Legal Aspects of Business unit-II- Companies act

Companies Act 2013
Dr. D. Joel Jebadurai
AP,MBA,SJCE

Nature of the company
1. An incorporated association.
2. Separate legal entity.
3. Artificial person but not a citizen.
4. Perpetual succession.
5. Common seal.
6. Separate name
7. Limited liability.
8. Separation of ownership and management.
9. Transferability of shares.
10.Separate property.

Nature of the company
1. Number of members.
2. Share holders are actual owners.
3. Raising of capital on a large scale.
4. Capacity to sue.
5. Rigidity to objects.
6. Statutory requirements.
7. Company is a body corporate/ incorporate.
8. Maintenance of account books
9. Audit of account books
10.Has nationality and residence
11.Company is not a citizen

Types of
companies
On the basis of
liability
Limited by shares
Limited by guarantee
Unlimted
On the basis of
mode of
Incorporation
Chattered Company
Statutory Company
Registered under companies Act
On the basis of
ownership
Private company
Public company
Government company
On the basis of
jurisdiction or
functioning
National Company
MNC
Foreign company
Basis of
control/Shareholding
Holding company
Subsidiary Company
Other types
One man company
Association not for profit
Existing company

Sl.No Private Limited Company Public Limited Company
1 A private company can be registered with a paid-up capital
of Rs.100000.
A public company must have a minimum paid-up capital
of Rs.500000.
2 A private company cannot have less than two members and
more than fifty members.
The minimum number of persons required to form a
public company is seven. There is no restriction on the
maximum number of members in a public company.
3 A private company cannot invite the public to subscribe to
its share capital neither can it invite the people to buy its
debentures.
A public company invites the public to subscribe to its
share capital or to purchase its debentures.
4 In a private company, the right to transfer its shares is
restricted by its articles. Thus, if a private company has a
share capital; it imposes certain restrictions on the right of
its members to transfer the shares of the company they
hold.
In a public company, its shares are freely transferable
5 A private company has to add the words ''Private limited" at
the end of its name.
A public company has to use the word 'Limited' at the end
of its name.
6 A private company must have minimum two directors. A public company must have minimum three directors.
7 A private company enjoys certain privileges, that is,
exemptions from certain provisions of the companies Act,
1956.
A public company does not enjoy any such privileges.
8 Directors of a private company need not file their consent
with the registrar to act as a director or sign an undertaking
to take up qualification shares.
Directors of a public company have to file their consent
with registrar to act as a director or sign an undertaking to
take up qualification shares.

9 Legal controls on private companies are less. Legal controls and restrictions on public companies are more in
number and are strict.
10 In private companies, restrictions on the
managerial remuneration are far less.
In public companies, there are restrictionson managerial
remuneration. Important provisions relating managerial
remuneration are made in sections 198,309,310,311 of the
Companies Act, 1956. It cannot be more than 11% of net profits
of the company.
11 Directors are allowed to borrow from the private
companies.
Directors cannot borrow from the public companies.
12 In the case of a private company, unless the
articles of the company provide for a large
number, two members personally present are
quorum for a meeting of a company.
In the case of a public company,
unless the articles of the company provide for a large number,
five members personally present are quorum for a meeting of the
company section 174[1].
13 A private company is not required to file a
prospectus or a statement in lieu of prospectus
with the registrar Section 70[3].
A public company has to file a prospectus or a statement in lieu of
prospectus with the registrar.
14 A private company can commence its business
immediately after receiving the certificate of
incorporation.
A public company can commence its business only after it
receives the certificate to commence the business from the
Registrar of Companies.
15 A private company cannot accept deposits from
the public other than the shareholders, directors
and their relatives.
A public company is allowed to accept the deposits from the
public under the companies Act subject to the provisions of
Sections 58A, 58AAA and 58B.

Formation of the company
a) Promotion stages
1) Discovery of a new idea
2) Detailed investigation
3) Assembling different factors
4) Financing
b) Incorporation/Registration Stages
1) Preliminary activities
2) Documents
3) Payment of prescribed fees
4) Certificate of incorporation
5) Capital subscription
6) Issue of prospectus
C) Commencement of business

MEMORANDUM OF ASSOCIATION
What it is?
The memorandum of association of a company is the charter and defines the
limitation of the power of the company established under the Act”.

MEMORANDUM OF ASSOCIATION
1) Name clause- Not be identical, similar, Govt.org. Pvt. Ltd. Ltd.
2) Situation clause- Place of registered office, 30 days commencement of
business, transferred with special resolution.
3) Object clause
4) Liability clause- limited by guarantee, shares
5) Capital clause- Authorized, issued, subscribed
6) Association & subscription clause- Pvt. ltd-2, Public limited -7

Alteration in MOA
Name clause
A company can change its name at any time by any of the following procedures:
• By passing a special resolution.
• By obtaining the approval of the Central Government.
What are the Conditions for any such Alteration in the Name?
• The change of name shall not be allowed to a company which has defaulted in
filing its
• Annual returns
• Financial Statements
• Any document due for filing with Registrar
• repayment of matured deposits or debentures or interest on deposits or debentures
RUN (Reservation of Unique Name), Registrar of the company

Alteration of Situation clause
• Shifting of the registered office from one state or UT to another state –
For the change in the registered office from one state to another state, an application under sub-
section (4) of section 13 is filed with the Central Government in Form No. INC.23 along with
the fee. The application must be accompanied by the following documents:
1. Copy of MOA (Memorandum of Association) with proposed alterations.
2. A copy of the details of the general meeting at which the resolution authorizing such
alteration was passed. These details give the number of votes cast in the favor or against the
resolution.
3. A copy of Board Resolution or Power of Attorney.
4. A list of creditors and debenture holders is attached to the application, drawn up to the latest
date prior to the date of filing of an application by not more than one month. It must include:
a. The name and address of the credit and debenture holder of the company.
b. The nature and amounts due to them in respect of debts, claims, or liabilities.

Alteration in the object clause
• If the company wants to change the objective of its business,
then there is a requirement of special resolution that must be
passed.
• The details of the objective must be published in the
newspaper that too in different languages (one in English
and other in the vernacular language) where the registered
office of the company is situated and also on the website of the
company.

Alteration in the liability clause
• The alteration of the Liability Clause restricts the liability of
the Directors. The liability clause can be unlimited by passing
a special resolution which should be filed with the Registrar
within a period of 30 days.

Alteration in the capital clause
A company may alter the capital clause only if it is authorized by
its articles. Alteration can be for any of the following
purposes:
• Alteration of the Capital Clause
• An increase of its share capital by issue of new shares.
• Consolidation of existing shares into shares of larger amounts.
• Conversion of fully paid shares into stock or vice versa.
• Cancellation of unissued shares.

Prospectus
Sec 2(36) defines a prospectus as 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.

Nature of Prospectus
1. It must be in writing
2. Subscription- Taking or agreeing to take shares for
cash
3. Invitation to public
4. Offer to public

Prospectus
• General Information
• Name & address of registered office of the company
• Details of letter of intent/industrial license
• Name of stock exchange where listed
• Date of opening, closing of the issue
• Name, address of lead manager, bankers to the issue, brokers to the issue
• Underwriting arrangement
• Capital Structure of the company
• Authorized, issued, subscribed, paid up capital of the company should be mentioned
• Size of the issue
• Details of the issues
• Objects of the issues
• Tax benefits available to the company
• Rights of the instrument holders
• Authority of the issues & details of resolution passed for the issues
• Terms of pay

Prospectus
• Details about the company management
• History, main objects, present business of the company
• Subsidiaries of the company
• Promoters and their background
• Name, address occupation of manager, managing director’s relationship with the
company
• Details about the project
• Cost of the project & means of financing
• Location of the project
• Plant & machinery for the projects Infrastructure facilities for raw materials
• Expected date of trial production and commercial production
• Schedule of Implementation of the projects

Prospectus
• Other Information
In respect of any issue made by the company and other listed
companies under the same management, the following details,
• Name of the company, year of issue, types of issue, amount of
issue & date of completion of the projects
• Procedure and time schedule for allotment & issue of certificates
• Management perception of risk factors
• Procedure for making application & availability of forms,
prospectus and mode of payment
• Changes in directors and auditors in the last 3 years

Liability for Misstatements in Prospectus

Remedies against the company
Rescission of the contract
1. The statement must be material misrepresentation of acts
2. A statement of fact must be material misrepresentation of facts
3. A statement must be distinguished from a statement of opinion or
expectations
4. The statement must have induced the shareholders to take the shares
5. The statement must be true
6. The deceived shareholder is an allottee and he must have relied on the
statement in the prospectus
7. The mission of material facts must be misleading before recission is
granted

Loss of right of recission
• Affirmation
a. Attempts to sell shares
b. Executes a transfer
c. Pay calls or receives dividends
d. Attend and votes at a general meeting of the company in a person or by proxy
Unreasonable delay- 15 days
Winding up- Before creditor intervention
Damages for deceit

Remedies against the directors, promoters and experts
Who are liable to pay compensation?
• Directors
• Authorised person
• Promotors
• Persons who have authorised the issue of the prospectus
Defences of directors, promotors etc.
1. Withdrawal of consent- before the issue of prsopectus
2. Absence of consent -
3. Ignorance of untrue statement- Reasonable public notice
4. Reasonable ground for belief
5. Statement for expert
6. Right of contribution
Liability for damages for non compliance with sec 56
Liability under the general law

Board of Directors
The Companies Act, 2013 does not contain an exhaustive definition of
the term “director”. Section 2 (34) of the Act prescribed that
“director” means a director appointed to the Board of a company.
A director is a person appointed to perform the duties and functions of
director of a company in accordance with the provisions of the
Companies Act, 2013.
Section 2 (10) of the Companies Act, 2013 defined that “Board of
Directors” or “Board”, in relation to a company, means the
collective body of the directors of the company.

Power of Board of Directors
1. to make calls on shareholders in respect of moneys unpaid on their shares;
2. to issue shares;
3. to issue debentures or any instrument in the nature of redeemable capital;
4. to borrow moneys otherwise than on debentures;
5. to invest the funds of the company;
6. to make loans;
7. to authorize a director or the firm of which he is a partner or any partner of such firm or a
private company of which he is a member or director to enter into any contract with the
company for making sale, purchase or supply of goods or rendering services with the
company;
8. to approve annual or half-yearly or other periodical accounts as are required to be
circulated to the members;
9. to approve bonus to employees;
10. to incur capital expenditure on any single item or dispose of a fixed asset in accordance
with the limits as prescribed by the Commission from time to time;

• 11. Provided that the acceptance by a banking company in the ordinary
course of its business of deposit of money from the public repayable on
demand or otherwise and withdraw able by cheque, draft, order or
otherwise, or placing of moneys on deposit by a banking company with
another banking companion such conditions as the directors may prescribe,
shall not be deemed to be a borrowing of money or, as the case may be, a
making of loan by a banking company with the meeting of this section;
12. to undertake obligations under leasing contracts exceeding one million
rupees;
13. to declare interim dividend; and

• 14. having regard to such amount as may be determined to be material (as
construed in Generally Accepted Accounting Principles) by the Board.
i. to write off bad debts, advances and receivables;
ii. to write off inventories and other assets of the company; and
iii. to determine the terms of and the circumstances in which a law suit may
be compromised and a claim or right in favour of a company may be
released, extinguished or relinquished.

Duties of Board of Directors
• 1) Subject to the provisions of this Act, a director of a company shall act in
accordance with the articles of the company.
• (2) A director of a company shall act in good faith in order to promote the
objects of the company for the benefit of its members as a whole, and in the
best interests of the company, its employees, the shareholders, the
community and for the protection of environment.
• (3) A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise independent
judgment.
• (4) A director of a company shall not involve in a situation in which he may
have a direct or indirect interest that conflicts, or possibly may conflict,
with the interest of the company.

Duties of Board of Directors
• (5) A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives, partners, or
associates and if such director is found guilty of making any undue gain, he
shall be liable to pay an amount equal to that gain to the company.
• (6) A director of a company shall not assign his office and any assignment
so made shall be void.
• (7) If a director of the company contravenes the provisions of this section
such director shall be punishable with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees.

Liabilities of Board of Directors
• Tax Liability: Unless a Director or any Past Director can prove that the non-recovery or non-
payment of Taxes are attributable as gross neglect or breach of duty, then any present or past
Director (pertaining to the time period of defaulter) will be liable to pay the shortfall in tax amount
and any penalty associated.
• Refunding of share application or excess in share application money
• To pay for qualification shares
• Civil Liability in case of misstatement in Prospectus
• Fraudulent Business Conduct and all associated debts and contracts executed
• Failure in making disclosures as stipulated SEBI (Acquisition of Shares & Takeovers) Regulations,
1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992 by the directors may attract legal
proceedings by SEBI
• Cheques Bounced or dishonored: Under Negotiable Instruments Act 1881, signing of dishonored by
a Director may lead to prosecution along with the company
• Offences under Income Tax Act, 1961
• Offences under Labour Laws, specifically in case of Employees Provident Funds and Miscellaneous
Provisions Act, 1952 and Factories Act, 1948

Liabilities of Board of Directors
The company will also in future not be allowed to indemnify
directors from damages and losses suffered from:
• a breach of fiduciary duties
• a breach of duties of care and skill
• a breach of trust
• wilful misconduct
• conflicts of interest

Doctrine of Indoor Management
The doctrine of Constructive Notice The doctrine of Indoor Management
Provides protection to the company
from outsiders
Provides protection to outsiders
from the internal affairs of a
company
Confined to the external position
and affairs of the company
Confined to internal matters of the
company
Memorandum and Articles of
Association are public documents
Internal affairs of a company are
not public knowledge i.e. not
registered anywhere
Is based on a negative concept Can be termed as a positive concept

Exceptions to Doctrine of Indoor Management
• The rule does not protect a person if he/she has prior knowledge of the
irregularity
• The rule cannot protect any person who did not study the company’s MOA
and AOA before entering into a contract i.e. on part of his negligence
• The rule do not apply incase of forgery i.e. incase the outsider relies on
forged documents to claim protection under the rule
• This rule also does not apply to a transaction which are illegal and void
• A person must take proper enquires about the person who is dealing on
behalf of the company. If he fails to make enquiry he cannot rely on the
rule

Corporate Veil
• The company, in the contemplation of law, is a person distinct from the
shareholders. In other words, the company alone is liable for all the acts done
and the debts incurred by it and not the directors or the shareholders who are
in fact the beneficial owners of the company. This principle is known as “The
Veil of Incorporation“

Corporate Veil
• Factors for Courts to Consider
Components that a court may consider when determining whether to pierce the
corporate veil incorporate the following:
• Unavailability or mistakes of corporate records
• Covering or misreports of company members
• Inability to keep up associations with related entities
• Inability to observe corporate formalities relating to behavior and documentation
• Blending of assets of the company and the investors
• Manipulation of assets or liabilities
• Dysfunctional corporate officers or directors
• Notable undercapitalization of the business entity
• Draining of corporate funds by the predominant shareholder(s)
• Treatment by a person of the assets of the company as his/her own

Lifting the Corporate Veil
Statutory Provisions
1. Officer in default
2. Reduction of Membership
3. Improper use of name
4. Fraudulent Conduct
5. Failure to refund application money
Judicial Grounds
1. Fraud or improper conduct
2. Tax Evasion
3. Company as agent

Special Privileges of Private Company
• Number of members-2
• Allotment before minimum subscription
• Prospectus or statement in lieu of prospectus- may allot without issuing prospectus
• Issue of new shares
• Commencement of business
• Index of members
• Statutory meeting and statutory report
• Demand for poll
• Managerial Remuneration- 11 percent
• Number of directors- only 2
• Rules regarding directors

Winding up of companies
M.C. Kuchhal defines, “The ‘winding up’ or ‘liquidation’ of a
company is a process to bring about an end to the life of a
company.”
In the words of Pennington, “Winding up is a process by
which the management of a company’s affairs is taken out of
its directors’ hands; its assets are realized by a liquidator and
debts are paid out of the proceeds of the realization and any
balance remains is returned to its members.”

Particulars Winding up of Company Liquidation of Company Dissolution of the company
1. Meaning
To completely dissolve the
company and no further
operations can be done in the
name of the company
To dispose of assets or properties
or both of the company to pay off
its liabilities.
To completely dissolve the
company and no further operations
can be done in the name of the
company. Or in other cases, will be
carried in another company name
2. Moderator
NCLT (National Company Law
Tribunal) or The Winding-up
Committee of Company
Liquidator (appointed by company
or tribunal.)
NCLT (National Company Law
Tribunal)
3. Continuity
After completion of the windup
process, the company cease to
exist in the legal environment
After completion of the liquidation
process, the company is further
detained for civic liabilities or
further searches or analyses by
different authorities’. So, the
company tends to exist in the
environment even after completion
of the liquidation process.
After an order of dissolution, the
company ceases to operate.
4.Activities
included
Filling of resolution/ petition,
the appointment of the
liquidator, receipt of
declarations, preparation of
reports, disclosures to Registrar
of Companies, etc
Appointment of a liquidator,
selling off company assets,
payment of liabilities and
preparation of liquidation report.
Filing of resolutions, declarations
and other documents as required to
complete the procedural
formalities.

Petition For Winding up
• The following persons can file a petition:
1. The company.
2. Any creditor or creditors including any contingent or prospective creditor
or creditors.
3. Any contributory or contributories.
4. All or any of the aforesaid parties, together or separately.
5. The Registrar.
6. Any person authorized by the central government under section 245.
7. By the Central or State Government.

Modes of Winding up of a Company
1. Winding up by the Tribunal/Compulsory Winding up, or
2. Voluntary Winding up.

Winding up by Tribunal/Compulsory Winding up
• 1. Passing of Special Resolution for the Winding Up : When a company has by
passing a special resolution resolved to be wound up by the Tribunal, winding up order
may be made by the Tribunal. The resolution may be passed for any cause whatsoever.
Tribunal may not order for the winding up if it finds it to be opposed to public interest or
the interest Ofthe company as a whole.
• 2. Acting against the National Interest : If the company has against the interests of : (i)
the sovereignty and integrity of India, (ii) security of the State, (iii) friendly relations
with foreign states, (iv) public order, (Decency, or (vi) morality, ‘it may be ordered to be
wound up.
• 3. Tribunal’s Order Under Chapter XIX : A Company may be wound up if the
Tribunal has ordered the winding up under Chapter XIX which deals with Revival and
Rehabilitation of Sick Companies.

4. Company’s Affairs are being conducted in a Fraudulent Manner : The Tribunal
may make a winding up order if on an application made by the Registrar or any
other person authorised by the Central Government, the Tribunal is of the opinion
that :
• (i) the affairs of the company have been conducted in a fraudulent manner; or
(ii) the company was formed for fraudulent and unlawful purpose; or (iii) the
persons concerned in the formation or management of its affairs have been guilty of
fraud, misfeasance or misconduct in connection therewith and that it is proper that
the company be wound up.
• 5. Default in Filing Financial Statements : A’ company may be wound up by the
Tribunal if the company has made a default in filing with the Registrar its financial
statements or annual returns for immediately preceding five consecutive financial
years.

• 6. Inability to Pay Debts : A company may be ordered to be wound up, if it is unable to pay its debts or honour its
monetary commitments. According to Section 271 (2), a company is deemed to be unable to pay its debts in the
following three cases :
• (i) Failure to Pay on demand : Where the company fails to pay the sum or otherwise satisfy the creditor to whom
it owes a sum exceeding Rs. 1 lakh, within 21 days of the demand for payment made by its -creditor or his agent or
legal adviser.
• (ii) Unsatisfied Decreed Debt : Where the company fails to satisfy a decree of any or tribunal in favour of a
creditor-either in whole or in part. note that there is no condition of any amount in this case. Unsatisfied execution
of a decree for- any amount howsoever small will constitute an ability to pay.
• (iii) Proving Inability to Pay Debts or Commercial Insolvency : A company shall also be deemed to be unable to
pay its debts if it is proved to she satisfaction of the Tribunal that the company is unable to pay its debts. an
determining whether a company is unable to pay its debts, the Tribunal shall take into account the contingent and
prospective liabilities of the company. If a company cannot prove that its assets are sufficient to meet its iabilities
within a reasonable time, the company may be considered as commercially insolvent company.
• (7) Just and Equitable Reason for Winding up : The Tribunal may ISO order the winding up of a company, if the
Tribunal is of opinion that it is just and equitable that the company should be wound up.
• The discretionary powers the Tribunal under this clause are very wide. The Tribunal may order winding up of a
company whenever it appears to it just and equitable. What is just and equitable is a question of fact and decided
upon the circumstances of each case. But generally while passing an order under this clause, the Tribunal takes into
consideration the interest of the company, its employees, creditors, shareholders and the society in general.

Consequences of the Winding up Order by the Tribunal
In case the Tribunal issues a winding up order against the company, the following consequences will
follow :
1. (l) The Tribunal shall appoint an Official Liquidator or a liquidator from the panel maintained by
the Central Government as Company Liquidator. [Section 275(1)]
2. (2) The order for winding up shall operate in favour of all the it hoc on the joint petition of
creditors and contributories. [Section 278]
3. (3) The winding up order shall be deemed to be notice of discharge to the officers and employees
of the company except when the business of the company is continued. [Section 277(3)]
4. (4) The powers of the board of directors will terminate and they will now vest in the Official
Liquidator, who shall by virtue of his office become the liquidator of the company.
5. (5) No suit or other legal proceedings shall be commenced, or if pending at the ‘date of the
winding up order, shall be proceeded with or against the company, except by leave of the Tribunal
and subject to such terms as the Tribunal may impose. [Section 279(1)]

Statutory Provisions Applicable to Compulsory Winding Up
1. Appointment and remuneration of liquidators (Sec. 490)
2. Board's powers to cease on appointment of a liquidator (sec. 491).
3. Power to fill vacancy in office of liquidator (sec. 492)
4. Notice of appointment of liquidator to be given to Registrar (Sec.493)
5. Power of liquidator to accept shares, etc. as the consideration for sale of
property (Sec. 494).
6. Duty of liquidator to call creditors` meeting in case of insolvency
(Sec.495)
7. Duty to call general meeting at the end of each year (Sec. 496)
8. Final meeting and dissolution (Sec. 497).

Voluntary Winding up
• According to Section 304, a company may be wound up voluntarily under
any of the following two circumstances :
(l) By Passing an Ordinary Resolution : A company may resolve by an
ordinary resolution to be wound up voluntarily :
(a) When the period fixed for the duration of the company as mentioned in
its articles, has expired, or
(b) When the event on the happening of which, the articles provide that the
company, is to be dissolved, has occurred; or
(2) By Passing a Special Resolution : A company may, at any time, without
assigning any reasons, resolve by a special resolution to be wound up
voluntarily.

Consequences of Voluntary Winding Up
• (l) A voluntary winding up shall be deemed to commence from the date of the
passing of the resolution to that effect. (Section 308)
• (2) From the commencement of voluntary winding up, the company ceases to carry
on its business, except so far as may be required for the beneficial winding up
thereof. (Section 309)
• (3) The possession of the assets of the company vests in the company
Liquidator for realisation and distribution among the creditors. The corporate
state and powers of the company shall, however, continue until it is
dissolved. (Section 283 and 309)
• (4) A resolution to wind up voluntarily operates as notice of discharge to the
employees of the company, except. when the business is continued by the Company
Liquidator for the beneficial winding up of the company, or when the liquidation is
only with a view to ‘Reconstruction’,

• (5) On the appointment of a Company Liquidator, all the powers of the Board of
Directors, Managing Director or Manager, shall come to an end except for the
purpose of giving notice to the Registrar of such appointment of the Company
Liquidator. (Section 313)
• (6) The company’s creditors cannot file suits or continue any pending suits
against the company. They are required to lodge their claims and prove their debts
to the Company Liquidator. In the case of disputed claims, however, a voluntary
winding up does not operate as a stay of any existing proceedings or prevent the
institution of new proceedings.
• (7) All transfers of shares or alterations in the status of the members, made
after the commencement of the winding up of the company, shall be void except
when it is made with the permission of the Company Liquidator

Statutory Provisions Applicable to Voluntary Winding Up
(1) Declaration of Solvency (Section 305): The ‘Declaration of solvency’ has to be made by a majority of the directors
(or all of them if there are only two directors) at a meeting of the Board and verified by an affidavit. They have to
declare that the company has no debts or that it will be able to pay its debts in full.
• The declaration of solvency shall be effective when.
• (i) It is made within five weeks immediately preceding the date of the passing of the winding up resolution by the’
members.
• (ii) It is delivered to the Registrar for filing before the said date.
• (iii) It contains a declaration that the company is not being wound up to defraud any person or persons.
• (iv) It is accompanied by a copy of the report of the auditors of the company on ,the profit and loss account prepared
since the date of the last account and balance sheet of the company made out as on the last mentioned date and also
embodies a statement of the company’s assets and liabilities as at that date.
• (v) Where there are ‘assets of the company, it is accompanied by a report of the valuation of the assets of the
company prepared by a registered valuer. Directors making a false ‘declaration of solvency’ are punishable with
imprisonment for a term which shall not be less than 3 years but which may extend to 5 years or with fine which
shall not be less than 50,000 but which may extend to Rs. 3 Lakh, or with both.

• (2) Meeting of Members and Creditors: The Board of Directors will convene two separate
meetings-one of members and the other of creditors, for passing the resolution for voluntary winding
up of the company separately at both the meetings. The meetings shall be held either on the same
day, one after the other or on the two consecutive days. The notice of both the meetings shall be
simultaneously sent by registeréd post. (Section 306 (1)
• (3) Statement of affairs to be presented before Creditors’ Meeting: The Board o/ Directors of the
company shall lay before the meeting of the creditors a full statement of the position of the
company’s affairs together with a list of the creditors of the company and the estimated amount of
their claims; and appoint one of the directors to preside over the creditors’ meeting. (Section 306(2)
• (4) Passing of Resolution by Creditors: Where two thirds in value of creditors of the company pass
a resolution that:
• (a) It is in the interest of all parties that the company be wound up voluntarily, the company shall be
wound up voluntarily; or
• (b) the company may not be able to pay its debts in full and therefore the company-should be wound
up by the Tribunal. In such a case the company shall within 14 days thereafter file an application
before the Tribunal. (Section. 306(3)

• (5) Filing of a copy of the Resolution with the Registrar: A Copy of any
resolution passed at the afore stated creditors’ meeting, must be filed
with the Registrar within ten days of the passing thereof. (Section. 306(4)
• (6) Publication of Resolution (Section 307): Within fourteen days Of the
passing of the resolution, the company shall give notice of the resolution
by advertisement in the Official Gazette and also in some newspaper
circulating in the district of the registered office of the company. Every
officer responsible for default in publishing the resolution shall be
Punishable with fine extending up to Rs. 5000 for every day of the default.
• (7) Commencement of Winding up (Section 308): A voluntary winding up
shall be. deemed to commence on the date of passing of the resolution
for voluntary winding up by the members of the company.

• (8) Appointment of Company Liquidator (Section 310); The members and the creditors at their
respective meetings while passing the resolution for voluntary winding up shall also appoint a
company liquidator from the panel prepared by the Central Government, for the purpose winding up
the affairs and the assets of the company and recommend the fee-to be paid to the company
liquidator. The appointment of company liquidator shall be effective only after it is approved by the
majority of creditors in value of the company. Where such creditors do not approve the appointment
of such company liquidator, creditors shall appoint another company liquidator and shall also fix his
fee, who shall be the company’ liquidator. On appointment as Company Liquidator, such liquidator
shall file a declaration in the prescribed form within seven days of the date of appointment.
• (9) Notice of appointment of company liquidator to be given to the Registrar: The Company has
to give notice to the Registrar relating to the appointment of the Company Liquidator along with his
name and other particulars, well as about any change that might take place because of casual
vacancy, within 10 days of the appointment or the occurrence of such vacancy. In case of default, the
company and every officer of company (including liquidator) who is in default Shall be punishable
with fine which may extend to 500 for every day during which the default continues.

• (10) Appointment of Committees : Where there are no creditors of the company,
such company in its general meeting, and where there are creditors, in a meeting
of such creditors, the company and creditors may appoint such committees as
considered appropriate to supervise the voluntary’ liquidation and assist the
Company Liquidator in discharging his functions. (Section 315)
• (11) Company Liquidator to submit Report on Progress of Winding up (Section
316) : The Company Liquidator shall report quarterly on the progress of winding
up to the members and creditors and shall also call a meeting of the members and
creditors as and when necessary. At least one meeting. each of members and
creditors in every quarter must be held to apprise them of the progress of the
winding up of the company.
• 12 Final Meeting and Dissolution of Company (Section 318)

Corporate Governance
• “Corporate governance can be defined as the guidelines that would ensure
that the company is directed and controlled in a way in order to achieve the
goals and objectives which would add value to the company and also
benefit the stakeholders in the long term”.
• According to the definition of Organization for Economic Cooperation and
Development (OECD) - “Corporate Governance lays down the procedures
and process according to which the company is controlled, corporate
governance is the set of relationships between a company's management, its
board, its shareholders and other stakeholders”.

Issues covered under Corporate Governance
1. How to Distinguish the roles of the Board and Management.
2. The Composition of the Board of Directors and related issues
3. Role separation of CEO and Chairman of the company
4. Whether the Board needs to have special Committees for improving its
effectiveness?
5. Issues relating to appointment, reelections to the Board of Directors
6. Remuneration of Directors
7. Disclosure and Audit
8. Protecting shareholder rights and their expectations
9. Role of institutional shareholders and
10. Role of investors

Four Pillars of Corporate governance
1. Accountability
2. Fairness
3. Transparency
4. Independence

Importance of Good Corporate Governance
1. It helps in improving the trust reposed by the Shareholders in it.
2. It creates and enhances the competitive advantage.
3. It improve efficiency in internal controls by preventing Fraud and
Malpractices
4. It will provide protection to the interest of the shareholder.
5. It helps in gaining confidence of the investors.
6. It helps in increasing the value of the Corporation
7. It ensures that the Laws of the land are complied with.

Corporate Governance under the Companies Act 2013
• The independent directors should be persons of integrity and possessing relevant
experience are to be appointed for a period of five years and their code of conduct
prescribed in a separate schedule to the Act.
• The Listed companies and other public companies, with paid up share capital of Rs
100 crore or more or turnover of Rs 300 crore or more as on the last date of latest
audited financial statements is required to appoint at least one women director.
• The Key Managerial personnel also to include a whole-time director.
• Introduction of appointing a residential director (who has stayed in India for a total
period of not less than 182 days in a previous calendar year).
• A person cannot have directorships in more than 15 companies.
• The director is disqualified if he has been convicted of offence dealing with related
party transactions.

Corporate Governance under the Companies Act 2013
• The requirements for frequency of Board meeting, made similar for public and listed companies.
Further, Board meetings can be conducted through electronic means.
• A person can be an auditor of only 20 companies. The auditor firm to be rotated in every five years.
• CSR activities to be undertaken by a certain class of companies.
• Constitution of various committees of Board depending upon the applicability: CSR committee,
audit committee, nomination and remuneration committee, stakeholder’s relationship committee.
• The report of the Board to contain additional disclosures like CSR policy, implementation of risk
management policy, director’s appointment and remuneration policy, related party transactions etc.
• The company cannot enter into transactions or agreement with related parties unless approved by the
shareholders.
• Insider Trading prohibited and in case of violation punishment shall be imposed.
• A provision for Class action suits providing empowerment to minority stakeholders to seek action
against mismanagement

Legal Aspects of Business unit-II- Companies act

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Legal Aspects of Business unit-II- Companies act