QUESTIONS / SHORT NOTES

1. Give the meaning of Company Meetings.

2. Discuss the conditions or requisites of a valid meeting.
3. Discuss various types of Company Meetings.
4. Write a note on Statutory Meeting.
5. Discuss the provisions of Annual General Meeting (AGM).
6. Discuss the provisions of Extraordinary General Meeting (EGM).
7. Discuss the provisions of Board Meetings.
8. Discuss the provisions of Quorum.
9. Write a note on Provisions of Proxy at the meeting of the Company.
10. Discuss different Voting systems in Company Meeting.

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SECTION B – SHORT QUESTIONS

1. Who is the Proper Authority to call Meeting.

2. State the provisions of Proper Notice.
3. What are the Statements to be annexed to the Notice.
4. Who is the Proper Chairman of the Meeting.
5. Ordinary Business and Special Business.
6. Meetings of Debenture Holders.
7. Meetings of Creditors.
8. Meetings of Committee of Board.
9. Meetings of Contributories in winding up.
10. Quorum for Board Meeting.

SECTION C - MULTIPLE CHOICE QUESTIONS

1. Every notice of a meeting shall specify:

(a) place, date, hour of the meeting and statement of business
(b) place, day, hour of the meeting and statement of business
(c) place, date, day, hour of the meeting and statement of business
(d) place of the meeting and statement of business

2. Which of the following item shall not be treated as a Special Business

at an AGM?
(a) Consideration of financial statements, boards report and auditors
report
(b) Declaration of dividend
(c) Appointment of auditors
(d) All of the above

3. In case of a private company, quorum shall be

(a) one member personally present
(b) two members personally present
(c) three members personally present
(d) five members personally present

4. If the quorum is not present within half an hour from the time
appointed for holding a meeting of the company called by requisition,
the meeting shall stand
(a) cancelled
(b) adjourned
(c) convene the meeting

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 (d) preponed

5. The instrument appointing a proxy shall be

(a) in writing
(b) in oral
(c) written and oral both
(d) by conduct

6. Who may call an AGM of a company if the company has made default
in holding it?
(a) Tribunal
(b) Company Law Board
(c) Central Govt
(d) Registrar of Companies

7. Can a member cast his vote by electronic means?

(a) Yes, in case of class of companies prescribed by Central Govt.
(b) Yes, in case of all companies
(c) Yes, only for one-person company
(d) For two persons

8. An EGM may be convened by

(a) Board of Directors
(b) Requisitionists
(c) Tribunal
(d) All the above

9. EGM of Indian Company shall be held at a

(a) Registered office of company
(b) Place within India or outside
(c) Place outside India
(d) Registered office or any place in the same city or town where
registered office of company is situated

10. If there is no quorum within of requisitioned EGM, the

requisition meeting stands cancelled.
(a) 10 minutes
(b) 15 minutes
(c) 30 minutes
(d) 60 minutes

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11. If quorum is not present at general meeting even after half an hour, in
case of AGM or EGM called by BOD, the meeting shall be
(a) Adjourned to same day in the next week at the same time and place
(b) Adjourned as decided by Board
(c) Either (a) or (b)
(d) Cancelled

12. In the case of general meeting, quorum should be present

(a) Throughout the meeting
(b) At the beginning and throughout the meeting
(c) At the end of the meeting
(d) At the middle of the meeting

13. The time gap between two AGMs shall not exceed
(a) 15 months
(b) 18 months
(c) 16 months
(d) 48 months

14. Statutory meeting of the company must be held within from the
date of its incorporation.
(a) 15 months
(b) 18 months
(c) 6 months
(d) 48 months

15. AGM should be held at

(a) company
(b) registered office
(c) corporate office
(d) outside the office

16. Any company can’t hold AGM on .

(a) working day
(b) private day
(c) Wednesday
(d) Public holiday

17. Quorum should be present at the

(a) commencement of meeting
(b) middle of the meeting
(c) end of the meeting
(d) any time during meeting

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18. meeting is the first meeting of the members of the
public company after its incorporation.
(a) board
(b) annual general
(c) departmental
(d) statutory

19. All businesses to be transacted at are Special Business.

(a) Shareholders
(b) Board
(c) AGM
(d) EGM

20. report is sent by the directors to its members.

(a) Statutory
(b) Audit
(c) Annual
(d) Monthly

21. meeting gives an opportunity to the member to know

and discuss on promotion and formation of the company.
(a) General
(b) EGM
(c) Statutory
(d) AGM

22. In the given below who are required to hold a statutory meeting
(a) Private company
(b) Government company
(c) Public company
(d) both (a) and (b)

23. In the given below who are required to hold AGM

(a) Private company
(b) Government company
(c) Public company
(d) all the three

24. The resolution passed at AGM are

(a) valid (b) void (c) voidable (d) void abinitio

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25. Every business transacted at an EGM is a business.
(a) ordinary
(b) special
(c) Both (a) and (b)
(d) general

26. In case of Public company, the quorum should be

(a) 5 members
(b) 7 members
(c) 2 members
(d) 10 members

27. In case of Private company, the quorum should be

(a) 2 members
(b) 3 members
(c) 4 members
(d) 10 members

28. If one person is present in dual capacity his presence will be counted
as .
(a) 1
(b) 2
(c) 3
(d) 4

29. In the absence of a quorum the proceedings of the meeting will be

(a) valid
(b) void
(c) voidable
(d) legal

30. If quorum is not present with in hour the meeting is stand

dissolved.
(a) half
(b) one
(c) one and a half
(d) two

31. can vote through representative at the meeting even

though not present in the meeting.
(a) Body corporate
(b) President
(c) Governor

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 (d) All the above

32. Depositing of proxy with the company should be made within how
many hours
(a) 24
(b) 48
(c) 36
(d) 72

33. Proxies cannot vote on

(a) show of hands
(b) poll
(c) both (a) and (b)
(d) writing

34. is the official recording of the proceedings of a

meeting.
(a) Quorum
(b) Minutes
(c) Both (a) and (b)
(d) Proxy

35. Proxy need not be a of the company.

(a) shareholder
(b) members
(c) both (a) and (b)
(d) none

36. If the notice contains a special business then a

statement shall be enclosed.
(a) explanatory
(b) enquiry
(c) both (a) and (b)
(d) general

37. Minutes should be recorded within days from the date of

conclusion of every meeting
(a) 10
(b) 20
(c) 30
(d) 40

38. Directors are of the company.

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 (a) Employees
(b) Employers
(c) Both (a) and (b)
(d) None

39. First Board Meeting of the Company must be held within days
from the date of its incorporation.
(a) 15
(b) 30
(c) 45
(d) 60

40. Decisions passed by shareholders are known as

(a) resolutions
(b) provisions
(c) Articles
(d) Memorandum

41. An ordinary resolution is passed with

(a) simple majority
(b) 60% majority of members present
(c) 75% majority of members present
(d) none of these

42. An EGM may be convened

(a) By the BOD on its own or on the requisition of members
(b) By the requisition of members on the failure on the Board to call
the meeting
(c) Tribunal
(d) Any of the above

43. General meeting requires prior notice of

(a) 14 days notice
(b) 7 days notice
(c) 14 days notice to the Company and thereafter 7 days to the
shareholders
(d) 21 clear days notice

44. Board meeting requires prior notice of

(a) 14 days
(b) 7 days
(c) 14 days’ notice to the Company and thereafter 7 days to the
shareholders

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 (d) 21 clear days

45. All General meetings other than AGM are called .

(a) Shareholders
(b) Board
(c) Creditors
(d) EGM

46. Vote may be cast by

(a) by show of hands
(b) electronically
(c) on a Poll
(d) All the above

47. Meeting cannot transact any business unless a is present at

every stage of the meeting.
(a) proxy
(b) manager
(c) quorum
(d) secretary

48. Minutes should not include any matter which in the opinion of the
chairman of the Meeting
(a) is defamatory of any person
(b) is irrelevant or immaterial to the proceedings
(c) is detrimental to the interest of the Company
(d) All the above

49. Minimum meetings of Board of Directors must be held every

year.
(a) 1
(b) 2
(c) 3
(d) 4

50. Getting together of a number of persons for transacting any lawful

business or for any other specific purpose is called .
(a) meeting
(b) minutes
(c) quorum
(d) resolution

51. Notice of the AGM shall be given to

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 (a) every member
(b) the persons entitled to a share in consequence of death or
insolvency
(c) auditor or auditors
(d) all the above

52. In case of an resolution votes cast in favour of the

resolution exceed the votes cast against the resolution.
(a) ordinary
(b) Special
(c) Extra ordinary
(d) All the above

53. In case of resolution, votes cast in favour of the

resolution, not less than 3 times the number of votes, if any, cast
against the resolution.
(a) ordinary
(b) Special
(c) Extra ordinary
(d) All the above

54. Clear Days implies full or complete days.

(a) financial
(b) calendar
(c) holidays
(d) none of these

55. In determining Days, Date of Service of Notice and

Date of Meeting are excluded.
(a) clear
(b) holidays
(c) working
(d) none of the above

56. Joint holders of shares are treated as a member to

count the number of members for quorum.
(a) single
(b) dual
(c) both (a) and (b)
(d) none of the above

57. Notice of every Meeting of a company should be sent to

(a) every member of the company

24
 (b) legal representative of a deceased member
(c) assignee of an insolvent member
(d) all the above

58. To ascertain quorum, only present in person shall

be counted.
(a) Debenture holders
(b) Preference shareholders
(c) members
(d) none of the above

59. An accidental omission to give Notice will not the

proceedings of the Meeting.
(a) validate
(b) invalidate
(c) confirm
(d) legally permissible

60. Proxies are not considered for ascertaining .

(a) quorum
(b) minutes
(c) agenda
(d) notice

61. Documents accompanying Notice for AGM are

(a) Audited financial statements
(b) Directors and Auditors Report
(c) Proxy form
(d) All the above

62. Contents of Notice include

(a) Place and date of the meeting
(b) Day and Hour of the meeting
(c) Statement of business to be transacted
(d) All the above

63. A proxy has no right to in the meeting.

(a) sit
(b) vote
(c) stand
(d) write

25
64. Subsequent Board Meeting shall not have more than days
interval between two meetings.
(a) 100
(b) 90
(c) 120
(d) 80

65. A (which is a Member of another Company) may

authorize a person to act as its representative by a resolution.
(a) Body Corporate
(b) Creditor
(c) Debtor
(d) Customer

66. The participation of directors in a meeting may be either in

(a) Person
(b) Video conferencing
(c) Other audio-visual means
(d) All the above

67. A valid notice of a board meeting shall be sent by

(a) Hand delivery
(b) By post
(c) By electronic means
(d) All the above

68. Quorum for the board meeting will be 1/3rd of the total strength or
directors, whichever is higher.
(a) 5
(b) 3
(c) 2
(d) 1

69. Participation of directors by video conferencing or other audio-visual

means shall also be counted for the purpose of .
(a) Proxy
(b) Quorum
(c) Speaking
(d) notice

70. The term business means to be discussed or major decisions to

be taken in the meeting.
(a) Major activity

26
 (b) Major reasoning
(c) Major arguments
(d) Minor arguments

Note: The above material has been compiled from the below mentioned
reference books

REFERENCE BOOKS

SR. AUTHOR/S PUBLICATION

NO.
1 CA VIJAY RAJA COMMERCIAL
2 CA G. SEKAR AND CA B. SARAVANA PADHUKA
PRASATH
3 ANIL KUMAR TAXMANN
4 N.D. KAPOOR SULTAN CHAND &
SONS
5 STUDY MATERIAL OF ICAI ICAI

27
 FACULTY OF

FACULTY OF COMMERCE
2024- 25

SEMESTER 6
SUBJECT: Advanced Company law
and Practices
UNIT 5
Company Law- Winding up and Recent
trends and Developments in company
law

DR.Bhavik U Swadia AND DR. Shimoni Trivedi

STUDY MATERIAL FOR REFERENCE ONLY

INDEX :

1. Introduction

2. Winding Up & Dissolution

3. Reasons for Winding Up A Company

4. Modes of Winding Up A Company

5. Grounds for Compulsory Winding Up

6. Power of the Court after Winding Up Order

7. Powers & Duties of the Official Liquidators

8. Declaration of Solvency

9. Members’ Voluntary Winding Up

10. Creditors’ Voluntary Winding Up

11. Winding Up under Supervision of the Court

2
 Introduction:

The winding up of a company is a process which involves ending the life of the
company and administering its property for the benefit of its creditors and
members. In this process, the assets of the company are collected & realised to
the payment of its debt. If after realising the creditors, company finds surplus
which is distributed among the members on the other hand if there is any deficit,
every member of the company must contribute to the assets of the company.
After completion of these formalities prescribed by the Companies Act, the
company is dissolved and its name is removed from the Registrar of Companies.

.Winding Up & Dissolution

Generally, the terms ‘winding up’ and ‘dissolution’ used to mean the same thing,
but according to Companies Act, these two terms are quite different by their
legal procedures. The differences between them are as below:

Points Winding Up Dissolution

Main Feature The first stage and involves The second stage in which a company is
realising of assets, paying off
finally dissolved.
liabilities & distribution of
surplus if any.

Proceedings Carried out by the liquidator Order can be issued only by the court.
appointed by the
company/court.

Liquidator’s Duties Liquidators represents the Liquidator can not represent company.
company.

3
Debt Creditors can prove their Creditors cant prove their debts.
debts.

Reasons for Winding Up A Company

The winding up of the company may arise by any one or more of the following
reasons:

1. If the objectof the company forwhich it was established have been

accomplished.

2. If company unable to carry out its main object.

3. If company has to dispose of its business or the undertaking to another

company or an individual.

4. If company is unable to pay its creditors in full

4
 Modes of Winding Up A Company

Modes of Winding Up

By The Court Voluntary Winding Up Winding Up Under the

Compulsory Winding Up [ Sec. 484 – 531] Supervision of the Court
[ Sec. 433 – 483] [ Sec. 522 - 527]

Members’ Creditors’
Voluntary Winding Up Voluntary Winding Up

.Grounds for Compulsory Winding Up

The grounds on which a company can be compulsorily wound up by the court are as
follows.
1. If the company itself has passed a special resolution for the winding up by
the court.
2. If the statutory report is not filed with the Registrar or company fails to
hold the statutory meeting within prescribed time.
3. If the number of members of the company falls below 2 in case of private
company and below 7 in case of public company.
4. If company is unable to pay the debts in full.
A company will be deemed to be unable to pay its debt under the following conditions:
a) If it is proved to the court’s satisfaction that the company is unable to pay
its debts.

5
 b) If the process issued on a decree order of a court in favour of a creditors
has not been satisfied.

5. If the court is of the opinion that it is just and equitable that the company
should wound up. It should be wound up under following circumstances:

a) When the main object of the company for which it was established
was failed.
b) When the business of the company becomes illegal.

Petition for Winding Up (Section 439)

A petition for the winding up of a company may be

presented to the court by any of the following parties:
1. By a shareholders or contributory can present a petition on the following
grounds:
a) When No. of members of the company falls below prescribed limit.
b) When the contributory has paid the calls in arrears.
2. By the company itself by passing a special; resolution.
3. By the Registrar of the Companies.
4. By any creditor or creditors, including any contingent or prospective creditor
or creditors.
5. By the person authorised by the Central Government.
6. By the voluntary liquidator.
Power of the Court to dispose of Petition of Winding Up

On hearing a petition for the winding up of the company, the court may take the
following steps;
1. It may dismiss the application with or without costs.
2. It may adjourn the hearing conditionally/ unconditionally.
3. It may dispose of the application in any way it
thinks fit.
4. It may make an interim order.

6
 5. It may order the winding up of the company with or without coats or make
any other orders as it thinks fit.

.Effects of The Winding Up Order

After the order has been made by the court for winding up of the company, its effects
will be as follows;

1. No suits or legal proceedings can commence against the company without

the permission of the court.

2. If a suit or legal proceedings against the company were pending it cannot

be proceed with or without the permission of the court.

3. Suits or legal proceedings by or against the company to be stayed on

passing of the order or compulsory winding up.

4. The court will appoint the official liquidator for the winding up of the
company.

5. Powers of the board of directors are terminated and they shall vest in the
official liquidator.

6. Any debt payable at a future date becomes immediately payable.

Power of the Court after Winding Up Order

• To give stay order on receipt of the application for stay order either from
auditor or contributor or from the official liquidator

• Directs the contributors who hold partly paid shares to pay the balance on
such shares in case of inadequate funds to meet the liabilities & expenses

• Can order dissolution of company when it finds that:

• (i) it is difficult for the liquidator to proceed with winding up for wants

• (ii) the affairs of the company are completely wound up.

7
 • The court has the power to exclude those creditors who fails to prove
claims within the stipulated period for the benefit of any distribution to be
made on behalf of the company

Powers of the Official Liquidators

Powers of the Liquidators

With Sanction of The Court Without Sanction of The Court

To defend any suit, prosecution or other

To inspect the records and returns
legal proceedings, civil or criminal in
of company on the files of the Registrar
the same on behalf of the company

To draw, accept, make and endorse

To carry on the business of the company
Bill of exchange, hundies, promissory notes
for beneficial winding up
in the name of & on behalf of company

To raise money on To take out in his official name, letters of

the security of the assets of the company administration to any deceased contributory

Duties of the Official Liquidators

1. He should take into custody and protect the assets of company.

2. He should submit a preliminary report to the court on company affairs.

3. He should keep proper books of accounts relating to the company.

4. He should keep all the funds of the company in the “Public accounts of
India” in the RBI.

5. He should obey the court’s order for the disposing of

the company’s books.

Contribution & Proceedings of the Committee of Inspection (Sec.465)

1. The committee shall not consist of more than 12
members representing the creditors & contributors.

8
 2. The committee shall have power to inspect the
accounts of the liquidator at any reasonable time.

3. The committee shall meet at such time as it may itself

decide.

4. The quorum of the committee meetings shall be one third or two

whichever is higher.

Any member of the committee may resign by giving written notice to the liquidator

Duties of Secretary in case of Compulsory Winding Up

1. He should assist the directors in preparing the petition for the winding up
of the company.

2. After the order of winding up passed by the court, the secretary should file
with the Registrar within 30 days a certified copy of that order.

3. He must submit a statement of affairs of the company to the liquidator

within 21 days of the date of winding up order.

4. He should furnish information regarding the company which the

liquidators may require from time to time.

Voluntary Winding Up
When the company wounds up itself by surrendering and realising its assets for the
payment of debts, it can be called as voluntary winding up:

Two Types of voluntary winding up

1. By Member
2. By Creditors
Under Section484 of the Companies Act, a company may wound up voluntarily:
1. When the period fixed for the duration of the company had expired by the
articles.

9
 If thecompany passes a special resolution to wind up the company voluntarily

.Voluntary Winding Up

When an ordinary or special resolution has been passed for the winding up of the
company, a notice of the same must be given within 14 days by an advertisement in
the official gazette an in the newspaper of district. A voluntary resolution is deemed
to commence from the date of the resolution and the company ceases to carry on
its business from that date except it may be necessary for the beneficial winding up
of such business (Sec.485 & 486).

Declaration of Solvency
Section 488 of the Companies Act provides that when company proposed to wind up
voluntarily, the majority of the directors make a declaration of solvency must be
made:

1. Within five weeks preceding the date of passing the resolution for winding
up and delivered to Registrar for registration before the date, along with:

• The balance sheet made out on the last mentioned date

• A statement of the assets & liabilities as on that date

Procedure-Members’ Voluntary Winding Up:

1. Declaration of solvency must be made as per the provision of Section 488
of Companies Act.

2. The next step is to hold a general meeting of the members for passing the
special resolution for the winding up.

3. The notice of the same must be given within 14 days by an advertisement

in the official gazette and local newspaper.

4. The company can appoint a liquidator and fix his remuneration.

10
 5. On appointment of liquidator, all powers of the Board of directors,
managing directors ceases.

6. The liquidator shall exercise all powers of the board & do all such acts
necessary for winding up of the company.

Secretary’s Duties-Members’ Voluntary Winding Up

1. To arrange to hold board meetings for the voluntary winding up of the
company.

2. To arrange to hold an extraordinary general meeting of the shareholders to

pass a special resolution for winding up.

3. To file with registrar, a declaration of solvency as per the provisions of

Section 488.

4. To se that liquidator properly appointed at fixed remuneration.

5. To see that every invoice, order & business letter issued by the company
before the words ‘under liquidation’.

6. Making arrangement to provide all books, papers and documents as well

as movable & immovable properties to the liquidator.

Procedure-Creditors’ Voluntary Winding Up

When no declaration of solvency is made it is considered as a case of creditors’
voluntary winding up. Procedure for the same is as follows:

1. The company shall hold a meeting of creditors immediately after the

general meeting of the members to pass a resolution for voluntary winding
up.

2. The directors must prepare statement of affairs, list of creditors and

statement of their claim and present them to the creditors meeting.

11
 3. A liquidator must be nominated by members & creditors at their respective
meetings.

4. The creditor’s meeting may appoint a committee of inspection constituting

not more than 5 members.

Secretary’s Duties-Creditors’ Voluntary Winding Up

1. To call board meeting, to fix thedate of general meeting and to hold a
creditors’ meeting.

2. To see that notice of members’ meeting & creditors’ meeting are issued.

3. To see that the notice of creditors meeting is published in the official

gazette & a local newspaper.

Provisions Applicable to Both Voluntary Winding Up [Sec.486, 487 &

511 to 520]
1. The voluntary winding up of the company considered to commence when
resolution is passed for the same.

2. The business of the company ceases on the commencement of the winding

up.

3. Even the company’s business is ceased the corporate status and power of
the company remains continue until it is dissolved.

4. The liquidator has power to prepare contributor’s list, to make calls, call
general meeting of the company.

5. Any question arising in the winding up of the company the court may
approved by the liquidator or any contributor or creditor.

6. All costs, charges and expenses of winding up including remuneration of

liquidator shall be payable by company’s assets.

12
 Members’ Vs. Creditors’ Voluntary
Winding Up
Members’Voluntary Winding Up Creditors’ Voluntary Winding Up

1. It is possible when directors 1. It is possible by insolvent

makes declaration of solvency companies so there is no need of
before the registrar. declaration of solvency.
2. Here members appoint the 2. In this creditors and members
liquidator. may nominate the liquidator.

3. Liquidator’s remuneration is 3. It is fixed by the committee of

fixed at general meeting. inspection.

4. There will be no committee of 4. Here committee of inspection

inspection. exists.

Winding Up under Supervision of the Court

When a resolution has passed for voluntary winding up by company, the court
may order that it shall continue to the supervision of the court. The court
interferes in the process of winding up of the company. The application for the
court’s supervision can be made by creditor or contributor or the company itself
or the liquidator. This is the mode of winding up which safeguards the interest of
the company, shareholders & the creditors.

Winding Up under Supervision of the Court

The court may take following steps after the order is made for winding up for
supervision of the court.

1. It appoints an additional liquidator or liquidators.

2. An appointed liquidator may removed for any complaint against him.

13
 3. It may also appoint the official liquidator to fill up the vacancy of the
liquidator caused by removal, death or registration.

4. The court may make a call.

Voluntary Vs. Winding Up under

Supervision of the Court
Voluntary Winding Up Winding Up under Supervision of
the Court
1. The members’ & creditors' may 1. The Court may appoint an
appoint the liquidators. additional liquidators & also remove
him.
2. Transfer of shares or alteration of 2. In this, transfer or alteration is not
status of members is possible only valid so the liquidator cannot
after liquidator’s sanction.. sanction it.
3. Attachment of the company 3. In this case it require permission
property or sale of property does of court.
not require court’s permission.
4. If any member or officer makes 4. The prosecution of the fraudulent
fraud against the company, the officers and members of the
liquidator reports the matter to the company may taken by the court.
Registrar.

Advantages
There are some advantages of winding up of a company under Supervision of
the Court, they are as follows:

1. It automatically operates as stay of suits and other proceedings against the

company.

2. An additional liquidator may appointed by court.

3. The power of the liquidator may restricted by court.

4. The company cannot be dissolved without the order of the court.

14
 EXERCISES

SECTION A

1. Define Winding up Of company.

2. Distinguished Winding Up & Dissolution

3. Discuss Reasons of Winding Up.

4. Discuss various modes of winding up of company

5. Discuss ground of compulsory Winding up .

6. Who can petition of compulsory winding up.

7. Discuss effects of The Winding Up Order.

8. Duties of Secretary in case of Compulsory Winding Up

SECTION B

SHORT QUESTION

1 .Give any two steps of Power of the Court to dispose of Petition of Winding up.

2. Discuss any Two effects of The Winding Up Order.

15
3. Discuss any Two Power of the Court after Winding Up Order.
4. Discuss any two powers of Liquidators .
5. Who appoint liquidators in case of winding up.
6. Who appoint liquidators in case of Dissolution.
7. Discuss any Two Duties of liquidators.

SECTION C

Multiple Choice Questions

1. The preference shareholders are legally entitled to the repayment of capital in

the event of of the company.
a. Merger
b. Liquidation
c. Dissolution
d. None of above

2. A company being a creation of law cannot die a natural death. It comes to an

end by law through the process of .
a. Merger
b. Liquidation
c. Dissolution
d. None of above

3. Voluntary winding up:

a. If period fixed for the company is expired.
b. If company passes a special resolution the company wound up voluntarily.
c. Members voluntary winding up is applicable to solvent companies only.
d. All of the above

4. Compulsory winding up:

a. If a company unable to pay its debt
16
b. If the number of members of company reduced below statutory limit.
c. If a company does commence its business within a year from its incorporation.
d. All of the above.

5. If a company makes a default in delivering the statutory report to the registrar

or in holding the statutory meeting, then company is compulsorily wound up by
the
a. Court
b. BOD
c. Shareholders
d. Creditors

6. voluntary winding up applies to insolvent

companies.
a. Creditors
b. Debtors
c. Shareholder
d. None of above

7. of the company is responsible for realisation of assets and distibute the

proceeds amongst the right claimants.
a. Liquidator
b. Auditor
c. Directors
d. debtors

8. The first item in order of payment to be made by liquidator is:

a. Secured creditors
b. Preferential creditors
c. Liquidation expenses
d. Preferential creditors

17
9. Liquidator’s statement of receipts and payment is know as:
a. Cash flow statement
b. Cash book
c. Liquidator’s final statement of account
d. Deficiency accout

10. A contibutory is
a. A creditor
b. A shareholder
c. A debentureholder
d. A convertible debentureholder

11. Present members are included in list of contributories.

a. A
b. B
c. C
d. D

12. The holder of are also treated as contributories even though they are
not to contribute to the assets of the company.
a. Fully paid shares
b. Partly paid shares
c. Fully paid up debenture
d. Partly paid up debenture

13. Under sec. 433 (f) if fails to commence its main object the court may
order winding up
a . Partnership
b. Sole Proprietor
c. Bank
d. Company

18
14. Past members are included in list of contributories.
a. A
b. B
c. C
d. D

15. A past member is not liable to contribute:

a. In respect of any liability contracted after he ceased to be member of the
company.
b. One year passed since he ceased to be a member.
c. In case of company limited by shares, no liability arises if shares are fully
paid up.
d. All of the above

16. can file winding up petition under which sec. 433(e).

a. Director
b. Shareholder
c. Deposit holder
d. Auditor

17. Preference shareholders are legally entitled to the repayment of capital in the
event of liquidation of the company.
a. Correct
b. Incorrect
c. Partly correct
d. Non of above

18. has a legal right of forfeiting the shares of those who fail to pay the
amount due.
a. Liquidator
b. Auditor
c. Directors
d. debtors

19
19. Which of the following statement is true:
a. Preference share capital together with any arrears of dividend will have
priority for payment over equity capital.
b. The holders of cumulative preference shares are entitled to arrears of
dividend if there is a surplus after return of equity capital.
c. Preference shares are treated as fully secured creditors.
d. If articles provides for payment of arrear of dividend, then it must be paid
even by contributories if shares are partly paid.

20. is to be paid upto the date of actual payment in case of solvent

companies and upto date of commencement of insolvency in case of insolvent
company.
a. Interest on liabilities
b. Interest on assets
c. salary
d. None of above

21. is appointed in the context of liquidation and winding up of company.

a. Liquidator
b. Auditor
c. Directors
d. debtors

22. on shares have priority over payment of paid up share capital of that
class.
a. Calls in advance
b. calls in arrear
c. Shares forfeiture
d. None of above

23. Which of the following is not a preferential creditors:

a. All sum due to employee from a provident fund, pension fund, gratuity fund
or any other fund maintain for welfare of employee.

20
b. Compensation under workmen’s compensation act.
c. Amount due under empoyees state insurance act for 12 months previous to
the winding up
d. Amount due to employee under amalgamation or reconstruction

24. All revenue, taxes due to government within months before the date of
commencement of winding up is preferential.
a. 12
b.4
c. 6
d. 9

25. Salaries due to , manager, secretary etc. are preferential.

a. Auditor
b. director
c. Debtors
d. None of above

26. Salaries due to clerk is preferential for a period not exceeding:

a. Two months
b. Three months
c. Four months
d. Fine months

27. Maximum can be treated as preferential salary and wages.

a. 20000
b. 25000
c. 30000
d. 40000

28. Amount due to is rank with secured creditors in the event of liquidation
of the company.
a. workman

21
b. Auditor
c. Director
d. None of the above

29. “B” List of contributories are not liable:

a. If shares are fully paid up
b. For liabilities after they are ceases to be member of the company.
c. If present shareholders paid the unpaid amount of the shares transferred by
them.
d. All of the above

30. In which one of the following cases an ordinary resolution may be passed

(a) Commencement of a new business

(b) Alteration of articless

(c) Compulsory winding up of the company

(d) None of the above

31.If the company has acted against the interests of the sovereignty and integrity
of India, the security of the State, friendly relations with foreign States, public
order, decency or morality,it may result in to winding up of company by tribunal.
a. True
b. False

32. If the company has made a default in filing with the Registrar its financial
statements or annual returns for immediately preceding consecutive financial
years, it may result in to winding up of company by tribunal.
a.1
b. 2
c. 3
d. 4

33. The company has no at the end of liquidation.

22
a. Assets
b. Liabilities
c. Both
d. None of above

34. shall be entitled to present a petition for the winding up of a company.

a. contributory
b. liquidator
c. both
d. none of above

35. A petition presented by the company for winding up before the Tribunal shall
be admitted only if accompanied by a in such form and in such manner as
may be prescribed.
a. statement of affairs
b. Memorandum
c. Certificate of commencement
d. None of above

36. A person must be owed a minimum amount of without dispute before he

can ask for the winding up.
a. 1000
b. 750
c. 5000
d. 500

37. Official Liquidator will be appointed by .

a. company
b. Creditor
c. debtor
d. none of above

38. Where a is appointed by the Tribunal, the Tribunal may limit and
restrict his powers by the order appointing him or it or by a subsequent order, but
otherwise he shall have the same powers as a liquidator.
a. Provisional liquidator
b. Liquidator

23
c. Registrar
d. none of above

39.A company Liquidator, can be removed by

a. shareholders
b. Court
c. debtors
d. none of above

40. is a valid ground for removal of company Liquidator.

a. Fraud
b. misfeasance
c. Both
d. none of above

41. Following is a valid ground for removal of company Liquidator.

a. misconduct
b. fraud or misfeasance
c. professional incompetence or failure to exercise due care and diligence in
performance of the powers and functions
d. All of above

42. The works for the insolvency service.

a. Official receiver
b. unofficial receiver
c. Debtors
d. Creditors

43. The Company shall be the convener of the meetings of the winding up
committee.
a. Liquidator
b. Auditor
c. Directors
d. debtors

24
44. Finalisation of list of creditors and contributories of a company is one of the
functions of committee.
a. winding up
b. Liquidation
c. Both
d. None of above

45. Taking over assets of a company is one of the functions of committee.

a. winding up
b. Liquidation
c. Both
d. None of above

46. Following is the function of winding up committee.

a. taking over assets
b. examination of the statement of affairs
c. recovery of property, cash or any other assets of the company including
benefits derived there from
d.All of above

47. The Company shall prepare the draft final report for consideration
and approval of the winding up committee.
a. Liquidator
b. Auditor
c. Directors
d. debtors

48. The Company Liquidator shall also make a report on the viability of the
business of the company or the steps which, in his opinion, are necessary for
maximising the value of the of the company.
a. Assets
b. Liabilities
c. Expenses
d. None of above

49. Settling a list of contributories is one of the task performed by

a. Tribunal

25
b. Auditor
c. Directors
d. debtors

50. As soon as may be after the passing of a winding up order by the Tribunal, the
Tribunal shall cause the assets of the company to be applied for the discharge of
its .
a. Assets
b. Liabilities
c. Expenses
d. None of above

51. Following is the act performed by Tribunal.

a. settle a list of contributories
b. cause rectification of register of members in all cases where rectification is
required in pursuance of this Act
c. shall cause the assets of the company to be applied for the discharge of its
liability.
d.All of above

52. The advisory committee is appointed by the

a. Tribunal
b. Auditor
c. Directors
d. debtors

53. The advisory committee shall consist of not more than members.
a. 10
b. 15
c. 20
d. 25

54. of the company can be part of advisory committee.

a. Debtors
b. Creditors
c. Both

26
d. none of above

55. of the company can be part of advisory committee.

a. Debtors
b. Contributories
c. Both
d. none of above

56. shall have the right to inspect the books of account and other
documents, assets and properties of the company.
a. The advisory committee
b. creditor
c. debtor
d. none of above

57. The meeting of advisory committee shall be chaired by the Company

a. Liquidator
b. Auditor
c. Directors
d. debtors

58. In a winding up of a company by the Tribunal, Company Liquidator shall have

the power to carry on the business of the company so far as may be necessary for
the beneficial winding up of the company.
a. True
b. False

59. In a winding up of a company by the Tribunal, Company Liquidator shall have

the power to sell the immovable and movable property and actionable claims of
the company by
a. public auction
b. private contract
c. Both
d. None of above

27
60. In a winding up of a company by the Tribunal, Company shall have the
power to raise any money required on the security of the assets of the company.
a. Liquidator
b. Auditor
c. Directors
d. debtors

61. Following is within the powers of company liquidator in the event of winding
up of a company.
a. to sell the whole of the undertaking of the company
b. to institute or defend any suit, prosecution or other legal proceeding, civil or
criminal, in the name and on behalf of the company
c. to inspect the records and returns of the company on the files of the Registrar
or any other authority
d.All of Above

62. The exercise of powers by the Company shall be subject to the overall
control of the Tribunal.
a. Liquidator
b. Auditor
c. Directors
d. debtors

63. may, subject to the control of the Tribunal, inspect any such books,
personally or through his agent.
a. Creditor
b. Contributory
c. Both
d. None of above

64. Workmen's dues shall be paid in priority to all other debts, In the of a
company.
a. winding up
b. Starting
c. Merger
d. none of above

28
65. are preferential payments.
a. Government taxes
b. Shareholder
c. Expenses
d. None of above

66. Followings is covered under preferential payments u/s 327.

a. Government Taxes
b. Salary and Wages
c. Expenses of Investigation
d. All of above

67. Contribution under is preferential payments u/s 327.

a. Employee State Insurance Act
b. Contract act
c. Partnership act
d. Sale of goods act

68. All sums due to any employee from the provident fund, the pension fund, the
gratuity fund or any other fund for the welfare of the employees, maintained by
the company, are preferential payments.
a. True
b. False

69. The primary objective of the liquidator is to raise a much funds as needed to
pay the
a. Creditor
b. Auditor
c. Directors
d. debtors

70. Non disclosure of assets by officer of the company in is an offence.

a. liquidation
b. Merger
c. Dissolution
d. None of above

29
Note: The above material has been compiled from the below mentioned
reference books
REFERENCE BOOKS

SR. AUTHOR/S PUBLICATION

NO.
1 CA VIJAY RAJA
COMMERCIAL
2 CA G.SEKAR AND CA B. SARAVANA PADHUKA
3 ANIL KUMAR TAXMANN
4 N.D.KAPOOR SULTAN CHAND & SONS
5 STUDY MATERIAL OF ICAI ICAI
 A

FACULTY OF COMMERCE

2024- 25

SEMESTER 6
SUBJECT: Advanced Company Law
and Practices
UNIT 6 – Limited Liability Partnership
Act ,2008
COMPILED BY,
Dr.Bimal Solanki AND Dr. Shimoni Trivedi

STUDY MATERIAL FOR REFERENCE ONLY

0|Page
LIMITED LIABILITY PARTNERSHIP ACT -2008

Date of applicability: 31st March 2009 and registration of first LLP was done on 2nd
April 2009.

LLP is a type of legal business structure that combines elements of both

partnerships and corporations. LLPs offer limited liability protection to their
partners, which means that the personal assets of the partners are generally
protected from the company's debts and liabilities. LLPs are a popular choice for
professionals such as lawyers, accountants, architects, and consultants, as well as
small to medium-sized businesses in various industries.

The essential elements of an LLP include:

Limited Liability: The primary characteristic of an LLP is that the partners have
limited liability, similar to shareholders in a corporation. This means that the
personal assets of the partners are shielded from the business's debts and legal
liabilities. However, this protection may not extend to personal wrongdoing or
negligence.
Partnership Agreement: An LLP must have a written partnership agreement that
outlines the rights, duties, and responsibilities of each partner. This agreement is
crucial for defining the internal workings of the LLP, including profit-sharing,
management structure, and dispute resolution mechanisms.
At Least Two Partners: In most jurisdictions, an LLP must have at least two
partners to be legally recognized. These partners can be individuals or other legal
entities like corporations or other LLPs.
Limited Partner Liability: While all partners in an LLP have limited liability,
some jurisdictions may require one or more partners to have unlimited liability,
acting as a general partner responsible for the firm's management. These general
partners may bear greater personal risk.
Registration: LLPs are typically required to register with the appropriate
government authorities in their jurisdiction. This process involves submitting
necessary documents and paying registration fees.
Name and Compliance: The LLP must choose a unique name that complies with
the regulations of the jurisdiction where it is registered. The name often includes
the words "Limited Liability Partnership" or an abbreviation thereof.

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Taxation: The tax treatment of an LLP varies by jurisdiction. In some places,
LLPs are taxed like partnerships, where the profits flow through to the individual
partners' tax returns. In other jurisdictions, they may be subject to corporate
taxation.
Annual Filings and Compliance: LLPs are usually required to file annual reports,
financial statements, and other compliance documents with the relevant
government agencies. Failure to do so may result in penalties or the loss of legal
status.
Management Flexibility: LLPs offer flexibility in their management structure.
Partners can choose to have a more centralized management structure or a more
democratic one, depending on the needs and preferences of the partners.
Duration: LLPs can have perpetual existence, meaning they can continue to exist
even if one or more partners leave or pass away. This feature provides stability and
continuity to the business.
It's important to note that the specific requirements and regulations governing
LLPs can vary from one jurisdiction to another. Therefore, individuals considering
forming an LLP should consult with legal and financial professionals familiar with
the laws and regulations in their area to ensure compliance and understand the
implications of this business structure.

Explain the Partners and Designated Partners of LLP

In a Limited Liability Partnership (LLP), there are two main categories of partners:
general partners and designated partners. These roles have different responsibilities
and legal obligations within the LLP structure:

General Partners:

Definition: General partners in an LLP are the individuals or entities that have
invested in the business and participate in its day-to-day operations. They can also
be referred to as ordinary partners.
Rights and Responsibilities: General partners typically share in the profits and
losses of the LLP according to the terms specified in the LLP agreement. They are
actively involved in the management and decision-making of the business, such as
signing contracts, conducting business transactions, and representing the LLP.
Liability: Like in any LLP, general partners have limited liability, which means
their personal assets are generally protected from the business's debts and legal
liabilities. However, this protection may not extend to personal misconduct or
negligence on their part.

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Designated Partners : Designated partners are a subset of general partners who
hold additional responsibilities and have specific legal obligations under the LLP
Act in many jurisdictions.
Responsibilities and Obligations: Designated partners are responsible for
ensuring that the LLP complies with statutory requirements and regulations. Their
key responsibilities may include maintaining the LLP's books of accounts, filing
necessary documents and statements with government authorities, and ensuring
timely payment of government fees and taxes. They are also accountable for
submitting an annual return and annual statement of accounts.
Liability: Designated partners can have unlimited liability if the LLP defaults in
complying with statutory requirements. This means that their personal assets may
be at risk if the LLP fails to meet its legal obligations. However, their liability is
typically limited to these statutory obligations, and they retain the standard limited
liability protection concerning the LLP's debts and contractual obligations.
It's important to note that the exact roles and responsibilities of designated partners,
as well as the extent of their liability, can vary by jurisdiction. The LLP Act or
regulations in a specific region will outline the specific duties and obligations of
designated partners. Additionally, the LLP agreement may assign additional roles
and responsibilities to specific partners, regardless of whether they are designated
partners or general partners.
To establish an LLP and appoint designated partners, it's essential to consult with
legal professionals who are knowledgeable about the LLP laws and regulations in
your jurisdiction. They can guide you through the process of forming an LLP and
ensure compliance with all legal requirements, including the appointment and
responsibilities of designated partners.

REGISTRATION OF LLP. (PROVISIONS OF INCORPORATION)

The registration of a Limited Liability Partnership (LLP) involves several steps and
provisions of incorporation. The specific requirements and procedures can vary
depending on the jurisdiction where you are registering the LLP. However, I can
provide you with a general overview of the provisions typically involved in the
incorporation of an LLP:
Name Reservation:
Choose a unique name for the LLP that complies with the naming rules and
regulations of your jurisdiction. The name usually includes "Limited Liability
Partnership" or its abbreviation, such as "LLP."
Registered Office Address:Provide the registered office address of the LLP. This
is the official address where legal notices and communications will be sent. It must
be an actual physical location, and proof of address may be required.
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Minimum Partners:
Ensure that your LLP has the minimum number of partners required by your
jurisdiction's LLP laws. In many places, it's necessary to have at least two partners
to form an LLP.
Designated Partners:
Appoint designated partners, if required by your jurisdiction's LLP Act. Designated
partners have specific legal responsibilities related to compliance and reporting.
Partnership Agreement:
Draft a partnership agreement outlining the rights, duties, and responsibilities of
each partner, as well as the internal workings of the LLP. This agreement is not
only a legal requirement but also an essential document for managing the LLP.
Documents and Forms:
Prepare and file the necessary incorporation documents and forms with the relevant
government authority or registrar. These documents typically include an LLP
registration form, partnership agreement, and consent of designated partners, if
applicable.
Fees and Payments:
Pay the prescribed registration fees and any other required charges to the
government authority. The fee structure can vary by jurisdiction and may depend
on factors like the LLP's capital or contribution.
Certificate of Incorporation:
Once the registrar reviews and approves your application, you will receive a
Certificate of Incorporation. This document confirms the existence of the LLP as a
legal entity.
PAN and TAN:
Obtain a Permanent Account Number (PAN) and Tax Deduction and Collection
Account Number (TAN) for the LLP from the tax authorities. These numbers are
necessary for tax compliance.
Compliance and Reporting:
Ensure that the LLP complies with all ongoing reporting and compliance
requirements, such as filing annual returns, financial statements, and other
documents with government authorities.
Business Commencement:
After registration, you can commence business activities. Ensure you comply with
all relevant laws and regulations applicable to your industry and location.
Please note that the specific requirements and procedures for LLP registration can
vary widely by jurisdiction, so it's essential to consult with legal professionals or
the relevant government authority in your area to ensure that you meet all the legal
requirements and follow the correct process for incorporating an LLP.

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LLP AGREEMENT

A Limited Liability Partnership (LLP) Agreement is a legal document that outlines

the internal workings, rights, responsibilities, and relationships among the partners
in an LLP. This agreement is a crucial component of the LLP structure and serves
as a guiding document for how the business will be managed and operated. Here
are the key elements typically included in an LLP Agreement:
Name and Address of the LLP:
The legal name of the LLP and its registered office address should be clearly
stated.
Date of Agreement:
The date on which the LLP Agreement is executed.
Partnership Details:
Names and addresses of all partners involved in the LLP.
Designation of partners as "Designated Partners" if required by the LLP Act in
your jurisdiction.
The total contribution of each partner to the LLP, including capital contributions
and any other assets or property contributed.
Nature of Business:
A description of the business activities the LLP intends to engage in.
Profit Sharing:
The agreement should specify how profits and losses will be allocated among the
partners. This can be based on capital contributions, ownership percentages, or any
other agreed-upon method.
Management and Decision-Making:
The management structure of the LLP, including details on who will make
decisions, the authority of designated partners, and how major decisions will be
made.
Rights and Duties of Partners:
Each partner's rights, responsibilities, and obligations within the LLP should be
clearly outlined. This includes roles in day-to-day operations, decision-making,
and managerial responsibilities.
Withdrawal or Retirement of Partners:
Procedures for partners to withdraw or retire from the LLP, including any buyout
provisions or restrictions on transferring their partnership interests.
Dispute Resolution:
Mechanisms for resolving disputes among partners, which may include arbitration
or mediation clauses.
Admission of New Partners:

5|Page
Procedures for admitting new partners to the LLP, including the criteria for their
acceptance and any required capital contributions.
Death or Incapacity of Partners:
Procedures for handling the departure of a partner due to death or incapacity,
including the treatment of their partnership interest.
Financial Matters:
Record-keeping and financial reporting requirements.
Banking arrangements and signatures of partners authorized to manage bank
accounts.
Termination and Dissolution:
Conditions under which the LLP may be terminated or dissolved and the process
for winding up the business affairs.
Amendment of Agreement:
The process for amending the LLP Agreement, including the required majority or
consent of partners.
Governing Law and Jurisdiction:
The governing law and jurisdiction under which any legal disputes related to the
LLP Agreement will be resolved.
Miscellaneous Provisions:
Other miscellaneous clauses covering matters such as confidentiality, non-compete
agreements, and force majeure.
The LLP Agreement is a legally binding contract among the partners, so it's crucial
to draft it carefully, and all partners should understand and agree to its terms before
signing. It's advisable to consult with legal professionals or business attorneys
experienced in partnership agreements to ensure that the document complies with
the laws of your jurisdiction and adequately addresses the needs and objectives of
the LLP and its partners. Additionally, the LLP Agreement should be kept on file
and regularly reviewed and updated as the business evolves or if there are changes
in the partnership structure.

SIGNIFICANCE OF LLP:

Limited Liability Partnerships (LLPs) offer several significant advantages that

make them an attractive business structure for certain types of businesses and
professionals. Here are some of the key significance and benefits of LLPs:
Limited Liability: The primary advantage of an LLP is the limited liability
protection it provides to its partners. This means that the personal assets of
individual partners are generally shielded from the business's debts and legal
liabilities. Partners are only liable up to the extent of their capital contributions or

6|Page
as specified in the LLP agreement. This limited liability protection is similar to that
of shareholders in a corporation.
Separate Legal Entity: An LLP is a separate legal entity from its partners. This
means that it can enter into contracts, own property, and sue or be sued in its own
name. The LLP's existence is not dependent on the life or status of its partners,
which provides stability and continuity to the business.
Flexible Management: LLPs offer flexibility in their management structure.
Partners can decide how they want to manage the business, whether through a
centralized or decentralized approach. This flexibility allows partners to tailor the
management structure to their specific needs and preferences.
Tax Efficiency: In many jurisdictions, LLPs are treated as pass-through entities
for tax purposes. This means that the LLP itself does not pay income tax; instead,
profits and losses "pass through" to the individual partners, who report them on
their personal tax returns. This can result in tax advantages and simplification
compared to the double taxation often associated with corporations.
Ease of Compliance: LLPs generally have fewer regulatory and compliance
requirements compared to corporations. This can reduce administrative burdens
and costs, making it an attractive option for small to medium-sized businesses.
Professional Services: LLPs are commonly used by professionals such as lawyers,
accountants, architects, consultants, and healthcare practitioners who want to form
a legal entity that allows them to provide professional services while benefiting
from limited liability.
Perpetual Existence: LLPs often have perpetual existence, which means they can
continue to operate even if one or more partners leave or pass away. This provides
stability and continuity to the business.
Credibility and Trust: The "LLP" designation in the business name can enhance
the credibility and trustworthiness of the business, especially in industries where
professional qualifications and ethical standards are crucial.
Easy Transfer of Ownership: Depending on the terms outlined in the LLP
Agreement, transferring ownership or admitting new partners can be relatively
straightforward, which can be important for business continuity and succession
planning.
International Expansion: Some jurisdictions allow LLPs to engage in
international business activities, making them suitable for businesses with global
aspirations.
It's important to note that the specific advantages and requirements of LLPs can
vary by jurisdiction, so it's crucial to consult with legal and financial professionals
who are knowledgeable about the laws and regulations in your area before
choosing this business structure. Additionally, the suitability of an LLP as a

7|Page
business structure depends on the nature of the business, its goals, and the
preferences of its partners.

WINDING UP OF LLP:

Winding up or dissolution of a Limited Liability Partnership (LLP) is the process

of closing down the LLP's business operations and formally ending its existence as
a legal entity. LLP winding up can occur for various reasons, including the
completion of the LLP's purpose, financial difficulties, or a decision by the
partners to terminate the business. The procedure for winding up an LLP typically
involves the following steps:
Board Resolution or Partners' Decision:
The partners of the LLP must pass a resolution to initiate the winding-up process.
This decision is typically made in accordance with the provisions outlined in the
LLP Agreement.
Appointment of a Liquidator:
A liquidator is appointed to oversee the winding-up process. In many jurisdictions,
the liquidator must be a licensed insolvency practitioner or a qualified professional.
The liquidator's role is to ensure that the LLP's affairs are wound up, assets are
realized, and liabilities are settled.
Filing of Documents:
The LLP is required to file certain documents with the relevant government
authorities to initiate the winding-up process. These documents may include a
notice of winding up and a statement of accounts.
Settlement of Liabilities:
The LLP must settle its outstanding debts, loans, and obligations. This may involve
selling assets, using cash reserves, or negotiating with creditors to reach settlement
agreements.
Realization of Assets:
The liquidator is responsible for identifying and realizing the LLP's assets. This
can involve selling assets such as property, equipment, or investments to generate
funds to pay off creditors and distribute remaining assets to the partners.
Distribution of Assets:
After settling all liabilities, any remaining assets are distributed among the partners
according to their respective rights and entitlements as specified in the LLP
Agreement.
Cancellation of Registration:
The LLP must apply to the relevant government authority to cancel its registration
as a legal entity. Once the cancellation is approved, the LLP ceases to exist as a
legal entity.
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Public Notice:
In many jurisdictions, a public notice of the LLP's winding up must be published in
a local newspaper or a government gazette to notify creditors and other
stakeholders.
Final Accounts and Reports:
The liquidator prepares final accounts and reports detailing the winding-up
process, including the realization of assets, settlement of liabilities, and distribution
of remaining assets. These reports are typically submitted to the government
authority and made available to the partners.
Closure of Bank Accounts and Legal Formalities:
The LLP should close its bank accounts, terminate leases or contracts, and
complete any other necessary legal formalities related to its winding up.
Dissolution Certificate:
Once all the winding-up procedures are completed to the satisfaction of the
government authority, a dissolution certificate is issued, officially confirming the
dissolution and closure of the LLP.
It's important to note that the specific requirements and procedures for winding up
an LLP can vary by jurisdiction. Partners should consult with legal and financial
professionals who are knowledgeable about the laws and regulations in their area
to ensure compliance with all legal requirements and to navigate the winding-up
process smoothly. Additionally, the terms and procedures for winding up may be
outlined in the LLP Agreement, so partners should review this document carefully.

FOREIGN LLP:

A Foreign Limited Liability Partnership (Foreign LLP) refers to an LLP registered

in one country that wishes to engage in business or establish a presence in another
country. Essentially, it is an LLP that originates in one jurisdiction but seeks to
operate or conduct business activities in a foreign jurisdiction. Here are some key
points to understand about Foreign LLPs:
Business Expansion: Foreign LLPs are often used by businesses that want to
expand their operations internationally without setting up a separate legal entity in
the foreign country. This structure allows the LLP to maintain its original identity
and governance while conducting business abroad.
Registration Requirements: To operate as a Foreign LLP in another country, you
typically need to register with the relevant government authority or regulatory
body in that jurisdiction. The registration process and requirements can vary
significantly from one country to another, so it's essential to research and comply
with the specific regulations of the foreign jurisdiction.

9|Page
Compliance with Local Laws: Foreign LLPs must adhere to the laws and
regulations of the host country. This may include tax compliance, reporting
requirements, and other legal obligations specific to the foreign jurisdiction. It is
advisable to seek legal counsel or professional advice to ensure compliance with
local laws.
Taxation: The tax treatment of a Foreign LLP can vary depending on the tax laws
and treaties between the home country and the foreign country. Some countries
may have tax treaties in place that can affect how income and taxes are calculated.
Liability and Governance: The liability protection and governance structure of
the Foreign LLP typically follow the rules and regulations of the home country.
However, certain aspects may be subject to the laws of the foreign jurisdiction,
particularly when it comes to liability for business activities conducted in that
country.
Banking and Financial Operations: Foreign LLPs may need to open bank
accounts in the foreign country to conduct financial transactions. Banking and
financial regulations can vary widely, so it's important to understand the
requirements and options available.
Reporting and Compliance: Foreign LLPs are often required to file periodic
reports and financial statements with the relevant government authorities in the
host country. These reports help ensure transparency and compliance with local
regulations.
Local Representation: Some jurisdictions may require a Foreign LLP to appoint a
local agent or representative who is authorized to accept legal documents and
notices on behalf of the LLP.
Name and Trademarks: The use of the LLP's name or trademarks in the foreign
jurisdiction may be subject to local trademark and intellectual property laws. It's
important to protect your brand and trademarks when operating abroad.
Termination and Withdrawal: If a Foreign LLP decides to cease its operations in
the foreign country, it typically needs to follow the legal process for termination or
withdrawal, which may involve notifying government authorities and settling any
outstanding obligations.
Operating as a Foreign LLP can offer advantages in terms of international
expansion and flexibility, but it also requires careful planning, legal compliance,
and an understanding of the regulatory framework in both the home and foreign
jurisdictions. It's highly recommended to seek legal and financial advice when
establishing and operating a Foreign LLP to ensure compliance and mitigate
potential risks.

FDI IN LLP:As of my last knowledge update in September 2021, foreign direct

investment (FDI) regulations in Limited Liability Partnerships (LLPs) varied from
10 | P a g e
country to country. FDI rules and regulations are subject to change, and they can
differ significantly based on the jurisdiction where the LLP is located. It's essential
to consult with legal and financial experts who are well-versed in the specific FDI
regulations of your jurisdiction and any recent updates. Here are some general
considerations regarding FDI in LLPs:
Permission and Approval: In many countries, FDI in LLPs may require
government permission or approval. The rules can vary depending on factors such
as the sector of the economy in which the LLP operates and the nationality of the
foreign investor.
Sectoral Restrictions: Some countries impose restrictions on foreign investment
in specific sectors, such as defense, telecommunications, or finance. These
restrictions may apply to LLPs as well, so it's important to be aware of sector-
specific regulations.
Percentage of Ownership: FDI regulations often specify the maximum
percentage of ownership that foreign investors can hold in an LLP. This percentage
can vary widely, so it's essential to check the specific limits in your jurisdiction.
Reporting and Compliance: LLPs with foreign investment may be required to
comply with reporting and compliance requirements, including submitting regular
reports to regulatory authorities. Failure to do so may result in penalties or legal
consequences.
Sector-Specific Regulations: Certain sectors, such as retail, e-commerce, and
broadcasting, may have unique regulations governing foreign investment. It's
crucial to understand these regulations if your LLP operates in one of these sectors.
Entry Routes: Some countries offer different entry routes for FDI in LLPs, such
as the automatic route (no government approval required) and the approval route
(government approval required). The specific route may depend on the amount of
investment or the sector.
Tax Implications: FDI in LLPs can have tax implications for both the LLP and
the foreign investor. You should consult with tax professionals to understand the
tax treatment and any potential benefits or liabilities.
Capital Contributions: Foreign investors may need to bring in their investments
through specified channels and demonstrate the source of funds. Compliance with
anti-money laundering regulations may also be required.
Regulatory Changes: FDI regulations can change over time. It's essential to stay
updated on any amendments or revisions to the regulations that may impact foreign
investment in LLPs.
Legal Documentation: When foreign investors contribute capital to an LLP, it's
common to have legal documentation, such as share certificates or partnership
agreements, to formalize the investment.

11 | P a g e
Given the complexity and variability of FDI regulations, it's crucial to engage legal
and financial professionals who specialize in foreign investment and are well-
informed about the specific requirements and regulations in your jurisdiction.
Additionally, it's advisable to conduct thorough due diligence and seek legal
guidance before proceeding with FDI in an LLP to ensure compliance with all
relevant laws and regulations.

QUESTIONS FROM UNIT-6 (LIMITED LIABILITY PARTNERSHIP)

1. Definition of LLP and its important elements.

2. Point of differences between a company , an LLP and a partnership firm.
3. A note on partners to LLP and designated partners.
4. Provisions for registration / Incorporation of LLP.
5. Foreign LLP.
6. FDI in LLP
7. LLP Agreement
8. LLP Certificate
9. Winding up of LLP
10.Significance of LLP
11.Certificate of incorporation
12. LLP agreement.

MULTIPLE CHOICE QUESTIONS:

1.DPIN Stands for ______.

a) Designated Partner Identification Number
b) Director Personal Identification Number
c) Director and Partner Identification Number
d) Direct Partner Identification Number
2.LLP shall be Taxed Under Income Tax Act,1961 As of
a) Partnership Firm
b) Company
c) Association of person
d) HUF

12 | P a g e
3.Minimum Number of Partner in LLP
a) 1
b) 2
c) 3
d) 4
4.Who cannot become partner in LLP
a) Person has been found to be unsound mind.
b) Person is an undischarged insolvent.
c) Person has applied to be adjudicated as an insolvent.
d) All of above
5. A Person shall cease to be a partner of LLP
a) On receiving advance from LLP
b) On giving advance to LLP
c) On his death
d) After completing age of 60 years
6.Partner of LLP is personally liable in case of
a) Liabilities of LLP
b) Personal liability of other partner
c) His own personal liability

d) Wrongful act or omission of any other partner

7. Document which is defining the role and obligations of Partner in LLP
a) Partnership Deed
b) LLP agreement
c) Memorandum of association
d) Article of association
8. LLP may be wound up by Tribunal
a) If LLP is unable to pay its debt
b) If LLP has acted against interest of sovereignty & integrity of India
c) If LLP has made a default in filling of annual return with Registrar for any
five consecutive
Financial years

13 | P a g e
 d) All of above
9.Incorporation documents shall be filled by LLP with
a) Tribunal
b) SEBI
c) Central Government
d) Registrar
10.According to LLP Act 2008, Body Corporate include
a) A company incorporated outside India
b) A corporation sole
c) Co-operative society
d) Partnership Firm
11.Limited Liability Partnership Act, _________.
a) 2006
b) 2007
c) 2008
d) 2009
12.Limited Liability Partnership is _____________.
a) Individual
b) Partnership firm
c) Body corporate
d) None of Above
13.__________________ is applicable to LLP.
a) Limited Liability Partnership Act,2008
b) The Indian Partnership Act, 1932
c) Indian Companies Act, 2013
d) None of Above
14.In LLP, Rights of partners are governed by ____________.
a) LLP agreement
b) Partnership Deed

c) Article of Association
d) Mutual Agreement

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15.Limited Liability Partnership Act,2008 is applicable to ________.
a) Limited Liability Partnership Act,2008
b) The Indian Partnership Act, 1932
c) Indian Companies Act, 2013
d) None of Above
16.In LLP, Rights of partners are governed by ____________.
a) Partnership Deed
b) Article of Association
c) Mutual Agreement
d) LLP agreement
17._________________ has power to make rules regarding the provisions of LLP
Act.
a) Central Government
b) State Government
c) Registrar of LLP
d) President of India
18.Provision of Income tax for LLP is ____________
a) 10% plus Education cess
b) 20% plus Education cess
c) 30% plus Education cess
d) 40% plus Education cess
19.Books of accounts of LLP are required to be preserved for ______.
a) 6 years
b) 8 Years
c) 10 Years
d) 12 Years
20.Foreign LLP shall file with the registrar in ________
a) Form 25
b) Form 26
c) Form 27
d) Form 28
21.Foreign LLP shall file with the registrar within ________ .

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 a) 30 days
b) 15 days
c) 7 days
d) 21 days
22.Foreign LLP shall file in Form 27 with _________ .
a) Government of India
b) RBI

c) Registrar
d) None of Above
23.Every LLP shall file the statement of accounts and solvency, with Registrar
within
a) 7 days
b) 14 days
c) 21 days
d) 30 days
24.Every LLP shall file the statement of accounts and solvency, with Registrar
within 30 days from the end of _____ months of the financial year.
a) 3
b) 6
c) 9
d) 1
25. Every LLP shall file an annual return with __________.
a) Government of India
b) RBI
c) Registrar
d) None of Above
26.FII stands for ______________ .
a) Foreign Institutional Investors
b) Foreign Indirect Investment
c) Forest Institution of India
d) Foreign Institution of India
27.FVCI stands for _______________ .
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 a) Foreign Venture Capital Investors
b) Foreign Venture Commercial Investors
c) Foreign Venture Capital of India
d) Free Venture Capital Investors
28.Audit of LLP may be done by ___________ .
a) Chartered Accountant
b) Company Secretary
c) Cost Accountant
d) None of above
29.Any LLP may be wound up voluntarily if the LLP passes a resolution with the
approval of at least _____ of total no. of partners.
a) 1\3rd
b) 2\3rd
c) 3\4th
d) None of above

30.A LLP is not required to get its accounts audited if turnover does not exceed
_________
a) 40,00,000
b) 45,00,000
c) 50,00,000
d) 60,00,000
31.A LLP is not required to get its accounts audited if contribution does not
exceed _________ .
a) 25,00,000
b) 30,00,000
c) 35,00,000
d) 40,00,000
32.Annual return shall be accompanied with a Certificate if LLP having turnover up
to ___ .
(a) 2 crores (b)2.5 crores (c) 3 crores (d)5 crores

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33.Annual return shall be accompanied with a Certificate if LLP having
contribution up to _____________ .
a) 50 Lakhs
b) 60 Lakhs
c) 70 Lakhs
d) 80 Lakhs
34. LLP may be wound up by Tribunal, if number of partners of LLP is reduced
below ____ for a period of more than 6 months.
a) 1
b) 2
c) 3
d) 4
35.LLP may be wound up by Tribunal, if number of partners of LLP is reduced
below 2 for a period of more than ______ .
a) 4 months
b) 6 months
c) 3 months
d) 12 months

36. Every LLP shall have atleast __________ designated partners.

(a) 1 (b) 2 (c) 3 (d) 4

37. Atleast one of those designated partners shall be a ____________.

(a) resident (b) non-resident
(c) resident but not ordinary resident (d) none of the above

38. LLP with FDI is not allowed to operate in _____________.

(a) agricultural activity (b) print media
(c) real estate (d) all of the above

39. LLP has _______________ capacity.

(a) limited (b) unlimited (c) both (a) and (b) (d) none of these

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40. Every designated partner in LLP has to obtain __________________.
(a) APIN (b) BPIN (c) CPIN (d) DPIN

41. The books of accounts of LLP are required to be preserved for _________
years.
(a) 2 (b) 4 (c) 6 (d) 8

42. Every LLP shall file the statement of accounts and solvency with the registrar
within __________ days.
(a) 10 (b) 20 (c) 30 (d) 40

43. Statement of accounts and solvency shall be signed on behalf of LLP by its
(a) designated partners (b) solvent partners
(c) insolvent partners (d) none of these

44. FDI means

(a) foreign department of India (b) foreign direct investment
(c) foreign direct individual (d) none of these

45. FII stands for

(a) foreign institutional investor (b) foreign Indian individual
(c) Foreign Indian institution (d) none of the above

46. Authority for mandatory registration of LLP is

(a) Registrar of Companies (b) Registrar of LLP
(c) Registrar of firm (d) none of the above

47. Minimum number of members in LLP are

(a) 1 (b) 2 (c) 3 (d) unlimited

48. Maximum number of members in LLP are

(a) 50 (b) 20 (c) 30 (d) unlimited
49. Flat rate of _____________% is the tax rate for LLP.
(a) 10 (b) 20 (c) 30 (d) 40

50. Accounts of LLP shall be audited as per _____________ rules.

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(a) partnership (b) company (c) LLP (d) ABC

51. Foreign participation is ____________ in LLP.

(a) possible (b) not possible (c) both a and b (d) none

52. Liability of LLP is ___________.

(a) limited (b) paid up amount of share
(c) limited to the amount of contribution (d) unlimited

53. Ownership is governed by _____________.

(a) Companies Act (b) LLP Act (c) Partnership Act (d) None of the above

54. Indian Partnership Act, 1932 _________ to LLP.

(a) applies (b) does not apply (c) both a and b (d) none of the above
55. LLP is a __________.
(a) partner (b) individual (c) body corporate (d) none

56. LLP has __________ capacity.

(a) limited (b) unlimited (c) both (d) none

57. _________ is not maintained in LLP.

(a) publicity (b) privacy (c) both (d) none

58. Winding up of LLP can be _____________.

(a) voluntary
(b) by Tribunal
(c) both a and b
(d) none

59. As per the LLP Act, designated partners would be ___________ to all
penalties.
(a) liable
(b) not liable
(c) both a and b
(d) none

60. Requirement for a designated partner is _____________.

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(a) DIN
(b) DPIN
(c) both a and b
(d) none

61. LLP is neither a partnership firm nor a ____________.

(a) company
(b) sole proprietorship
(c) both a and b
(d) none

62. __________ Act does not apply to LLP.

(a) Partnership Act
(b) Companies Act
(c) Proprietorship Act
(d) All of the above

63. LLP is a ___________ legal entity.

(a) separate
(b) different
(c) distinct
(d) both a and c

64.Those partners who want to continue as partnership firm but still wants to
have limited liability form___________.
(a) Company
(b) LLP
(c) Partnership firm
(d) All of the above

65.The provisions of the rules and regulations of LLP is governed by _______.

(a) LLP agreement
(b) MOA
(c) AOA
(d) none

66.Undischarged insolvent cannot become a partner in LLP.

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 a) True
b) False
67.Partners can be prosecuted under LLP act,2008.
a) True
b) False
68. LLP may be wound up by Tribunal.
a) True
b) False
69.An obligation of LLP shall be solely the Obligation of LLP.
a) True
b) False
70.Provision of Income tax for LLP is 10%.
a) True
b) False .

REFERENCES
Advanced Company Law and Practice -N D Kapoor
ICAI material
Company Law – Avtar Singh
Guide to company Law – A K Majumdar

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