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UNIT – 1
Company Law
Introduction :
The word corporation is derived from the Latin word corpus which means body or a "body of people" Company
is an incorporated association, which is an artificial Person created by Law, having a separate entity, with a
perpetual succession and a common seal.

In the Legal Sense, a company is an association of both natural and artificial Person.Company is an incorporated
association, which is an artificial Person created by Law, having a separate entity, with a perpetual succession
and a common seal. The Companies Act 1956, is the main Act, Which covers different aspects of company in
detail. The entire concept of company has been explained through 658 sections, which is divided into 13 parts
and there are 15 schedules. Many new chapters have been introduced .Viz Registered Valuers(ch-
17),Government Companies (Ch.23),companies to furnish information or statistics(ch 25),National company Law
Tribunal and Appellate Tribunal (ch-27)., Special courts (ch-28).

Companies bill, 2012 was passed by Lok sabha on 18th December,2012 and by the Rajya sabha on 8 th
August,2013.On receiving the assent of the Hon’ble President of India on August 29, 2013, it was notified on
August 30,2013 as the companies act, 2013. The companies Act, 2013 has 470 sections covered in 29 chapters
and 7 schedules as against 658 sections (covered in 13 parts) and 15 schedules of the companies Act, 1956.

Administration : Section : 1 provides that the companies Act, 2013 applies to whole of India. The companies Act,
2013 is administered by the Ministry of Corporate Affairs and it has the jurisdiction over the entire country. The
Companies Act is administered by the Central Government through Department of Company Affairs and the
Offices of Registrar of Companies, Official Liquidators, Public Trustees,Company Law Board, Director of
Inspection etc. Registrar of Companies controls the task of Incorporation of new companies and administration
of running companies. Companies Act is a control measure used by the Government to regulate the functioning
of the “corporate Sectior” in India.

Definitions of Company :
The Term Company has been defined under Sec : 2(20) of the Companies Act, 2013. As per this, company
means company incorporated under Companies Act,2013 or under any of the previous Laws relating to
companies.

Lord Justice Lindley has defined a company as “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”.
Justice Lindley :-
1.Company is an Association of Persons.
2.These persons contribute money or money’s worth to a common stock.
3.The common stock so contributed is denoted in money and is called as Capital of company.
4.The person who contribute the capital are called as the members of the company.
5.The Capital is employed in some trade or business.
6.The members share the profit and losses arising from such business.
7.The proportion of Capital to which each member is entitled is call as his share
8.The shares are always transferable although the right to transfer is often more or less restricted.
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Characteristics of a company
1. Corporate Personality : (Separate Legal Entity) and Artificial Person
Company has legal Personality of its own. A company is legal person in the eyes of law distinct from its members.
A company is a separate person having its own rights and obligations. A company is in law different from its
members.it has an independent corporate existence.it can make contracts, open a bank account, own property
in its own name and can sue and be sued by others.
Cases : Saloman Vs Saloman & Co Ltd ,Lee vs. Lee’s Airfarming Ltd
2.Limited Liability:
The liability of the members of a company is invariably limited to the extent of the face value of shares held by
them. This means that if the assets of a company fall short of its liabilities, the members cannot be asked to
contribute anything more than the unpaid amount on the shares held by them. On the other hand, Partners of a
partnership firm have unlimited liability i.e. if the assets of the firm are not adequate to pay the liabilities of the
firm, the creditors can force the partners to make good the deficit from their personal assets.
3. Perpetual Succession:
An Incorporated company never dies. Perpectual succession means that the membership of a company may
keep changing from time to time but does not affect its continuity. Members may come and members may go
but the company can go forever.
An incorporated company, never dies except it is wound-up as per law.
4. Separate Property:
Company is a legal person and entirely distinct from its members, is capable of owning,enjoying and disposing of
property in its own name.No member can claim himself to be the owner of the company’s properties either
during its existence or in its winding up. A company can own and enjoy property in its own name. Members are
not owners or co-owners of the company’s Property. Members have no insurable interest in the property of the
company.
5. Transferability of shares:
Shares are movable Property (Sec :44 of the Companies Act,2013)
Shares are transferable in the manner provided in articles (Sec :44 of the Companies Act,2013)
Private Company : the right to transfer the shares is restricted
Public Company : shares are freely transferable.
6. Common seal
Common seal means official signature of the company.it is made of metal, where name of company is engraved.
A rubber stamp does not serve the purpose of the common seal.
Resolution of Board is required for affixing common seal of the company on deed and contracts. Common seal is
affixing only in presence of two directors and CS or such other persons as the Board may appoint for the purpose
in accordance with the “Articles of Association”.
7. Capacity to Sue and be sued:
A company being a juristic Person it can sue in its own name and be sued by others. In Abdul Haq vs. Das: It was
held that for the recovery of any amount, the remedy lies against the company and not against the directors or
members of the company.
8. Contractual rights:
A company, being a separate legal entity different from its members, can enter into contacts for the conduct of
the business in its own name.
9. Limitation of Action:
Powers stated in MOA, cannot go beyond.
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10. Separate Management.

Company is Administered and Managed by its Managerial Personnel.
11. Voluntary Association for Profit:
Goal Profit.Section-8. company can be formed with no Profit motive.
12. Termination of Existence:
Company is terminated by means of winding up. To avoid winding up, company changes their form by means of
reorganization, reconstruction, and Amalgamation.

Objectives of the Companies Act

1. Minimum standard of business integrity and conduct in promotion and management of companies.
2. Full and fair disclosure of all reasonable information relating to the affairs of the company.
3. Effective participation and control by shareholders and the protection of their legitimate interests.
4. Enforcement of proper performance of duties by company management.
5. Powers of intervention and investigation into the affairs of companies where they are managed in manner
prejudicial to the interests of the shareholders or to the public interest.

Types of Companies under Companies Act, 2013

Introduction :-
Companies can be classified into various categories on the basis of Incorporation, ownership, membership ,
control and liability. The three basic types of companies which may be registered under the Act are :
1. Private companies.
2. Public companies.
3. One Person Company ( to be formed as Private Limited)
1. On the basis of Incorporation :
1. Chartered Companies : Chartered Companies are incorporated under a special charter by a monarch. The
East India and the chartered Bank are examples of chartered companies. The company created by the grant of a
charter by the crown is called a chartered Company and regulated by that charter.
2. Statutory companies: Statutory companies are incorporated by a special Act passed by the Central or State
Legislature. Reserve Bank of India, state Bank of India, Industrial Finance corporation, Unit Trust of India, state
Trading corporation and Life Insurance Corporations are examples of statutory companies. The provisions of the
companies Act, 1956 do not apply to them
3. Registered Companies : The companies which are incorporated under the companies Act,2013 by getting
themselves registered with ROC.

2. On the basis of Liability :

“ Limited company”. It means a company limited by shares or by guarantee.
1. Company Limited by shares
These types of companies have a share Capital and the Liability of each member or the company is limited by the
Memorandum to the extent of face value of share subscribed by him. A company Limited by shares may be
either Public Company or a Private company. Limited by shares means that the liability of the shareholders
to creditors of the company is limited to the capital originally invested. A shareholder's personal assets are
thus protected in the event of the company's insolvency, but any money invested in the company may be lost.

2.Company limited by Gurantee.

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These Types of companies may or may not have a share capital. Each member promises to pay a fixed sum of
money specified in the Memorandum in the event of Liquidation of the company for payment of the debts and
liabilities of the company. This amount promised by him is called Guarantee. The Articles of the company state
the number of members with which the company is to be registered.Such a company is called a company limited
by gurantee. Limited by guarantee companies are most often formed by non-profit organisations such as sports
clubs, workers' co-operatives and membership organisations, whose owners wish to have the benefit of limited
financial liability.

3.Unlimited Company :
A company not having any limit on the liability of its members is called an “Unlimited company”.An unlimited
company may or may not have a share capital. if it has a share capital it may be a public company or a private
company. If the company has a share capital , the article shall state the amount of share capital with which the
company is to be registered.The Articles of Association of an unlimited company must state the number of
members with which the company is to be registered .

3.On the basis of control :

1. Holding company:
If a company has control over the affairs of another company it is known as holding company. The company
which is controlled by the Holding company is known as subsidiary company. A company may become a holding
company of another company in either of the following three ways:
1. By holding more than 50% of the normal value of issued equity capital of the company.
2. By holding more than 50 % of its voting rights
3. By securing to itself the right to appoint.

The other company is such a case is known as “ Subsidiary company”. Though the two companies remain
separate legal entities, the affairs of the both the companies are managed and controlled by the holding
company. A holding company may have any number of subsidiaries. The annual accounts of the holding company
are required to disclose full information about the subsidiaries.

2. Subsidiary company:
The company’s which is controlled by the holding company’s is known as Subsidiary company. Normally a
subsidiary company cannot be a member of the holding company.

4.On the basis of Ownership of companies :

1.Government companies :
Government Company as any company in which not less than 51% of the paid up share capital is held by the
Central Govt or any state Govt or Governments or partly by Central and partly by state Govt. A subsidiary of a
Government company is also treated as a Government Company.

Even if 50% the capital of the company is held by one or more Governments companies such a company will be a
Government company.

The auditor of a Government company shall be appointed or reappointed by the comptroller and Auditor
General of India ( C & A.G).
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5.On the basis of Nationality of the company :

1. Indian companies : These companies registered in India under the companies Act,1956/2013 and have
their registered office in India. Nationality of the members in their case is immaterial.
2. Foreign Companies : A company which incorporated outside India but having place of business in India.
company has a place of business in India if it carries on business at some specified or identified place
such as office Godowns or a Storehouses or other premises with some visible indication premises.
Foreign company which establishes a place of business in India must, within 30 days of the establishment
of such place of business , file with ROC at New Delhi and also with the ROC of the state in which such
place of business is situated.

1. MOA & AOA.

2. Address of the Registered office
3. Details of Directors and Secretary
4. Name and address of a person resident in India, authorized to accept on behalf of the company,
service of any notices.
5. Address of Principal place of Business in India.
6. A foreign company when it ceases to carry on any business in India may be wound up as an
unregistered company. If any foreign company ceases to have a place of business in India, it shall
give notice of the fact to the registrar.
7. Where 50% or more of the paid up share capital (equity or Preference) of a foreign company is held
by one or more Indian citizens or by one or more Indian companies or corporation
As regards the applicability of the provisions of the companies Act, the following are to be noted :
1. Filling of annual returns
2. Maintenance of books of Accounts with respect to moneys received and expended, sales and
purchases made and liabilities incurred in the course of or in relation to its business in India.
3. inspection of Accounts
4. Special Audit
5. Cost Audit.
6. Investigastions
If any foreign company fails to comply with any of the foregoing provisions, the company and every officer or
agent of the company who is in default shall be punishable with fine which may extent to Rs.10,000/- and in case
of a continuing offence, with an additional fine which may extend to Rs.1,000/- for every day during which the
default continues.
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Kinds of Companies :

Companies

Incorporated

Chartered Registered
Companies Companies

Companies Companies
Unlimited
Limited By Limited By
Companies
Shared Guarantee

Public Private Public Private Public Private

Private Limited company :

According to 2(68) of the companies Act, 2013, a private company means a company , having paid up capital of
Rs.1 Lakh or more and which by its Articles of Association,
1. Restricts the right to transfer of its shares.
2. Limits the number of its members to (200)excluding present or ex-employee.
3. Prohibits any invitation to the public for subscription of shares or debentures.
4. Prohibits any invitation or acceptance of deposits from persons other than its members , directors or
their relatives.
5. Has a Minimum paid up capital of 1 Lakhs or more

Where two or more persons hold share jointly, they are treated as a single member. The minimum number
of members to form a private company is two. A Private company must use the word “Pvt ”after its name.
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The Articles of Association of a private company should contain one more Prohibition for any invitation or
acceptance of deposits from persons other than its members, directors, or their relatives. It must be borne
in mind that an invitation is not prohibited but invitation to the public is prohibited. If a company invites a
selected few people. E.g. employees, friends, or relatives of directors, then it will not be invitation to public.
Private company shall have at least two directors. The only two members may also be the only two
directors of a private company.
Special Privileges and Exemptions:
1. Number of members :A Private company can be formed with only two members, whereas at least 7
persons are required to incorporate a public company.
2. No requirement of minimum subscription :Minimum subscription is not required. The Provisions
relating to minimum subscriptions do not apply to a private company. Therefore, a private company
may allot shares without waiting for minimum subscription.
3. No requirement of filing statement in lieu of Prospectus :A Private company is not required to issue
Prospectus/statement in lieu of Prospectus. Public company to file either prospectus(where it intends to
invite public for subscription of its shares or debentures) or to file statement in lieu of Prospectus (
Where it does not invite public for subscription of its shares or debentures)
4. Any Kind of share Capital : Private company can issue any kind of shares. E.g Founder shares or deferred
shares
5. Certificate of Commecement of Business Private company can commence business immediately after its
incorporation. It can commence its business after obtaining a certificate of incorporation. A certificate
of commencement of business is not required.
6. It need not keep an index of members
7. Statutory Meetings :Need not required to hold statutory meetings
8. Quorum- two members personally present shall form the quorum .
9. Number of Directors :Minimum Directors are two in case of Private company, but at least 3 directos
must be appointed in a public company
10. All the directors may be appointed by single resolution
11. No requirement of rotational directos :The directors of a private company need not retire by rotation
12. Directors need not file there written consent to act as directors or take up their qualification shares.
13. For appointment of a new director, a special notice is not required.
14. Directors of a private company can vote on a contract in which they are interested
15. A Private company is exempted from restrictions regarding managerial remuneration.
16. The Provision of section-85 to 89, do not apply to an independent private company
17. General meetings are not applicable to an independent private company
18. Consent to act as director not to be filed with Registrar.
19. In passing resolution for election of directors , all directors can be appointed by a single resolution
20. Private companies need not follow the proceeding for filling casual vacancies in office of directors
21. Central Govt sanction is not required to modify any provisions relating to appointing of managing ,
whole time or non-rotating directors
22. Director of a private company is not required to possess any share qualification
23. Audit committee need not be constituted
24. Prohibition against loans to directors does not apply
25. Prohibition against participation in Board meeting by interested director does not apply
26. Date of birth of director need not be entered in the register of directors
27. There is no restriction on remuneration payable to directors
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28. Any change in remuneration of directors also does not require Govt approval
29. Managing director can be appointed for more than five years at a time.
30. Provisions relating to method of determination of net profits and ascertainment of depreciation do not
apply
31. There is no restriction on making loans or investment or giving guarantee etc.
32. Number of directorship : A person cannot become a director in more than 15 companies. However,
directorship in a private company is excluded while counting the number of directorships held by a
person. And Managerial remumeration do apply to a private company. Pvt company may pay
remuneration to its directors and manager exceeding the limits of managerial remumeration.
An independent private company is one which is not a subsidiary of a public company.

Public company
According to Sec-2(71)of companies Act, 2013
1. Public company which is not a Private company.
2. Has a Minimum paid up capital of 5 Lakhs or more
3. The Articles do not restrict the transfer of shares of the company
4. No restrictions on the maximum number of the members on the company
5. It invites the general public to purchase the shares and debentures of the company.
6. It should not prohibit any invitation or acceptance of deposits from the members of the Public.
7. The minimum number of person required to form a public company is 7.
8. Is a Private company but subsidiary of any Public company.
Difference between Public and Private company
1. Minimum number :
The minimum number of persons required to form a public company is 7.but two in case of a Private
company.
2. Maximum number :
There is no restriction on maximum number of members in a public company, whereas in case of private
company the maximum number of members cannot exceed 200.
3. Minimum Capital :
The Minimum Capital to form Private company is Rs. 1 Lakhs, but in case of Public company is Rs. 5
Lakhs.Every company having paid up capital less than Rs. 1 Lakhs/Rs.5 Lakhs,as the case may be , shall
within 2 yrs Of commencement of the Companies (Amendment) Act,2000 (13.12.2000) Increase its paid
up capital upto Rs. 1 Lakhs/Rs. 5 Lakhs.The company shall be deemed to be a defunct company. Its name
shall be struck off the registrar of companies by the registrar.
4 Number of Directors :
A Public company must have at least 3 directors whereas a private company must have at least 2.(Sec-
252)
5. Restriction on appointment of Director.
In case public company, the directors must file with the Registrar consent to act as director or sign an
undertaking for their qualification shares. The directors of a private company need not do so (sec-266).
6. Restriction on invitation to subscribe for shares
A Public company invites the general public to subscribe for shares. A public company invites the
general public to subscribe for the shares or the debentures of the company. A Private company by its
Articles prohibits invitation to public to subscribe for its shares .
7. Name of the company
In a Private company, the words “ Private Limited” shall be added at the end of its name.
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8. Public Subscription
A Private cannot invite the public to purchase its shares or debentures. A Public company may do so.
19. Issue of Prospectus
A Private company is not expected to issue a prospectus or file a statement in lieu of prospectus with the
Registrar before allotting shares.
10. Transferability of shares
In a Public company , the shares are freely transferable-Sec-82.In a Private company the right to transfer
shares is restricted by Articles.
11. Special Privileges
A Private company enjoys some special privileges. A public company enjoys no such privileges
12. Quorum
If the Articles of a company do not provide for a larger quorum. 5 members personally present in the
case of a public company are quorum for a meeting of the company. It is 2 in case of a private company-
Sec-174.
13. Managerial remuneration :
Total managerial remuneration in a public company cannot exceed 11 % of the net profits(sec-198). No
such restriction applies to a private company
14. Commencement of business :
A private company may commence its business immediately after obtaining a certificate of
incorporation. A public company cannot commence its business until it is granted a certificate of
commencement of business”.

One Person Company(OPC) : Sec : 2(62) of Companies Act, 2013 : One person company means a company
which has only one person as a member.
Advantages of OPC
1. OPC is a Private company, not applicable the provisions of Pvt co, only one director against 2 directors of Pvt.
2. Not required to hold Annual General Meeting.
3. Requiremnt of Minimum number of Board meeting are not applicable

What are the circumstances under which a private company becomes Public company :

1. Conversion by default.
In order to treat a company as a private company, the company shall have a minimum paid up capital of 1
lakh rupees or such higher paid up capital as may be prescribed by Central Government. In additions to this,
the Articles of Association of the company shall contain the following essential requirements.

a. Restricts the right to transfer of its shares.

b. Limits the number of its members to 200 excluding present or ex-employee.
c. Prohibits any invitation to the public for subscription of shares or debentures.
d. Prohibits any invitation or acceptance of deposits from persons other than its members ,
directors or their relatives.
If a default is made by a private company in comply with the essential requirement of a private company,
the company ceases to enjoy the privileges of private company and the provision of the companies Act will
apply to it as if were not a private company and all provisions applicable to Public company shall apply to
that company.
2. Conversion by Operation of Law (Deemed Public company)-
A private company became a public company under the following circumstances.
1.If at least 25 % of paid up capital of a private company is held by one or more corporate bodies incorporated in
India, the Private company becomes a public company.
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2.If the average annual turnover of a private company is not less than 10 cores during the three consecutive
financial years, the Private company becomes a public company after 3 months from the end of the last financial
year.
3.If the Private company holds at least 25% of paid up share capital of a public company, the private company
becomes a public company.
4.If a private company invites , accepts or renew deposits from the public, such company becomes deemed
Public company from the date on which such invitation or acceptance or renewal is made. Deposits received by a
private company from its members , directors, or their relatives are excluded from the meaning of the term
public.
A Private company convert into public company by operation of sec-43A was called deemed Public company.
After the omission of Section-43A,the concept of deemed public company has disappeared.

3.Conversion by choice
If a Private company wants to convert it into a public company, it can do so by altering the Articles of
Association. The restrictive conditions in the AOA ,which make it a private company, should be removed by a
special resolution(i.e., a resolution passed by ¾ majority of the members present and voting).The Alteration of
the Articles of Association will result in conversion of the Private company into a public company from the date
of passing the special resolution. After passing the resolution the company shall file with the Registrar a copy of
the altered Articles of Association and a Prospectus or a statement in Lieu of a Prospectus. The total number of
members should be raised to 7 if it is below 7. The number of directors should be increased to the statutory
minimum of three.
The conversion of a Private company into a Public company by choice will require the following :
1. Alteration of Articles of Association by special resolution.
2. Alteration of name of the company by special resolution by deleting the word “Private”
3. Filling of copy of special resolution along with explanatory statement in e-Form No.23 along with fee
prescribed under schedule X to the companies Act.
4. Filing of Prospectus or statement in lieu of Prospectus with the Registrar
5. Increase the number of members to at least 7 and the number of directors to at least 3.
6. Enhance the paid up capital to at least 5 Lakhs or higher paid up capital as may be prescribed.

Reduction in Membership below statutory Minimum : If –the number of members falls below statutory
minimum, the company continues to carry on business for more than 6 months. Then, the remaining members
who are aware of such fact shall be personally liable for debts contracted after 6 months.

Conversion of a Public company into a Private company :

A Public company can converted into a Private company only after the approval of the central
Government. The conversion of a Public company into a private company will require :
1. Passing of a special resolution authorizing the conversion and alteration of Articles as include the matter
specified in “Private company”
2. Changing the name of the company by special resolution.
3. Obtaining the approval of the central Government (Within 3 months of alteration of articles,apply to CG
for obtaining approval)
4. Filling of printed copy of the articles as altered within one month of the receipt of the approval of the
Central Government with the ROC.(Within 1 month of receipt of approval of CG, file with the registrar an
amended copy of the articles )
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5. The company must not be listed on any recognized stock exchange . In case of a listed company, it will
have to wait for at least one year after its delisting.

Prospectus:
The Promoters of a public company will have to take steps to raise the necessary capital for the company,after
having obtained the certificate of incorporation . A Public company may invite the public to subscribe to its
shares or debentures. To issue a prospectus is very essential for a public company. If the promoters of the
company are confident of raising the required capital privately from their friends or relatives, they need not issue
a prospectus. In such a case, a statement in lieu of prospectus must be filed with the Registrar. A Private
company is not allowed to issue a prospectus since it cannot invite the general public to subscribe to its shares
and debentures. It is not required to file a statement in lieu of prospectus
After a Public company is incorporated, it can raise necessary finance for the conduct of its business by issuing
shares and debentures or accepting deposits from the public. A public company can invite the general public to
subscribe its shares and debentures. Prospectus is a document issued by the public company inorder to invite
public to make offers for shares and debentures of the company. A Prospectus is an invitation to make an offers
for shares and debentures.

A Private company or unlisted Public company cannot issue prospectus to invite public to subscribe share or
debentures. Only listed Public company can issue prospectus. A listed public company means a public company
which has any of its securities(shares or debentures) listed in any recognized stock exchange.
A Prospectus which inviting the public to make offers for its shares or debentures is a window through which a
proposed investor can look into the soundness of the company.
Every prospectus issued to the public must be dated and the date is taken as the date of publication of the
prospectus. The prospectus has to be signed by every directors. If the prospectus is issued by an intended
company it has to be signed by the proposed directors.
A copy of the prospectus duly signed by every directors or proposed director must be delivered to the registrar
before its publication for the registration.
On the face of the prospectus it should be mentioned that copy of it has been delivered to the registrar for
registration. The prospectus should be issued within 90 days after the date on which a copy was delivered to the
registrar for registration. If a prospectus is issued without a copy is delivered to the registrar for registration,
every person responsible for the issue of prospectus shall be punishable with fine which may extent to
Rs.50,000/-

Definition of Prospectus : Sec-2(70) of 2013 Act

1.Prospectus means – any documents described or issued as a prospectus.
2.Prospecuts means- shelf propectus referred to in Sec-31.,
- a red herring prospectus referred to in sec : 32 ., or
- any notice, circular, advertisement or other documents inviting offers from the public for the
subscription or purchase of any securities of a body Corporate.

In other words :
“ Any document described or issued as a prospectus and includes any notice , circular, advertisement or other
documents inviting deposits from the public or offers from the public for the subscription or purchase of any
shares or debenture of a body corporate “.
The following ingredients may be said to constitute a prospectus :
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1. There must be an invitation to the Public.

2. The Invitation must be made by or on behalf of the company or in relation to an intended company.
3. The invitation must be “ to subscribe or purchase”
4. The invitation must relate to shares or debentures or such other instruments.

Contents of Prospectus
Prospectus is the window through which an investor can look into the soundness of a company’s venture. It
must give investors a complete picture of company’s activities and its position. The Prospectus must make fullest
disclosure of all material and essential particulars of the company.
The prospectus should contain the followings
1. Main object of the company
2. Particulars of signatories to the Memorandum and the number of shares subscribed by them
3. The number and classes of shares
4. The number of shares fixed by the Articles as the qualification of a director
5. The remuneration of the directors
6. The name , address, description and occupation of the directors , Managing directors, and the Manager
of the company.
7. Minimum amount of shares offered to the public for subscription
8. Price of any property purchased by the company
9. Preliminary expenses
10. Time of opening of subscription list
11. The name and address of the creditors of the company
============================================================================================
In other words :
Matters contained in Part I of sechdule II.
1.General Information :
1)Company : Name and Address of registered office of the company, 2) CG : A statement that the consent of
CG for the present issue has been obtained, 3)Stock exchange : A statement that applications has been made
to one or more stock exchange for listing of present issue, 4)No fictitious Applications : A statement that any
person who makes a fictitious applications for purchase of company’s shares shall be punishable with
imprisonment upto 5 years. 5) Minimum subscription : A statement that if minimum subscription is not
received within 90 days from the closure of issue, money received from applicants shall be
refunded.6)Refund orders : A statement that refund orders shall be issued within a period of 10
weeks,7)Dates : The date of opening , earliest closing of issue and closing of the issue, 8) Name and address
of the auditors, lead managers, debenture trustee, and underwriters, 9)Underwriting : Amount
underwritten, and a declaration that underwriter have sufficient resources to discharge their obligations,10)
Deposit of money : A statement that all monies shall be transferred to a separate bank account, 11) Credit
rating : Rating obtained from CRISIL ( Credit rating and information services of India Ltd) or any other agency
should be indicated.
2.Capital structure : Capital : authorized, issued, subscribed and paid up capital. Size : Size of present issue,
Impact of issue : Paid up capital after present issue or conversion of debentures.
3.Terms of the present Issue : 1) The terms of payment, rights of the holders, how to apply, availability of
forms,propecuts and modes of payment, any special tax benefit for company and shareholders.
4.Particulars of the issue : The objects of the issue, projected cost of the issue, means of financing the issue.
 13

5.Company, management and projects : History of the company , main objects and present business,
subsidiaries of the company, promoter and their background, manager, MD and other directors- Names
addresses and occupations, Location of the projects, information about plant and machinery, technology etc,
infrastructure facilities, nature of product, marketing set up, future prospectus of the company, expectd
capacity utilization during the first 3 yrs, and expected year when the company would be able to earn profits.
6.Stock market data : High and low price of shares and debentures in each of the last 3yrs, monthly high
and low prices of shares and debentures during the last 6 months.
7 Particulars about companies under the same management : The name of the company, amount of issue,
year of issue and type of issue, date of completion of delivery of shares and debentures certificates, date of
completion of projects
8.outstanding litigation : The litigation likely to affect the operation and finance of the company , criminal
prosecution launched against the company the directors.
9. Management Perception of risk factors : The sensitivity to foreign exchange rate fluactuations, the
difficulty in availability of raw materials or in marketing of the products etc.

Matters and reports contained in Part II of the schedule II.

1.General Information : 1)Directors, auditors, solicitors, experts , managers, bankers, registrars to issue-
Names and addresses and their consent, 2)Expert opinion obtained, if any, 3).The change , if any , in the
directors and auditors during the last 3 years, 4) Authority for issue of shares and debentures and details of
resolution passed for issue, 5)The procedure and time schedule for allotment and issue of certificates
2.Financial Information : Auditors report, P & L account, B/s , rates of dividends paid by the company during
preceding 5 yrs.
3.Statutory and other information : The amount of minimum subscription, expenses of the issue, amount of
underwriting commissions and brokerages, particulars of the previous issues during the last 5 yrs,
debentures and redeemabale preference shares outstanding on the date of prospectus. Options to subscribe
for the shares or debentures fo the company, details of options to subscribe for securities to be dealt with in
a depository, particulars of property to be purchased, partiulars about managerial personnel, right of
members regarding voiting, dividend, lien on shares etc , restriction on the transfer or transmission of
splitting of shares or debentures.

Legal rules as to Prospectus :

1.Registeration of Prospectus : Sec : 60 : The Prospecuts shall be registered with the registerar. It is mandatory to
register the prospectus with the registrar before the prospectus is issued to the public.
2.Signing of Prospecuts : Sec : 60 : By Every director and proposed director name in the Prospectus.
3.Issue of Prospecuts : Sec : 60 : The Prospectus must be issued within 90 days of registeration of prospectus
with the Registerar.Disclosure on Prospecuts : The prospectus must state that a copy of prospectus has been
delivered to the registerar for registeration.
4.Date of Issue of Prospectus : The date of issue fo prospectus is the date on which the prospectus first appears
in newspaper advertisement.

Meaning of Invitation to the Public :

An invitation to the public shall include an invitation to any section of the public whether selected as members
or debenture holders of the company or as clients of the person issuing the prospectus or in any other manner.
 14

Letter of offer : The Letter of offer is issued to the existing members of the company and therefore it is not
invitation to public. Such letter of offer will have to comply with the requirements of SEBI issue of capital
Disclosure requirements (ICDR) Regulations 2009.

Difference between prospectus and the letter of offer

“Prospectus” means any document described or Issued as prospectus and Includes any notices, circulars,
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.
Letter of offer issued to the existing members of the company and therefore it is not invitation to Public. Such
letter of offer will have to comply with the requirements of SEBI issue of capital Disclosure Requirements (ICDR)
Regulations, 2009.
Prospectus is required when the offer or invitation is made to public
Offer documents means Prospectus in case of a public issue or offer for sale and Letter of offer in case of a right
issue which is filed with Registrar of companies and Stock Exchanges. An offer document covers all the relevant
information to help an investors to make his / her investment decision.

When prospectus is not required to be Issued (Sec-56(3),56(5))

1. Private company is not required to issue a prospectus.
2. Public company if the promoter or directors feel that they can mobilize resources through personal
relationship and contacts.
3. Where the application form is issued in connection with a bonafide invitation to a person enter into an
underwriting agreement with respect to the shares or debentures. Sec-56(3).
4. Where the shares or debentures are not offered to public. Sec-56(3).
5. In case of Right Issue (Sec-56(5).The shares or debentures are offered to the existing shareholders or
members of the company.
6. Where the issue related to share or debentures which are issued previously and quoted on a recognized
stock exchange.(Sec-56(5).
7. By virtue of Sec-66 of the Act, if any prospectus is published as a newspaper advertisement, it shall not
be necessary in the advertisement to specify the contents of the Memorandum or the Signatories to the
memorandum or the number of shares subscribed for by them.

Statement in Lieu of Prospectus:

If the promoter of a public company are confident of obtaining the required capital by issuing share to their
friends and relatives, no prospectus need be issued to the public. In such a case, they have to prepare a draft
prospectus containing the information required for an actual prospectus. This document is called statement in
lieu of Prospectus. A copy of statement in lieu of prospectus must filed with the registrar before 3 days of any
allotment of shares. Such a statement should not be contain any false statement. If a statement in lieu of
prospectus contains any untrue statement, any person who authorized the delivery of the statement in lieu of
prospectus for registration shall be liable to fine up to Rs.10,000/-
A public company either issue a prospectus or file a statement in Lieu of prospectus. A private company as such
does not produce either document. But when a private company converts itself into a public company it must
either file a prospectus If issued or file a statement in lieu of prospectus.
When a Public company does not invite public to subscribe for its shares but arranges to get money from private
sources, it need not issue a prospectus to the public, the promoters are required to prepare a draft prospectus
 15

known as statement in lieu of prospectus which should contain the information given in the schedule III of the
Act.
1.Applicability: Statement in Lieu of Prospectus must be filed with the registrar by a Public company having
share capital,If the company does not issue a prospectus or the company issues a prospectus but does nto
proceed to allot th shares to the public.
2.Time for filling : statement in Lieu of prospectus shall be filed with the registrar at least 3 days before
allotment of shares.
3.Signing : It must be signed by every person who is named therein as a director or proposed directors of the
company.
4. Other Legal requirements : Statement of Lieu of Prospectus shall be prepared as per Schedule III. Statement
of Lieu of Prospectus is not issued to the public. If it contains any misstatement , then the civil and criminal
liability is the same as in case of prospectus.
5.Effects of Contravention : if a copy of statement in Lieu of prospectus is not filed with the registarar at least 3
days before the allotment of shares, the allotment shall be voidable at the option of the investors.
6.Non-applicability : Private company, company having no share capital, subsequent allotment of share by a
public company.

Shelf Prospectus: Sec-31 of 2013 Act

The Concenpt of shelf prospectus had been introduced by the companies (Amendment) Act,2000 by insertion of
new sec-60 A.
Any Public financial institution , Public sector bank or scheduled bank whose main object is financing shall file a
shelf prospectus with the Registrar of companies. Shelf Prospectus means a prospectus issued by any financial
institution or bank for one or more issues of the securities or class of securities specified in the prospectus.
A company filing a shelf prospectus with the Registrar shall not be required to file prospectus afresh at every
stage of securities by it within the period of validity of such shelf prospectus. A shelf prospectus shall be valid for
a period of 1 year from the date of opening of the first issue of securities.
A company filing a shelf prospectus shall be required to file an Information memorandum on all material facts
relating to new charges created, charges in the financial position as have occurred between the first offer of
securities, previous offer of securities and succeeding offer of securities within such time as may be prescribed
by the CG prior to making of second or subsequent offer of securities under the shelf Prospectus.

Information Memorandum Sec : 32 of 2013 Act

The Concenpt of Information Memorandum had been introduced by the companies (Amendment) Act,2000 by
insertion of new sec-60B. Provides that a public company making an issue of securities may circulate
information memorandum to the public prior to filing of a prospectus.
The company going for a public issue has to issue a draft prospectus to publicize the issue in the form of a
circulars, advertisement or a prospectus. This prospectus is called an information memorandum and shall
contain all particulars that are required to be included in a prospectus except the number and price of issues.
This prospectus is required to be filed with SEBI which may incorporate some changes to it. After that, a
company has to file a red-herring prospectus to the Registrar and SEBI at least 30 days prior to the opening of
the issue. Both the red herring prospectus and the information memorandum shall contain all the particulars
that are required to be given in the prospectus except the number and price of issue. If there is any variations
between the red herring prospectus and the information memorandum , the same has to be highlighted and has
to be individually intimated to the person invited to subscribe to the issue of securities. Red-herring prospectus
 16

means a prospectus which does not have complete particulars on the price of the securities offered and the
quantum of securities offered.

Red –herring prospectus:

“Red-herring prospectus” means a prospectus which does not have complete particulars on the price of the
securities offered and quantum of securities offered. The information memorandum and red herring prospectus
carry same obligations as are applicable in case of prospectus. Every variation between the information
memorandum and the red herring prospectus shall be highlighted by the issuer company and shall be
individually intimated to the persons invited to subscribe to the securities.
The applicant or proposed subscriber shall exercise his rights to withdraw from the application on any intimation
of variation within 7 days from the date of such intimation and shall indicate such withdrawal in writing to the
company and the underwriters.

Abridged Prospectus :
A listed company is required to send the abridged letter of offer to each and every shareholders who is eligible to
participating in the right issue along with application form. A company is also required to send detailsed letter
of offer upon request by any shareholders.
As per SEBI ( Issue of Capital and Disclosure requirements) Regulations, 2009 at least 3 days before the date of
opening of the issue the abridged letter of offer, along with application form, shall be dispatched through a
registered post or speed post to all the existing shareholders.

Commencement of Business
A private company or a company have no share capital may commence business and exercise its various power
immediately after it is incorporation. Once it has received certificate of incorporation, nothing further required.
A public company having share capital required to obtained certificate of commencement of business from the
registrar or exercise its borrowing powers. In order to obtain this certificate, the company must comply with sec-
149 of the companies Act.
1. If the company has issued a prospectus
2.If the company has not issued prospectus

1. If the company has issued a prospectus

If a company having share capital has issued a prospectus inviting public to subscribe for its shares.
The certificate of commencement of business shall be issued only if the following conditions are satisified :
1.The company must apply to one or more stock exchange for listing of its shares, if any of these stock exchange
refuse to list the shares of the company , the company shall have to refund the entire amount received from the
applicants and the company shall not issued a certificate of commencement of business.
2.where shares have been allotted to the directors and manager, the company must have received the amount
due on application and allotment from every such director or manager
3. The company must have received the minimum subscription . Further, the company must have made the
allotment for such number of share as are not less than the minimum subscription.
4.The company shall file a declaration with the Registrar that all the requirements of the Sec-149(1) have been
duly complied with.
2.if the company has not issued a prospectus
1. The company must have filed a statement in lieu of prospectus.
 17

2. A declaration that every director has paid in cash the application money and the allotment money on the
qualification shares taken by them.
3. Statutory declaration in Form No: 20 by director or secretary about the compliance of the requirement with
the ROC.
When the company has complied with the aforesaid conditions, the Registrar of companies will issue a
certificate of commencement of business

Consequence of Non-Commencement of Business : If a company does not commence its business within one
year of its incorporation, the court may order it to be wound up. Also , the Registrar is empowered to remove its
name from the Register as a defunct company under section Section : 560 of the companies Act,1956.

Promoter :
Introduction :
In the formation of a company, certain preliminary steps are necessary, usually steps in the formation of the
company are following :
1. Preparation of Memorandum of Association and Articles of Association.
2. Entering into Preliminary contracts
3. Registration of the company.
Promotion and Promoter
Promotion means the Preliminary steps undertaken by the promoter to bring a company into existence.
Promotion involves the following four stages :
1. Generation of idea of starting a new company.
2. Registration of the company.
3. Floatation, i.e., raising of capital or arranging the financial resources so as to carry on its business operation.
4. Obtaining the certificate of commencement of business.
The first 3 stages are necessary for all the companies. However, the fourth stage is necessary only for a public
company having a share capital

Definition of Promoter :
Definition given by Palmer : Promoter is a person who originates a scheme for the formation of the company,
gets the memorandum and articles prepared, executed and registered and finds the first directors, settles the
terms of preliminary contracts and prospectus and makes arrangements for advertising and circulating the
prospectus and placing the capital.
Promoter means a person who generates the idea of incorporating a company and takes all the effective steps
to incporate it.

Sec : 2 (69) of 2013 Act.

According to Companies Act,2013, Promoter means a person- a)Who has been named as such in a prospectus or
is identified by the company in the annual return or b) Who has control over the affairs of the company, directly
or indirectly whether as a shareholder, director or otherwise or c) in accordance with whose advice, directions or
instructions the Board of Directors of the company is accustomed to act.

Functions of a Promoter
They are as follows:
 18

1. Promotion of an Idea: It is the promoter who has to conceive the idea of forming a company. This is the first
step towards the formation of a company.
2. Detailed Investigation: The promoter, after forming an idea should make a thorough and detailed
investigation of the prospects of the business. It should be done with reference to the sources of supply, nature
of demand, extent of competition, capital requirements of the present and future etc. He can also take the help
of technical experts.
3. Verification: The promoter should also verify whether the advises or comments or reports made by the
experts are free from bias. He should also consult with other impartial and disinterested experts and should see
whether the idea is commercially viable.
4. Assembling: After verification of the idea, the promoter should go ahead with the promotion of the projected
company. He should find out the first directors and the subscribers to the Memorandum.
5. Financing the Proposition: The promoter, at this stage, has to prepare a plan setting out the mode of getting
the necessary finance. He should arrange for finance to meet the preliminary expenses. He should negotiate with
the vendors if it proposes to buy an existing business. He should also arrange for underwriting contracts. He
should estimate the required capital and the availability of bank loan etc., and also the cost of raising the capital.
6. Presentation of the Proposition: Finally, after making necessary arrangements and modes of raising finance,
he gets the necessary documents such as Memorandum etc. printed, filed with the Registrar and then arranges
for their publication. He should take the aid of legal experts in preparing the documents and should see that the
documents are strictly in accordance with the provisions of the Companies Act.
7.Main Important Functions :
The following are the important Functions of Promoter for the incorporation of Companies
Incorporation of companies:
According to Gower, “ Promoter is the sole creator of the company”. The Promoter settles the company’s name.
He settles the details of company’s MOA and AOA. He arranges for the Printing of the Memorandum and
Articles. He determines the nomination of directors, solicitors, bankers, auditors and secretary. He arranges the
registered office of the company. He arranges for the registration of the company.He is , infact, responsible for
bringing the company into existence.
Important steps :
Before the promoter proceeds to incorporate a company, he has to decide the following aspects:
1. Selection of the the Type of Company-( One person company,Public, Private..etc)
2. Reservation of Name or the Application for Availability of Name of company in e-form No-1A.
3. Preparation of Memorandum and Articles of Association
4. Vetting of Memorandum and Articles, printing, stamping and signing of the same.
5. Power of Attorney.
6. Additional Documents required :
a). Location of registered office in e-Form No -18.
b).Particulars of directors in e-Form No-32.
c).Directors Identification Number –DIN.
7. Statutory Declaration in e Form No-1.
8. Payment of Registeration Fees to Registrar.
9. Certificate of Incorporation
10. Conclusive Evidence-Sec-35.
1. Selection of the type of Company :
The Promoter of a company may select type of the company as they wish to form themselves into viz. One
person company, Private company,Public company etc.
 19

2. Preliminary Requirements :
All the directors of the Proposed company must ensure that they are having Dirctors identification Number
(DIN). Out of all the directors of the proposed company, atleast one director should have digital signature to
digitally sign the incorporation and other related documents
3. Reservation of NamesApplication for Availability of Name of company in Form No -1A.
Availability of Name : One of the promoter should apply to the Registrar of Companies (ROC) regarding the
availability of name. While applying , the following points should be kept in mind :
1. He should apply in e-form No.1A along with a fee of Rs.1000/-
2. Six Proposed names should be filled up in order of preference.
3. It should be ensured that the names given as proposed directors in Form 1A are also the subscribers to the
memorandum of association.
4.It should also be ensured that the authorized capital which has been proposed in e-form No. 1A and the
authorized capital to be mentioned in the memorandum of association remain the same.

The ROC will reserved the available name for 60 days , if the promoters not incorporated the name within
60 days, the name allowed shall lapse and no extension will be granted after expiry of 60 days.

4. Preparation of Memorandum and Articles of Association :

The MOA is the Constitution of a company. It is a document, defines the area within which company can act.
The object for which the company has been formed, liability, name of the state where the registered office
of the company shall be located etc.

The Articles of Association which contains the rules and regulations relating to internal Management of a
company. Prepare a draft of articles of association of the company.
Generally , the articles contains provisions regarding meetings, transfer and Transmission of shares, common
Seal, appointment of directors, dividends, accounts, winding up etc.

5. Vetting of MOA and Articles, Printing, stamping and signing of the same
The Promoters to approach the Registrar of companies concerned for vetting the draft Memorandum and
Articles as the Registrar of companies may propose some changes. For vetting the Memorandum and Articles
no fee is required to be paid by the Promoter. The promoter may make a written request on plain paper
enclosing a copy of the draft MOA and AOA.and after the vetting by the Registrar, the Memorandum and
Articles may be printed as required under section-15 of the Act.

After the document are stamped, signed and dated, they should be printed. Computer /offset printing of
Memorandum and Articles of Association is also accepted and taken on record by the ROC. Zerox copies are
not allowed to filed for the purposes of registration of companies.

6. Power of Attorney :
The promoters may appoint an Attorney empowering him to carry out the instruction/requirement
stipulated by the Registrar. This requires execution of a power of Attorney on a Non-judicial stamp paper of
a value prescribed in the respective state stamp Law.

7. Additional document required :

 20

A). Location of registered office in e-Form No-18 : a company shall as from the day on which it begins to
carry on business or as from the 30 day after the day of its incorporation whichever is earlier, should have a
registered office. Where the location of the registered office is finalized prior to incorporation of a company
by the promoters, the promoter can also file along with MOA and AOA, the notice of situation of the
Registered office in e-form No-18 of the companies (Central Government)
General Rules and Forms (Amendment) Rules Act,2006. Where the location of the registered office is not
finalized, e-Form No-18 can be filed later but within 30 days from the date of incorporation.

b). Particulars of Directors in Form No-32 in Duplicate :

Where a company by its Articles of Association appoints any persons who are to act as a director, manager,
secretary it may also file their particulars, in duplicate, in e-Form No-32 with the registrar at the time of
registration. However, e-Form No-32 can also be filed within 30 days of the registration of the company or
appointment of first directors.

C).DIN-Director’s Identification Number-

MCA21 has introduced the concept of Director Identification Number DIN which is Mandatory, unique and
life time identification for all existing and prospective directors. In the scenario of e-filling, DIN is a pre
requisite for filling of certain company related documents. Any individual who is a director or intends to be
a director of a company should apply for DIN first.
DIN has to be obtained by the directors of the company before commencing the procedure for Incorporation
of a company. The reason is that DIN will be required at the time of filling e-form No-32.

8. Statutory Declaration in e-Form No.1

Declaration in e-Form No.1 of the companies (Central Government) General Rules and Form (Amendment )
Rules, 2006 by an Advocate of the suprem court or a High court, or an attorney or pleader entitled to appear
before the High court or a secretary or a chartered Accountant practicing in India who is engaged in the
formation of a company , that all the requirements of the companies Act, and the rules thereunder have
been complied with in respect of registration and matters precedent and incidental thereto to be filed with
the Registrar. The Registrar may accept such a declaration as sufficient evidence of such compliance.
The above declaration should be on a non-judicial stamp paper of appropriate value with reference to the
state in which the office of the Registrar of companies is situated.

9. Payment of Registration: The fee prescribed for registration of company is required to be paid to the
Registrar. The quantum of registration fees depends on the nominal capital of the company to be
incorporated in case of companies having share capital which has been prescribed in schedule X to the Act.

10. Certificate of Incorporation : if all the documents mentioned above are complete and the registrar of
companies is satisfied that all the requirements,then the Regitrar will issue a certificate of
Incorporation.From the date of incorporation mentioned in the certificate of incorporation ,the company
come into existence in the eyes of law and also have a perpetual succession and common seal or enforced by
law.
11. Conclusive Evidence : Sec-35.
According to Sec-35 of the Act, a certificate of incorporation given by the Registrar that company has been
dully registered that all the requirement of the companies Act or respect of registrations have been
complied with.
 21

Meaning of Conclusive Evidence: The term conclusive evidence means that no inquiry shall be allowed to
made regarding the correctness or incorrectness of any particulars contained in the certificate of
incorporation. In other words, once issued, the certificate of incorporation cannot be challenged in any court
or Tribunal on any grounds whatsoever ; The certificate of incorporation shall remain valid even in the
following cases :
1. Where one person has signed on behalf of all the subscribers.
2 Where all the signatories to memorandum are minors.
3. Where all the signatories on the memorandum are forged.
4.Where the memorandum was altered after signing by subscribers, but before its registration.
5. Where illegal objects are incorporated in the object clause.
Case 1 : Jubliee Cotton Mills Ltd vs. Lewis :
On 6th January : The required documents were delivered to the registrar for registration of a company.
On 8th January : The registrar issued the Certificate of incorporation.
Date on Certificate : The registrar dated the certificate as 6th January, instead of 8th January.
Date of Allotment : on 6th January some shares were allotted to Lewis.
Decision of Court : The allotment was held to be valid since certificate of incorporation could not be
challenged.Thus, certificate of incorporation is conclusive evidence as to all administrative acts relating to
incorporation and as to date of incorporation.

Case-2: Moosa vs. Ebrahim : The MOA was signed by two adults and by a guardian of the other 5
subscribers, who were minors. The Registrar, however, registered the company and issued under his hand a
certificate of Incorporation. It was contended that this Certificate of Incorporation should be declared void.
The court held the certificate to be conclusive for all purposes.
The certificate cannot legalise the illegal object contained in the Memorandum. Where the object of a
company is unlawful, it has been held that the certificate of registration is not conclusive for this purpose.
Proposed company : A company was proposed to be incorporated.
Signing of Memorandum : The memorandum was signed by 2 adults persons and a guardian of other 5
members who were minors at that time. The Guardians signed separately for all the minors.
Action by Registrar : The registrar issued a certificate of Incorporation.
Decision of Court : The certificate of incorporation is valid being conclusive in nature.

Duties of Promoter:
There are two fiduciary duties of a promoter ,
1.Not to make any secret Profits : A promoter shall not make any profit at the expense of the company without
knowledge and consent of the company. If he has earned secret profit, the company can compel him to account
for it .Case Law : Gluckstein vs. Barnes-(1900). The court held that the Promoter who have made secret profit
should account for it and promoter should handover his profit to the company.
2.To make a full disclosure to the company :
A Promoter shall not make any profit from the sale of his own property to the company without disclosing
material facts. If a promoter contracts to sell his own property to the company without making a full disclosure,
the company may either repudiate the sale or affirm the contract and recover profits made out of it by the
promoter.

Legal Position of a Promoter or legal relationship between Promoter and Company

1. Promoter is neither an agent nor a trustee of a Proposed company :
 22

He is not an Agent because there is no Principal. He is not a trustee because the beneficiary is not in
existence
2. Promoter stands in a Fiduciary Position towards the Proposed company:
Two fiduciary Duties of a Promoter
1. Not to make any secret Profits : A promoter shall not make any profit at the expense of the
company without knowledge and consent of the company. If he has earned secret profit, the
company can compel him to account for it .Case Law : Gluckstein vs. Barnes-(1900). The court held
that the Promoter who has made secret profit should account for it and promoter should handover
his profit to the company.
2. To make a full disclosure to the company :
A Promoter shall not make any profit from the sale of his own property to the company without
disclosing material facts. If a promoter contracts to sell his own property to the company without
making a full disclosure, the company may either repudiate the sale or affirm the contract and
recover profits made out of it by the promoter.

Case : Erlanger vs. New Sembrero Phosphate company -1878 :

Liabilities of Promoters :
1. Liability on account for the Profits
a. The company may either Rescind the contract and recover the purchase price where he sold his
own property to the company, or
b. Pay not more than the market value of the property purchase or
c. Claim damage for breach of fiduciary duties
2. Liability for mis-statement : He may be imprisoned for a term which may extend to 2 years or may also
be punished with fine up to Rs.50,000/- or both-Sec-63.
1. Liability in course of winding for misfeasance or breach of trust.
2. Personal liability for Pre-incorporation contracts.

Remedies available to the company against the Promoters :

Where a Promoter makes a secret Profit, and afterwards this fact becomes known to the company, the company
will have the following remedies :
1.Recission : The company must rescind the contract, even though the company had adopted the contract and
communicated the fact of adoption to the other party to the contract. However, recission must be made within a
reasonable time.
2.Recovery of Secret profit : The company may recover the secret Profit made by the Promoters.
3. Suit for breach of trust : The company may sue the Promoters for breach of trust.

Mode of payment of remuneration :

Remuneation may be paid to the promoters in any of the following ways :
1. Issue of shares at discount.
2.Right to subscribe for company’s shares in future at a fixed price.
3.Purchase of Property of Promoters at a higher Price.
4.Paying any lump sum remuneration to promoters
5.Payment of commission to promoters on the purchase price of any property purchased by the company.
6. Payment of commission to promoters on shares sold by the promoters.
 23

Termination of Promoter Duties :

After completion of Promoters Duties, the Board takes over the management of the affairs of the company from
the promoters. The Board of Directors appointed promoter for incorporating company or formation of
company.

Memorandum of Association and Articles of Association :

Memorandum of Association:
The Memorandum of Association is a document which set out the Constitution of the company and is therefore
the foundation on which the structure of the company is based. It defines scope of companies Activities and its
relation with the outside world. Its Purpose is “ to enable the shareholders, creditors and those who deal with
the company to know what is the permitted range of the enterprise”
The first step in the formation of a company is to prepare a document called the memorandum of association. It
is vital document. In fact memorandum is one of the most essential pre –requisites for incorporating a registered
company under the Act.
According to Sec-12, which provides the mode of forming an incorporated company and states that in the case
of public company , any seven or more persons, and in the case of private company, any two or more persons,
associated for any lawful purpose.

Definition of Memorandum of Association: Sec-2(56) of 2013 Act.

According to Sec-2(56) of the companies Act,1956.Memorandum means Memorandum of association of a
company as originally framed or altered from time to time in pursuance of any previous companies Law or the
companies Act.
Any act of the company which is beyond the limits of its powers and objects as defined in the Memorandum of
Association will be ultra vires and void.

Purpose of Memorandum:
The purpose of the object clause in the memorandum is 2 fold. First, the intending shareholder before making
investment in the company should know the field in or the purpose for which it is going to be used and what risk
he is taking in making investment.
Second purpose is that anyone dealing with the company will know without doubt what is the permitted range
of activities of the company.
In Cotman vs Brougham-(1918).The court held that the purpose of Memorandum of Association are two fold.

Form of Memorandum of Association

Section-4(6) of the companies Act 2013, provides that the Memorandum of association should be in any of the
Forms specified in Table-A,B,C,D, and E of schedule I to the companies Act, as may be applicable in relation to
the type of company proposed to be incorporated.
Table-A- Company Limited by shares
Table-B- Company limited by guarantee and not having share capital
Table-C- Company limited by guarantee and having share capital
Table-D- Unlimited company not having share capital
 24

Table –E-Unlimited company having share capital

A company may either adopt any of the model Forms of the Memorandum of association mentioned above, as
may be applicable to it, or it may prepare it in any other Form, but the same should be as near thereto as the
circumstances may admit.
Contents of Memorandum
Memorandum of Association of company shall contain the following clauses:
1. Name clause :
The first clause in the memorandum of association of the company states the name by which a company
is known.The company may adopt any suitable name provided it is not undesirable.

A company cannot be registered with the name which is undesirable or which is identical with or too
nearly resembles the name of an existing company. A company will not be allowed to use a name which
is prohibited under the Emblems and Names Act,1950. Prohibits the use of following names 1) United
Nations, 2) The Govt of India 3) State Govt.

The Memorandum shall state the name of the company with Ltd as the last word of the name in case of
Public Ltd company and Pvt Ltd in the case of Private Limited company. Once the name is registered , the
name and address of the registered office must be painted or affixed on the outside of every office or
place of business of the company. The name of the company must be engraved on the seal of the
company.

The Promoters should decide upon at least five suitable names apart from one main name. The Registrar
of companies shall furnish the information regarding availability of name within 7 days of the receipt of
application. The name of the company must end with word- “Ltd” in the case of Public company and the
words “Pvt” in case of a Private company.

In other words : Availability of Name : One of the promoter should apply to the Registrar of Companies
(ROC) regarding the availability of name. While applying , the following points should be kept in mind :
1. He should apply in e-form No.1A along with a fee of Rs.1000/-
2. Six Proposed names should be filled up in order of preference.
3. It should be ensured that the names given as proposed directors in Form 1A are also the subscribers to the
memorandum of association.
4.It should also be ensured that the authorized capital which has been proposed in e-form No. 1A and the
authorized capital to be mentioned in the memorandum of association remain the same.

In case name is undesirable, the registrar may reject the same or ask for resubmission of the application
with new names or calls for further information , ordinarily within 3 days of receipt of the application.
The applicant shall be given only up to 2 opportunities for re-submission of their proposal against the fee
paid in the first instance for name availability after the original application is filed.

Where the Registrar informs the promoters of the company that the name is not undesirable, such name
shall be available for adoption by the Promoters of the company for a period of 60 days from the date
the name is allowed. If the name so allowed is not adopted on or before the expiry of the period of 60
days from the date it is allowed, the name allowed shall lapse and no extension will be granted after
expiry of 60 days from the date the name is allowed. Or in other words, the ROC will reserved the
 25

available name for 60 days , if the promoters not incorporated the name within 60 days, the name
allowed shall lapse and no extension will be granted after expiry of 60 days.

2. Situation Clause :
The name of the state in which the registered office of the company is to be situated must be given in the
memorandum. But the exact address of the registered office is not required to be stated therein. This can be
filed with ROC separately in e-form No-18 within 30 days of Incorporation of the company.

3. Object Clause :
Objects clause into two sub-clauses, namely
Main Objects : This sub-clause contains the main objects of the company to be pursued on its incorporation and
objects incidental or ancillary to the attainment of the main objects.
Other Objects : This sub-clause must state other objects which are not included in the “ Main objects” and which
may be pursued by the company at anytime in the future.
The objects clauses is of great importance because it determines the purpose and the capacity of the company.
The acts beyond the power of Memorandum is called ultra-vires.

While drafting the objects clause of a company the following points should be kept mind
The objects of the company must not be illegal e.g to carry on Lottery business.
The objects of the company must not be against the provisions of Companies Act
The objects must not against the public
The objects must be stated clearly and definitely
The objects must quite elaborate also.
Cases :
1.Ashbury Railway carriage and Iron company vs. Riche.
2.Lakshmana Swamy Mudaliar vs. LIC.

4. Liability Clause.
The Memorandum must contain a statement as to the liability of members of the company. The liability of
members may be limited by shares or guarantee. The Memorandum provide that the liability of directors is
unlimited. If the member’s liability is limited by shares they are liable only to pay the face value of the shares.

Not Mandatory: Liability is not mandatory for every company. Only a company in which the liability of members
is limited( i.e., Limited company) must have a liability clause. In case of limited company, the liability of members
may be limited by shares or gurantee.

1. Company Limited by shares: The memorandum must state the fact that liability of members is limited by
shares.
2. Company limited by Guarantee: The memorandum must state the amount that each member shall be liable to
pay in the event of winding up of the company.

5. Capital Clause :
The Memorandume shall contain the amount of share capital with which the company is proposed to be
registered. The share into which the capital is divided must be of fixed value, which is known as the nominal
 26

value of the share. The capital with which the company is registered is called Registered or Authorised capital or
Nominal capital.
The amount of nominal capital is determined having regard to the present as well as future requirement of the
company with reference to its objects. The capital of the company is Rs.10,00,000/- divided into 1,00,000 equity
shares of Rs.10 each.
Not Mandatory : 1) A company limited by guarantee having no share capital 2). An unlimited Company.
Contents : The capital clause states 1). The Number of shares, 2). Nominal value of each shares, 3).The total
capital with which the company is to be registered.

6.Association and subscription clause.

In the Association and Subscription clause of a public company there should be at least 7 subscribers and they
should have signed and it should be attested by witness. In the case of a private company, at least two persons
should subscribe and put their signatures. The name and addresses of the subscriber should be mentioned in this
clause. The subscriber should have given an undertaking to take shares from the company. The number of shares
each subscriber has undertaken to take should be mentioned in this clause. Even though a subscriber has not
taken the agreed shares he will be liable to pay the value of such shares at the time of company’s winding up.
Names, address, occupations of the subscribers, and the number of shares each subscriber has taken and his
signatures attested by a witness. The statutory requirements regarding subscription of memorandum are that :

1.The Memorandum must be signed by each subscriber in the presence of at least one witness who must attest
the signatures.
2.Each subscriber must take at least one shares
3.Each subscriber must write opposite his name the number of shares which he agrees to take .
In other words :
Legal requirements :
1) Number of Subscribers : 7 or more – Public company, 2 or more-Private company.
2). Take shares : Every subscribers shall agree to take at least one share.
3).Particulars of subscribers : Name, occupation, and address, Number of shares subscribed.
4).Witness : The particulars of every subscriber shall be witnessed.
Effects of subscription to Memorandum :
1. Every subscriber is deemed to be a member as from the date of incorpation. After incorporation, his name is
entered in the register of members .
2. After incorporation, a subscriber cannot repudiate his liability to take and pay for the shares subscribed by
him, even on the ground of mispresentation.

Sec-15 Printing and signing of Memorandum :

As per section 15 of the companies Act,1956, the memorandum must be printed , divided into paragraphs,
numbered Consecutively and signed by 7 person or subscriber in case of Public company and two subscriber in
case Private company in the presence of at least one witness who shall attest the signatures. Xerox copies of
the Memorandum and Articles of Association cannot be accepted for the purpose of registration of companies.
Laser Printed or offset printing is one of the latest method of printing for the purpose of registration of
document.
MCA21 project, the soft copies of the MOA and the AOA should be filed along with e-form No.1.
 27

Alteration of Memorandume of Association :

1.By changing its Name (sec-21 to 24)
Alteration of Name Clause
1.The name of the company can be altered by a special resolution and the with the approval of the Central Govt.
Approval of the Central Govt is not required if the change related to the addition/deletion of the word “Private”
to the name. The power of the Central Govt to accord to the change of name which were earlier delegated to the
Regional Directors have been delegated to the ROC. For this Purpose an application is required to be made to
Registrar in e-form No : 1A with a fee of Rs.1000/- to ascertain availability of name. The period of validity is 60
days. The change must be communicated to the Registrar by filling e-form No-23 prescribed under the
companies General Rules and Forms,1956 along with a printed copy of the special resolution and explanatory
statement within 30 days of the passing thereof. Also as per the instructions for filling e-form No-23 , the
memorandum and articles of association of a company are also required to be attached. The change of name is
not permitted during the pendency of a petition before the Company Law Board under sec-17.

2.Alteration of registered office ( sec-17).

Change of Registered Office( Alteration of Registered office) :
1.Change within the local limits of same town.
Sec-146 of the Act provides that a company can change its registered office from one place to another within
local limits of the city, town , or village. The legal requirements as
a). The company shall pass Board resolution.
b).A notice of the change is required to be given to the Registrar in e-form 18 within 30 days of such change. This
does not involve alteration of Memorandum.
2.Change from one city to another city within the same state :
If the registered office is to be shifted from one city, town or village to another city , town or village within the
same state. The Legal requirements are as
a). The company shall pass a special resolution in the general meeting of the company and printed copy of the
special resolution alongwith the explanatory statement has to be filed with e-Form 23 within 30 days.
b). It shall give notice to ROC within 30 days by filling e-form-18.
3.Change within the same state from the jurisdication of one ROC to the jurisdiction of another ROC sec-
17A(However this concept is applicable only in case of Maharashtra and Tamil Nadu).
Legal requirements as
1. Pass Special resolution
2. Make an application to Regional Directo in e form No.1AD.
3 Regional Director shall confirm the alteration within 4 weeks.
4.Within 2 months, the company shall file with the Registrar – a copy of the confirmation and a copy of the
memorandum, as altered
5.Within 1 month, the Registrar shall register the change and give a certificate of registration of change of
registered Office.
6.The company shall change the registered Office.
7. The company shall give a notice of new address of the registered Office to the new Registrar, within 30 days of
change.
4.Change of Registered office from one state to another
The change of registered office from one state to another sate involves alteration of memorandum and the
change can be effected by a special resolution of the company which must be confirmed by the company Law
Board(CLB)-Sec-17.
 28

In case of shifting of office from one state to another state, a special resolution is required to be passed at the
general meeting of the shareholders. The change can be effected only for the following purposes : sec-17(1).
1).To carry on company’s business more economically or more efficiently
2).To attain its main objects by new and improved methods
3).To enlarge or change the local area of its operations.
4).To carry on some business, which under existing circumstances, may conveniently or advantageously be
combined with the business of the company
5).To restricts or abandon any of the objects specified in the Memorandum.
6).To sell or dispose of the whole or any part of the undertaking of the company
7).To amalgamate with other company.

3.Alteration of object clause.

Alteration of Object clause:
Circumstances : Object can be altered only for the purpose stated in sec-17(1)
1. Pass a special resolution.
2.Purpose : Al alteration of objects shall be valid only if it is made for any of the specified purposes given u/s.17
3.Approval : Approval of Company Law Board
4.Filling : Within 1 month of the passing special resolution, the company shall file with registrar a copy of Special
Resolution and a copy of memorandum as altered (Sec-18).
Consequences of non filling : if the documents required to be filed with the Registrar are not filed within the
prescribed time of 1 month, such alteration and all proceedings connected therewith, shall, at the expiry of 1
month, become void and inoperative (Sec-19).

In case of listed company , the special resolution for alteration in the object clause of the Memorandum of
Association needs to be passed through Postal Ballot on terms of Sec-192A by a listed company. The purpose of
which the objects can be altered are same as in case of change of registered office from one state to another
state.

1.To carry on its business more efficiently and economically Sec-17(1)(a).

2.To attain its main purpose by new or improved means sec-17(1)(b).
3.To enlarge or change the Local area of its operation Sec-17(1)(c).
4.To carry on some business , which under existing circumstances , may conveniently or advantageously be
5combined with the business of the company Sec-17(1)(d).
6.To restrain or abandon any of the objects specified in the Memorandum sec-17(1)(e)
7.To sell or dispose of the whole or any part of the undertaking of the company sec-17(1)(f)
8.To amalgamate with other company or body of persons Sec-17(1)(g).

4.Alteration of liability clause.

In General, Liability clause of a company cannot be altered. However, section 18 permits a company of any class
registered under this Act to convert itself in some other class of company by altering its memorandum and
articles of association. By using these provisions, if an unlimited company gets converted into a limited company
or vice versa, the liability of the members will be changed and thereby leading to alteration of liability clause of
memorandum.
5.Alteration of Capital clause. Sec-94.
 29

Alteration of capital clause: Sec-94

Sec-94 : A company can make the following types of alteration by an ordinary resolution ,if so authorized by its
Articles of Association :
1. Increase the share capital by issuing new shares.
2.Consolidate and divide share capital into shares of larger amount.
3.Convert fully paid up shares into stock and reconvert stock into fully paid up shares.
4.Sub-Divide shares into shares of smaller amount.
5.Cancel shares which have not been taken or agreed to be taken by any person, and diminish the share capital
by the amount of the shares so cancelled.
Requirements for alteration of Capital : 1).Power in articles, 2) Pass Ordinary resolution ,3) Notice to ROC –
within 30 days.
Effect of cancellation : it shall not be deemed to be a reduction of share Capital, 2). It does not require
confirmation by the court or CLB or any other authority.

All such alteration do not require the confirmation by the Company Law Board. These alteration of share capital ,
required to be notified giving details of the share consolidated, divided, converted, sub-divided, redeemed, or
cancelled or the stock reconverted as the case may be , and a copy of the ordinary resolution should be filed
with the Registrar within 30 days of the passing of the ordinary resolution.
An ordinary resolution shall be passed in the general meeting to exercise the power of alteration. The company
must give notice of alteration to the registrar within 30 days of the ordinary resolution passed.

Doctrine of Ultra vires

A company has power to do all acts which are recognized by the companies Act and the Memorandum of
Association. A company does an act beyond the powers conferred under the companies Act or MOA, the act will
be ultra vires. Such an act is absolutely void. The purpose of this doctrine is to protect the interest of
shareholders and creditors. Effect are as follows
All such transactions are wholly null and void
Such transaction can never be rectified even all shareholder give consent for it.
Company cannot sue or be sued.
Ultra vires means beyond or in excess of and vires means powers.Thus, ultra vires means an act or transaction
beyond or in excess of the powers of the company. An act or transaction shall be ultra vires if – it is not
permitted or authorized by the companies Act; it falls outside the object clause of memorandum and its
attainment is not incidental or ancillary to the attainment of main objects.

Ashbury Railway Carriage and Iron Company vs. Riche :

In Ashbury’s case, the company was formed with the object of carrying on business as “ Mechanical Engineers
and General Contractors”. The director of the company entered into an agreement with Riche to finance the
Construction of the Railway line in Belguim. The contract was repudiated by the company subsequently. Riche
filed a suit for breach of Contract. The House of Lords held that the contract was beyond the scope of the
Memorandum(Ultra vires) and thus it is not binding on the company even though it was ratified by the
sharesholders. Or in other words :-
1.Extract of object clause : The object clause of an industrial company contained the following objects besides
some other objects.
1. To make, sell or lend or lend on hire, railwawy carriage and wagons.
2. To carry on the business of mechanical engineers and general contractors.
 30

3. To Purchase , lease , work and sell mine, minerals , land and buildings.
Nature of contract made by company : The company entered into a contract with Riche, for the financing of a
construction of a railway line in Belgium.
Decision of the court : The court held that the word ‘ General contractor” had to be given a restricted meaning.
1. Only such contracts could be covered in the terms “ general contractors” as are in some way related or
connected with mechanical engineering.
2. Therefore , the company could not finance the construction of a railway line by alleging that such a business
falls under the business of general contractors.
Lakshmana Swamy Mudaliar vs. LIC –(1963).
The directors of the company decided to donate Rs.2,00,000/- to a Memorial Trust. The shareholders have
passed a resolution accepting the decision of the directors. The Primary object of the company was to carry on
Life Insurance Business. Donating money to a Memorial Trust is not main or incidental object of the company. So
the court held that the decision to donate money to the Memorial Trust is ultra vires. The company competent
to do all acts within the objects specified in the Memorandum and it cannot travel beyond the objects.
Effect of Ultra Vires :
1.Injunction
2.Personal liability of Directors
3.Breach of Warranty
4.Property acquired under Ultra vires act
5.Ultra vires contracts
6.Void ab initio
1.Injunction :
Whenever an Ultra vires act is about to be done, any member of the company can obtain an injunction against
the company to restrain it from proceeding further. Any member may obtain an injunction order from the court,
i.e., an order of the court restraining the company from proceeding with the ultra vires contracts
2.Personal liability of the Directors:
If the capital of the company is used by the director for ultra vires purposes they will be personally liable .if funds
of the company are misapplied or wasted by entering into ultra vires transactions, the directors shall be
personally liable to the company for breach of trust.
3.Breach of Warranty :
If an outsider is induced to enter into a contract with the company by the directors, the outsider can file a case
against the directors for his loss resulted from the ultra vires contract.
4.Property acquired under Ultra Vires act :
If the capital of the company is used to purchase some property , the company’s right over such property will be
declared valid eventhough the purchase is Ultra vires the object of the company. If the company acquires some
property under an ultra vires transaction, the company has the right to hold that property and protect it against
damage by other parties.
5.Ultra vires contracts :
If a company lent money to an outsider it can recover if from the debtor even though the contract is ultra vires. If
an outsider lends money to the company under an ultra vires contracts he has only the remedy of restitution.
6.Void ab inito :
Ultra vires contracts are void ab initio and hence cannot become intra vires by reason of estoppel or ratification.
The ultra vires acts are null and void ab initio. An act which is ultra vires the company is void and of no legal
effect.
 31

Articles of Association.
Articles of Association is another document which is to be produced along with the Memorandum for the
registration of a company. The Articles of Association contains rules and regulations relating to the internal
Management of the company.
All the companies need not have an Articles of Association of its own. Unlimited companies, companies Limited
by Guarantee and Private companies Limited by shares must have an Articles of Association. A Public
company limited by shares need not file its own articles. If a Public company Limited by shares does not register
its own articles, the Articles contained in Table –A of Schedule I shall automatically apply to it.
Statutory requirements
1. be Printed.
2. be divided into paragraphs numbered consecutively.
3. be signed by each subscribers to memorandum
4. Include the name of at least 1 witness who shall attest the signatures of the subscribers.

Definition of Articles of Association Sec-2(5) of the Companies Act,2013

The Articles of Association are the rules and regulation or the bye Laws relating to the internal Management of
the company.
Sec-2(5) : Articles means the Articles of Association of a company as originally framed or as altered from time
to time in pursuance of any previous company Law or of this Act. It also includes the regulations contained in
Table-A in schedule I of the Act.
The articles regulate the internal Management of the affairs of the company by way of defining the powers of its
officers and establishing a contract between the company and the members . The following companies must
have their own articles :
1. Unlimited companies.
2. Company limited by Guarantee.
3. Private companies limited by shares under the Memorandum of association and any clause in the
Articles going beyond the memorandum will be ultra vires.
Articles of a company are subordinate to and controlled by the memorandum of association
Every company is required to have its own articles,Exception : A public company limited by shares need
not have its own articles. In such a case, Table –A shall apply to it.
Registration of Articles of Association :
Public company limited by shares need not file its own articles. If a Public company Limited by shares does not
register its own articles, the Articles contained in Table –A of Schedule I shall automatically apply to it.
The Articles of association of an unlimited company should state the number of members with which the
company is to be registered and if the company has share capital, the amount of share capital with which it is to
be registered
In case of a company Limited by guarantee the articles shall state the number of members with which it is to be
registered.
A company limited by guarantee or a private company limited by shares or unlimited company must register
their articles.
The companies Limited by guarantee or unlimited company might adopt any of the appropriate regulations of
Table C,D, and E respectively in Schedule I (sec-29).
Contents of Articles (Table –A) :
1. Exclusion wholly or in Part of Table-A.
2. Adoption of Preliminary contracts.
 32

3. Number and value of shares.

4. Issue of Preference shares
5. Allotment of shares
6. Calls on shares.
7. Lien on shares
8. Transfer and transmission of shares
9. Nomination
10. Forfeiture of shares
11. Alteration of capital
12. Buy back
13. Share certificates
14. Dematerialisation
15. Conversion of shares into stock
16. Voting rights and Proxies
17. Meeting and rules regarding committees.
18. Directors, their appointment and delegation of powers
19. Nominee directors
20. Issue of Debentures and stocks
21. Audit committee
22. Managing Director , whole time director, Manager , Secretary.
23. Additional directors
24. Seal.
25. Remuneration of Directors
26. General Meetings
27. Directors Meetings
28. Borrowing Powers.
29. Dividends and reserves
30. Accounts and audit
31. Winding up
32. Provision regarding Common Seal
33. Capitalisation of reserves.
Alteration of Articles of Association:
A company may , by special resolution, alter its articles. The alteration is to convert a public company into
private company, the approval of Central Government is necessary.

Procedure for Alteration :

1. Hold a General Meeting and Pass a Special resolution.
2. File a copy of special resolution in e-Form No.23 with ROC within 30 days of the date of special
resolution.
3. File a Printed copy of altered AOA.
4. If the effect of alteration is to covert a public company into a private company , the approval of the
Central Govt is necessary.
Restrictions on Alteration or Limitation of Alteration of Articles :
1. It should not be against provisions of MOA or companies Act,2013.
2. The alteration must be bona fide for the benefit of company as whole.
 33

3. Altered articles cannot include anything , which is illegal or opposed to Public.

4. The Amendment must not constitute a fraud on minority. It cannot be oppression of minority.
5. The alteration must not be inconsistent with an order of the Court
6. In the case of Listed companies, articles cannot be altered except with the approval of stock exchange.
7. Amendment of Articles relating to Managing , whole time director and non-rotational directors requires
Central Government approval
8. Company cannot justify breach of contract by altering the articles.
Cases :
1.Mathrubhumi Printing and Publishing Co vs. Vardhavamar Publishing Ltd : The Kerala High court held that the
power conferred on the Company under section -31 to alter articles by special resolution should not be abused
by the majority of shareholders in order to oppress the minority.
The alteration must no sanction anything which is illegal. The alteration must be made bonafide for the benefit
of the company. The alteration must not constitute an oppression or a fraud on the minority shareholders.
2.Malleson vs. National Corporation :The court held that a provision in the Articles depriving the company of its
power of alteration would be void.
A company may alter its articles at any time by passing a special resolution. The Provisions of articles cannot be
altered by an ordinary resolution. Even clerical errors in the articles should be set right by a special resolution.
The articles of Public company cannot be altered so as to convert it into private company without the prior
approval of the central Govt.
3.Sourthern Foundaries Ltd vs. shirlaw :
The plaintiff was appointed as a Managing Director of the company. The appointment was for 10 years. After 2
years, the company was amalgamated with another company and the new articles empowered the dismissal of
the Managing Director. The plaintiff was dismissed from the service . He claimed compensation for dismissal. The
court held that a company cannot justify a breach of contract by altering the articles.

Difference Between Memorandum and Articles of Association:

1. Charter and internal rules and regulations.
2. Permission of Company Law Board or the court
3. Provision of companies Act and subsidiary both to
4. Relationship
5. Ratification or Ultra vires.
6. Supreme and subordinate
7. Own Memorandum and Table –A
8. Alteration of MOA & AOA.

1. Charter and Internal Management of the company :

The Memorandum of association is the charter of the company and defines the fundamental conditions
and objects of the company.
But Articles of Association is the internal Management of the company and it defines the rules and
regulation or the bye Laws relating to the internal Management of the company.
2. Permission of Company Law Board or the court :
The alteration requires the permission of the company Law Board or the court in case of
Mememorandum of Association.
In case of articles of Association , members have a right to alter the articles by passing special resolution.
Generally no need obtain the permission of the court or the company Law Board for alteration.
 34

3. MOA cannot contrary toProvision of companies Act and AOA are subsidiary both to the companies Act
amd MOA
Memorandum of association cannot contrary to the provision of companies Act. The Articles of
Association are subsidiary both to the companies Act and the Memorandum of Association.

4. Relationship :-
The Memorandum defines the relationship between the company and the outsiders. But Articles defines
the relationship between the company and its members.

5. Ratification :
Acts done by company beyond the scope of the Memorandum are absolutely void and ultra vires. Any
acts of the company which is ultra vires the Memorandum is wholly void and cannot be ratified even by
the whole body of shareholders But the acts of the directors beyond the articles can be ratified by the
shareholders. Any act of the company which is ultra vires the articles can be ratified by the shareholders.

6. Supreme and subordinate :

The Memorandum is the first step for the formation of company. The Memorandum of Association is a
document which set out the Constitution of the company and is therefore the foundation on which the
structure of the company is based. So, the Memorandum is supreme documents.
But Articles of Association is subordinate to the provision of Companies Act and the Memorandum. It
defines internal management of the company.
7. Own Memorandum and Table-A
Every company must have its own Memorandum. But a company limited by shares need not have
Articles of its own. In such case, Table-A applies.

8. Alteration of MOA and AOA :

There are strict restrictions on its alteration. Some of the conditions of Incorporation contained in it
cannot be altered except with the sanction of the Central Govt.

But in case of Articles of Association, can be altered by special resolution, provided they do not conflict
with the Memorandum and the companies Act.

Constructive Notice of Memorandum and Articles:

The Memorandum and articles of association of a company are to be registered with the registrar of companies.
On registration, they become public documents. They are open for public inspect in office of Registrar of
companies on payment of prescribed fee.
Every person dealing with the company is presumed to have read the Memorandum and articles of Association
and is deemed to have knowledge of the contents of the documents. This imputation of Knowledge is Known as
Constructive Notice of Memorandum and Articles of Association.
On registration the Memorandum and articles of association become public documents. These documents are
available for public inspection either in the office of the company or in the office of the Registrar of companies
on payment of one rupees for each inspection and can be copies.
Every person who deal with the company , whether shareholder or an outsider is presumed to have read the
memorandum and articles of association of the company and is deemed to know the contents of these
 35

documents. Therefore, the knowledge of these documents and their contents is known as the Constructive
Notice of Memorandum and Articles of Association.
It is presumed that person dealing with the company have not only read these documents but they have also
understood their proper meaning.
Case Laws
1.Kotla Venkata Swamy vs. Ramamoorthy (1934).
The articles required that all deeds should be signed by the MD, Secreatary but the Plantiff accepted the deed
not signed by the MD. It was held that the plaintiff could not claim under this deed and thus every person
dealing with the company is deemed to have notice of the contents of its memorandum and articles and also
have to understood them according to their menining.
2.Rajendre Nath Datta vs. Shibendra Nath Mukherjee (1982)
In this case, the court held that the Articles of Association of a company is a public document and anyone who
deals with a registered company must have taken notice of the Articles. By operation of the doctrine of
Constructive Notice, every person dealing with the company is presumed to have knowledge of the contents of
Memorandum and Articles of Association.

The Doctrine of Constructive Notice operates against outsider who are dealing with the company.
This doctrine prevents them from alleging that they have no knowledge that the Memorandum and Articles of
the company rendered a particular act Ultra vires.

Doctrine Of “Indoor Management” or “ Turquand Rule”.

The Doctrine of “Constructive Notice” protects the company against the outsider but the Indoor Management
operates to Protect the outsiders against the company.
The doctrine of Indoor Management seeks to protect outsider against the company.
While persons contracting with a company are presumed to know the provisions of the contents of the
Memorandum and articles, they are entitled to assume that the provisions of the articles have been observed by
the officer of the company. It is no part of the duty of an outsider to see that the company carries out its own
internal regulations.
Purpose of Doctrine of Indoor Management : The doctrine of indoor Management operates in favour of the
outsider, i.e., this doctrine creates a presumption in favour of the outsiders.
Meaning of the Doctrine of Indoor Management : As per this doctrine, outsiders dealing with the company are
not required to enquire into the internal Management of the company.
Outsiders dealing with the company are entitled to assume that as far as internal proceedings of the company
are concerned, everything has been done regularly. Thus, doctrine Protects an innocent outsider from any
irregularity present in the working of the company(provided he had actual knowledge of the memorandum and
articles, and he complied with the requirements contained in the memorandum and articles)

Royal British Bank vs. Turquand :

The articles of a company stated that the directors could borrow money on behalf of the company, if they are so
authorized by the resolution passed by the shareholders in GM.
The directors borrowed money from T without obtaining any authorization from shareholders. T had lent money
to the company assuming that the shareholders had authorized the directors to borrow money as per the
requirement of the articles. It was held that borrowing of money by the directors without any authorization from
the sharesholders amounted to a mere internal irregularity, and since, T had no knowledge of such internal
irregularity, he would not be prejudiced by such internal irregularity.
 36

The benefit of doctrine of indoor Management can be availed only if the person dealing with the company –
The court held that Turquand could recover the amount of the bond from the company on the ground that
Turquand was entitled to assume that the required resolution has been passed.
The Doctrine of Indoor Management is based on public convenience and justice.
As per Indoor Management , outsider dealing with the company is not required to enquire into the Internal
Management of the company. The doctrine of Indoor Management is an exception to the rule of constructive
Notice.
Exceptions to the Doctrine of Indoor Managment
1. Knowledge of Irregularity.
2. Negligence on the part of outsider.
3. No Knowledge of Memorandum and Articles
4. Forgery
5. Acts outside apparent authority
6. Void or illegal transaction.
1.Knowledge of Irregularity :
If a person who is dealing with a company has actual or constructive notice of the irregularities regarding the
internal Management, he is not allowed to claim the benefit under the Doctrine Of Indoor Management. The
person knowing fully well that the directors do not have the authority to make the transaction but still enters
into it, cannot seek protection under the rule of indoor management.
Howard vs. Patent Ivory co
The Articles of the company empowered the directors to borrow up to 1000 pounds without the approval of the
shareholders in the general meeting. But for any amount beyond 1000 pounds they had to obtain consent of the
shareholders. H was the director of the company. He lent to the company an amount of 3500 pounds without
consent of the shareholders. The court held that the director had notice of the internal irregularity and hence
the company was liable to pay only 1000 pounds. Or in other words :
1. The director of a company could borrow upto Pounds 1000 without the sanction of members in GM.
2. The consent of the sharesholders was required to borrow in excess of pounds 1000.
3. The directors themselves led Pound 3,500/- to the company.
4. It was held that the directors had the notice of the internal irregularity and therefore the company was liable
to them only for Pound 1000/-
2.Negligence :
If there are suspicious grounds surrounding a transaction , but the person dealing with the company fails to
make reasonable inquiry, the benefit of doctrine of indoor Management will not be available.
If a person who is dealing with a company could discover the irregularities by proper enquiry, he cannot claim
benefit of the rule of indoor Management
Anand Biharilal vs. Dinshaw & co
The accountant of a company sold company’s property to A. The transaction was apparently beyond the scope of
the accountant authority. The court held that “A “could not claim benefit of Turquand rule. He ought to have
made proper enquiry as to the authority of the accountant.
An accountant of the company entered into a contract on behalf of the company with a third party to sell
property of the company.The court held that third party could not claim benefit of Turquand rule. He ought to
have made property enquiry as to the authority of the accountant. Therefore, the third party could not enforce
such a contract against the company even though the third party had acted bonafide.
Underwood Vs Bank of Liverpool :
 37

A director of a company paid into his own account cheques drawn in favour of the company. It was held that the
bank could not claim the benefit of Turquand’s rule, as it ought to have made an inquiry to see whether the
director concerned had the power to do so.
3.Forgery :
The protection of Indoor Management will not be available in the case of forgery committed by the company’s
officials. If the secretary of company has forged signatures of directors in the share certificate and issued It to an
outsider under the seal of the company, the outsider cannot claim protection of indoor Management. Forgery
makes a document void.
Ruben Vs Great Fingall Consolidated company :
1. A share certificate was issued under the common seal of the company.
2. The secretary of the company has signed on the share certificate.
3. However, the signatures of two directors were also required on it, which were forged by the secretary.
4.The holder of the share certificate contended that he was not aware of the fact of forgery, it was not possible
for him to determine whether the signatures were genuine or forged and therefore, the certificate issued to him
should be held as valid.
5. The court held that In case of forgery, there is not a defect in consent, but absence of consent, and therefore
the certificate issued by way of forgery is void. Thus, the certificate was held to be invalid.
4. Illegal Transactions :
The benefit of doctrine of Indoor Management is not available in case of any ultra vires or illegal transaction.
The benefit is available only if there is some procedural or internal irregularity.
5. No knowledge of articles: if the authority to enter into a contract on behalf of the company could be
delegated to an officer or employee of the company as per the articles, but such authority has not been actually
delegated to him, an outsider who deal with such an officer cannot assume that the required authority has been
delegated to him, if the outsider has not read the articles.
Rama Corporation Vs Proved Tin and General Investment company Ltd ;
1. The articles of the investment company provided that the directors could delegate their powers to one of
them.
2. T was a director in an investment company.
3.T, purporting to act on behalf of the company, entered into a contract with Rama Corporation and received a
cheque from it.
4.Rama corporation had never read the articles. Later, it was found that the directors of the company had not
delegated their powers to T.
5.it was held that Rama Corporation could not rely on the doctrine of indoor Managemet as it did not know that
the power could be delegated. Accordingly , the benefit of the doctrine of indoor management was not available.

Short Notes :
Conversion of one person company to a public company or Pvt Co :
1.If the paid up capital of an OPC exceeds Rs.50,00,000/- or its Average Annual turnover during the relevant
period exceeds Rs 2 crores, then it shall cease to be entitled to Continue OPC- Minimum number of member and
directors has be increased accordingly.
Converions of Pvt company into one person company : Pvt company other than sec : 8 company having paid up
share Capital of Rs.50 Lakhs or less, average annual turnover during the relevant period is 2 Crore or less.
Converison of Sec : 8 company to any other kind :
1. Pass special resolution in General Meeting along with MGT 14.
2. Application to Regional director in form INC 18.
 38

3. Copy to be filed with Registrar publication of Notice in news paper.

4. NOC from relevant regulatory authority.
5. No failure in filing financial statement certificates from PCS/CA/CWA for conversion compliance.
Convesion of Public company in to Private company :
1. Pass Special resolution in General Meeting file form INC 27 With Registrar.
2. Get NCLT approval, file MGT 14 for special resolution.
Conversionf Private company into Public :
1. Pass Special resolution in General Meeting file form INC 27 with Registrar.
2. File MGT 14 for Special resolution.

Recent Amendements in Companies Act

Indian Companies Act 2013 : Salient Features
The Indian Companies Act 2013 replaced the Indian Companies Act, 1956. The Companies Act 2013 makes
comprehensive provisions to govern all listed and unlisted companies in the country. The Companies Act 2013
implemented many new sections and repealed the relevant corresponding sections of the Companies Act
1956. This is a landmark legislation with far-reaching consequences on all companies incorporated in India.

Comparison of Companies Act 1956 and Companies Act 2013

Indian Companies Act 2013 has fewer sections (470) than Companies Act 1956 (658). The new act empowers
shareholders and gives high value for Corporate Governance.
Details 1956 Act 2013 Act

Parts 13 NA

Chapters 26 29

Sections 658 470

Schedules 15 7
Key Highlights of Indian Companies Act 2013
Maximum number of members (share holders) permitted for a Private Limited Company is increased to 200 from
50.
One-Person company.
Section 135 of the Act which deals with Corporate Social Responsibility.
Company Law Tribunal and Company Law Appellate Tribunal.

Salient features of the Companies Act 2013

1.Class action suits for Shareholders: The Companies Act 2013 has introduced new concept of class action suits
with a view of making shareholders and other stakeholders, more informed and knowledgeable about their
rights.
2.More power for Shareholders: The Companies Act 2013 provides for approvals from shareholders on various
significant transactions.
3.Women empowerment in the corporate sector: The Companies Act 2013 stipulates appointment of at least
one woman Director on the Board (for certain class of companies).
 39

4.Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of Companies to spend a
certain amount of money every year on activities/initiatives reflecting Corporate Social Responsibility.
5.National Company Law Tribunal: The Companies Act 2013 introduced National Company Law Tribunal and the
National Company Law Appellate Tribunal to replace the Company Law Board and Board for Industrial and
Financial Reconstruction. They would relieve the Courts of their burden while simultaneously providing
specialized justice.
5.Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified procedure for mergers and
amalgamations of certain class of companies such as holding and subsidiary, and small companies after obtaining
approval of the Indian government.
6.Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both ways; a foreign company
merging with an India Company and vice versa but with prior permission of RBI.
7.Prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits directors and key
managerial personnel from purchasing call and put options of shares of the company, if such person is
reasonably expected to have access to price-sensitive information.
8.Increase in number of Shareholders: The Companies Act 2013 increased the number of maximum
shareholders in a private company from 50 to 200.
9.Limit on Maximum Partners: The maximum number of persons/partners in any association/partnership may
be upto such number as may be prescribed but not exceeding one hundred. This restriction will not apply to an
association or partnership, constituted by professionals like lawyer, chartered accountants, company secretaries,
etc. who are governed by their special laws. Under the Companies Act 1956, there was a limit of maximum 20
persons/partners and there was no exemption granted to the professionals.
10.One Person Company: The Companies Act 2013 provides new form of private company, i.e., one person
company. It may have only one director and one shareholder. The Companies Act 1956 requires minimum two
shareholders and two directors in case of a private company.
11.Entrenchment in Articles of Association: The Companies Act 2013 provides for entrenchment (apply extra
legal safeguards) of articles of association have been introduced.
12.Electronic Mode: The Companies Act 2013 proposed E-Governance for various company processes like
maintenance and inspection of documents in electronic form, option of keeping of books of accounts in
electronic form, financial statements to be placed on company’s website, etc.
13.Indian Resident as Director: Every company shall have at least one director who has stayed in India for a total
period of not less than 182 days in the previous calendar year.
14.Independent Directors: The Companies Act 2013 provides that all listed companies should have at least one-
third of the Board as independent directors. Such other class or classes of public companies as may be prescribed
by the Central Government shall also be required to appoint independent directors. No independent director
shall hold office for more than two consecutive terms of five years.
15.Serving Notice of Board Meeting: The Companies Act 2013 requires at least seven days’ notice to call a board
meeting. The notice may be sent by electronic means to every director at his address registered with the
company.
16.Duties of Director defined: Under the Companies Act 1956, a director had fiduciary (legal or ethical
relationship of trust)duties towards a company. However, the Companies Act 2013 has defined the duties of a
director.
17.Liability on Directors and Officers: The Companies Act 2013 does not restrict an Indian company from
indemnifying (compensate for harm or loss) its directors and officers like the Companies Act 1956.
18.Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and audit firms in case of
publicly traded companies.
 40

19.Prohibits Auditors from performing Non-Audit Services: The Companies Act 2013 prohibits Auditors from
performing non-audit services to the company where they are auditor to ensure independence and
accountability of auditor.
20.Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process of the companies in
financial crisis has been made time bound under Companies Act 2013.
============================================================================================

Others
Statutory Books and statistical books of a Company
Statututory Books : Every company is under statutory obligation to maintain the following Books and registers as
its registered Office :
1.Register of Investment in Securities made by the company
2.Register of charges
3.Register of Members
4.Minutes Books
5.Books of Accounts

Statistical Books :
1.Share Application and Allotment Books.
2.Share Call Book.
3.Share Certificate Book.
4.Share Transfer Book.
5.Agenda book.

Corporate identity Number (CIN)

Corporate identify Number is a 21 digit number designed to help easily identify companies belonging to a state,
industry, ownership or age and and allocated to all companies registered on or after Nuvember 1, 2000.The CIN
indicate the listing status, economic activity, state, year of incorporation, ownership, Sequential number
assigned by ROC. The First digit of the CIN represents the listing status of a company. If the company is unlisted
the alphabet entered is U and in case the company is listed the alphabet entered is L.
CIN Indicates the following information
1st Digit ………………… Listing status.
Next 5 Digits …………..Economic Activity.
Next 2 Digits…………..State.
Next 4 Digits…………..year of Incorporation.
Next 3 Digits…………..Ownership.
Next 6 Digits…………..Sequence Number assigned by ROC.

Director Identification Number : (DIN).

All existing and any person intending to be appointed as a director are required to obtain DIN. DIN is mandatory
for director of Indian Companies who are not citizens of India.However, DIN is not mandatory for directors of
foreign company having branch offices in India.DIN is a unique identification number and once obtained is valid
for life time of director. MCA has notified companies( Director Identification Number) Rules, 2006, specifying the
Procedure for getting DIN.
 41

Corporation or Body Corporate.

Body Corporate- General meaning: Generally , the term body corporate or corporation means an association of
persons having the following characteristics :
1. It is incorporated under any law for the time being in force.
2. It has a separate Legal entity.
3. It has perpectual succession.
4. It has a common seal.
5. It has the capacity to sue and own property in its own name, and similarly it can be sued in its own name.

Disadvantages of corporation form of Enterprises

1. Formalities and Expenses :
2. Greater Tax burden
3. Greater social responsibility
4. Detailed winding up procedure
5. Corporate disclosure.(restricted accessibility to its internal Mgt and day to day administration of
corporate working.
6. Seperation of control from ownership.

Concept of Corporate Personality

Corporate Veil:
The term Veil means curtain. Corporate veil means a curtain between company and its members, directors. It
was confirmed in the Soloman case that a company is legal person distinct from its members. The effect of this
principle is that there is a veil between the company and its members. That is the company has a Corporate
Personality which is distinct from its members.
Lifting of Corporate Veil: Disadvantages of Incorporation (Piercing of Corporate Viel)
It means disregarding the concept of Separate Personality of the company, in case of misuse, fraud and
violation of statutory Provisions. The main purpose is to identify the persons who are interested in success and
failure of the company. Where the corporate veil has been used for commission of fraud or improper conduct.
In such a situation ,court have lifted the veil and looked at the realities of the situtiona.
Corporate veil can be lifted in the following cases
1. As per companies Act,1956
1. Reduction in Membership (sec-45)
2. Mis-discription of the Name (sec-147).
3. Failure to refund Application Money.(sec-69)
4. Holding and subsidiary Company (sec-212-214)
5. Ultra-vires Acts.
6. Fraudulent Trading. (Sec-542).
2. As per Judicial decision
1. Formation of companies to divide income and avoid tax : (case-Sir Dinshaw Manekejee Petit)
2. For determining the enemy character of the company or status of company: (case: Daimler company
Ltd vs. continental Typre & Rubber co Ltd)
3. For Preventing Fraud or Improper conduct (Case: Tata Engineering Locomotive co Ltd vs. state of
Bihar,Gilford Motor Co Ltd Vs Horne.
4. Where the doctrine Conflicts with Public Policy (Connors Ltd vs. Connors).
 42

5. Avoidance of Welfare Legislations : ( Workmen Employed in Associated Rubber Industries Limited Vs

Associated Rubber Industries Limited ).
3. Others.
1. Company acting as an Agent of Shareholders
2. Non-Payment of Tax.
3. Misrepresentation of Prospectus ( Untrue statement in Prospectus).Sec-62

Illegal Association: Sec-11 of 1956 and 464 of 2013

Any association which does not comply with the norms of companies Act is called illegal association.
An association or Partnership is an Illegal association if –
1. It consists of more than 10 persons in case of banking business; or 20 persons in case of any other business.
2. Its object is the acquisition of gain by the association or Partnership or the individual members thereof,
3. It is not incorporated as a company under the Companies Act,1956 or in pursuance of some other Indian Law.
4.However, a joint family carrying on business shall not be an illegal association.
5.If business is carried on by two or more joint families, while computing the number of persons, all the male and
female members of such joint families shall be counted, but minor members shall be excluded.
Consequences of Non registration (Liabilities)
1. No legal Existence.
2. Unlimited Personal liability of members
3. Fine up to Rs1,00,000/-
4. It cannot enter into contract
5. It cannot be sued by a member or an outsider.
6. It cannot contract debt
7. It cannot be debtor or creditor for any debt
8. Income of illegal association will be taxable.
9. An illegal Association cannot be wound up under the provisions of the companies Act.
Distinction between Company and Hindu Joint Family Business
1. Homogenous & Heterogeneous(company)
2. Karta
3. Birth(becomes member)
4. Registration (registeration not compulsory)
1. Homogenous and Heterogeneou
Company consist of heterogeneous (varied or diverse) members, whereas a Hindu Undivided family business
consists of homogenous(Unvarying) members, since it consist of members of the joint family itself
2. Karta:
In a Hindu Joint Family Business, the Karta (Manager) has the sole authority to contract debts for the purpose of
the business, other coparceners cannot do so. There is no system in a company.
3. Birth :
A person becomes a member of joint Hindu family business by virtue of birth. There is no provision to that effect
in the company.
4. Registration:
No registration is compulsory for carrying on business for gain by a Hindu Joint Family .Even if the number of
members exceeds 20. Registration of a company is compulsory.

One Man company :

 43

One Man company means a company which is incorporated under the Act, which created legal entity distinct
from its members. Under this company one of the members will hold practically whole of the share capital of
the company and other members will hold only one or two shares of the company and they are usually
nominees of the principal shareholders, the member liability is limited to the face value of the shares held by
him. This type of company is known as “ One Man company”.
Example : A Pvt company is registered with a share capital of Rs.5 Lakhs divided into 5000 shares of Rs.100 each.
Of these shares , 4999 are held by A and one shares is held by A’s wife B. This is a One Man company.
One Man company is a legal entity distinct from its members. Here also the member’s liability is limited to the
face value of the shares held by him . Case : Soloman & Co Ltd, Lee vs. Lee’s Air Farming Ltd.
If the object of forming such a company is to defraud the creditors, the legal personality of the company will be
disregarded by the court by applying the doctrine of lifting the corporate veil and the virtual owner will be held
personally liable.

Procedure for Conversion Public company into Private Company

The Companies Act contains the following procedures for the conversion :
1. Convene a Board Meeting regarding the Proposal of conversion of the company into Pvt.
2. Prepare the Proposal for alteration of AOA or prepare new set of AOA meeting the requirement of Pvt
Ltd company as mentioned in sec
3. Hold the Board meeting and get approval of the Board for the proposal , fix up the day, date and time of
holding the general meeting of the company , approve notice and explanatory statement.
4. Hold the general meeting on the fixed date and pass the special resolution.
5. File Form No-23 with the copy of special resolution, explanatory statement and MOA &AOA ( before
alteration and after alteration).
6. Pay the requisite application fees
7. Publish in newspaper where the registered office is situated.
8. Get a no objection letter from major unsecured creditors and all secured creditors
9. Apply to the Central Govt in e-Form 1B.the documents to be attached with application are :
1. Notice of extra ordinary general Meeting
2. Copy of special resolution
3. Copy of newspaper advertisement.
4. Affidavit that the company is not listed on any stock exchange
5. Reference number, date of passing and date of filling the e-form No-23.
6. Payment of requisite application fees
7. One copy each of the annual reports for the last 3 financial years
8. Copy of last annual returns
9. Copy of altered MOA and AOA.
10. No object letter from unsecured creditor and all secured creditor supported by an Affidavit.
11. Reasons for conversion
12. Terms of appointment for all managerial personnel
13. Power of attorney in favor of the authorized representative.
Procedure to be followed by ROC : On receipt of Application, the ROC shall examine
1. Whether the company is listed or not
2. Capital contributions by the members
3. Whether e-form No-23 has been passed and taken on records
4. Whether the reasons for conversion are just and sufficient.
 44

5. How many members voted for the resolution

6. Whether any complaint against the company is pending
7. Whether any show cause letter has been issued to the company or its Directors
8. If there is any objects from members and creditors
If the ROC approves the application, he refers it to Technical section and prosecution section for their report for
about all examine/scrutiny.. if the reports are satisfactory, the ROC will issue a letter granting its approval for
conversion of a public company into a private company. The concerned ROC then issue a fresh certificate of
incorporation.