INTRODUCTION

A company is a legal entity formed by a group of individuals to engage in business activities, such as
producing goods or providing services. Companies can be organized in various forms, such as
corporations, partnerships, or sole proprietorships. They are typically created to generate profit for
their owners and shareholders. Companies are subject to laws and regulations that govern their
operation and are required to fulfil certain legal and financial obligations.

ACCORDING TO PROFESSOR HANEY

A company is an artificial person created by law, having separate entity with a perpetual succession
and common seal.

CHARACTERISTICS OF A COMPANY

1. Legal entity: A company is a separate legal entity from its owners, meaning it can enter into
contracts, own property, sue and be sued in its own name.

2. Limited liability: Shareholders' liability is limited to the amount they have invested in the company.
This protects their personal assets from being used to settle the company's debts.

3. Perpetual existence: Companies have a perpetual existence, meaning they can continue to operate
even if the owners or shareholders change.

4. Transferability of ownership: Ownership interests in a company, such as shares of stock, can

typically be bought and sold freely, allowing for easy transfer of ownership.

TYPES OF COMPANY —
Types of Company on the basis of Incorporation

1. Statutory Companies: These companies are constituted by a special Act of

Parliament or State Legislature. These companies are formed mainly with an intention
to provide the public services. Though primarily they are governed under that Special
Act, still the CA, 2013 will be applicable to them except where the said provisions are
inconsistent with the provisions of the Act creating them (as Special Act prevails over
General Act). Examples of these types of companies are Reserve Bank of India, Life
Insurance Corporation of India, etc.

2. Registered Companies: Companies registered under the CA, 2013 or under any
previous Company Law are called registered companies. Such companies comes
into existence when they are registered under the Companies Act and a certificate of
incorporation is granted to it by the Registrar.

B. Types of Company on the basis of Liability

1. Companies limited by shares: A company that has the liability of its members
limited by the memorandum to the amount, if any, unpaid on the shares respectively
held by them is termed as a company limited by shares. The liability can be enforced
during existence of the company as well as during the winding up. Where the shares
are fully paid up, no further liability rests on them. For example, a shareholder who has
paid 75 on a share of face value 100 can be called upon to pay the balance of 25 only.
Companies limited by shares are by far the most common and may be either public
or private.

2. Companies limited by guarantee: Company limited by guarantee is a company

that has the liability of its members limited to such amount as the members may
respectively undertake, by the memorandum, to contribute to the assets of the
company in the event of its being wound-up. In case of such companies the liability
of its members is limited to the amount of guarantee undertaken by them. The
members of such company are placed in the position of guarantors of the company’s
debts up to the agreed amount. Clubs, trade associations, research associations and
societies for promoting various objects are various examples of guarantee
companies.

3. Unlimited Liability Companies: A company not having a limit on the liability of its
members is termed as unlimited company. Here the members are liable for the
company’s debts in proportion to their respective interests in the company and their
liability is unlimited. Such companies may or may not have share capital. They may
be either a public company or a private company.

C. Types of Company on the basis of number of members

1. Public Company: Defined u/s 2(71) of the CA, 2013 – A public company means a
company which is not a private company.

Section 3(1) of the CA, 2013– Public company may be formed for any lawful purpose
by 7 or more persons.

Section 149(1) of the CA, 2013 – Every public company shall have minimum 3 director
in its Board.

Section 4(1)(a) of the CA, 2013 – A public company is required to add the words
“Limited” at the end of its name. It is the essence of a public company that its shares
and debentures can be transferable freely to the public unlike private company. Only
the shares of a public company are capable of being dealt in on a stock exchange. A
private company that is a subsidiary of a public company, will be considered a public
company.
2. Private company:

A private company means a company which by its articles—

a. Restricts the right to transfer its shares;

b. Limits the number of its members to 200 hundred (except in case of OPC)

Note: Persons who are in the employment of the company; and persons who, having
been formerly in the employment of the company, were members of the company
while in that employment and have continued to be members after the employment
ceased, shall be excluded. Where 2 or more persons hold 1 or more shares in a
company jointly they shall be treated as a single member.

3. One Person Company (OPC):

With the enactment of the Companies Act, 2013 several new concepts was
introduced that was not in existence in Companies Act, 1956 which completely
revolutionized corporate laws in India. One of such was the introduction of OPC
concept.

This led to the avenue for starting businesses giving flexibility which a company form
of entity can offer, while also offering limited liability that sole proprietorship or
partnerships does not offers.

D. Types of Company on the basis of Domicile

1. Foreign company: Defined u/s 2(42) of the CA, 2013 – “foreign company” means any
company or body corporate incorporated outside India which,—

has a place of business in India whether by itself or through an agent, physically or

through electronic mode;

and conducts any business activity in India in any other manner. Section 379 to
Section 393 of the CA, 2013 prescribes the provisions which are applicable on such
companies.

2. Indian Company: A company formed and registered in India is known as an Indian

Company.

On the basis of control of a unit-

1. Subsidiary Company: Defined u/s 2(87) of the CA, 2013 – “subsidiary company” or
“subsidiary”, in relation to any other company (that is to say the holding company),
means a company in which the holding company—

1. controls the composition of the Board of Directors; or

2. exercises or controls more than one-half of the total voting power either at its own
or together with one or more of its subsidiary companies:
2. Holding Company: Defined u/s 2(46) of the CA, 2013 –“holding company”, in relation
to one or more other companies, means a company of which such companies are
subsidiary companies;

Explanation: For the purposes of this clause, the expression “company” includes any
body corporate.

6. Associate Company:

Defined u/s 2(6) of the CA, 2013 – “associate company”, in relation to another
company, means a company in which that other company has a significant
influence, but which is not a subsidiary company of the company having such
influence and includes a joint venture company. Explanation: For the purpose of this
clause:

1. the expression “significant influence” means control of at least 20% of total voting
power, or control of or participation in business decisions under an agreement;

2. the expression “joint venture” means a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets of the
arrangement.

CONVERSION OF A PRIVATE COMPANY INTO PUBLIC COMPANY-

The process of converting a private company into a public company involves several
steps and regulatory requirements. Here is an overview of the typical steps involved in
this conversion:

1. Board Approval: The board of directors of the private company must approve the
decision to convert into a public company.

2. Shareholder Approval: Shareholders of the private company must also approve the
conversion through a special resolution passed at a general meeting.

3. Due Diligence: Conduct a thorough due diligence process to ensure compliance

with regulatory requirements and to identify any potential issues that need to be
addressed before the conversion.
4. Compliance with Regulatory Requirements: The company must comply with
regulatory requirements set by the Securities and Exchange Commission (SEC) or
other relevant regulatory bodies in the jurisdiction where the company operates.

5. Drafting and Filing Documents: Prepare and file the necessary documents with the
regulatory authorities, such as the Articles of Incorporation, prospectus, financial
statements, and other required disclosures.

6. Initial Public Offering (IPO): If the company plans to offer shares to the public, it will
need to go through the process of an initial public offering (IPO) to list its shares on a
stock exchange.

CONVERSION OF A PUBLIC COMPANY INTO PRIVATE COMPANY-

The process of converting a public company into a private company, also known as
"going private," involves several steps and regulatory requirements. Here is an
overview of the typical steps involved in this conversion:

1. Board Approval: The board of directors of the public company must approve the
decision to convert into a private company.

2. Shareholder Approval: Shareholders of the public company must also approve the
conversion through a special resolution passed at a general meeting. This may
require obtaining a significant majority of shareholder votes.

3. Acquisition or Buyout: In many cases, the conversion of a public company into a

private company involves an acquisition or buyout by a group of investors, private
equity firm, or the existing management team. This process may involve negotiating a
purchase price and other terms of the transaction.

4. Due Diligence: Conduct a thorough due diligence process to ensure compliance

with regulatory requirements and to identify any potential issues that need to be
addressed before the conversion.
5. Regulatory Filings: File the necessary documents with the regulatory authorities,
such as the Securities and Exchange Commission (SEC) in the United States, to delist
the company's shares from the stock exchange and deregister as a public company.

6. Shareholder Buyout: If the conversion involves a buyout of public shareholders, the

acquiring entity will need to make an offer to purchase their shares at a specified
price.

7. Payment and Settlement: Once the buyout offer is accepted by shareholders, the
acquiring entity will pay the agreed-upon price for the shares and settle the
transaction.

FORMATION OF A COMPANY-

The formation of a company involves the process of legally establishing a new

business entity that is separate from its owners. Here are the key steps involved in
forming a company:

1. Choose a Business Structure: Decide on the type of business structure that best suits
your needs, such as a sole proprietorship, partnership, limited liability company (LLC),
or corporation. Each structure has different legal and tax implications.

2. Name Your Company: Choose a unique and distinctive name for your company
that complies with the naming regulations in your jurisdiction. Check for the
availability of the chosen name and register it if necessary.

3. Register the Company: File the necessary registration documents with the
appropriate government authority in your jurisdiction. This typically involves
submitting articles of incorporation or organization, along with other required
information and fees.

4. Draft a Founding Document: Prepare a founding document, such as articles of

incorporation for a corporation or articles of organization for an LLC, which outline the
structure, purpose, and governance of the company.
5. Appoint Directors or Managers: Select individuals to serve as directors or managers
of the company, depending on the chosen business structure. These individuals will
be responsible for overseeing the operations and decision-making of the company.

6. Obtain Necessary Permits and Licenses: Identify and obtain any permits, licenses, or
registrations required to operate your business legally in your jurisdiction. This may
include business licenses, zoning permits, or industry-specific certifications.

7. Set Up a Business Bank Account: Open a separate business bank account to

manage the company's finances and transactions separately from personal
accounts.

8. Develop a Business Plan: Create a comprehensive business plan outlining your

company's goals, target market, products or services, marketing strategies, financial
projections, and operational plans.

9. Comply with Tax Requirements: Register for an employer identification number

(EIN) with the tax authorities and fulfil all tax obligations, such as income tax, sales tax,
and payroll tax.

10. Establish Corporate Governance: Define the corporate governance structure of the
company, including bylaws, operating agreements, shareholder agreements, and
other internal policies that govern the management and decision-making processes.

11. Secure Insurance Coverage: Consider obtaining appropriate insurance coverage

for your company, such as general liability insurance, property insurance, and
workers' compensation insurance.

12. Build a Team: Hire employees or contractors as needed to support the operations
and growth of your company.

PROMOTION OF COMPANY-

Promoting a company involves creating awareness, building brand reputation, and

attracting customers. Here are some effective strategies for promoting a company:
1. Develop a Strong Brand Identity: Create a unique brand identity that reflects your
company's values, mission, and personality. Design a memorable logo, choose
consistent brand colours and fonts, and develop a brand voice that resonates with
your target audience.

2. Build a Professional Website: Invest in a well-designed, user-friendly website that

showcases your products or services, provides valuable information to visitors, and
encourages engagement. Optimize your website for search engines (SEO) to improve
visibility online.

3. Utilize Social Media Marketing: Leverage popular social media platforms such as
Facebook, Instagram, Twitter, LinkedIn, and Pinterest to connect with your audience,
share content, run targeted ads, and engage in conversations. Develop a social
media strategy that aligns with your business goals.

4. Content Marketing: Create high-quality, relevant content such as blog posts,

videos, infographics, and podcasts to educate and engage your target audience.
Share valuable information that addresses their needs and interests while subtly
promoting your products or services.

5. Email Marketing: Build an email list of subscribers and send out regular newsletters,
promotions, and updates to keep them informed about your company. Personalize
your emails to increase engagement and conversions.

6. Networking and Partnerships: Attend industry events, conferences, trade shows, and
networking events to connect with potential customers, partners, and influencers.
Collaborate with other businesses or organizations on joint promotions or
partnerships to expand your reach.

7. Public Relations (PR): Develop relationships with journalists, bloggers, and media
outlets to secure press coverage for your company. Write press releases, pitch story
ideas, and participate in interviews to generate positive publicity.
8. Paid Advertising: Consider investing in online advertising channels such as Google
Ads, Facebook Ads, LinkedIn Ads, or sponsored content to reach a larger audience
and drive traffic to your website. Monitor and optimize your ad campaigns for
maximum effectiveness.

9. Search Engine Optimization (SEO): Improve your website's visibility in search engine
results by optimizing your content for relevant keywords, building quality backlinks,
and ensuring your site is technically sound. Higher search engine rankings can lead to
increased organic traffic.

10. Customer Referral Programs: Encourage satisfied customers to refer their friends
and family to your company by offering incentives such as discounts, rewards, or
exclusive deals. Word-of-mouth referrals can be a powerful source of new business.

11. Community Engagement: Get involved in local community events, sponsorships, or

charitable initiatives to show support for the community and enhance your
company's reputation. Building relationships with local customers can lead to long-
term loyalty.

12. Monitor and Measure Results: Track key performance indicators (KPIs) such as
website traffic, social media engagement, conversion rates, and customer feedback
to assess the effectiveness of your promotional efforts. Use data analytics tools to
make informed decisions and optimize your marketing strategies.

DOCUMENTS OF A COMPANY

A. Memorandum of association: The Memorandum of Association is a legal

document that sets out the constitution and objectives of a company. It is one
of the key documents required for the formation of a company and is filed with
the Registrar of Companies during the registration process.
The Memorandum of Association is a fundamental document that governs the
relationship between the company and its members, as well as its external
dealings with third parties. It cannot be altered once it is registered, except in
limited circumstances and with the approval of the shareholders and
regulatory authorities. Any changes to the company's objectives, registered
office, or share capital must be reflected in an amended Memorandum of
Association filed with the Registrar of Companies.
The Memorandum of Association contains the following information:
 1. Name Clause: This clause specifies the name of the company, which must
end with the word "Limited" for a public company or "Private Limited" for a
private company.

2. Registered Office Clause: This clause states the registered office address of
the company, which is the official address for all communications and legal
notices.

3. Object Clause: This clause outlines the main objectives and purposes for
which the company is established. It defines the scope of activities that the
company can engage in and limits its operations to those specified in the
memorandum.

4. Liability Clause: This clause specifies the liability of the company's members
(shareholders) in case of winding up. In a company limited by shares, the
liability of each member is limited to the amount unpaid on their shares. In a
company limited by guarantee, members agree to contribute a specific
amount in case of liquidation.

5. Capital Clause: This clause states the authorized share capital of the
company, which represents the maximum amount of share capital that the
company is authorized to issue.

6. Association Clause: This clause confirms that the subscribers (initial

shareholders) have agreed to form a company and become members by
subscribing their names to the memorandum.

B. Articles of association-

The Articles of Association are another important legal document that governs the
internal management and operations of a company. While the Memorandum of
Association sets out the external framework and objectives of the company, the
Articles of Association detail the rules and regulations for the internal administration
and management of the company.

The Articles of Association work in conjunction with the Memorandum of Association

to form the constitution of the company. They provide detailed guidelines for the day-
to-day operations and decision-making processes within the company. Like the
Memorandum of Association, the Articles of Association are filed with the Registrar of
Companies and can be amended by special resolution passed by the shareholders.

The Articles of Association typically cover the following key areas:

1. Share Capital: The Articles specify the types of shares that the company can
issue, the rights attached to each class of shares, and the procedures for
issuing and transferring shares.

2. Directors: The Articles outline the powers, duties, and responsibilities of the
directors, including their appointment, removal, remuneration, and decision-
making processes.

3. Meetings: The Articles set out the rules for convening and conducting
general meetings of shareholders, including the procedures for voting,
resolutions, and quorum requirements.

4. Dividends: The Articles detail the procedures for declaring and paying
dividends to shareholders, including the timing, amount, and distribution of
profits.

5. Borrowing Powers: The Articles specify the limits and procedures for
borrowing money, issuing debentures, and granting security on company
assets.

6. Winding Up: The Articles outline the procedures for voluntary or compulsory
winding up of the company, including the distribution of assets among
shareholders and creditors.

7. Miscellaneous Provisions: The Articles may include other provisions related to

the management and administration of the company, such as indemnity
clauses, arbitration procedures, and amendment processes.
C. PROSPECTUS-
A prospectus is a legal document that provides detailed information about a
company and its securities to potential investors. It is typically issued by a
company when it is planning to offer its securities (such as shares or bonds) to
the public for subscription or purchase. The prospectus is an important tool for
investors to make informed decisions about whether to invest in the company.
he prospectus is a regulated document that must comply with securities laws
and regulations in the jurisdiction where the offering is taking place. It is
typically reviewed and approved by regulatory authorities such as the
Securities and Exchange Commission (SEC) in the United States or the
Financial Conduct Authority (FCA) in the United Kingdom before it can be
distributed to investors. Investors are encouraged to read the prospectus
 carefully and seek advice from financial professionals before making
investment decisions based on the information provided.

Key components of a prospectus may include:

1. Company Overview: A description of the company's history, business

activities, products or services, management team, and financial performance.

2. Offering Details: Information about the type and amount of securities being
offered, the price at which they are being offered, and any conditions or
restrictions associated with the offering.

3. Risk Factors: A discussion of the risks that could affect the company's
business, operations, and financial performance, including market risks,
regulatory risks, and competitive risks.

4. Financial Information: Audited financial statements, including balance

sheets, income statements, cash flow statements, and other financial data
that provide insight into the company's financial health and performance.

5. Use of Proceeds: An explanation of how the company intends to use the

funds raised from the offering, including details on planned investments,
acquisitions, debt repayment, or other purposes.

6. Management Discussion and Analysis (MD&A): A narrative section that

provides management's perspective on the company's financial condition,
results of operations, and future prospects.

7. Legal and Regulatory Disclosures: Information about legal proceedings,

regulatory compliance, material contracts, related party transactions, and
other legal matters that could impact the company.

8. Subscription and Offer Details: Instructions on how investors can subscribe to

the offering, including details on the subscription process, payment methods,
and timelines.

SHARE AND SHARE CAPITAL

Shares are units, also known as stocks or equities, representing ownership in a

company. Some companies consider them as financial assets. So, a company
can issue shares and stocks to investors. As a result, the capital generated can
be used to fund its operations, expand its business, or make acquisitions. As a
result, investors become part owners of the company shares and are entitled
to a portion of its profits and assets.

Features of Shares
Here is a list of features of shares below:

• Ownership Stake: Shares represent ownership in a company, providing

shareholders with a stake in the company’s assets and earnings.

• Dividends: Shareholders may receive dividends, which are a portion of

the company’s profits distributed to them.

• Voting Rights: Shareholders often have the right to vote on important

company decisions during shareholder meetings.

• Capital Gains: Shareholders can benefit from capital gains when the
value of their shares increases over time.

• Transferability: Shares are generally easily transferable, allowing

shareholders to sell or transfer them to other investors.

• Risk and Returns: Investing in shares involves risk, but it also offers the
potential for higher returns compared to more conservative investment
options.

Share capital

amount raised Share capital is the money a company raises by issuing common or preferred
stock. The amount of share capital or equity financing a company has can change over time
with additional public offerings.
The term share capital can mean slightly different things depending on the context.
Accountants have a much narrower definition and their definition rules on the balance
sheets of public companies. It means the total by the company in sales of shares.
KEY TAKEAWAYS

A company's share capital is the money it raises from selling common or

preferred stock.
Authorized share capital is the maximum amount a company has been approved
to raise in a public offering.
A company may opt for a new offer of stock in order to increase the share capital
on its balance sheet.
Types of share capital-
Authorised capital: Known as the registered capital or normal capital of the company,
Authorised Capital is the maximum amount of share capital that a company is allowed
to issue to its shareholders as per its constitutional documents. Shares are defined as the
financial instruments that form units of the overall capital. It is used to raise funds from the
general public.

Issued capital-
The Issued Capital refers to the number of shares issued by the company to the
shareholders. In other words, the shares allotted or subsequently held by the shareholders is
called the issued capital.

Subscribed capital-
Subscribed Capital or Subscribed Share is the share capital that the investors promise to
invest when they are issued. When the company issue a new share to raise fund, they have
to find investors who are willing to purchase the share. However, subscribed share capital is
the shares that investors are waiting to buy, the company does not need to find investors to
buy.

Called-up capital-
Called-Up Share Capital refers to the set of shares issued by a company for which it requests
full payment, despite knowing that the investors are supposed to pay at a later date or, in
some cases, in instalments. The term called up here refers to the request made by the
company.

Paid-up capital-
Paid-up capital is the amount of money a company has received from shareholders in
exchange for shares of stock. Paid-up capital is created when a company sells its shares on
the primary market directly to investors, usually through an initial public offering (IPO).

Reserve capital-
A capital reserve is a line item in the equity section of a company's balance sheet that
indicates the cash on hand that can be used for future expenses or to offset any capital
losses. It is derived from the accumulated capital surplus of a company and is created out of
its profit.

ALLOTMENT OF SHARES OF COMPANY

The allotment is distributing a portion of the shares to an underwriting participant (any
party who is a member of a company’s financial organisation) during the initial public
offering. Both new and existing owners are entitled to receive new shares. Offers for shares
are made on application forms the company provides. Once the company accepts the
application, the allotment of shares occurs.
A public company often releases a prospectus to invite the public to submit an offer to buy
its shares from the company. People submit applications to the company for its shares based
on this invitation. An application for shares is the applicant’s offer to buy the company’s
shares. When the company accepts this application, it is called an allotment. Allotment of
shares is a process through which a company creates and distributes a new number of
shares to new or existing shareholders.
As defined by the Companies Act, allotment is appropriating a specific number of shares to a
particular person or individuals from the company’s unappropriated share capital.

Procedure for Allotment of Shares as Per Companies Act

Firstly, a public company must issue a prospectus or declaration instead of a prospectus
requesting offers to purchase shares from the general public. The public then applies for the
purchase of shares of the companies after going through the prospectus. The company has
the right to either demand the payment of the issue price in whole, along with the
application fee or in instalments in the form of share application money, share first call,
share second call, etc. A minimum of 5% of the nominal value of the share must be paid as
application fees.
Further, a notice is sent to all the shareholders for convening the Extra Ordinary General
Meeting to approve the private placement offer letter. And the board of directors must pass
a resolution before the allotment of shares. Also, within 30 days after a special resolution is
passed in a meeting, Form MGT-14 must be submitted to the ROC (Registrar of
Companies).
Subsequently, if the minimum amount, which is the minimum subscription mentioned in the
prospectus, is not subscribed or applied, the allotment of shares cannot be made. And,
within 60 days of receiving payment from the individuals to whom the shares are to be
allotted, allotment of shares occurs.
And finally, a board meeting for the Allotment of shares is called up.
It is to be noted that the share application amount needs to be deposited in a bank, and it
can only be used by the company after receiving the commencement certificate.
Furthermore, if the company does not reach 90% of the issue amount within 60 days, it
must immediately return and refund the entire subscription amount. A further delay of 78
days or more requires the company to pay 6% interest annually.

Conclusion-
Shares symbolise units of ownership in a company or the guaranteed portion of earnings
that an individual investor is entitled to. The creation and distribution of new shares by a
firm is known as the allotment of shares. A public company must issue a prospectus or
declaration requesting offers to purchase shares from the general public.
A minimum of 5% of the nominal value of the share must be paid as application fees. If the
minimum amount, the minimum subscription mentioned in the prospectus is not subscribed
or applied, the allotment of shares cannot be made.
MEMBER OF A COMPANY.
MEANING AND DEFINITION

The Companies Act divides the members into three classes. According to Sec. 41 of the
Companies Act, the three classes of members are:
1. The persons who have subscribed to the Memorandum of a company.
2. Every other person who has agreed in writing to become a member of the company
and whose name has been entered in the Register of Members.
3. Every person holding equity share capital of a company and whose names are
recorded as beneficial owner in the depository records are considered as members of
the concerned company.

How to become a member of a company

modes of acquiring membership-

1.By subscribing to Memorandum of Association: In the case of a subscriber, no

application or allotment is necessary to become a member. By virtue of his
subscribing to the memorandum, he is deemed to have agreed to become a
member and he becomes ipso facto member on the incorporation of the company
and is liable for the shares he has subscribed. In accordance with the provisions of
Section 10(2) of the Act, all monies payable by any member to the company under
the memorandum or articles shall be debt due from him to the company. Further, a
subscriber to the memorandum must pay for his shares in cash even if the promoters
have promised him the shares for services rendered in connection with the promotion
of the company. Again, he must take the shares directly from the company, and not
through transfer from other member(s). When a person signs a memorandum for any
number of share he becomes absolutely bound to take those shares and no delay will
relieve him from that liability unless he fulfils the obligation. His liability remains right
up to the time when the company goes into liquidation and he is bound to bring the
money for which he is liable to pay to the creditors of the company.

2.By Agreement in Writing:

-By application and allotment: A person who applies for shares becomes a member
when shares are allotted to him, a notice of allotment is issued to him and his name is
entered on the register of members. The general law of contract applies to this
transaction. There is an offer to take shares and acceptance of this offer when the
shares are allotted. An application for shares may be absolute or conditional. If it is
absolute, an allotment and its notice to the applicant will be sufficient acceptance.
On the other hand, if the offer is conditional, the allotment must be made according
to be condition as contained in the application.

-By transfer of Shares: Shares in a company are movable property as provided in

Section 44 of the Act and are transferable in the manner as provided in the articles of
the company and as provided in Section 56 of the Companies Act, 2013. A person can
become a member by acquiring shares from an existing member and by having the
transfer of shares registered in the books of the company, i.e. by getting his name
entered in the register of members of the company.

-By Transmission of shares: A person may become a member of a company by

operation of law i.e. if he succeeds to the estate of a deceased member. On the death
of a member, his executor or the person who is entitled under the law to succeed to
his estate, gets the right to have the shares transmitted and registered in his name in
the company’s register of members. No instrument of transfer is necessary in this
case. If the legal representative of deceased member desires to be registered as a
member in place of the deceased member, the company shall do so or in the
alternative he may request the company to transfer the shares in the name of
another person of his choice.

-By Estoppels: A person is deemed to be a member of a company if he allows his

name, without sufficient cause, to be on the register of members of the company or
otherwise holds himself out or allows himself to be held out as a member. In such a
case, he is estopped from denying his membership. 3.By holding shares as beneficial
owner in depository records: Every person holding shares of the company and whose
name is entered as a beneficial owner in the records of the depository shall be
deemed to be a member of the concerned company.

WHO CAN BECOME A MEMBER OF A COMPANY

The company law does not prescribe any disqualification, which would depart a person from
becoming a member of a company. It appears that any person who is competent to enter
into valid contract can become a member of a company. The reason is obvious. Subscribing
for shares is basically a contract between the company and the shareholder. However, the
Memorandum or Articles may impose certain restrictions or restrain certain persons from
acquiring membership in a company. In the absence of any express provision regarding the
capacity of a person, the provisions of the Contract Act shall apply.
As regards to certain special category of persons, the judiciary has laid down certain
principles for acquiring membership in a company. They are as follows:
 1. Minors: A minor, is not a competent person to enter into a valid contract. As
such, he is disqualified to acquire membership. However, minors may be
allotted shares. On attaining majority, the minor can avoid the contract. But
the minor should repudiate the contract within a reasonable time.
2. Lunatic and Insolvent: A lunatic cannot become a member. An insolvent,
however, can become a member and is entitled to vote at the meetings of the
company. But his shares vest in the Official Receiver when he is adjudged
insolvent.
3. Partnership Firm: A partnership firm may hold shares in a company in the
individual name of partners as joint holders. But the shares cannot be issued
in the name of the partnership firm, as it is not a legal person in the eye of
law.
4. Company: A company, being a legal person, can become the member of
another company in its own name. But a company can subscribe for the
shares of another company only when it is authorized by Memorandum.
Similarly, a subsidiary company cannot buy the shares of its holding company.
5. Foreigners: Foreign national can be members of companies registered in
India. For that permission of RBI is mandatory. When he turns an alien enemy,
his right as a member will be suspended.

RIGHTS OF THE MEMBERS

Statutory Rights: These are the rights conferred upon the members by the Companies Act. These
rights cannot be taken away by the Articles of Association or Memorandum of Association. Some of
the important statutory rights are given below

Right to receive notice of meetings, attend, to take part in the discussion and vote at the
meetings.
Right to transfer the shares [in case of public companies].
Right to receive copies of the Annual Accounts of the company.

Right to inspect the documents of the company such as register of members, annual returns, etc.
Right to participate in appointments of directors and auditors in the Annual General Meetings.
Rights to apply to the Government for ordering an investigation into the affairs of the company.
Right to apply to the Court for winding up of the company.

Right to apply to the National Company Law Tribunal for relief in case of oppression and
mismanagement under Secs. 397 and 398.

Documentary Rights: In addition to the statutory rights, there are certain rights that can be
conferred upon the shareholders by the documents like the Memorandum and the Articles
of Association.
Legal Rights: These are the rights, which are given to the members by the General Law.
Voting Rights: Members typically have the right to vote on matters of importance
within the company, such as electing directors, approving company policies, and major
business decisions.
Dividend Rights: Shareholders, in particular, have the right to receive dividends if the
company generates profits and declares dividends.
Right to Information: Members have the right to access company information,
including financial statements, annual reports, and other relevant documents.
Right to Transfer Shares: Depending on the company’s constitution, members may
have the right to transfer their shares to others, subject to certain restrictions and
compliance with legal provisions.
Right to Participate in Meetings: Members can attend and participate in general
meetings, annual general meetings, and extraordinary general meetings to express
their views and contribute to decision-making processes.

Right to Inspect Books and Records: Members often have the right to inspect the
company’s books, records, and accounts to ensure transparency and accountability.
Pre-emption Rights: Shareholders may have pre-emption rights, which allow them to
maintain their proportional ownership by having the first opportunity to purchase
newly issued shares.
Right to Remove Directors: Members, especially shareholders, may have the right to
remove directors from their positions if they believe their actions are detrimental to the
company’s interests.

LIABILITIES OF A MEMBER OF A COMPANY-

Liability for Shareholders: Shareholders generally have limited liability, meaning their
personal assets are not at risk beyond the value of their investment in the company.
Liability for Partners: In a partnership, partners may have unlimited liability, meaning
their personal assets can be used to settle the company’s debts.
Fiduciary Duties: Members, particularly directors, owe fiduciary duties to the company
and its shareholders, requiring them to act in good faith, exercise due care, and
prioritize the company’s interests.
Liability for Misconduct: Members can be held personally liable if they engage in
fraudulent activities, misrepresentation, or any illegal actions that cause harm to the
company or its stakeholders.
Liability for Unpaid Contributions: Members may have an obligation to contribute
capital or resources to the company as agreed upon during the formation or
subsequent fundraising activities. Failure to fulfill these obligations can result in liability.

Liability for Unlawful Distributions: Members, particularly directors and officers, can
be held personally liable if they authorize unlawful distributions of company assets,
such as paying dividends when the company is insolvent or unable to meet its
obligations.
Liability for Breach of Duty: Members who breach their duties, such as confidentiality,
loyalty, or non-compete agreements, may face legal consequences and be held
accountable for any damages caused to the company.
Joint and Several Liability: In certain circumstances, members may have joint and
several liability, meaning they can be individually or collectively responsible for the
company’s debts and obligations. This often applies to partnerships or situations where
members have provided personal guarantees.

Alteration of Rights and Liabilities:

Change in Rights: The rights of members can be modified through the amendment of
the company’s articles of association, subject to compliance with legal requirements and
obtaining the necessary approvals.
Alteration of Liabilities: Members’ liabilities can be affected by changes in the
company’s structure, such as converting from a partnership to a limited liability
company, thereby limiting the personal liability of members.

DIFFERENCE BETWEEN TRANSFER AND TRANSMISSION OF SHARES OF A COMPANY-

BASIS FOR
TRANSFER OF SHARES TRANSMISSION OF SHARES
COMPARISON

Meaning Transfer of shares refers to the transfer Transmission of shares means the
of title to shares, voluntarily, by one transfer of title to shares by the
party to another. operation of law.

Affected by Deliberate act of parties. Insolvency, death, inheritance or

lunacy of the member.

Initiated by Transferor and transferee Legal heir or receiver

Consideration Adequate consideration must be there. No consideration is paid.

Execution of valid Yes No

transfer deed

Liability Liabilities of transferor cease on the Original liability of shares continues

completion of transfer. to exist.

Stamp duty Payable on the market value of shares. No need to pay.

DEBENTURES

A debenture is a type of bond or other debt instrument that is unsecured by collateral.

Since debentures have no collateral backing, they must rely on the creditworthiness and
reputation of the issuer for support. Both corporations and governments frequently issue
debentures to raise capital or funds.
KEY TAKEAWAYS:

A debenture is a type of debt instrument that is not backed by any collateral and
usually has a term greater than 10 years.
Debentures are backed only by the creditworthiness and reputation of the issuer.
Both corporations and governments frequently issue debentures to raise capital
or funds.
Some debentures can convert to equity shares while others cannot.
Types of Debentures
Registered vs. Bearer

When debts are issued as debentures, they may be registered to the issuer. In this
case, the transfer or trading in these securities must be organized through a
clearing facility that alerts the issuer to changes in ownership so that they can pay
interest to the correct bondholder. A bearer debenture, in contrast, is not registered
with the issuer. The owner (bearer) of the debenture is entitled to interest simply
by holding the bond.
Redeemable vs. Irredeemable
Redeemable debentures clearly spell out the exact terms and date by which the issuer of the
bond must repay their debt in full. Irredeemable (non-redeemable) debentures, on the
other hand, do not hold the issuer liable to repay in full by a certain date. Because of this,
irredeemable debentures are also known as perpetual debentures.
Convertible vs. Nonconvertible
Convertible debentures are bonds that can convert into equity shares of the issuing
corporation after a specific period. Convertible debentures are hybrid financial products with
the benefits of both debt and equity. Companies use debentures as fixed-rate loans and pay
fixed interest payments. However, the holders of the debenture have the option of holding
the loan until maturity and receiving the interest payments or converting the loan into
equity shares.
Convertible debentures are attractive to investors that want to convert to equity if they
believe the company's stock will rise in the long term. However, the ability to convert to
equity comes at a price since convertible debentures to pay a lower interest rate compared
other fixed-rate investments.
Nonconvertible debentures are traditional debentures that cannot be converted into equity
of the issuing corporation. To compensate for the lack of convertibility investors are
rewarded with a higher interest rate when compared to convertible debentures.
Secured and unsecured
If a debenture is secured by collateral, its safety can be assured. It functions as
an insurance policy for the lender in the event that they do not receive their money when
they are suppose to.
If a borrower fails on a loan and cannot repay it, the lender may seize the
borrower’s assets to recover the funds. The great majority of current debentures are secure.
This is because banks and other lenders utilise secured debentures to safeguard their
investments.
Unsecured debentures are a types of debt instruments that are not back by collateral.
Unsecured debt obligations will not be backed by particular assets. In its simplest form, it is a
debt that cannot be legally eliminated. The only factor in their favour is that the issuer has a
lengthy track record of handling funds responsibly.
DIFFERENCE BETWEEN FIXED AND FLOATING CHARGES-

BASIS FOR
FIXED CHARGE FLOATING CHARGE
COMPARISON

Meaning Fixed charge refers to a charge that can Floating charge refers to a charge that
be ascertained with a specific asset, is created on the assets of circulatory
while creating it. nature.

Nature Static Dynamic

Registration of Voluntary Compulsory

charge

What is it? A legal charge. An equitable charge.

Preference First Second

Asset type Non-Current Asset Current Asset

Dealing in asset The company has no right to deal with The company can use or deal with
the property, but subject to certain asset, until crystallization.
exceptions.

DIRECTOR OF A COMPANY
Company directors are a key component of an organisation's senior management team, and
they can possess exceptional managerial and leadership qualities. These individuals oversee
the company's daily activities, making sure that the staff are working effectively toward the
organisation's goals. Learning about the roles of a company director can assist you in
determining if you possess the skills and qualities to apply for the position. In this article, we
discuss the roles of a company director, list the skills needed for a company director's role
and highlight how to become one.
What Is The Role Of A Company Director?

The role of a company director is to handle the daily operations of the organisation. They
make significant strategic and operational decisions that ensure the company meets its
objectives. If the company has shareholders, the director may be accountable for them. It is
important for the director to balance investors' interests and those of the company and its
employees. The company's director may have a sense of ethics and can make decisions
consistent with government laws regulating business operations. The following is a list of
critical responsibilities of a company director:

Create key performance indicators (KPIs) to help employees focus their efforts
Coordinate community social responsibility projects with other company
professionals
Encourage compliance with business rules and regulations and assure conformity
with the company's code of ethics
Supervise the daily operations of the business
Ensure that company records are secure and maintained well
Ensure that business actions adhere to current legislation
Invite shareholders to annual meetings
Plan for the management and improvement of business operations and affairs
Supervise the development and submission of statutory papers to appropriate
agencies
Verify that the business' operations adhere to the company constitution
Work with other executives to develop projects that can help the business grow
Oversee the development of efficient corporate policies for the benefit of the
company
Make sure that staff work in a healthy environment
Handle the relationship between the organisation and its commercial partners
Track the company's development and success
HOW TO BECOME A DIRECTOR OF A COMPANY-
1. Acquire a degree
Earning a bachelor's degree can be the first step toward becoming a company director.
Directors typically have degrees in business, accounting and finance. You may also require
higher academic credentials to enhance your chances of being hired. An MBA can help you
distinguish yourself from other applicants and increase your appeal.
Get specialised training

Along with the academic credentials, directors may require professional training.
Professional associations such as India's Institute of Directors provide educational
opportunities for aspiring directors. The practical experience gained through such
programmes can significantly increase your prospects of becoming a company director.
. Gain relevant experience
For any prospective director, experience can be critical. Corporate directorships can be very
competitive, and employers usually mention experience as a key distinction between
candidates. Directors are responsible for supervising many projects concurrently and
ensuring that they all function well. It is essential to begin managing projects to prepare for
the responsibilities associated with the director's position. It is vital for company directors to
be good leaders and motivators to their workforce. Volunteering on the board of a non-
profit organisation can be an excellent opportunity for future directors to acquire expertise
and experience.
Select appropriate mentors
Try to build a relationship with a current company director to improve your chances of
employment as a company director. Getting mentored by an experienced director can
introduce you to the position's inner workings. A mentor can teach you the methods and
tips necessary to improve your skills and obtain the director's position.
Develop relationships with investors
Frequently, investors and shareholders decide who becomes a company director. Thus, it
may make sense to cultivate relationships with investors in a certain industry to secure a
position as a company director. Take the time to develop your presentation before
approaching investors. Investor like to appoint directors who can communicate their value. It
is also a good idea to network with current directors if you are interested in joining the
board of directors. Certain boards may solicit recommendations from current members for
qualified individuals to fill vacant positions.
Make a commitment to ongoing learning
The corporate world is always expanding, and to be an effective company director, it may be
vital for you to stay informed of new advancements. Continuing education can help you gain
a better understanding of the sector and increase your employability. You can join
associations that host conferences and create educational opportunities for directors and
aspiring directors.
Important Skills For A Company Director
Excellent company directors can possess strong decision-making abilities. This ability can be
critical for managing the strategic decisions that can determine a company's productivity.
The following are some of the most important skills that corporate directors may require:
Management skills
Supervising and delegating work effectively may enable you to maximise your time,
resources and productivity. To allocate duties and set attainable goals, it may be vital for
company directors to have a complete understanding of each employee's and department's
strengths. Strong managerial skills may involve providing your organisation with the training
and resources necessary to achieve its objectives. Good management skills may also include
the ability to prioritise duties to get the best results in the shortest amount of time.
Written and verbal communication skills
As a director, you may frequently be in contact with other executives and employees within
the organisation. Strong written and verbal communication skills can be crucial when
training new staff, discussing corporate strategies and assigning assignments. Not only does
effective communication help in building a relationship with your team, but it also ensures
that everyone understands the company's goals and what you expect of them.
Strategic decision-making skills
Company directors make key decisions that may affect a company's present state and
direction. Strategic decision-making entails reviewing your organisation's objectives and the
associated risks. Making sound, strategic decisions can lead to future growth and
development. If an aspect of a system is failing to produce the required outcomes, it is vital
for a company director to respond decisively and make timely adjustments.
Analytical skills
Extracting relevant insight from data, information or intelligence about your business or
sector can assist you in making strategic decisions that can result in growth. A business
leader may be able to understand and recognise the information that is most pertinent to
their business objectives. Strong analytical skills can aid in the development of novel
solutions to any issues the organisation may encounter.
Adaptability skills
A company director may require being adaptable to effectively respond to changes in the
workplace and within their industry. It is vital that directors not only plan but also anticipate
unforeseen obstacles that may require adjustments. Adapting rapidly to those adjustments
can assist in maintaining a productive workflow.
Innovation
Developing a creative attitude can enhance productivity and result in organisational success.
Directors who demonstrate and support creativity are continuously on the lookout for new
ways to enhance and improve operations, identify future development prospects and
develop innovative solutions to different problems. Also, innovative thinking can help
redefine company models, resulting in significant change and giving your organisation a
competitive advantage
Compassion, particularly in a position of leadership, can be crucial for enhancing
communication, establishing stronger professional relationships and ensuring employee
satisfaction. Empathy shows the ability to understand another person's experience,
viewpoint and emotions, which can help employees feel cared for and valued. Empathy can
help foster a supportive workplace, and that can result in increased collaboration and
productivity. By taking the time to understand your employees' needs better, you can
provide them with the help and resources they may require overcoming any obstacles they
may encounter.
Visionary leadership
Visionary leadership entails presenting objectives, establishing strategic plans for achieving
those objectives and providing the resources necessary to accomplish those objectives.
When company directors demonstrate visionary leadership skills, they can bring their
organisations together around a common goal, which can help enhance employee
engagement, productivity and even provide better results more efficiently. By providing
teams with a clear sense of direction, employers can empower individuals to make
significant contributions to the organisation's success.

Types of directors as per Companies Act, 2013

In a company, there can be various directors based on their roles,
responsibilities, and functions within the corporate organisation.

Some of the types of directors are listed below:

First directors

First directors are the directors whose names are expressly provided in
the articles of association of a company. If the article of association of a
company is silent, then the promoters will appoint the first directors of
the company and if the promoters do not appoint them, then the
individual subscribers to the memorandum of association are deemed to
be the first directors of the company.
The first directors enjoy the term of being so until the directors are finally
appointed by the company.
Executive directors

Executive directors are directors who operate for the firm on a full-time
basis and take an active role in its ongoing day-to-day management and
operations. They actively participate in decision-making, the execution of
strategies, and the management of several affairs within the company.
Operations, finances, and administration are frequently handled by
executive directors. In addition to their usual fixed income, they may also
get bonuses and other incentive payments based on performance. The
financial statements of the company include information pertaining to
their remuneration.
Non-executive directors

Non-executive directors are the individuals who serve on the board of

directors of a company but aren’t actively participating in the everyday
affairs or management of the organisation as a whole. In order to offer
unbiased and objective opinions on the issues of a company, some
independent non-executive directors are appointed. They have the
potential to enhance corporate governance and add an impartial viewpoint
to the board’s deliberations. Independent and non-executive directors
commonly serve as expert consultants to the board and management of
the company. They might contribute to strategy remarks, attend board
meetings, and offer advice based on their expertise. They are in charge of
regulating the executive directors and the company’s management’s
operations. They are essential in making sure that rules, laws, and moral
guidelines are followed within the company. The remuneration for non-
executive directors’ services tends to be determined by the stockholders
of the company.
Rotational directors

Section 152(6) of the Companies Act 2013 states that a company must have
a minimum of two-thirds of its total directors as rotational directors.
However, the articles of association of the company can provide for a
much higher limit for the same.
Also, here, total directors do not include independent directors and
nominee directors if appointed by financial institutions under any special
Act.
Out of the two-thirds of such rotational directors, one-third must
compulsorily retire by rotation in the annual general meeting of the
company.
The term for the rotational directors is not fixed.
The retirement would be based on which director was for the longest time
in the office. If the directors were appointed on the same day, then they
could mutually decide who would retire, and if they couldn’t come to a
decision, then the lot system would come to the rescue.
Non-rotational directors
Section 152(7) of the Companies Act of 2013 states that the names of the non-rotational
directors would be provided under the article of association of the company. The term for
such non-rotational directors would be fixed, and they should be a maximum of one-third of
the total directors of the company.
Like rotational directors, here too, total directors do not include independent directors and
nominee directors if appointed by financial institutions under any special Act.
Additional directors
Section 161 of the Companies Act of 2013 states that if the articles of association of a
company provide for the clause of additional directors, then the board of directors can
appoint them just by passing a board resolution.
The term for an additional director is either till the conclusion of the annual general meeting
or, in cases where the same is delayed, the last date of the annual general meeting, or if the
postponement of the annual general meeting has been in accordance with the permission of
the registrar of the company, then on a such date.
A director would not be eligible to become an additional director if his appointment had
been rejected at the general meeting.
Alternate directors
For the appointment of an alternate director, the first requirement is authorisation by the
article of association of the company.
It is only then that an alternate director can be appointed if the original director has gone
outside India for a time period of 3 months or more.
The power to appoint alternate directors vests with the board of directors of a company. The
existing directors of a company cannot be the alternate directors of the same company.
It is pertinent to note that one person can be an alternate director for only one director in
one company. For different companies, the same person can be an alternate director.
Casual vacancy directors
In the event of the death of a director appointed by shareholders, his resignation, his
removal, or his disqualification, a casual vacancy director can be appointed in place by the
board of directors of a company as per Section 161 of the Companies Act of 2013. To
nominate a casual vacancy director, a board meeting has to be taken up to pass board
resolution as such an appointment cannot be made by circulation. In the subsequent general
meeting, the ordinary resolution to the effect is also a necessity for the appointment of a
casual vacancy director.
Resident directors
A resident director is a director who has stayed for 182 days or more in India in the past one
year. And if the company so incorporated has not surpassed 1 year since its commencement,
then the requirement would be seen proportionately.
For example, if only 9 months have passed for the company to be in existence, then the
requirement for resident directors would be seen for 141 days (182 x 9/12).
Independent director
Section 149(6) of the Companies Act of 2013 states that an independent director means a
director other than a managing director, a whole-time director, or a nominee director with
regard to a company. The Securities Exchange Board of India (Listing Obligations and
Disclosure Requirements), 2015 adds to it by stating that an independent director is a non-
executive director, which in simple terms means that he would not have the power to make
executive decisions but would act like a watchdog.
It states that the company and independent directors must abide by the provisions of the
code of conduct that is provided in Schedule IV.
The schedule acts as a guide for conduct to be carried out by independent directors. It lays
down the required standards to be followed in regard to professional conduct, roles and
functions, duties, manner of appointment, re-appointment, meetings, resignation, and
removal.
VACATON OF OFFFICE OF DIRECTOR
The office of director is vacate in following cases -When director incurs any of
disqualification u/s 164 but if he incurs disqualification u/s 164(2) the office of director shall
become vacant in all companies ,other than the company which is in default under that sub
section -He absents himself from all meetings of the board held during a period of 12
months(date to date ) with or without seeking the leave of absence of BOD -He contravenes
the provisions the section 184 i.e. entering into contracts or arrangements directly or
indirectly -He fails to disclose his interest in any contractor arrangement in which he is
directly or indirectly interested -He becomes disqualified by an order of a court or the
tribunal -He is convicted by court of any offence ,whether moral tripeptide or otherwise and
sentenced to imprisonment for not less than six months However the office shall not be
vacate by director in case of orders referred in clause (e) & (f) 1. For 30 days from the date of
conviction or order of disqualification 2. If an appeal and petition preferred within 30 days as
against the conviction resulting in sentence or order ,until expiry of seven days from the date
on which such appeal or petition is disposed of 3. an appeal and petition preferred within 30
days as against the conviction resulting in sentence or order ,until expiry of seven days from
the date on which such appeal or petition is disposed of 4. if any further appeal or petition is
preferred against order or sentence within 7 days, until such further appeal or petition is
disposed of He is removed in pursuance of provisions of this act He is being appointed as
virtue of his holding any office or other employment in the holding ,associate ,subsidiary,
ceases to hold such office or other employment in that company Lets make some points
more clear: Period of director vacation will be counted from present FY or next FY. Director
will vacate the office with or with granting permission for leave of absence If meeting is
adjourned because of quorum then director is not liable for vacation If half of meeting is
attending then also he will not be director is not liable for vacation Vacations is on particular
date rather than a period.
RESIGNATION OF DIRECTOR
Section 168 of the Companies Act 2013 gives a clear view of the resignation of directors
which was absent in the early Act, 1956. However, before the Companies Act, 2013 when
early Act, 1956 was effective, orders passed by the courts adhered to the same principle but
the new provision leaves no ambiguity. A director may resign from his office by giving a
notice in writing to the company and the Board shall on receipt of such notice take note of
the same. The resignation of a director shall take effect from the date on which the notice is
received by the company or the date, if any, specified by the director in the notice,
whichever is later. Effective date of Resignation The effective date of Resignation shall be the
latest date among these two: The date on which the notice is received by the company or
The date specified by the director in the notice. The date which is later among the above
two dates shall be considered for effective date.
Procedure: 1. On receipt of the resignation letter, the company shall hold a meeting of the
Board or pass Board circulation to take note of the resignation letter given by the director of
the company and to authorise CS or CFO or any director of the company to file requisite
form with ROC. 2. In case of listed company, submit disclosure of such resignation to stock
exchange within 24 hours from the date of the Board meeting and post the same on the
website of the Company within 2 working days. 3. In case of resignation of an independent
director of the listed company, submit disclosures of detailed reasons for the resignation and
confirmation from the independent director that there are no other material reasons other
than those provided. To the stock exchange within 7 working days from the resignation.
REMOVAL OF DIRECTOR

The removal of directors can be understood through the following two

categories:
Removal by shareholders
Removal by the tribunal, as mentioned in Section 242 of the Act.
Removal by shareholders
Section 169 of the Act gives the shareholders the inherent right to remove the
directors appointed by them. The shareholders have the power to appoint a
director by passing an ordinary resolution in the same way the shareholders can
remove the director by passing an ordinary resolution at their discretion when it
deems fit that the policies pursued by the director are not to their liking or that
there is mismanagement, breach of trust, or misconduct on the part of the
director of the company.
Removal by tribunal

The director can be removed by the National Company Law Tribunal under Section
242 of the Act. If the members or shareholders file a petition under Section 241 before the
tribunal for the prevention of mismanagement and oppression in the company,
and if the tribunal deems fit, it may terminate or set aside any contract or
agreement made by the director, managing director, or managerial personnel, or
order his removal.

The director whose appointment is terminated is not eligible for appointment as

managing director, director, or manager in any company until five years without
the consent given by the tribunal under Section 243(1)(b) nor can he claim
damages for loss of office that is directorship from the company under Section
243(1)(a).

Subsection (2) of Section 243 states that any person who knowingly acts as a
managing director or director or manager of a company contravening clause (b)
of subsection (1) and any other director who is party to such contravention shall
be punishable with a fine which may extend to five lakh rupees.

Process to remove a director

The procedure to remove a director is as follows: - Prepare notice of board meeting along
with draft resolution(s) to be passed in the board meeting. Company should give intimation
to the concern director about his removal. Sending of Notice along with Agenda of Board
meeting to all the Directors of company. Convene board meeting and pass the Board
Resolution for considering the removal of concerned Director and notice of general meeting
to members of company. Sending of general meeting notice to all the members at least 14
days before date of general meeting along with special notice with the intention of removing
a director by the specified no. of members of the company has to be passed at least before
14 days before the concerned meeting at which it has to moved excluding the day on which
the notice is served and the day of the meeting. A special notice required to be given to the
company shall be signed, either individually or collectively by such number of members
holding not less than one percent of total voting power or holding shares on which an
aggregate sum of not more than five lakh rupees has been paid up on the date of the notice.
Holding of General Meeting, allowing the removing director to be heard and speak. Passing
of ordinary resolution if it is seem just and equitable. Preparation of Documents for removal
of director and intimation to concerned departments.
MEETING OF COMPANY
OVERVIEW
A company meeting means two or more individuals coming together to carry out
a legitimate business or to take decisions on the same, like any other group of
people flocking together for a particular purpose. Now, in order to carry out the
business of the company properly, it becomes necessary for the directors and
shareholders of companies to meet as often as necessary and to take unanimous
decisions based on their viewpoints and discussions. Simply put, it is crucial for
companies to hold meetings for the effective functioning of the company. These
meetings hold great importance in the decision-making process.
Moreover, shareholders, who are the owners of the company, have the right to
have proper discussions on the affairs of the company and to further exercise
their rights in matters relating to the ongoing activities and future of the
company. Conducting meetings provides this chance to the shareholders and
also gives them an opportunity to keep a check on the activities of the board of
directors, as the directors are obligated to adhere to the decisions taken in the
meetings of shareholders. Also, the management of the company is vested in
the hands of shareholders; hence, it is important that they meet on a regular
basis to take unanimous decisions and function effectively as a team.

MEANING AND DEFINITION

There is no definition of the term “meeting” per se in the ; Companies Act, in plain
language, a company can be defined as two or more individuals coming together, gathering,
or assembling either by prior notice or unanimous decision for discussing and carrying out
some legitimate activities related to business. A company meeting can be said to be a
concurrence or meeting of a quorum of members to carry out ordinary or special business
and take decisions on important matters of the company.
General provisions to know about conducting valid company meetings

Proper authority to convene meetings

In order for a meeting to be regarded as valid, it must be called by a proper

authority, like the board of directors. In a valid board meeting, the decision to
convene a general meeting and issue notice in this regard must be taken by
passing a resolution.
Notice

For a meeting to be conducted properly, a proper notice must be issued by the

proper authority. It means that such a notice must be drafted properly according
to the provisions laid down under the Companies Act, 2013. Also, such a notice
must be duly served on all the members who are entitled to attend and vote at
the meeting. Moreover, the valid notice of the company must specifically mention
the place, the day, the time, and the statement of the business to be transacted
at the meeting.
Quorum

A quorum is defined as the minimum number of members that are required to

be present as mentioned under the provisions of a particular meeting. Any
business transaction carried out at a meeting without a quorum shall be deemed
to be invalid. The main object of having a quorum is to avoid taking decisions by
a small minority of members that may not be accepted by the vast majority.
Every company meeting has its own number of quorum, the same has been
discussed under separate headings in the upcoming passages.
Agenda
The agenda can be described as the list of businesses to be transacted while
conducting any meeting. An agenda is important for carrying out a business
meeting in a systematic manner and in a proper, predetermined order. An
agenda, along with a notice of the meeting, is usually sent to all the members
who are entitled to attend a meeting. The discussion in the meeting has to be
conducted in the same manner as stated in the agenda, and changes can be
made in the order only with the proper consent of the members at the meeting.
Minutes

The minutes of the meetings contain a just and accurate summary of the
proceedings of the meeting. Minutes of the meetings have to be prepared and
signed within 30 days of the conclusion of the meeting. Further, the minutes
books must be kept at the registered office of the company or any place where
the board of directors has given their approval.
Proxy

The term ‘proxy’ can be used to refer to a person who is chosen by a

shareholder of a company to represent him at a general meeting of the
company. Further, it also refers to the process through which such an individual
is named and permitted to attend the meeting.
Resolutions

Business transactions in company meetings are carried out in the form of

resolutions. There are two kinds of resolutions, namely:

Ordinary resolution, and

Special resolution.

BOARD OF DIRECTOR MEETING

Board of Directors is a group of directors who oversee the activities on behalf of the
company. For that purpose, the directors conduct the board meetings as to see the
activities of the company. The board meeting is a formal meeting of the board of directors of
a company which is held at intervals to discuss the issues and policy of the company.
ANNUAL GENERAL MEETING
An Annual General Meeting (AGM) is held to have an interaction between the management
and the shareholders of the company. The Companies Act, 2013 makes it compulsory to hold
an annual general meeting to discuss the yearly results, auditor’s appointment and so on.
A company should follow the procedures under the Companies Act, 2013 to conduct the
AGM.
Procedure to Hold an AGM

The company must give a clear 21 days’ notice to its members for calling the
AGM. The notice should mention the place, the date and day of the meeting, and
the hour at which the meeting is scheduled. The notice should also mention the
business to be conducted at the AGM. A company should send the notice of the
AGM to:
All members of the company including their legal representative of a deceased
member and assignee of an insolvent member.
The statutory auditor(s) of the company.
All director(s) of the company.
The notice may be given in writing through speed post or registered post or via
electronic mode. The notice should be sent to the address of the member as per
the records of the company.
In the case of electronic communication, the notice should be sent to the e-mail
address of the member as per the records of the company. The notice can be text
typed in an email or an attachment to an email. The notice of the AGM should be
placed on the website of the company or any other website as may be mentioned
by the government.
An AGM can be called at a notice period shorter than 21 days if at least 95% of the
members entitled to vote in the meeting agree to the shorter notice. The consent
may be given in writing or through electronic mode.

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5. ANNUAL GENERAL MEETING UNDER THE COMPANIES ACT, 2013

Annual General Meeting Under

the Companies Act, 2013
By Mayashree Acharya

|
Updated on: Oct 11th, 2023
|
18 min read

An Annual General Meeting (AGM) is held to have an interaction between

the management and the shareholders of the company. The Companies
Act, 2013 makes it compulsory to hold an annual general meeting to
discuss the yearly results, auditor’s appointment and so on.
A company should follow the procedures under the Companies Act, 2013
to conduct the AGM.

Companies Required to Hold an

AGM
All companies except One Person Company (OPC) should hold an
AGM after the end of each financial year. A company must hold its AGM
within a period of six months from the end of the financial year,
i.e. within 30 September every year. Do note that the time gap between
two annual general meetings should not exceed 15 months.

However, in the case of a first annual general meeting, the company

can hold the AGM within nine months from the end of the first financial
year. In such cases where the first AGM is already held, there is no need to
hold any AGM in the year of incorporation.

Procedure to Hold an AGM

The company must give a clear 21 days’ notice to its members for calling
the AGM. The notice should mention the place, the date and day of the
meeting, and the hour at which the meeting is scheduled. The notice
should also mention the business to be conducted at the AGM. A company
should send the notice of the AGM to:
 • All members of the company including their legal representative
of a deceased member and assignee of an insolvent member.

• The statutory auditor(s) of the company.

• All director(s) of the company.

The notice may be given in writing through speed post or registered post or
via electronic mode. The notice should be sent to the address of the
member as per the records of the company.

In the case of electronic communication, the notice should be sent to the e-

mail address of the member as per the records of the company. The notice
can be text typed in an email or an attachment to an email. The notice of
the AGM should be placed on the website of the company or any other
website as may be mentioned by the government.

An AGM can be called at a notice period shorter than 21 days if at least

95% of the members entitled to vote in the meeting agree to the shorter
notice. The consent may be given in writing or through electronic mode.

What is the Agenda of an AGM?

The matters discussed or business transacted in an AGM consists of:

Consideration and adoption of the audited financial statements.
Consideration of the Director’s report and auditor’s report.
Dividend declaration to shareholders.
Appointment of directors to replace the retiring directors.
Appointment of auditors and deciding the auditor’s remuneration.
Apart from the above ordinary business, any other business may be conducted as
a special business of the company.
Quorum for an AGM
In the case of a private company, two members present at the meeting shall be
the quorum for the AGM. In the case of a public company, the quorum is:
Five members present at the meeting if the number of members is within one
thousand.
Fifteen members present at the meeting if the number of members is more than
one thousand but within five thousand.
Thirty members present at the meeting if the number of members is more than
five thousand.
In case the quorum for the meeting is not present within half an hour from the
scheduled time, the meeting will be adjourned to the same day in the following
week for the same time and at the same place.
EXRTA ORDINARY GENERAL MEETING
An extraordinary general meeting, commonly abbreviated as EGM, is a meeting of
members of an organisation, shareholders of a company, or employees of an official
body that occurs at an irregular time. The term is usually used where the group would
ordinarily hold an annual general meeting (AGM) but where an issue arises that
requires the input of the entire membership and is too serious or urgent to wait until
the next AGM. Members and/or shareholders must be informed of the purpose of the
EGM so that they may attend in a position where they can discuss and exercise
intelligent judgment, or else any resolutions passed are invalid.

What are important matters related to Extra-ordinary General meeting?

An Extra-ordinary General meeting (EGM) can be called by: - 1. Company or 2.

requisition made by,— (a) in the case of a company having a share capital, such
number of members who hold, on the date of the receipt of the requisition, not less
than one-tenth of such of the paid-up share capital of the company as on that date
carries the right of voting; (b) in the case of a company not having a share capital,
such number of members who have, on the date of receipt of the requisition, not less
than one-tenth of the total voting power of all the members having on the said date a
right to vote A meeting by the requsitionists shall be called and held in the same
manner in which the meeting is called and held by the Board. Any reasonable
expenses incurred by the requisitionists in calling a meeting under sub-section (4)
shall be reimbursed to the requisitionists by the company and the sums so paid shall
be deducted from any fee or other remuneration under the Companies Act, 2013
payable to such of the directors who were in default in calling the meeting.

Introduction
WINDING UP OF A COMPANY-
Winding Up of a Company means to bring an end to the life of the company. A distinct
feature of a company is Perpetual Succession which means that the longevity of the
company does not depend on its members or their financial status. Even if all the members
of the company go bankrupt or all of them die, the company will not dissolve on its own
unless it is made to dissolve on grounds which are laid out in the act. This article will go over
how the operations of a Company are shut according to the provisions of the Companies
Act.
Who is a Liquidator?
The liquidator or insolvency expert oversees several stages, including the collection,
preservation, and distribution of assets as well as the investigation and reporting of the
details surrounding the insolvency of the business. Key company employees' authority is
passed to the insolvency professional during these phases. The activities carried out during
these phases add up to the recovery of bad debts.
The court appoints the liquidator in a compulsory liquidation or court liquidation. However,
it differs between Members' Voluntary Liquidations (MVL) and Creditors' Voluntary
Liquidations (CVL). For instance, in a Creditors' Voluntary Liquidation (CVL), the directors opt
to wind down the company and launch a new one.
In this case, the procedure is started by the directors rather than the company's creditors or
a judge. Therefore, an authorized insolvency practitioner will be hired and paid for by the
directors or shareholders to serve as the liquidator, and creditors have the right to vote on
the same appointment.
Appointment of Liquidator
The first duty of a liquidator is to ensure that they are properly appointed. The appointment
of a liquidator can be made in several ways. In some cases, the court may appoint a
liquidator, while in other cases, the creditors or shareholders may appoint a liquidator.
The liquidator must be a licensed insolvency professional or a chartered accountant with
relevant experience in insolvency and bankruptcy proceedings.
Powers of Liquidator
The liquidator has several powers that are granted by the Companies Act, of 2013 and the
Insolvency and Bankruptcy Code, of 2016. These powers enable the liquidator to manage
the company's affairs, collect and distribute its assets, and carry out the liquidation process.
Some of the key powers of the liquidator are discussed below.
Power to investigate
The liquidator has the power to investigate the affairs of the company and its directors. This
includes the power to summon and examine witnesses, require the production of
documents, and inspect the company's books and records.
Power to sell assets
The liquidator can sell the company's assets to generate funds to pay off creditors. This
includes the power to sell assets such as property, plant and machinery, and inventory.
Power to initiate legal proceedings
The liquidator initiates legal proceedings on behalf of the company. This includes the power
to sue debtors, defend the company against legal actions, and settle claims against the
company.
Power to carry on business
The liquidator has the power to carry on the business of the company as long as it is
necessary to complete the liquidation process. This includes the power to enter into
contracts, incur expenses, and employ staff.
Power to distribute assets
The liquidator distributes the company's assets to its creditors and shareholders by the
priority set out in the Insolvency and Bankruptcy Code, 2016. The liquidator must ensure
that the assets are distributed fairly and by the law.
Duties of Liquidator
The liquidator has several duties that they must fulfil during the liquidation process. These
duties are designed to ensure that the liquidation process is conducted fairly and
transparently. Some of the key duties of the liquidator are discussed below.
Duty to act in the interests of creditors and shareholders
The liquidator must act in the interests of the company's creditors and shareholders. This
includes ensuring that the company's assets are distributed fairly among creditors and
shareholders and that the liquidation process is conducted in a transparent and accountable
manner.
Duty to investigate
The liquidator shall investigate the affairs of the company and its directors. This includes
conducting a thorough review of the company's books and records and examining the
conduct of the directors and other officers of the company.
Duty to sell assets
The liquidator sells the company's assets to generate funds to pay off creditors. This includes
ensuring that the assets are sold at fair market value and that the proceeds are used to pay
off the company's debts.
Duty to report to creditors and shareholders
The liquidator must provide regular reports to the company's creditors and shareholders.
These reports must include information about the progress of the liquidation process, the
status of the company's assets, and the distribution of funds to creditors and shareholders.
Duty to maintain proper records
The liquidator must maintain proper records of all transactions related to the liquidation
process. This includes keeping accurate financial records, maintaining a record of all
communications with creditors and shareholders, and ensuring that all documents related to
the liquidation process are properly filed.
Duty to act with due diligence
The liquidator acts with due diligence and cares throughout the liquidation process. This
includes ensuring that all legal and regulatory requirements are met and that the interests of
the company's creditors and shareholders are protected.

Types of Winding Up
According to Section 425 of the Companies Act, 2013, there are 2 kinds of Winding Up. They
are:
Compulsory Winding Up under the order of the Court
Voluntary Winding Up, which itself is of two kinds:
Members’ Voluntary Winding Up
Creditor’s Voluntary Winding Up
Winding Up by Court
A company may be wound up at an order of the Court. This is also called Compulsory
Winding Up. The cases in which a company may be wound up are given in Section 433. They
are as follows:
Special Resolution
In the event that the organization has, by unique goals, settled that it be ended up by the
court. The court is, be that as it may, not bound to request Winding Up essentially in light of
the fact that the organization has so settled. The power is optional and may not be practised
where twisting up would be against the general population or the organization’s advantages.
Default in Holding Statutory Meeting
On the off chance that an organization has made a default in conveying the statutory report
to the Registrar or in holding the statutory gathering, it might be requested to be Wound Up.
Failure to Commence Business or Suspension of Business
In the event that an organization does not initiate its business within a year from its joining
or has suspended its business for an entire year, it might be requested to be twisted up.
Here again, the power is optional and will be practised just when there is a reasonable sign
that there is no aim to carry on business. In the event that the suspension is acceptably
represented and has all the earmarks of being because of brief causes, the request might be
declined.
Reduction in Membership
On the off chance that the quantity of individuals is decreased, on account of an open
organization, underneath seven, and on account of a privately owned business, beneath
two, the organization might be requested to be twisted up.
Inability to Pay Debts
An organization might be requested to be twisted up on the off chance that it is unfit to pay
its obligations. Failure to pay obligations is clarified in Section 434. As indicated by this area,
an organization will be esteemed to be unfit to pay its obligations in the accompanying three
cases:
Statutory Notice
Decreed Debt
Commercial Insolvency
Losses
Thirdly, it is viewed as just and fair to wrap up an organization when it can’t carry on
business with the exception of at misfortunes. It will be unnecessary, in reality, for an
organization to carry on business when there is no desire for accomplishing the object of
exchanging at a benefit. Yet, simple anxiety with respect to certain investors that the
benefits of the organization will be squandered and that misfortune rather than increase will
result has been held to be no ground.
Oppression of Minority
It is simple and even-handed to wrap up an organization where the vital investors have
embraced a forceful or onerous or pressing approach towards the minority. The choice of
the Madras High Court in R. Sabapathi Rao v Sabapathi Press Ltd, is a representation in point.
The court saw that where the executives of an organization had the option to practice an
overwhelming effect on the administration of the organization and the overseeing chief had
the option to outvote the minority of the investors and hold the benefits of the business
between individuals from the family and there were a few objections that the investors did
not get a duplicate of the asset report, nor was the inspector’s report perused at the general
gathering, profits were not consistently paid and the rate was lessening, that established
adequate ground for twisting up.
Fraudulent Purpose
It is simple and fair to wrap up an organization on the off chance that it has been imagined
and delivered in misrepresentation or for an illicit reason.
Incorporated or Quasi Partnership
It has been seen that there is little in like manner between the goliath organization and the
family or the one individual organization. To apply the equivalent legitimate prerequisites to
such various associations is profitable of bother and bad form. So as to maintain a strategic
distance from such “burden and unfairness” the Act treats them distinctively in a few
regards. In any case, even in issues in which the Act treats them alike, the courts have
needed to recognize them.
Voluntary Winding Up

By Ordinary Resolution
An organization might be twisted up will fully by passing an ordinary resolution when the
period, assuming any, fixed for the span of the organization by the articles, has lapsed. Also,
when the occasion, assuming any, has happened, on the event of which the articles give that
the organization is to be broken down, the organization may, by passing a normal goal with
that impact, start its will full twisting up.
By Special Resolution
A company may at any time pass a special resolution providing that the company be wound
up voluntarily. Winding Up commences at the time when the resolution is passed. Within
fourteen days of the passing of the resolution, the company shall give notice of the
resolution by advertisement in the Official Gazette and also in some newspaper circulating in
the district of the registered office of the company. The corporate state and powers of the
company shall continue until the company is dissolved, but it shall stop its business, except
so far as may be necessary for beneficial winding up.
As discussed earlier in the article, Voluntary Winding Up is of two kinds:
1. Members’ Voluntary Winding Up;
2. Creditor’s Voluntary Winding Up
If a Declaration of Solvency is made in accordance with the provisions of the Act, it will be a
Members’ Voluntary Winding Up and if it is not made, it becomes the Creditors’ Voluntary
Winding Up. The declaration has to be made by a majority of the directors at the meeting of
the board and verified by an affidavit. They have to declare that they have made a full
inquiry into the affairs of the company and have formed the opinion that the company has
no debts or that it will be able to pay its debts in full within a certain period, not exceeding
three years, from the commencement of winding up.
The declaration, to be effective, must be made within the five weeks immediately before the
date of the resolution and should be delivered to the Registrar for registration before that
date. It should also be accompanied by a copy of the report of the auditors on the profit and
loss account and the balance sheet of the company prepared up to the date of the
declaration and should embody a statement of the company’s assets and liabilities as at that
date.
There is a penalty for making the declarations without having reasonable grounds for the
opinion that the company will be able to pay its debts within the specified period. If the
company fails to pay the debts within that period, it will be presumed that reasonable
grounds for making the declaration did not exist. The liquidator should forthwith call a
meeting of the creditors because the winding up has then to proceed as if it were Creditors’
Winding Up.