COMPANY LAW Kinds of Companies

Meaning and Nature of Company  On the Basis of mode of Incorporation

• Chartered Companies eg: East India
• Previously Companies Act 1956, now Company.
Companies Act 2013 (470 sections, 29  Formed by grant of a charter by the
chapters and 7 schedules) Crown.
 No longer used to incorporate trading
• Definitions of Company
companies.
• A company formed and registered • Statutory Companies – created by special
under the Act Act eg: LIC, SBI, RBI
 Formed by private Act of Parliament.
• Lord Justice Lindley- A Company is an
 Formerly used to incorporate public
association of many persons who contribute
utilities such as gas, electricity and
money or monies worth to a common stock
railways.
and employed in some trade or business
• Registered Companies- registered under
and who share the profit and loss arising
the Act
there-from. The common stock so
 Formed by registration under the
contributed is denoted in money and is the
Companies Act
capital of the company. The persons who
 Registration is the most commonly used
contribute to it or to whom it pertains are
means of forming a company and
members. The proportion of capital to
virtually the only method now used to
which each member is entitled is his share.
form a trading company.
The shares are always transferable through
 On the basis of Liability of Members
the right to transfer is often more or less
 Limited by Shares
restricted
 Limited by guarantee- members
Characteristics of a Company undertake to contribute in event of
winding up
• Incorporated Association  Unlimited- all members liable for debts,
like in partnership, proportion to his
• Artificial Legal Person- juristic person, no body
interest
of a natural person
 On the basis of Number of Members
• Separate Legal Entity – distinct from the  One person company – only one
persons who created it (Salomon v Salomon) member (introduced under the 2013
Act)
• Perpetual Succession  Private - Minimum 2 to maximum 200
• Limited Liability- liability to pay debts limited  Public – Minimum 7 – no maximum

• Transferable shares  Other types of Companies

• Common seal- official signature of the  Government Companies

company  Foreign Company
 Holding and Subsidiary Company
• Separate Property – can own property in its  Small Company- paid-up capital not
name exceeding 50 L, turnover does not
exceed 2 Cr
• Capacity to Sue and being sued
 Producers Companies
 Companies Limited by Shares iv. Prior to 1980, a company could be registered as
a company limited by guarantee, but also have
i. The most common kind of registered company. a share capital - these are called "hybrid
companies"
ii. Members of the company take shares issued by
the company. Each share is assigned a nominal Unlimited Companies
value - the amount that must be paid to the
company for the share. Members may also i. Members have unlimited liability (If company is
agree to pay an extra amount - called a being wound up, members can be made to
premium. contribute to the company’s assets without
limit to enable it to pay its debts.)
iii. When the company is registered, its
memorandum must state the total nominal ii. Cannot be public companies.
value of all the shares it is going to issue (called
iii. Can be set up with or without a share capital.
the registered capital, or nominal capital or
authorized share capital). iv. Not subject to the same restrictions on
alteration of capital as other types of company,
• The memorandum also states the number
and do not normally have to file annual
of shares to be issued: e.g. 10,000 shares of
accounts.
Rs.1 each = registered capital of Rs. 10,000.

iv. Liability of a member (shareholder), when the Lifting of Corporate Veil

company is wound up is limited to the amount,
• Sometimes the law is prepared to examine the
if any, of the nominal value of his shares which
reality which lies behind the company façade -
has not been paid.
this is described as "lifting" or "piercing" the
• (Shareholder is also contractually bound to corporate veil. The façade of corporate
pay any premium which has not been paid). personality removed to identify the persons
who are really guilty. This is in the interest of
v. Shares are normally partly or fully paid for when the members and in public interest. It is against
issued, so company will have a contributed those who misuse corporate personality
capital.
• The courts are willing to lift the veil of
• Companies Limited by Shares may be Public incorporation in some circumstances:
or Private
i. Fraud, Façade or Sham - Courts will examine
Companies Limited by Guarantee the reality behind the company where the
company was set up purely to evade a legal
i. Members agree to contribute a specified
obligation, or to allow someone to do
amount to the company’s assets in the event of
something he would not be allowed to do as an
the company being wound up. (Total amount
individual
payable by all members is called the "guarantee
fund") ii. Agency - Court may lift the veil on the basis that
one company is merely carrying on business as
ii. Members do not have to pay anything as long
the agent of another - so that transactions
as company is a going concern - so company has
entered into by the subsidiary can be regarded
no contributed capital.
as transactions of the holding company
iii. Companies limited by guarantee are not usually
iii. Justice and Equity - Courts have sometimes
formed for business ventures.
been prepared to pierce the corporate veil
where they feel this is in the interests of justice
• Under the companies Act, Courts lift the • Any agreement with the relevant
corporate veil: persons of the proposed company

• Under statutory provisions • Floatation/Raising of Capital

• Under Judicial Interpretations • Commencement of Business

Under Statutory Provisions

(lifting of corporate veil continued)
Formation of a company
• Reduction of Membership
1. A company may be formed for any lawful
• Misrepresentation in prospectus purpose by—

• Fraudulent conduct of business a. seven or more persons, where the

company to be formed is to be a public
• Failure to return application money
company;
• Mis-description of name
b. two or more persons, where the
• Non-payment of tax company to be formed is to be a private
company; or
• Liability of ultra-vires acts
c. one person, where the company to be
• Liability of promoters for pre-incorporation formed is to be One Person Company that is
contracts to say, a private company, by subscribing
their names or his name to a memorandum
• Directors with unlimited liability
and complying with the requirements of
• Holding-subsidiary company this Act

• For determining the enemy character of a Promoters

company
• Promoters of a company are concerned with
• For the benefit of revenue taking the steps necessary for incorporation.

• For prevention of fraud and improper conduct • Sec. 2 (69) ―promoter‖ means a person—

• Others, where company is a mere sham or cloak a. who has been named as such in a
prospectus or is identified by the
company in the annual return; or
Formation and Incorporation of a Company b. who has control over the affairs of the
company, directly or indirectly whether
Stages of Incorporation
as a shareholder, director or otherwise;
• Promotion or

• Registration /Incorporation of Company c. in accordance with whose advice,

directions or instructions the Board of
• The Memorandum of Association Directors of the company is accustomed
• The Article of Association to act:

• List of Directors • Provided that nothing in sub-clause (c)

shall apply to a person who is acting
• A Statutory declaration of compliance merely in a professional capacity;
 intends to take, indicated opposite
his name;
Memorandum of Association (Sec. 4)
f. in the case of One Person Company, the
1. The memorandum of a company shall state— name of the person who, in the event of
death of the subscriber, shall become the
a. the name of the company with the last
member of the company.
word ―Limited‖ in the case of a public
limited company, or the last words 2. The name stated in the memorandum shall not
―Private Limited‖ in the case of a private —
limited company: Provided that nothing in
this clause shall apply to a company a. be identical with or resemble too nearly
registered under section 8; to the name of an existing company
registered under this Act or any
b. the State in which the registered office previous company law; or
of the company is to be situated;
b. be such that its use by the company—
c. the objects for which the company is
proposed to be incorporated and any i. will constitute an offence under
matter considered necessary in furtherance any law for the time being in
thereof; force; or

d. the liability of members of the ii. is undesirable in the opinion of

company, whether limited or unlimited, and the Central Government.
also state,—
3. company shall not be registered with a name
i. in the case of a company limited by which contains—
shares, that liability of its members
a. any word or expression which is likely to
is limited to the amount unpaid, if
give the impression that the company is
any, on the shares held by them;
in any way connected with, or having
and
the patronage of, the Central
ii. in the case of a company limited by
Government, any State Government, or
guarantee, the amount up to which
any local authority, corporation or body
each member undertakes to
constituted by the Central Government
contribute
or any State Government under any law
e. in the case of a company having a share for the time being in force; or
capital,—
b. such word or expression, as may be
i. the amount of share capital with prescribed, unless the previous approval
which the company is to be of the Central Government has been
registered and the division into obtained for the use of any such word
shares of a fixed amount and the or expression.
number of shares which the
4. A person may make an application, in such form
subscribers to the memorandum
and manner and accompanied by such fee, as
agree to subscribe which shall not
may be prescribed, to the Registrar for the
be less than one share; and
reservation of a name set out in the application
ii. the number of shares each
as—
subscriber to the memorandum
a. the name of the proposed company; or
 b. the name to which the company
proposes to change its name.

5. (i) Upon receipt of an application under sub-

section (4), the Registrar may, on the basis of Alteration of memorandum (Sec. 13)
information and documents furnished along
1. a company may, by a special resolution and
with the application, reserve the name for a
after complying with the procedure specified in
period of sixty days from the date of the
this section, alter the provisions of its
application.
memorandum.
ii. Where after reservation of name under
2. Any change in the name of a company shall be
clause (i), it is found that name was applied
subject to the provisions of subsections (2) and
by furnishing wrong or incorrect
(3) of section 4 and shall not have effect except
information, then,—
with the approval of the Central Government in
a. if the company has not been writing: Provided that no such approval shall be
incorporated, the reserved name shall necessary where the only change in the name
be cancelled and the person making of the company is the deletion, or addition of
application under sub-section (4) shall the word ―Private‖, consequent on the
be liable to a penalty which may extend conversion of any one class of companies to
to one lakh rupees; another class in accordance with the this Act.

b. if the company has been incorporated, 3. When any change in the name of a company is
the Registrar may, after giving the made under sub-section (2), the Registrar shall
company an opportunity of being heard enter the new name in the register of
— companies in place of the old name and issue a
fresh certificate of incorporation with the new
i. either direct the company to
name and the change in the name shall be
change its name within a period
complete and effective only on the issue of such
of three months, after passing
a certificate.
an ordinary resolution;
4. The alteration of the memorandum relating to
ii. take action for striking off the
the place of the registered office from one State
name of the company from the
to another shall not have any effect unless it is
register of companies; or
approved by the Central Government on an
iii. make a petition for winding up application in such form and manner as may be
of the company. prescribed.

6. The memorandum of a company shall be in 5. The Central Government shall dispose of the
respective forms specified in in Schedule I application under sub-section (4) within a
period of sixty days and before passing its order
7. Any provision in the memorandum or articles, may satisfy itself that the alteration has the
in the case of a company limited by guarantee consent of the creditors, debenture-holders and
and not having a share capital, purporting to other persons concerned with the company or
give any person a right to participate in the that the sufficient provision has been made by
divisible profits of the company otherwise than the company either for the due discharge of all
as a member, shall be void. its debts and obligations or that adequate
security has been provided for such discharge.
6. A company shall, in relation to any alteration of 1. Subject to the provisions of this Act and the
its memorandum, file with the Registrar— conditions contained in its memorandum, if
any, a company may, by a special resolution,
a. the special resolution passed by the
alter its articles including alterations having the
company under sub-section (1);
effect of conversion of—
b. the approval of the Central Government
a. a private company into a public
under sub-section (2), if the alteration
company; or
involves any change in the name of the
company. b. a public company into a private
company: Provided that where a
7. Where an alteration of the memorandum
company being a private company alters
results in the transfer of the registered office of
its articles in such a manner that they
a company from one State to another, a
no longer include the restrictions and
certified copy of the order of the Central
limitations which are required to be
Government approving the alteration shall be
included in the articles of a private
filed by the company with the Registrar of each
company under this Act, the company
of the States within such time and in such
shall, as from the date of such
manner as may be prescribed, who shall
alteration, cease to be a private
register the same, and the Registrar of the State
company: Provided further that any
where the registered office is being shifted to,
alteration having the effect of
shall issue a fresh certificate of incorporation
conversion of a public company into a
indicating the alteration.
private company shall not take effect
9. The Registrar shall register any alteration of the except with the approval of the Tribunal
memorandum with respect to the objects of the which shall make such order as it may
company and certify the registration within a deem fit.
period of thirty days from the date of filing of
2. Every alteration of the articles under this
the special resolution
section and a copy of the order of the Tribunal
10. No alteration made under this section shall approving the alteration as per sub-section (1)
have any effect until it has been registered in shall be filed with the Registrar, together with a
accordance with the provisions of this section. printed copy of the altered articles, within a
period of fifteen days in such manner as may be
Articles of Association (Sec. 5) prescribed, who shall register the same.

1. The articles of a company shall contain the 3. Any alteration of the articles registered under
regulations for management of the company. sub-section (2) shall, subject to the provisions of
this Act, be valid as if it were originally in the
6. The articles of a company shall be in respective
articles.
forms specified in Schedule I as may be
applicable to such company. Alteration of memorandum or articles to be
7. A company may adopt all or any of the
noted in every copy (Sec. 15)
regulations contained in the model articles 1. Every alteration made in the memorandum or
applicable to such company. articles of a company shall be noted in every
copy of the memorandum or articles, as the
case may be.
Alteration of articles (Sec. 14)
2. If a company makes any default in complying
with the provisions of sub-section (1), the
 company and every officer who is in default e. the particulars of name, including surname
shall be liable to a penalty of one thousand or family name, residential address,
rupees for every copy of the memorandum or nationality and such other particulars of
articles issued without such alteration. every subscriber to the memorandum along
with proof of identity, as may be prescribed,
and in the case of a subscriber being a body
corporate, such particulars as may be
Incorporation of company (Sec. 7)
prescribed;
1. There shall be filed with the Registrar within
f. the particulars of the persons mentioned in
whose jurisdiction the registered office of a
the articles as the first directors of the
company is proposed to be situated, the
company, their names, including surnames
following documents and information for
or family names, the Director Identification
registration, namely:—
Number, residential address, nationality and
a. the memorandum and articles of the such other particulars including proof of
company duly signed by all the subscribers identity as may be prescribed; and
to the memorandum
g. the particulars of the interests of the
b. a declaration in the prescribed form by an persons mentioned in the articles as the
advocate, a chartered accountant, cost first directors of the company in other firms
accountant or company secretary in or bodies corporate along with their
practice, who is engaged in the formation of consent to act as directors of the company
the company, and by a person named in the in such form and manner as may be
articles as a director, manager or secretary prescribed.
of the company, that all the requirements
2. The Registrar on the basis of documents and
of this Act and the rules made in respect of
information filed under sub-section (1) shall
registration and related matters have been
register all the documents and information
complied with;
referred to in that subsection in the register and
c. an affidavit from each of the subscribers to issues a certificate of incorporation in the
the memorandum and from persons named prescribed form to the effect that the proposed
as the first directors, if any, in the articles company is incorporated under this Act.
that he is not convicted of any offence in
3. On and from the date mentioned in the
connection with the promotion, formation
certificate of incorporation issued under sub-
or management of any company, or that he
section (2), the Registrar shall allot to the
has not been found guilty of any fraud or
company a corporate identity number, which
misfeasance or of any breach of duty to any
shall be a distinct identity for the company and
company under this Act or any previous
which shall also be included in the certificate.
company law during the preceding five
years and that all the documents filed with 4. The company shall maintain and preserve at its
the Registrar for registration of the registered office copies of all documents and
company contain information that is correct information as originally filed under sub-section
and complete and true to the best of his (1) till its dissolution under this Act.
knowledge and belief;
5. If any person furnishes any false or incorrect
d. the address for correspondence till its particulars of any information or suppresses any
registered office is established; material information, of which he is aware in
any of the documents filed with the Registrar in
relation to the registration of a company, he
 shall be liable for action for committing fraud. certain period without the issue of a further
Punishment for fraud, whereby any person who prospectus.
is found to be guilty of fraud shall be punishable
with imprisonment for a term which shall not
be less than six months but which may extend
Criminal liability for mis-statements in
to ten years and shall also be liable to fine
prospectus (Sec. 34)
which shall not be less than the amount
involved in the fraud, but which may extend to Where a prospectus, issued, circulated or
three times the amount involved in the fraud. distributed, includes any statement which is untrue
or misleading or where any inclusion or omission of
6. Where, at any time after the incorporation of a
any matter is likely to mislead, every person who
company, it is proved that the company has
authorizes the issue of such prospectus shall be
been got incorporated by furnishing any false or
liable for Punishment for fraud. Any person who is
incorrect information or representation or by
found to be guilty of fraud shall be punishable with
suppressing any material fact or information in
imprisonment for a term which shall not be less
any of the documents or declaration filed or
than six months but which may extend to ten years
made for incorporating such company, or by
and shall also be liable to fine which shall not be
any fraudulent action, the promoters, the
less than the amount involved in the fraud, but
persons named as the first directors of the
which may extend to three times the amount
company and the persons making declaration
involved in the fraud.
shall each be liable for action for committing
fraud. Punishment for fraud, whereby any Exception to criminal liability: A person will not be
person who is found to be guilty of fraud shall liable if he proves that such statement or omission
be punishable with imprisonment for a term was immaterial or that he had reasonable grounds
which shall not be less than six months but to believe, and did up to the time of issue of the
which may extend to ten years and shall also be prospectus believe, that the statement was true or
liable to fine which shall not be less than the the inclusion or omission was necessary.
amount involved in the fraud, but which may
extend to three times the amount involved in
the fraud.
Civil liability for mis-statements in
Prospectus prospectus (Sec. 35)

• Sec 2 (70) ―prospectus‖ means any document 1. Where a person has subscribed for securities of
described or issued as a prospectus and a company acting on any statement included or
includes a red herring prospectus or shelf omitted of any matter, in the prospectus which
prospectus or any notice, circular, is misleading and has sustained any loss or
advertisement or other document inviting damage as a consequence, the company and
offers from the public for the subscription or every person who—
purchase of any securities of body corporate
• is a director of the company at the time
• Red herring prospectus means a prospectus of the issue of the prospectus;
which does not include complete particulars of
• is a promoter of the company;
the quantum or price of the securities included.
• has authorized the issue of the
• Shelf prospectus means a prospectus in
prospectus; and
respect of which the securities or class of
securities included therein are issued for • is an expert mentioned in the
subscription in one or more issues over a prospectus, Shall be liable to pay
 compensation to every person who has i. equity share capital, with reference to any
sustained such loss or damage. company limited by shares, means all share
capital which is not preference share capital;

ii. preference share capital, with reference to any

Share Capital company limited by shares, means that part of
the issued share capital of the company which
• Classification of Share Capital carries or would carry a preferential right with
• Kinds of Share Capital respect to—

• Alteration of Capital a. payment of dividend, and

• Increase b. repayment, in the case of a winding up or

repayment of capital, of the amount of the
• Consolidation share capital paid-up, specified in the
memorandum or articles of the company;
• Conversion

• Sub-division
• Nature of shares or debentures. — the shares
• Cancellation
or debentures or other interest of any member
• Reduction of Capital in a company shall be movable property
transferable in the manner provided by the
• Share means a share in the share capital of a articles of the company.
company and includes stock. A share is the unit
of measure for determining a member’s • Certificate of shares.—a certificate, issued
interest in the company. The memorandum under the common seal, specifying the shares
states the nominal value for each share - held by any person, shall be prima facie
members must contribute at least this amount. evidence of the title of the person to such
shares.
• Paid-up share capital- means such aggregate
amount of money credited as paid-up as is • Voting rights.—every member of a company
equivalent to the amount received as paid-up in limited by shares and holding equity share
respect of shares issued and also includes any capital therein, shall have a right to vote on
amount credited as paid-up in respect of shares every resolution placed before the company;
of the company, but does not include any other and his voting right on a poll shall be in
amount received in respect of such shares, by proportion to his share in the paid-up equity
whatever name called; share capital of the company.

Kinds of share capital (Sec. 43) Directors

The share capital of a company limited by shares • Director‖ means a director appointed to the
shall be of two kinds, namely:— Board of a company;

a. equity share capital— • Board of Directors‖ or ―Board‖, in relation to

a company, means the collective body of the
i. with voting rights; or directors of the company;
ii. with differential rights as to dividend,
voting or otherwise; and • Manager‖ means an individual who, subject to
the superintendence, control and direction of
b. preference share capital:
the Board of Directors, has the management of
 the whole, or substantially the whole, of the company shall have at least one director who
affairs of a company, and includes a director or has stayed in India for a total period of not less
any other person occupying the position of a than 182 days in the previous calendar year
manager, whether under a contract of service
or not; Duties of Director

• Managing Director‖ means a director who, by • Company Act 1956 has been ineffective in
virtue of the articles of a company or an upholding Corporate Governance. Every time it
agreement with the company or a resolution is the Directors who are responsible in breaking
passed in its general meeting, or by its Board of Shareholders expectation and sometimes
Directors, is entrusted with substantial powers betraying the sentiments of stakeholders, while
of management of the affairs of the company using the corporate mechanism to fulfill
and includes a director occupying the position personal welfare. To meet this challenge
of managing director, Companies Act 2013 is built on the principles of
responsibility of the Board, protection of
APPOINTMENT and QUALIFICATIONS of interests of the Shareholders, self- regulation
DIRECTORS and openness through disclosures. The 2013
amendment has ensured several effective
• Every company shall have a Board of Directors measures through clearly defining liabilities and
consisting of individuals as directors and shall responsibilities of the Directors and penal
have— actions on failure to follow the same.
a. a minimum number of three directors Duties
in the case of a public company, two
directors in the case of a private • A director must act in accordance with the
company, and one director in the case Articles of Association of the company
of a One Person Company; and
• A director must pursue the best interests of the
b. a maximum of fifteen directors. A
stake holders of the company, in good faith and
company may appoint more than fifteen
to promote the objects of the company.
directors after passing a special
resolution • A director shall use independent judgment to
exercise his duties with due and reasonable
• Every listed company or very other public
care, skill and diligence.
company having paid up share capital of Rs. 100
crores or more or turnover of Rs. 300 crore or • A director should always be aware of conflict of
more shall have at least one woman director. interest situations and should try and avoid
such conflicts for the interest of the company.
• A period of one year has been provided to
enable the companies to comply with this • Before approving related party transactions the
requirement. Director must ensure that adequate
deliberations are held and such transactions are
• An Independent Director is a member of the
in interest of the company.
Board of Directors, but doesn’t own any share
of the company nor have any financial • To ensure vigil mechanism of the company and
relationship with the company other the sitting the users are not prejudicially affected on
fees it receives. account of such use.
• Residence of a director in India -Section 149 (3) • Confidentiality of sensitive proprietary
of the Act has provided for residence of a information, commercial secrets, technologies,
director in India as a compulsory i.e. every unpublished price to be maintained and should
 not be disclosed unless approved by the board minimum fine applicable is INR 25,00/-,
or required by law. whereas can be even more than INR 25 Crore.
Proven Defaulter can be fined anything
• A Director of a Company shall not assign his
between 1-5 lakhs.
office and any assignment so made shall be
void. • According to Section 149 (12), an
Independent Director is similarly liable for such
• If a director of the company contravenes the
acts which is attributable through Board
provisions of this section such director shall be
processes with the Director’s knowledge and
punishable with fine which shall not be less
with his consent or where the Director has not
than one Lakh Rupees but which may extend to
taken action diligently. Hence it is extremely
five Lac Rupees.
important for Independent Directors to give
• To ensure independence and equitableness of consent to any Board proposal only with due
the Board, the Companies Act 2013 also casts caution.
various responsibilities on the Independent
• Certain defaulters can attract imprisonment,
Directors. An Independent Director is a
mostly non-cognizable. However offences
member of the Board of Directors, but doesn’t
connected to fraud or intent to fraud are
own any share of the company nor have any
cognizable (no warrant required for arrest). 
financial relationship with the company other
Like suppressing any material information or
the sitting fees it receives. As per Schedule IV of
furnishing false information, providing
the Companies Act 2013
misleading statement in the prospectus,
• Protecting and promoting interests of all inducing fraudulently for investment, transfer
and specially for Minority Stakeholders or transmission of shares with intent to
defraud, and offences related to reduction of
• Acting as a mediator in case of Conflict share capital.
of Interest amongst the stakeholders
• Under Section 245, Shareholders or group of
• Assistance in forwarding independent minimum 100 Shareholders on behalf of all
and equitable judgment to the Board of affected parties can bring “class action suit”
Directors against the Company and the Directors for any
wrong doing. This will be taken up by National
• Adequate attention towards related
Company Law Tribunal for expedited resolution
party transactions
for the shareholders. In addition to Companies
• Honest and impartial reporting of any Act 2013, lots of other acts are interrelated and
unethical behavior, violation of code of can attract penal action based on multiple
conduct or any suspected fraud in the conflicts. So, the Director needs to be aware of
company. the interdependencies of different laws and
how they can influence the decisions they are
Liabilities of directors going to implement.

• Under Section 2 (60) of Companies Act 2013 the • The Liability of the Directors can be either joint
idea of “Officer who is in Default” has been or collective for any and every act prejudicial to
stipulated under lapse in duty in the the interests of the company. Though the
circumstances that the officer is in default for Director and the Company are separate entities,
any provision of the act and is part of such under the following cases the Director may be
contravention either self or participation held liable on behalf of the Company:
without objection shall be liable to penalty or
punishment including imprisonment. The
 • Tax Liability: Unless a Director or any Past which at least one director shall be an
Director can prove that the non-recovery or independent director.
non-payment of Taxes are attributable as
gross neglect or breach of duty, then any
present or past Director (pertaining to the • The Board of every company (a) after taking
time period of defaulter) will be liable to into account the recommendations made by
pay the shortfall in tax amount and any the Corporate Social Responsibility Committee,
penalty associated. approve the Corporate Social Responsibility
Policy for the company and disclose contents of
• Refunding of share application or excess in
such Policy in its report and also place it on the
share application money
company's website, if any, in such manner as
• To pay for qualification shares may be prescribed; and (b) ensure that the
activities as are included in Corporate Social
• Civil Liability in case of misstatement in
Responsibility Policy of the company are
Prospectus
undertaken by the company. (5) The Board of
• Fraudulent Business Conduct and all every company referred
associated debts and contracts executed
Winding-up of a Company
• Failure in making disclosures as stipulated
• the procedure for winding up of a company can
SEBI (Acquisition of Shares & Takeovers)
be initiated either –
Regulations, 1997 and SEBI (Prohibition of
Insider Trading) Regulations, 1992 by the a. By the tribunal or,
directors may attract legal proceedings by
SEBI b. Voluntary.

• Criminal liabilities for: WINDING UP OF A COMPANY BY A

TRIBUNAL
• Cheques Bounced or dishonored: Under
Negotiable Instruments Act 1881, 1. When the company is unable to pay its debts
signing of dishonored by a Director may
2. If the company has by special resolution
lead to prosecution along with the
resolved that the company is wound up by the
company
tribunal.
• Offences under Income Tax Act, 1961
3. If the company has acted against the interest of
• Offences under Labor Laws, specifically the integrity or morality of India, security of the
in case of Employees Provident Funds state, or has spoiled any kind of friendly
and Miscellaneous Provisions Act, 1952 relations with foreign or neighboring countries.
and Factories Act, 1948
4. If the company has not filled its financial
• Corporate Social Responsibility. — Every statements or annual returns for preceding 5
company having net worth of rupees five consecutive financial years.
hundred crore or more, or turnover of rupees
5. If the tribunal by any means finds that it is just
one thousand crore or more or a net profit of
& equitable that the company should be wound
rupees five crore or more during any financial
up.
year shall constitute a Corporate Social
Responsibility Committee of the Board 6. If the company in any way is indulged in
consisting of three or more directors, out of fraudulent activities or any other unlawful
business, or any person or management
 connected with the formation of company is • The company passes a Special
found guilty of fraud, or any kind of misconduct. Resolution stating about the winding up
of the company.

• The company in its general meeting

FILING OF WINDING UP PETITION:- passes a resolution for winding up as a
result of expiry of the period of its
• Section 272 provides that a winding up petition
duration as fixed by its Articles of
is to be filed in the prescribed form and it is to
Association or at the occurrence of any
be submitted in 3 sets. The petition for
such event where the articles provide
compulsory winding up can be presented by the
for dissolution of company
following persons:
PROCEDURE FOR VOLUNTARY WINDING UP:-
• The company
1. Conduct a board meeting with 2 Directors and
• The creditors ; or
thereby pass a resolution with a declaration
• Any contributory or contributories given by directors that they are of the opinion
that company has no debt or it will be able to
• By the central or state govt.
pay its debt after utilizing all the proceeds from
• By the registrar of any person sale of its assets.
authorized by central govt. for that
2. Issues notices in writing for calling of a General
purpose
Meeting proposing the resolution along with
• At the time of filing petition, it shall be the explanatory statement.
accompanied with the statement of Affairs.
3. In General Meeting pass the ordinary resolution
That petition shall state the facts up to a
for the purpose of winding up by ordinary
specific date which shall not more than 15 days
majority or special resolution by 3/4th majority.
prior to the date of making the statement. After
The winding up shall be started from the date of
preparing the statement it shall be certified by a
passing the resolution.
Practicing Chartered Accountant. This petition
shall be advertised in not less than 14 days 4. Conduct a meeting of creditors after passing the
before the date fixed for hearing in both of the resolution, if majority creditors are of the
newspapers English and any other regional opinion that winding up of the company is
language. beneficial for all parties then company can be
wound up voluntarily.
FINAL ORDER AND ITS CONTENT:-
5. Within 10 days of passing the resolution, file a
• The tribunal after hearing the petition has the notice with the registrar for appointment of
power to dismiss it or to make an interim order liquidator.
as it think appropriate or it can appoint the
provisional liquidator of the company till the 6. Within 14 days of passing such resolution, give
passing of winding up order. a notice of the resolution in the official gazette
and also advertise in a newspaper.

7. Within 30 days of General meeting, file certified

VOLUNTARY WINDING UP OF A COMPANY copies of ordinary or special resolution passed
in general meeting.
• The company can be wound up voluntarily by
the mutual decision of members of the
company, if:
8. Wind up the affairs of the company and prepare
the liquidators account and get the same
audited.

9. Conduct a General Meeting of the company.

10. In that General Meeting pass a special

resolution for disposal of books and all
necessary documents of the company, when
the affairs of the company are totally wound up
and it is about to dissolve.

11. Within 15 days of final General Meeting of the

company, submit a copy of accounts and file an
application to the tribunal for passing an order
for dissolution.

12. If the tribunal is of the opinion that the

accounts are in order and all the necessary
compliances have been fulfilled, the tribunal
shall pass an order for dissolving the company
within 60 days of receiving such application.

13. The appointed liquidator would then file a copy

of order with the registrar.

14. After receiving the order passed by tribunal, the

registrar then publish a notice in the official
Gazette declaring that the company is
dissolved.