COMPANY

LAW
INTRODUCTION

• Nature, Meaning and Definition

of the term Company
 • As per the Companies Act, 2013- “A
DEFINITIONS “company” means a company
incorporated under this Act or under
any previous company law ].”
• As per Lord Justice Lindley - “An
association of many persons who
contribute money or money’s worth
to a common stock and employ it in
some trade or business and who
share the profit and loss arising
therefrom
• As per Chief Justice Marshall- “A
corporation is an artificial being,
invisible, intangible, existing only in
contemplation of the law
• As per Justice James- “A company is
an association of person’s united for
a common object.”
CHARACTERISTICS
OF A COMPANY

• It is an Incorporated Association
• It is an Artificial Person
• It has Separate Legal Entity
• It has Perpetual Succession
• It has limited Liability.
• Transferability of Shares
• Limitation of Work
• Representative Management
• Capacity to Sue and be Sued
CHARACTERIS
TICS OF A
COMPANY
• Company is not a citizen
• Company has Nationality and
Residence
• Corporate personality.
 • The veil of incorporation is
LIFTING OF not a wall between the
CORPORATE company and its members
but sometimes persons
VEIL creates the company for
their selfishness with fraud
intention under such
circumstances the court will lift
the veil and withdraw the
corporate personality from such
company stating that the
company and its members are
one and the same, and this
principle is known as ‘lifting of
the corporate veil’.
INSTANCES OF LIFTING THE CORPORATE
VEIL:

• To prevent fraud or improper conduct:

• Enemy Character:
• To prevent Tax Evasion:
• When the Company is a mere sham or fake( unlawful
act):
• Protection of Public Policy:
• Company avoiding legal obligation:
• Company acting as agent or trustee of the
shareholders:
• Amalgamation:
DISADVANTAGE
S OF
REGISTERED • Formality and Expense
COMPANIES • Privacy Loss
• Diversified Control
• Public Accountability
TYPES OF
COMPANIES • On the basis of Incorporation
• On the Basis of Liability
• On the Basis of Number of
Members
• On the Basis of Control
• On the Basis of Ownership
• On the Basis of Nationality
TYPES OF Charted Company: Charted
•
company is created by the charter
COMPANIES or special permission granted by
the head of the state or countries
(ON THE BASIS OF King or Queen
INCORPORATION) • Statutory Company: It is a company
which is incorporated under special
Act of the legislature of the country
or the state
• Registered Company: The
companies which are incorporated
under the Companies Act, 2013 or
under any previous company law
and registered with the Registrar of
Companies, fall under this category
TYPES OF
COMPANIES
(ON THE BASIS OF
LIABILITY)
• Limited Liability Companies
• Unlimited Liability Companies
TYPES OF
COMPANIES
(ON THE BASIS OF
MEMBERS)
• Private Companies
• Public Companies
PRIVATE
COMPANY • A private company atleast should have 2
members and maximum number of
members is limited to 200, taking a joint
holders as single member and also not
counting the present or formal
employees who are members of the
company
• There is no minimum capital requirement
in case of private limited companies
• A private company needs to have
minimum two directors
• A private Company cannot invite the
public to subscribe its securities
PRIVATE
COMPANY
• There is a great flexibility in regard
to the management and conduct of
the business than in the case of
public company.
• The words ‘Private Limited’ must be
added at the end of its name by a
private limited company
 • which is not a private company

PUBLIC • has a minimum paid- up capital as may

be prescribed
COMPANY • subsidiary of a public company shall be
deemed to be public company
• The minimum number of members in a
public company is 7 and the maximum
number of members is unlimited
• It does not restrict the transfer of shares
in a company
• It invites the general public to shares
and debentures of the company
• It does not prohibit any invitations or
acceptance of deposits other than its
members, directors, relatives and
friends
• The Board of the Public company
comprises of a minimum number of
three directors and a maximum of
DISTINCTION
BETWEEN
PRIVATE AND •

•
Minimum Number of Members
Maximum number of Members
PUBLIC • Transferability of Shares

COMPANY •

•
Prospectus
Minimum numbers of Directors
• Retirement of Directors
• Quorum for General Meetings
TYPES OF
COMPANIES
(On the basis of
control)
• Holding Company
• Subsidiary Company
TYPES OF
COMPANIES
(On the basis
of ownership) • Government Companies
• Non- Government Companies
TYPES OF
COMPANIES
(On the basis
of • Domestic Company
Nationality) • Foreign Companies
OTHER
COMPANIES • Non-profit Companies or Section
8 Companies
• Associate Companies
• Dormant Companies
• Small Companies
• One-man Companies
SMALL • paid-up share capital of which
does not exceed four crores
COMPANY rupees or such higher amount
as may be prescribed which
shall not be more than ten crore
rupees; and
• turnover of which as per profit
and loss account for the
immediately preceding financial
year does not exceed forty crore
rupees or such higher amount
as may be prescribed which
shall not be more than one
hundred crore rupees
ONE-MAN • The only exception provided by
the Act to an OPC is that
COMPANY according to the rules only
"NATURALLY-BORN" Indian who
is also a resident of India is
eligible to incorporate an OPC
• An OPC is incorporated as a
private limited company, where
there is only one member and
prohibition in regard to
invitation to the public for
subscription of the securities of
the company
ONE-MAN • The Companies Act 2013 has
given certain relaxations to an
COMPANY OPC which are not available to a
private Companies such as
provision related to general
meetings are not applicable to
OPC, the annual returns in the
case of One Person Company
shall be signed by the company
secretary or where there is no
company secretary, then by the
director of the company,
Financial statements can be
signed by one director, etc
FORMATION
OF COMPANY
• Promotion of company
• Incorporation or Registration of
company
• Capital subscription
• Commencement of business
 • Discovery of Business Idea- It involves

STAGE-1: generation of idea in the brain of some

person

PROMOTION • Scanning for Business Opportunity – The

next step is to look for whether a
business opportunity actually exists or
not
• Detailed Investigation and Feasibility
Study – It is to check whether the
venture practically possible or not
• Assembling Resources – In this stage a
practical shape is given to the business
idea based on the feasibility studies
• Documentation – It involves preparation
of necessary contracts, agreements and
documents such as memorandum of
association, articles of association,
banker’s agreement etc
 • He conceives the idea of formation of company
after a thorough study of the business world
FUNCTIONS / • He draws up the scheme and determines the
object of a future company
DUTIES OF A • The promoter of a company decides its name
and ascertains that it will be accepted by the
PROMOTERS •
Registrar of Companies
He prepares the MOA, AOA and Prospectus of
the company
• He takes necessary permission from the
appropriate Government
• He finds out suitable financiers to back up the
company
• He makes arrangements with vendors,
directors, legal advisors, bankers, auditors and
secretary of the company
• He takes the pain for filing necessary
documents with the Registrar of Companies for
the Certificate of Incorporation
• He bears all the preliminary expenses of the
company
FUNCTIONS /
DUTIES OF A
PROMOTERS • He cannot make either directly
or indirectly any profits at the
expense of the company
• He is not allowed to make any
profit by sale of his own
property to the company, unless
all material facts are disclosed
LEGAL
STATUS OF • Promoter occupies significant
position in formation of a
THE company

PROMOTERS • However, it is very difficult to

determine his accurate legal
position, because the company
is not in existence
• His position may be described
with reference to his legal
status, duties and liabilities
PROMOTER
AS AGENT OR • Promoters are neither agents
TRUSTEES nor trustees of a company
because no one can act as an
agent for a person who is not in
existence
• Therefore, the promoters are not
the agents or trustees of a
company
 • Not to make any profit at the
FIDUCIARY expenses of the company- The
promoters must not make either any

POSITION OF profit at the expenses of the

company which he is going to start

PROMOTERS • To give benefit of Contracts to the

company- The promoter must, when
once he has began to act in the
promotion of a company, give to the
company the benefit of any contracts
into which he enters in respect of the
company
• To make a full disclosure of interest
or profit- If the promoter fails to make
a full disclosure of all relevant facts,
including any profit and his personal
interest in a transaction with the
company, the company may sue him
for the damages
FIDUCIARY
POSITION OF
PROMOTERS • Not to make unfair use of
position: The promoter must not
make an unfair or unreasonable
use of his position and must
take care to avoid anything
which has the appearance of
undue influence/fraud
LIABILITIES
OF
PROMOTERS • He is liable for non- compliance
of Companies Act
• He is liable for mis- statements
in prospectus
• He is personally liable for breach
of preliminary contracts
STAGE-2: • A company is said to be formed
INCORPORATION/ when it is incorporated or
registered under the provisions
FORMATION OF of companies Act
THE COMPANY • Before the company is formed a
lot of preliminary works are to
be performed such as whether it
should be a public or private
company, what its capital should
be concerned
• All these decisions are taken by
the certain persons known as
‘promoters’
 • The Memorandum of Association duly

DOCUMENTS •
signed by the subscribers
The Articles of Association, if any, signed

TO BE FILED by the subscribes to the, Memorandum

of Association

WITH ROC • The agreement, if any, which the

company proposes to enter into with any
individual for appointment as its
managing or whole- time director or
manager
• A list of the directors who have agreed
to become the first directors of the
company and their written consent to
act as directors and take up qualification
shares
• A declaration stating that all the
requirements of the Companies Act and
other formalities relating to registration
have been complied with
• Payment of requisite fees
 • When the requisite documents are
CERTIFICATE OF filed with the Registrar, the Registrar
shall satisfy himself that the statutory
INCORPORATION requirements regarding registration
have been duly complied with, in
exercising this duty, the Registrar is
not required to carry out any
investigation
• If the Registrar is satisfied as to the
compliance of statutory requirements,
he retains and registers the
Memorandum, the Articles and other
documents filed with him and issues a
‘certificate of incorporation, i.e., of
the formation of the company
• This certificate contains the name of
the company, the date of its issue,
CIN and the signature of the Registrar
with his seal
CONCLUSIVENESS • That requirement of the Act in
respect of registration of
OF CERTIFICATE OF matters precedent and
INCORPORATION incidental thereto has been
complied with
• That the association is a
company authorised to be
registered under the Act, and
has been duly registered
• That the date borne by the
certificate of incorporation is the
date of birth of the company,
i.e., the date on which the
company comes into existence
 • The company becomes a distinct
EFFECTS OF legal entity, its life commences
REGISTRATION from the date mentioned in the
certificate of incorporation
• The company acquires a
perpetual succession
• The company’s property is not
the property of the shareholders
• The Company can borrow on its
own name
• The Company can sue and be
sued on its own name
• The liability of the company is not
the liability of the shareholders
STAGE-3:
CAPITAL
SUBSCRIPTION • Issue a Prospectus if public is to
be invited to subscribe to its
share capital, or
• File ‘A Statement In Lieu of
Prospectus’, in case capital has
been arranged privately
 • A private company and OPC can
STAGE-4: commence business immediately
COMMENCEMENT after incorporation
OF BUSINESS • However, in the case of companies
other than the private company
and a company having no share
capital, further requirement is to
be complied with, namely,
obtaining ‘a certificate of
commencement of businesses
before it commence its business
• No public company can commence
any business or exercise any
borrowing power unless the
Certificate to Commence Business
is obtained
 • Preliminary contracts are contracts
PRELIMINARY purported to be made on behalf of a
company before its incorporation
CONTRACTS/PRE- • It is likely that due to non-availability
INCORPORATION of a suitable name, lack of clarity
among the promoters or for other
CONTRACTS reasons, the formation of a company
may take time
• Hence, a contract by a promoter
purporting to act on behalf of a
company prior to its incorporation
never binds the company because at
the time the contract was concluded
the company was not in existence
• However, pre-incorporation
contracts are not binding upon the
company, if these are not adopted or
accepted by the company after its
incorporation
 • In Kelner v. Baxter three persons A
CASE LAW B and C purported to enter into a
contract as agents on behalf of a
company before its incorporation
for the purchase of certain goods
from Kelner and signed it : “A, B
and C, Directors”
• The company later obtained the
certificate of incorporation but
collapsed before the money was
paid for the goods which were
supplied to it by Kelner
• It was held that A, B and C were
personally liable on the agreement
and no subsequent ratification by
the company would relieve them
from that liability without the
assent of Kelner
PROVISIONAL
CONTRACTS
• The provisional contracts are
those contracts which are
entered by a public company
after incorporation but before
the company becomes entitled
to commence business
 MEMORANDUM
OF ASSOCIATION
 • Memorandum of Association is a
MEANING legal document which describes
the purpose for which the company
AND SCOPE is formed and therefore identified
the possible scope of its operations
OF MOA beyond which its action cannot go
• It regulates the external affairs of
the company and it gives a name
of the company, it is the
foundation on which the structure
of the company is built, it is the
charter of the company
• Its purpose is to enable the
shareholders, creditors and
outsiders to know what their
permitted range of activities is
DEFINITIONS • According to section 2 of the
OF MOA companies Act of 2013,
Memorandum means “the
Memorandum of Association of a
company as originally framed or
as altered from time to time in
pursuance of any provisions of
this Act or previous Act”
• According to Palmer, “It is a
document of great importance
in relation to the proposed
company”
 • It is the life giving document of a company
because it is necessary for the registration
NATURE OF of a company
It is the foundation on which the structure of
MOA
•
the company is built
• It is the charter containing fundamental
conditions upon which the company is
registered
• It is the constitution of a company in relation
to the outside world
• It shows the name of the company
• It shows the place of a company
• By stating the objects and powers it fixes
the area of operations of a company
• It gives the information about the capital of
a company
• It shows the liabilities of a member of a
company
• It is a public document open for public
inspection
NATURE OF
MOA

• It controls the Articles of

Association of a company
 ● FORM AND
PROCEDURE FOR
FILING MOA
FORM OF
MOA • Section 4 of the Act provides
that the memorandum of
association should be in any one
of the Forms specified in Tables
A, B, C, D or E of Schedule I to
the Act, as may be applicable in
relation to the type of company
proposed to be incorporated or
in a Form as near thereto as the
circumstances admit
• A company shall adopt any of
the model Forms of the
memorandum of association
mentioned above, as may be
applicable to it
• The memorandum should be
printed, numbered and divided
into paragraphs
• On the registration of MOA of
the company Registrar will be
certified under his hand and
issues certificate of
incorporation
CONTENTS/
Memorandum of Association
CLAUSES OF consists of the following clauses
MOA • Name Clause
• Situation Clause
• Object Clause
• Liability Clause
• Capital Clause
• Subscription Clause
 • Undesirable names to be avoided: A
NAME company cannot be registered by a
name in the opinion of the Central
CLAUSE Government, is undesirable
• Too similar to the name of another
company; or
• Misleading, i.e., suggesting that the
company is connected with a particular
business or that it is an association of a
particular type
• Injunction if identical name adopted:
if a company gets registered with a
name which resembles the name of
an existing company, the other
company with whom the name
resembles can apply to the court for
an injunction to restrain the new
company from adopting the identical
name
 • Asiatic Govt
CASE LAWS • Ewing v/s Butter Cup Margarine
Co. ltd : The injunction was
granted in favour of plaintiff,
which was carrying an business
under the trade name ‘Butter
Cup Diary Co
• ‘Limited’ or ‘Private Limited’ as
the last words of the name:
Memorandum shall state the
name of the company with
‘Limited’ as the last word of the
name in case of a public limited
company
EXAMPLE • Publication of name: Every
company shall
• Paint or affix its name and the
address of its registered office, on
the outside of every office or place
in which its business is carried on
• Have it engraved in legible
characters on its seal, and
• Have its name and the address of
its registered office mentioned in
legible characters in all business
letters, bill-heads, negotiable
instruments, invoices, receipts,
etc., of the company
THE • This clause connotes the name
of the State in which the
SITUATION registered office of the company
CLAUSE/ is situated

REGISTERED • Situation clause/Registered

office clause must specify the
OFFICE State in which the registered
CLAUSE office of the company is to be
situated
• The company may have several
branches all over the country
even in foreign but it must have
one registered office
 • It states the liability of the
THE LIABILITY members of the company

CLAUSE • In case of an unlimited

company, the liability of the
members is unlimited whereas
in case of a company limited by
shares, the liability of the
members is restricted by the
amount unpaid on their share
• For a company limited by
guarantee, the liability of the
members is restricted by the
amount each member has
agreed to contribute at the time
of incorporation
 • This clause specifies the maximum
THE CAPITAL capital that a company can raise
which is also called the authorized/
CLAUSE nominal capital of the company. This
also explains the division of such
capital amount into the number of
shares of a fixed amount each. The
capital is variously described as
“nominal”, “authorized” or
“registered”. The amount of nominal
capital is determined having regard to
the present as well as future
requirements of the company with
reference to its objects. This amount
lays down the maximum limit beyond
which the company cannot issue
shares without altering the
memorandum.
 • The Subscription Clause defines
SUBSCRIPTION who are signing the memorandum
CLAUSE/ASSOCIATIO of company
N CLAUSE/ • The subscribers have to sign the
DECLARATION memorandum in the presence of
CLAUSE two witnesses
• The subscribers to the
memorandum declare: “We, the
several persons whose names and
addresses are subscribed below,
are desirous of being formed into a
company in pursuance of this
memorandum of association, and
we respectively agree to take the
number of shares in the capital of
the company set opposite our
respective names”
ALTERATION OF MOA

The companies Act According to section 13

provides that company a company may, by a
shall not alter the special resolution and
conditions contained in after complying with the
its MOA except in the procedure specified in
rarest case provided in this section, alter the
the Companies Act of provisions of its
2013, it can alter memorandum
 • A company has the power to do all
DOCTRINE OF such things as are permitted by the
Companies Act of 2013, essential
ULTRA VIRUS attainment of its object mentioned in
the MOA and reasonable and fair play
which are incidental to its objects
• Company’s activities are regulated or
controlled by the MOA, the company
has to work within the framework
given in the MOA, but under certain
circumstances the company may
exceeds its limit then the act of the
company will be treated as ultra virus
• An ultra virus act in a company is
void and cannot be ratified even if all
the members or shareholders wish to
ratify it
 • Contact are void ab initial: A
EFFECT OF contract which is ultra vires the
company is void ab initial
ULTRA VIRES • Personal liability of directors to the
company: If the directors of the
TRANSACTIO company utilize funds of the
company in ultra vires transactions,
N they would be personally liable to
compensate the company for any
loss suffered by the company
• Personal liability of directors to third
parties: As the agent of the
company, the directors are
expected to act within the authority
available to them
• Property acquired ultra vires: The
funds of the company may be spent
in acquiring a property ultra vires
EFFECT OF
ULTRA VIRES
TRANSACTIO • Injection: In case a company has
done is about to do an act ultra
N vires its Memorandum, any
shareholder may seek an order
of injunction from the court
restraining the company from
doing so
THE DOCTRINE DOES NOT APPLY UNDER SOME
CIRCUMSTANCES AS MENTIONED BELOW
• Where the act is ultra vires only the directors, it may be
ratified by the company
• Where the act is ultra vires only the Articles of Association,
the Articles may be altered to make the action intra vires the
articles
• Where the act is intra vires but has been done in violation of
some bye-laws of the company
 • Articles of association form a
ARTICLE OF document that specifies the
regulations for a company’s
ASSOCIATION operations and defines the
company’s purpose
• Articles of association lays out
how tasks are to be accomplished
within the organization, including
the process for appointing
directors and the handling of
financial records
• The articles of association of a
company are its bye-laws or rules
and regulations that govern the
management of its internal affairs
and the conduct of its business
FORMS OF
AOA • The articles of a company shall
be in respective forms specified
in Tables, F, G, H, I and J in
Schedule I as may be applicable
to such company either in
totality or otherwise
• A company may adopt all or any
of the regulations contained in
the model articles applicable to
such company
 • It defines important definitions of
CONTENTS terms
• Nature of business of the company
OF AOA • It states the objects of the company
• Adoption of Preliminary contracts
• It states the share capital, payment
of commissions and issue of shares
• Provisions related to transfer of
shares
• Procedures for the allotment of
shares
• Increase and decrease of capital
• Voting methods of its members
• Maintenance of accounts
CONTENTS • General meetings, special meetings of the
company
OF AOA • Powers delegated to BOD, Managers etc
• Appointment of BOD’s their qualifications,
remunerations, removal, liabilities
• Borrowing powers of a company
• Management of a company
• Rules for adopting preliminary contracts
• Rules regarding creation of reserves
• Rules regarding declaration of dividends
• Rules relating to keeping of register of
members
• Appointments of Auditors, qualifications,
remunerations, removal, rights and duties
CONTENTS
OF AOA
• Maintenance of audit report
• Company’s common seal
• Notices and circulars and
• Matters relating to winding up of
a company
ALTERATION
OF ARTICLES • by adoption of new set of
articles
• by addition/insertion of a new
Clause/s
• by deletion of a Clause/s
• by amendment of a specific
Clause/s
• by substitution of a specific
Clause/s
PROCEDURE • Where the nature of company
remains unchanged
OF • Approval of the Board of directors

ALTERATION Special resolution

•
• Complying with entrenchment
provisions, if any
• Filling resolution with the Registrar
• Where a public company is
converted into a private
company
• Board shall approve the draft
resolution
• Special resolution
• Approval of the tribunal
 • Alteration must not exceed the scope of or
conflict with the Memorandum
LIMITATIONS • The alteration must not be inconsistent

OF FREEDOM
with the provisions of the Companies Act or
any other law

TO ALTER
• The Articles cannot be made to include
anything which is in itself unlawful or
opposed to public policy
THE • The alteration must not seek to undo the
alteration made by the CLB or Tribunal in
ARTICLES •
the documents of the company
The alteration must be bona fide and for
the benefit of the company as a whole
• The alteration must not amount to a fraud
by majority on the minority
• The alteration cannot be done to break a
contract with a third party
• An alteration would not be complete unless
it is followed by the approval of the Central
Government wherever necessary
 • The term constructive notice
DOCTRINE OF means the presumption of notice
in certain circumstances
CONSTRUCTIVE
• It is duty of every person dealing
NOTICE with the company to inspect
these documents and make sure
that his contract with the
company is in accordance with
the provisions of these documents
• The doctrine of constructive
notice applies not only to MOA
and AOA, but also other
documents, which have to be filed
with the Registrar, such as special
resolutions, and particulars of
changes
DOCTRINE OF • The doctrine of indoor management
constitutes as exception to the
INDOOR principle of constructive notice
MANAGEMENT • The doctrine of constructive notice
is based on the fact that the MOA
and AOA, being public documents,
their contents are supposed to be
known to everyone dealing with the
company
• The doctrine of indoor management
relates to the internal matters, and
an outsider can presume that the
internal working of the company is
in consonance with the provisions
of public documents
MEANING OF
PROSPECTUS • there must be an invitation
offering to the public
• the invitation must be made by
or on behalf of the company or
in relation to an intended
company
• the invitation must be to
subscribe or purchase
• the invitation must relate to
shares or debentures
 • Shelf prospectus- means a prospectus in

TYPES OF respect of which the securities or class

of securities included therein are issued
for subscription in one or more issues
PROSPECTUS over a certain period without the issue
of a further prospectus
UNDER • Red Herring prospectus- It is a
prospectus wherein information
COMPANY regarding either the quantity of
securities or the price of securities is not
LAW •
disclosed by the company
Abridged prospectus- It refers to a
memorandum that, in accordance with
the guidelines provided by the
Securities and Exchange Board, contains
the key elements of a prospectus
• Deemed Prospectus-
A deemed prospectus is a document that
is assumed to be a company’s
prospectus
CONTENTS
OF
PROSPECTUS
• Contents / subject matter to be
specified in Prospectus
 • Names and addresses of the registered

CONTENTS office of the company, company

secretary, Chief Financial Officer,
auditors, legal advisers, bankers,
OF trustees, if any, underwriters and such
other persons as may be prescribed
PROSPECTUS • Dates of the opening and closing of the
issue, and declaration about the issue of
allotment letters and refunds within the
prescribed time
• A statement by the Board of Directors
about the separate bank account all
monies received out of the issue are to
be transferred and disclosure of details
of all monies
• Details about underwriting of the issue
• Consent of the directors, auditors,
bankers to the issue, expert’s opinion, if
any, and of such other persons, as may
be prescribed
 • The authority for the issue and
CONTENTS the details of the resolution
passed there for
OF • Procedure and time schedule for
PROSPECTUS allotment and issue of securities
• Capital structure of the company
in the prescribed manner
• Main objects of public offer,
terms of the present issue and
such other particulars as may be
prescribed
• Main objects and present
business of the company
and its location, schedule of
implementation of the project
 Particulars relating to—
CONTENTS
•
• Management perception of risk factors
specific to the project
OF • Gestation period of the project
• Extent of progress made in the project

PROSPECTUS • Deadlines for completion of the project;

and
• any litigation or legal action pending or
taken by a Government Department or a
statutory body during the last five years
immediately preceding the year of the
issue of prospectus against the promoter
of the company
• Minimum subscription, amount payable
by way of premium, issue of shares
• Details of directors including their
appointments and remuneration, and
such particulars of the nature and extent of
their interests in the company as may be
prescribed
CONTENTS
OF • Disclosures in such manner
PROSPECTUS as may be prescribed
about sources of promoter’s
contribution
• Reports by the auditors of the
company with respect to its
profits and losses and assets
and liabilities and such other
matters as may be prescribed
 • Reports relating to profits and
CONTENTS losses for each of the five financial
years immediately preceding the
OF financial year of the issue of
prospectus including such
PROSPECTUS reports of its subsidiaries and in
such manner as may be prescribed:
Provided that in case of a company
with respect to which a
period of five years has not
elapsed from the date of
incorporation, the prospectus shall
set out in such manner as may
be prescribed, the reports relating
to profits and losses for each of the
financial years immediately
preceding the financial year of the
issue of prospectus including such
reports of its subsidiaries
 • Reports made in the prescribed manner

CONTENTS by the auditors upon the profits and

losses of the business of the company for
each of the five financial years
OF immediately preceding issue and assets
and liabilities of its business on the last
PROSPECTUS date to which the accounts of the
business were made up, being a date not
more than one hundred and eighty days
before the issue of the prospectus:
Provided that in case of a company with
respect to which a period of five years
has not elapsed from the date of
incorporation, the prospectus shall set
out in the prescribed manner, the reports
made by the auditors upon the profits
and losses of the business of the
company for all financial years
from the date of its incorporation,
and assets and liabilities of its business
on the last date before the issue of
prospectus
CONTENTS
OF • Reports about the business or
transaction to which the proceeds of
PROSPECTUS the securities are to be applied directly
or indirectly
• Make a declaration about the
compliance of the provisions of this Act
and a statement to the effect that
nothing in the prospectus is contrary to
the provisions of this Act, the
Securities Contracts Act, 1956 and the
Securities and Exchange Board of India
Act, 1992 and the rules and regulations
made there under
 • The prospectus containing false,
GOLDEN RULE misleading, ambiguous, fraudulent
statements of the facts of the company
BY VC are called as misleading or
misstatement of prospectus
KINDERSELEY • The ‘Golden Rule’ of the prospectus
was propounded by Judge VC
Kinderseley in the landmark judgement
of The New Brunswick Railway
Company v. Muggeridge
• The essence of the rule is that it is
mandatory on part of the company to
issue a prospectus; it is not only
required to accurately put forth all the
relevant facts and information but also
ensure that it does not hide any
information which might affect the
decision of an investor
NEWSPAPER
ADVERTISEMENT
OF PROSPECTUS • Name of the company
• Address of the company
• Activities of the company
• Location of the industry
• Name of Board of Directors
• Opening and closing dates of
the subscription list
MISSTATEMENT IN
PROSPECTUS AND
THEIR
CONSEQUENCES
CIVIL • Remedies against the company:
The person who has been
LIABILITY induced to subscribe for shares
may
• Rescind the Contract
• To Claim Damages
• That the person who had
issued the prospectus was not
authorised to issue
• That the person who had issued the
prospectus were known that the
statement was wrong
• That the subscriber had suffered
loss on account of fraudulent
misrepresentation in the
prospectus
CIVIL • Remedies against the
Promoters, BOD and Experts:
LIABILITY Any person who has purchase
shares and debentures on the
faith of the prospectus
containing wrong statement
may sue every directors,
promoters and experts of the
company for claiming any of the
following remedies
• Claim Damages
• Damages for non-compliance of
section
• Damages under Indian Contract Act
CRIMINAL
• A public company generally
LIABILITY does the business throughout
the country and also beyond the
boundaries of country
• All the investors may not have
the unity, legal awareness and
time to invest money in legal
expenses, therefore the law
itself imposes severe criminal
liability upon the directors,
promoters and every experts
 • Where a prospectus, issued,
CRIMINAL circulated or distributed which
includes any statement which is
LIABILITY untrue or misleading, every
person who authorises to issue
such prospectus shall be
punishable with imprisonment
for a term which shall not be
less than six months but which
may extend to ten years and
shall also be liable to fine which
shall not be less than the
amount involved in the fraud,
but which may extend to three
times the amount involved in
the fraud
 • A prospectus is a legal
STATEMENT document that a corporation
publishes to invite the public to
IN LIEU OF subscribe to its shares and
PROSPECTUS debentures
• When a company does not offer
its securities for public
subscription, it issues a
statement in lieu of prospectus
• When a firm does not submit a
prospectus to the public in order
to invite them to subscribe for
shares, a Statement in Lieu of
Prospectus is submitted with the
Registrar of Companies
WINDING UP

• Winding up by the Tribunal

• Voluntary Winding Up
 • The company, in case of passing a

WINDING UP •
special resolution for winding up
A creditor, in case of a company's
BY THE •
inability to pay debts
A contributory or contributories, in
TRIBUNAL OR case of a failure to hold a statutory
meeting or to file a statutory report
GROUNDS FOR or in case of reduction of members
below the statutory minimum
COMPULSORY • The Registrar, on any ground
provided prior approval of the
WINDING UP Central Government has been
obtained
• A person authorized by the Central
Government, in case of investigation
into the business of the company
where it appears from the report of
the inspector that the affairs of the
company have been conducted with
intent to defraud its creditors,
members or any other person
WINDING UP
BY THE
TRIBUNAL OR
GROUNDS FOR • The Central or State Government, if
COMPULSORY the company has acted against the
sovereignty, integrity or security of
WINDING UP India or against public order,
decency, morality, etc
VOLUNTARY • By passing an ordinary
WINDING UP resolution in the general
OF A meeting if
• the period fixed for the duration of
REGISTERED the company by the articles has
expired
COMPANY • Some event on the happening of
which company is to be dissolved,
has happened
• By passing a special resolution
to wind up voluntarily for any
reason whatsoever
VOLUNTARY
WINDING UP
OF A
REGISTERED • Members' voluntary winding up
COMPANY • Creditor's voluntary winding up
 • A declaration of solvency must be made

MEMBERS' by a majority of directors, or all of them

if they are two in number

VOLUNTARY • Shareholders must pass an ordinary or

special resolution for winding up of the
WINDING UP company
• Appointment of liquidator and fixation of
his remuneration by the General Meeting
• Cessation of Board's power on
appointment of liquidator except so far
as may have been
• Filling up of vacancy caused by death,
resignation or otherwise in the office of
liquidator by the general meeting
subject to an arrangement with the
creditors
• Sending the notice of appointment of
liquidator to the Registrar
 • Power of liquidator to accept shares
MEMBERS' or like interest as a consideration
for the sale of business of the
VOLUNTARY company provided special
resolution has been passed to this
WINDING UP effect
• Duty of liquidator to call creditors'
meeting in case of insolvency of the
company and place a statement of
assets and liabilities before them
• Liquidator's duty to convene a
General Meeting at the end of each
year
• Liquidator's duty to make an
account of winding up and lay the
same before the final meeting
 • The Board of Directors shall convene a

CREDITOR'S meeting of creditors on the same day or

the next day

VOLUNTARY • A statement of position of the company

and a list of creditors along with list of

WINDING UP their claims shall be placed before the

meeting of creditors
• A copy of resolution passed at creditors'
meeting shall be filed with Registrar
within 30 days of its passing
• It shall be done at respective meetings
of members and creditors
• A five-member Committee of Inspection
is appointed by creditors to supervise
the work of liquidator
• Fixation of remuneration of liquidator by
creditors or committee of inspection
• Cessation of board's powers on
appointment of liquidator
CREDITOR'S
VOLUNTARY • As soon as the affairs of the
company are wound up, the
WINDING UP liquidator shall call a final
meeting of the company as well
as that of the creditors through
an advertisement in local
newspapers as well as in the
Official Gazette at least one
month before the meeting and
place the accounts before it