Unit 3 Company law Flashcards
(31 cards)
Company
- Artificial person created by law
- Voluntary association
- To generate profit mostly
Company’s act years
1956
2013
2015
Company’s Act definition
Acc to Company’s act 1956. Sec 3 (1) (i), “A company formed and registered under this act or an existing company”
Kinds of company
- Incorporation
- Liability
- Control
- Ownership
- National Interest
Classify the companies on the basis of liability?
On the basis of liability, the companies may be classified into three categories, i.e.
(1) Companies limited by shares, (2) Companies limited by guarantee, and
(3) Unlimited companies.
State any four differences between a public company and a private company
Points of Differences between Public Company and Private company Public Company Private Company
1. Definition A public company can sell its registered shares to the general public. A private company can sell its own, privately held shares to a few willing investors.
2. Traded on The stocks of a public company are traded on stock exchanges. The stocks of a private company are owned and traded by only a few private investors.
3. Regulations A public company must adhere to many regulations and reporting standards per the SEC. Until the private companies reach $10 million and more than 500 shareholders, it does not have to follow any regulations issued by the SEC.
4. Advantage The primary advantage of a publicly-traded company is that it can tap into the market by selling more shares. The primary advantage of a privately traded company is that it does not need to answer to any stockholders, and there is no need for disclosures.
5. Size Publicly traded companies are big companies. Privately traded companies can also be big companies. So, the idea that a privately held company is smaller is utterly false.
6. Source of funds For the publicly traded company, the source of funds is selling its shares and bonds. For the privately traded company, the source of funds is a few private investors or venture capitalists.
List out the formation of a company
The major steps in formation of a company are as follows:
Promotion stage
Registration stage
Incorporation stage
Commencement of Business stage
Promotion Stage
Promotion is the first step in the formation of a company. In this phase, the idea of starting a business is converted into reality with the help of promoters of the business idea.
In this stage the ideas are executed. The promotion stage consists of the following steps:
- Identify the business opportunity and decide on the type of business that needs to be done.
- Perform a feasibility study and determine the economic, technical and legal aspect of executing the business.
- Interest shown by promoters towards the business idea and supply of capital and other necessary procedures to start the business.
Promotion Stage
Promotion is the first step in the formation of a company. In this phase, the idea of starting a business is converted into reality with the help of promoters of the business idea.
In this stage the ideas are executed. The promotion stage consists of the following steps:
- Identify the business opportunity and decide on the type of business that needs to be done.
- Perform a feasibility study and determine the economic, technical and legal aspect of executing the business.
- Interest shown by promoters towards the business idea and supply of capital and other necessary procedures to start the business.
Registration stage
Registration stage is the second part of the formation process. In this stage, the company gets registered, which brings the company into existence.
A company is said to be in existence, if it is registered as per the Companies Act, 2013. In order to get a company registered, some documents need to be provided to the Registrar of Companies.
There are several steps involved in the registration phase, and are as follows:
- Memorandum of Association: A memorandum of association (MoA) must be signed by the founders of the company. A minimum of 7 members are required in case of a public company and 2 in case of a private company. The MoA must be properly registered and stamped.
- Article of Association: Article of Association (AoA) is also required to be signed and submitted. All members who previously signed MoA, should also be signing the AoA.
- The next step is preparing a list of directors which should be filed with the Registrar of Companies.
- Directors of the company should provide a written consent agreeing to be directors, should be filed with the Registrar of Companies (RoC).
- The notice of address of the office needs to be filed.
- A statutory declaration should be made by any advocate of either the High Court or Supreme Court, or a person of the capacity of Director, Secretary or Managing Director. This declaration shall be filed with the RoC.
Describe the meaning of memorandum of Association:
A Memorandum of Association (MOA) is a legal document prepared in the formation and registration process of a limited liability company to define its relationship with shareholders. The MOA is accessible to the public and describes the company’s name, physical address of registered office, names of shareholders and the distribution of shares.
What are articles of Association?
Articles of association form a document that specifies the regulations for a company’s operations and defines the company’s purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records.
Give any two differences between memorandum and Articles
Meaning
Memorandum of Association is a document that contains all the fundamental information which are required for the incorporation of the company. Articles of Association is a document containing all the rules and regulations that governs the company.
Type of Information contained Powers and objects of the company. Rules of the company.
Status
It is subordinate to the Companies Act. It is subordinate to the memorandum.
Retrospective Effect The memorandum of association of the company cannot be amended retrospectively. The articles of association can be amended retrospectively.
Major contents A memorandum must contain six clauses. The articles can be drafted as per the choice of the company.
What is the „Prospectus‟?
A prospectus is a formal document required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering to the public. A prospectus is filed for offerings of stocks, bonds, and mutual funds.
What is meant by director?
A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The person, acting on its behalf, is called Director. A Director is any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs.
State the provisions of the companies Act regarding the mode of appointment of directors of
a company?
Modes of Appointment of Directors are listed below.
- Appointment by Signatures to the Memorandum
- Appointment of Director by Central Government
- Appointment oy Company in the General Meeting
- Appointment of Directors by third party
- Appointment of Director by Proportional Representation
- Appointment by Board of Directors
State the modes of Removal of Directors
Mode I
Removal of director in case he resigns himself
Mode II
Suo-moto removal of a director by shareholder
Model III
Removal of director in case director doesn’t attend three board meeting in a row
Mode IV
Removal of director by Tribunal
Mode V
Removal of Director by Government
What are the provisions regarding powers of director?
What are the provisions regarding powers of director?
What are the provisions regarding powers of director?
Section 179: Power of Board of Directors
Section 180 of the Companies Act, 2013: Restrictions on the powers of Board of Directors
List out the provisions regarding liabilities of directors?
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Define „Winding up of a company‟
Winding up refers to closing the operations of a business, selling off assets, paying off creditors, and distributing any remaining assets to the owners. Once the winding-up process is complete, the dissolution step comes into play.
What are the modes of winding up?
The two main types of winding up are compulsory winding up and voluntary winding up.
Compulsory Winding Up
A company can be legally forced to wind up by a court order. In such cases, the company is ordered to appoint a liquidator to manage the sale of assets and distribution of the proceeds to creditors.
Voluntary Winding Up
A company’s shareholders or partners may trigger a voluntary winding up, usually by the passage of a resolution. If the company is insolvent, the shareholders may trigger a winding-up to avoid bankruptcy and, in some cases, personal liability for the company’s debts.
Who can present petition for winding up?
Section 439 provides that an application to the Court for the winding up of a company can be made:
(a) by the company;
(b) by any creditor or creditors, including any contingent or prospective Creditor or creditors;
(c) by any contributory or contributories;
(d) by all or any of the parties at (a), (b) and (c), whether together Or separately;
(e) by the Registrar of Companies;
(f) by any person authorised by the Central Government as a result of investigation carried out on the affairs of a company pursuant to section 237;
(g) by the Central Government or a State Government, in a case falling under clause (h) of section 433
By a creditor or creditors
Any creditor or creditors of the company may present a petition to the Court for winding up, alleging that the company is unable to pay the debts of the creditor in the manner specified in section 433 or 434. The Court will ascertain the wishes of a majority of the creditors and where the majority oppose the petition, the Court will not make the order.
The Court can direct winding up of a Company even if the petition is filed at the instance of a single creditor. A petition for winding up can be presented by a contingent or prospective creditor and it is for the Court to satisfy itself about the eligibility of such person to present a petition.
A debenture holder is a creditor of a company and entitled to present a petition for winding up of the company subject to the terms of covenants contained in the terms of the debenture. [Narotamdas Trikamdas Toprani v Bombay Dyeing & Manufacturing Co. Ltd (1990) 68 Comp Cas 300 (Bom): (1986) 3 Comp LJ 179 (Bom)]
The person guaranteeing loans granted to the company is entitled to move a petition seeking winding up. [Kermeen Foods (P) Ltd, In re (1984) 56 Comp Cas 445 (Guj)]
