Prepared by: Ms.

Neha Rani
Assistant Professor
School of Business Studies
Shobhit Institute of Engineering and Technology
(Deemed to be University) Meerut
 Definition, characteristics and kinds of companies, steps in
formation of company.
 Memorandum of association, articles of association and
prospectus.
 Directors: appointment, power, duties and liabilities, meeting
and resolutions: types of meetings. Auditor: appointment,
rights and liabilities. Modes of winding up of a company
Definition of a "Company"
 A company is a "corporation" - an artificial
person created by law.
 A human being is a "natural" person.
 A company is a "legal" person.
 A company thus has legal rights and obligations
in the same way that a natural person does.
According to Section 3(1) (i) and (ii) of the Companies
Act 1956, a company means, “A company formed and
registered under this Act or an existing company. An
existing company means a company formed and
registered under any of the former Companies Act. ”

The Act provides the procedure of forming and

registering a company. Once registered or incorporated,
a company becomes a ‘body corporate’.

A company may be defined as an incorporated

association which is an artificial person having a
separate legal entity, with a perpetual succession, a
common seal, a common capital comprised of
transferable shares and carrying limited liability.
 It is an association of persons,
 Each such person contributes some money,
 Money is contributed for some purpose
 It has a separate legal entity. It is an artificial person
created by law.
 It has a perpetual succession, i.e., once formed it
continues to exist until it is wound up by the legal
procedure,
 It has a common seal, bearing it name
 The members of the association have as much liability
at the time of its winding up as decided by them.
 Independent corporate existence-the outstanding
feature of a company is its independent corporate
existence. By registration under the Companies Act, a
company becomes vested with corporate personality,
which is independent of, and distinct from its
members. A company is a legal person.

 Limited liability- limitation of liability is another major

advantage of incorporation. The company, being a
separate entity, leading its own business life, the
members are not liable for its debts. The liability of
members is limited by shares; each member is bound
to pay the nominal value of shares held by them and
his liability ends there.
 Perpetual succession- An incorporated company never
dies. Members may come and go, but the company will go
on forever.
 Common seal- Since a company has no physical
existence, it must act through its agents and all such
contracts entered into by such agents must be under the
seal of the company. The common seal acts as the official
seal of the company.
 Separate property-The property of an incorporated
company is vested in the corporate body. The company is
capable of holding and enjoying property in its own name.
No members, not even all the members, can claim
ownership of any asset of company’ assets.
 Capacity for suits- A company can sue and be sued in its
own name. The names of managerial members need not b
impleaded
 Lifting of corporate veil- though for all purposes
of law a company is regarded as a separate entity
it is sometimes necessary to look at the persons
behind the corporate veil.

 Formality and expense- Incorporation is a very

expensive affair. It requires a number of
formalities to be complied with both as to the
formation and administration of affairs.
Companies:
 (1) Unincorporated
 (2) Incorporated
(i) Chartered Companies
(ii) Statutory Companies
(iii) Registered Companies
(a) Companies limited by shares : Public & Private
(b) Companies Limited by Guarantee : Public &
Private
(c)Unlimited Companies : Public & Private
 Unincorporated Company: This type describes
a company that has not been legally registered as
a company with the relevant state authorities. Unlike
an incorporated business, which has an independent
legal existence, unincorporated companies are not
distinct from their owners.
 Incorporated Company: An incorporated
company is a separate legal entity on its own,
recognized by the law. These corporations can be
identified with terms like 'Inc' or 'Limited' in their
names. It becomes a corporate legal entity completely
separate from its owners.
Chartered Companies: A form of trading company that developed
from the European medieval trading guilds and was prominent in the
late 16th and 17th centuries. The discovery by explorers of India and
America stimulated individual merchants into forming groups,
safeguarded by royal charter in order to monopolize trade.

These companies are established under a charter or a special order of

a monarch or a king or a queen. ... Royal Chartered Company is
another name of the chartered companies. Bank of England, East
India Company, British Broadcasting Corporation (BBC), etc. are
some examples of chartered companies.

In India, this form of organization does not exist now because there is
no monarchy. Even in England, this method is rarely used now
Statutory Companies: In this case, a special law is
passed to establish the company. This is done only in
special cases when it is necessary to regulate the
working of the company for some specific purposes.
These are public enterprises brought into existence by a
Special Act of the Parliament. The Act defines its
powers and functions, rules and regulations governing
its employees and its relationship with government
departments.

Formerly used to incorporate public utilities such as

gas, electricity and railways.
Registered Companies: Companies registered under the
Companies Act, 1956 or the earlier Companies Acts are
called registered companies. Such companies come into
existence when they are registered under the Companies Act
and a Certificate of Incorporation is granted to them by the
Registrar.

Registration is the most commonly used means of forming a

company and virtually the only method now used to form a
trading company.

CA 1985, s.1(1): "Any two or more persons associated for a

lawful purpose may, by subscribing their names to a
memorandum of association and otherwise complying with
the requirements of this Act in respect of registration, form an
incorporated company, with or without limited liability."
Companies limited by shares: The most common kind
of registered company.

Members of the company take shares issued by the

company. Each share is assigned a nominal value - the
amount that must be paid to the company for the share.
Members may also agree to pay an extra amount -
called a premium.

When the company is registered, its memorandum must

state the total nominal value of all the shares it is going
to issue (called the registered capital, or nominal capital
or authorized share capital).
Companies Limited by Guarantee: It is a registered
company public or private, in which the liability of members is
limited to such amounts as they may respectively undertake
by the memorandum to contribute to the assets of the
company in the events of its being wound up.
Members agree to contribute a specified amount to the
company’s assets in the event of the company being wound
up. (Total amount payable by all members is called the
"guarantee fund")
Members do not have to pay anything as long as company is
a going concern - so company has no contributed capital.
Companies limited by guarantee are not usually formed for
business ventures.
A company limited by Guarantee is often referred to as a 'not
for profit' or 'Charitable company', this refers to the fact the
parties involved do not remove the profit from the company as
shareholders can in a company limited by shares. Any profit
made by the company is re-used for the good of the business
Unlimited Companies: A Company not having any
limit on the liability of its members is termed as
unlimited company.
Members have unlimited liability (If company is
being wound up, members can be made to
contribute to the company’s assets without limit to
enable it to pay its debts.)
Cannot be public companies.
Can be set up with or without a share capital
Private Company: According to Section 3(1)(iii) of the
Companies (Amendment)Act,2000, a private company
means a company which:
(a) has a minimum paid up capital of one lakh rupees or
such higher amount as may be prescribed by the
Government,
(b) has a minimum of 2 and maximum of members
excluding employees;
(c) restricts the right of members to transfer its shares ,
if any;
(d) prohibits any invitation to the general public to
subscribe for its shares or debentures;
(e) does not invite the public to subscribe to its deposits.
E.g.:- Ambika Industries Pvt. Ltd., Paras Pharmaceutical
Pvt. Ltd. etc.
Public Company: According to Section 3(1)(iv) of
the Companies (Amendment)Act,2000, a public
company means a company which:
(a) is not a private company; and
(b) has a minimum paid up capital of five lakh
rupees or such higher amount as may be prescribed
by the Government.
E.g.:-Reliance Industries Ltd., Tata Iron & Steel Co.
Ltd
BASIS FOR COMPARISON Public Company Private Company

Meaning A public company is a A private company is a

company which is owned company which is owned
and traded publicly and traded privately.

Minimum Members 7 2
Maximum Members Unlimited 50
Minimum Directors 3 2
Suffix Limited Private Limited
Start of business After receiving certificate of After receiving certificate of
incorporation and certificate incorporation
of commencement of
business

Statutory Meeting Compulsory Optional

Public subscription Allowed Not allowed
Transfer of shares Free Restricted
One Person Company (OPC):
 Section 2(62) of Companies Act defines a one-person
company as a company that has only one person as to its
member. Furthermore, members of a company are nothing
but subscribers to its memorandum of association, or its
shareholders. So, an OPC is effectively a company that
has only one shareholder as its member.
 Such companies are generally created when there is only
one founder/promoter for the business. Entrepreneurs
whose businesses lie in early stages prefer to create OPCs
instead of sole proprietorship business because of the
several advantages that OPCs offer.
 OPC Sole Proprietorship

Separate legal entity Owner & entity is same personality

Limited Liability Unlimited Liability

Debt-not the sole responsibility Debt- sole responsibility of the
of the owner owner

Finance-credit record of the Finance- credit history of the

company owner
Legal requirements- will need to Legal requirements- will not have
register itself as such to draw up proper declaring its
status
Separate tax Tax paid by the owner
 Private company: Section 3(1)(c) of the Companies Act says that a single
person can form a company for any lawful purpose. It further describes
OPCs as private companies.
 Single-member: OPCs can have only one member or shareholder, unlike
other private companies.
 Nominee: A unique feature of OPCs that separates it from other kinds of
companies is that the sole member of the company has to mention a
nominee while registering the company.
 No perpetual succession: Since there is only one member in an OPC, his
death will result in the nominee choosing or rejecting to become its sole
member. This does not happen in other companies as they follow the
concept of perpetual succession.
 Minimum one director: OPCs need to have minimum one person (the
member) as director. They can have a maximum of 15 directors.
 No minimum paid-up share capital: Companies Act, 2013 has not
prescribed any amount as minimum paid-up capital for OPCs.
 Special privileges: OPCs enjoy several privileges and exemptions under
the Companies Act that other kinds of companies do not possess.
 “Small Company” has been introduced for the first
time by the Companies Act, 2013. The Act identifies
some companies as small companies based on their
capital and turnover position for the purpose of
providing certain relief/exemptions to these
companies. Most of the exemptions provided to a
small company are same as that provided to a one
person company. The Act also provides for a simplified
scheme of arrangement between two small
companies, without requiring the approval of Tribunal,
i.e. with the approval of Central Government (Regional
Director).
‘small company’’ means a company, other than a public
company,—
(i) paid-up share capital of which does not exceed fifty lakh
rupees or such higher amount as may be prescribed which
shall not be more than five Crore rupees; or
(ii) turnover of which as per its last profit and loss account
does not exceed two Crore rupees or such higher amount as
may be prescribed which shall not be more than twenty Crore
rupees:
Provided that nothing in this Section shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under Section 8; or
(C) a company or body corporate governed by any special
Act;
As per Section 455 of Companies Act, 2013
The word “Dormant” means inactive or inoperative. A
dormant company is an excellent opportunity to start a
company for a future project or hold an asset/intellectual
property without having significant accounting transactions*
On the other hand if a company has not filed its annual
returns for two consecutive years then such a company will
also be called as a dormant company.
*Significant accounting transactions would mean transactions
other than the basic procedural transactions i.e. the payment
of fees by a company to the Registrar and also payments to
fulfill the requirements of this Act or any other law, allotment
of shares to fulfill the requirements of this Act and payments
for maintenance of its office and records.
Why dormant companies?
 Invest now shine later serves as a core policy of
dormant companies. The companies are in a position
to hold assets or intellectual property and use it later
and why would they do this? Cost Advantage is the
reason for it.
 Well, the restart is always better than a fresh start and
dormant companies offer this advantage. So if a
company chooses to take a backseat for a good
reason then they can always restart when they want
to, without further procedures subject to certain
conditions.
 The longer you exist the greater you are valued. So as
a dormant company, the company may not be active
but it still has a status of a company in the eyes of law.
Company RoC Status

NCORE TECHNOLOGY Hyderabad Dormant

PVT LTD

PRINECY LANDHOLDINGS Ernakulam Dormant

PRIVATE LIMITED

GOOD LEAF TRADERS Cuttack Dormant

PRIVATE LIMITED
Not-for-Profit Organisations are the establishments that
are for utilized for the welfare of the community and are
set up as charitable associations which operate without
any motive for profit. Their primary objective is to furnish
service to a specific class or the public at the larger
picture. Usually, they do not produce, buy or sell
commodities and may not have credit transactions.
Therefore, they need not manage many books of
account (as the trading entities do) and Trading and
Profit & Loss Account. The funds raised by such
establishments are credited to the general fund or
capital fund. The major sources of their income usually
are subscriptions from their member’s donations,
income from investments, etc.,
 According to section 11 every association consisting of
more than 10 persons in banking business and 20 in
the case of any other business must either be
registered as a company under the Companies Act or
be formed according to the provisions of some other
Indian Law. An association not so registered is an
illegal association having no legal existence.
 An illegal association is an association of more than
20 persons (10 in case of banking business) which
carries a business without being registered under any
law.
STEPS, DOCUMENTS AND INFORMATION
REQUIRED FOR INCORPORATION OF A
COMPANY UNDER THE COMPANIES ACT, 2013
 Reservation of Company Name
 Drafting of MOA & AOA
 Application for Incorporation of Companies
 Documents to be filed for Incorporation
 Particulars of first directors of the company and their
consent to act as such
 Notice of Situation of Registered Office
 Payment of Fee
 Certificate of incorporation
Reservation of Company Name
First, the applicants are required to apply for a name in Form
No. INC-1. The fee for seeking a name approval is Rs.1000/-
as prescribed and 60 days are allowed for incorporating the
company. The name should not be undesirable i.e.; identical,
resembling, restricted or prohibited.
Drafting of MOA & AOA
The memorandum (MOA) should be drafted keeping in mind
the provisions of section 4 of The Companies Act, 2013 and
objects should not be contrary to those as per Form No. INC-
1. The Model MOA as prescribed in Table A to E of Schedule
I of The Companies Act, 2013 can be adopted as applicable
 Application for Incorporation of Companies
After obtaining availability of name (see sample
name approval certificate, applicants should file
Form No. INC-7 for other than OPC and in Form
No. INC-2 (for OPC) with Jurisdictional Registrar
of Companies (ROC) along with required
information in attachments and along with
prescribed fee.
Section-7 prescribes the various documents and information
to be filed with RoC for registration of a new company as
under:
(1) MoA and AoA duly signed and verified.
(2) Declaration by Professionals INC-08 .
(3) Declaration from Director, Manager or Secretary.
(4) Affidavit from each subscribers and first directors INC-09.
(5) The address for correspondence.
(6) Complete Details of Subscribers with proof of identity.
(7) Complete Details of first Directors with proof of identity.
(8) Particulars of interest of first directors in other firm/body
corporate and NoC.
Particulars of first directors of the company and
their consent to act as such
The particulars of first directors of the company and his
interest in other firms or bodies corporate along with his
consent (Form DIR.2) to act as director of the company
shall be filed in Form No.DIR.12 along with the
prescribed fee.
Notice of Situation of Registered Office
The particulars of the registered office of the company
should be filed in Form No. INC-22.
Payment of Fee
While uploading various documents prescribed fee can
be paid online including stamp duty for MoA
 After the RoC is satisfied that all documents and information
which is required has been filed in the prescribed manner and
along with prescribed fee, the Certificate of Incorporation shall be
issued by the Registrar in Form No. INC-11
 Every company must have a registered office from the day it
starts its business or within 30 days of getting the Certificate of
Incorporation, whichever is earlier. Memorandum of Association
must state the name of the State in which the registered office of
the company is situated.
 This clause is important as it mentions the residence for the
purpose of the communication with the company. It determines
the jurisdiction of the company and also mentions the place
where all the records of company are maintained. Where the
company wants to change its registered office from one state to
another then it can do so by passing a special resolution as well
as by confirmation of Company Law Board
 The filing of forms (e -forms) with ROC can be done from one’s home
or office through the Internet. There is no need to visit the ROC’s
office for filing various documents.
 The payment of filing fees can also be made over the Internet through
credit card/Internet banking without queuing up at the banks.
 The filing will be valid only when filing fee is paid.
 Pre -scrutiny of filled -up forms is done in the portals before final
submission.
 Many of these e -forms require certification by CA/CWA/CS (in whole
time practice). Certification must be done by signing digitally.
 DIN (Directors Identification Number) is compulsory for all directors.
 Every signatory of e -form must obtain DSC (Digital Signature
Certificate).
 Download a blank e -form from the MCA -21 portal.
 Fill up the e -form off line using software that is free and
widely available.
 Optionally carry out electronic pre -scrutiny in which the
system will verify whether the form has been completed in
all respects.
 The form to be digitally signed by one or more signatories.
 Submit the e -form for processing to the MCA -21 portal.
 Make necessary payments to complete the transaction
either at an authorized bank branch or through Internet
banking.

*MCA – Ministry of Corporate affairs

Advantages to Corporate and Professionals
 Documents can be filed without visiting the ROC office.
 There is no need to stand in long queues for filing documents
or paying filing fees.
 Filing will be open on a 24 x 7 basis. This affords one the
flexibility to do this work at one’s convenience.
 Pre -scrutiny of forms filed will be done in the portals itself at
the point of filing. So, once the form is filed, a need to interact
with ROC personnel to rectify deficiencies in filings will be
minimized to a great extent.
 Filing fees can be paid from the comforts of one’s
office/home using credit card/Internet banking.
Advantages to the Public
 To the public, the portal offers inspection of documents filed
by companies on a 24 x 7 basis from the comforts of one’s
home/office.
Advantages to the Government:
 Better utilization of existing staff and space
resources.
 The DIN (which is compulsory for all existing and
prospective directors to obtain) will help enforce
accountability of directors.
 Time and energy spent in accepting documents,
filing them, corresponding with companies will be
drastically reduced and channelized towards
taking action against errant corporates.
One of the essentials for the registration of a company is
memorandum of association (sec 33). It is the first step
in the formation of a company. Its importance lies in the
fact that it contains the fundamental clauses which have
often been described as the conditions of the company’s
incorporation.

The Memorandum of Association or MOA of a company

defines the constitution and the scope of powers of the
company. In simple words, the MOA is the foundation on
which the company is built.
 The MOA of a company contains the object for which
the company is formed. It identifies the scope of its
operations and determines the boundaries it cannot
cross.
 It is a public document according to Section 399 of
the Companies Act, 2013. Hence, any person who
enters into a contract with the company is expected to
have knowledge of the MOA.
 It contains details about the powers and rights of the
company.
 Itis mandatory for every company to print its
Memorandum of Association and have it signed by
each of its members. The address, occupation and
shares held by each member of the company must also
be mentioned in this charter.

 For the formation of a Private Limited Company, a

minimum of 2 members are necessary. For a Public
Company, it is 7. In case of a One Person Company, the
nominee has to be stated in the Memorandum of
Association as in case of death of the founding member
or his incapacity to perform, the legal rights of the
company will be transferred to him or her.
1. Name Clause
Promoters of the company have to make an application to the
registrar of Companies for the availability of name.
The company can adopt any name if :
i) There is no other company registered under the same or under
an identical name;
ii) The name should not be considered undesirable and prohibited
by the Central Government (Sec. 20). A name which
misrepresents the public is prohibited by the Government under
the Emblems & Names (Prevention of Improper use) Act, 1950
for example, Indian National Flag, name pictorial representation
of Mahatma Gandhi and the Prime Minister of India, name and
emblems of the U.N.O., and W.H.O., the official seal and
Emblems of the Central Government and State Governments.
For a public limited company, the name of the company must have the word
‘Limited’ as the last word
For the private limited company, the name of the company must have the
words ‘Private Limited’ as the last words.
This is not applicable to companies formed under Section 8 of the Act who
must include one of the following words, as applicable:
a) Foundation
b) Forum
c) Association
d) Federation
e) Chambers
f) Confederation
g) Council
h) Electoral Trust, etc.
. Registered Office Clause
 It must specify the State in which the registered office of the
company will be situated.
 Every company must have a registered office either from the
day it begins to carry on business or within 30 days of its
incorporation, whichever is earlier, to which all
communications and notices may be addressed.
 Notice of the situation of the registered office and every change
shall be given to the Registrar within 30 days after the date of
incorporation of the company or after the date of change. If
default is made in complying with these requirements, the
company and every officer of the company who is default shall
be punishable with fine which may extend to Rs. 50 per during
which the default continues.
. Object Clause
 This is the most important clause in the memorandum because it not
only shows the object or objects for which the company is formed
but also determines the extent of the powers which the company can
exercise in order to achieve the object or objects.
 In the case of companies which were in existence immediately
before the commencement of the Companies (Amendment) Act.
1965, the object clause has simply to state the objects of the
company. But in the case of a company to be registered after be
amendment, the objects clause must state separately.
i) Main Objects : This sub-clause has to state the main objects to be
pursued by the company on its incorporation and objects incidental or
ancillary to the attainment of main objects.
ii) Other objects: This sub-clause shall state other objects which are
not included in the above clause.
While drafting the objects clause of a company the following points
should be kept in mind.
i) The objects of the company must not be illegal, e.g. to carry on
lottery business.
ii) The objects of the company must not be against the provisions of
the Companies Act such as buying its own shares (Sec. 77),
declaring dividend out of capital etc.
iii) The objects must not be against public, e.g. to carry on trade with
an enemy country.
iv) The objects must be stated clearly and definitely. An ambiguous
statement like “Company may take up any work which it deems
profitable” is meaningless.
v) The objects must be quite elaborate also. Note only the main
objects but the subsidiary or incidental objects too should be stated
4. Capital Clause

 Every limited company having a share capital must state the

amount of its share capital with which the company is
proposed to be registered and the division thereof into shares
of a fixed denomination, in this clause.

 It may be any amount running into crores of rupees but

denomination of each share should be Rs. 10 or 100 in the
case of equity shares and Rs. 100 in the case of preference
shares.

 An unlimited company having a share capital is not required to

have the capital clauses in its Memorandum of Association.
5. Liability Clause
 This clause of Memorandum of Association has to state the nature of
liability that the members incur. In case of a company limited by
shares, the members are liable only to the amount unpaid on the
shares taken by them. In the case of company limited by guarantee
the members are liable to the amount undertaken to be contributed
by them to the assets of the company in the event of its winding up.
 Any alteration in the memorandum of association compelling a
member to take up more shares, or which increases his liability,
would be null and void. (Sec 38).
 If a company carries on business for more than 6 months while the
number of members is less than seven in the case of public company,
and less than two in case of a private company, each member aware
of this fact, is liable for all the debts contracted by the company after
the period of 6 months has elapsed. (Sec. 45).
6. Association or Subscription Clause
In this clause, the subscribers declare that they desire to be formed into
a company and agree to take shares stated against their names. No
subscriber will take less than one share. The memorandum has to be
subscribed to by at least seven persons in the case of a public company
and by at least two persons in the case of a private company. The
signature of each subscriber must be attested by at least one witness
who cannot be any of the subscribers.
Each subscriber and his witness shall add his address, description and
occupation, if any. This clause generally runs in this form : “we, the
several person whose names and addresses are subscribed, are desirous
of being formed into a company in pursuance of the number of shares
in the capital of the company, set opposite of our respective name”.
After registration, no subscriber to the memorandum can withdraw his
subscription on any ground.
Alteration of Memorandum of association involves compliance with
detailed formalities and prescribed procedure. Alternations to the
extent necessary for simple and fair working of the company would
be permitted. Alterations should not be prejudicial to the members
or creditors of the company and should not have the effect of
increasing the liability of the members and the creditors.
1. Change of name
A company may change its name by special resolution and with the
approval of the Central Government signified in writing . However,
no such approval shall be required where the only change in the
name of the company is the addition there to or the deletion there
from, of the word “Private”, consequent on the conversion of a
public company into a private company or of a private company into
a public company. (Sec. 21)
2. Change of Registered Office
This may involve :
a) Change of registered office from one place to another place in the
same city, town or village. In this case, a notices is to be give
within 30 days after the date of change to the Registrar who shall
record the same.
b) Change of registered office from one town to another town in the
same State. In this case, a special resolution is required to be passed
at a general meeting of the shareholders and a copy of it is to be
filed with the Registrar within 30 days. The within 30 days of the
removal of the office. A notice has to be given to the Registrar of
the new location of the office.
c) Change of Registered Office from one State to another State to
another State.
Section 17 of the Act deals with the change of place of registered office
form one State to another State. According to it, a company may alter
the provision of its memorandum so as to change the place of its
registered office from one State to another State for certain purposes
referred to in Sec 17(1) of the Act. In addition the following steps will
be taken.
 Special Resolution
For effecting this change a special resolution must be passed and a
copy there of must be filed with the Registrar within thirty days.
Special resolution must be passed in a duly convened meeting.
 Confirmation by Central Government
The alteration shall not take effect unless the resolution is confirmed
by the Central Government.
3. Alteration of the Object Clause
The Company may alter its objects on any of the grounds (I) to (vii)
mentioned in Section 17 of the Act. The alteration shall be effective
only after it is approved by special resolution of the members in general
meeting with the Companies Amendment Act, 1996, for alteration of
the objects clause in Memorandum of Associations sanction of Central
Government is dispensed with.
4. Alteration of Capital Clause
The procedure for the alteration of share capital and the power to
make such alteration are generally provided in the Articles of
Association If the procedure and power are not given in the
Articles of Associational, the company must change the articles
of association by passing a special resolution.
5. Alteration of Liability Clause
Ordinarily the liability clause cannot be altered so as to make the
liability of members unlimited. Section 38 states that the liability
of the members cannot be increased without their consent.
A company, if authorized by its Articles, may alter its
memorandum to make the liability of its directors or manager
unlimited by passing a special resolution. This rule applies to
future appointees only. Such alteration will not effect the existing
directors and manager unless they have accorded their consent in
writing. [Section 323].
 Section 32 provides that a company registered as unlimited may
register under this Act as a limited company. The registration of an
unlimited company as a limited company under this section shall not
affect any debts, liabilities, obligations or contracts incurred or
entered into by the company before such registration.
Conclusion
 A Memorandum of Association is a document of vital importance in
the incorporation of a company. It should be drafted with utmost
sincerity. To amend and alter the name of the organisation, the office
of registration, object clause, the authorized share capital of the
company and any other legal liabilities, the company is required to a
follow a complicated legal procedure.
 All other social responsibilities and supporting activities and range
of other related activities should also be clearly stated in the
Memorandum of Association to provide flexibility to undertake new
projects as and when the opportunities arise.
 Every company is required to file Articles of Association
along with the Memorandum of Association with the
Registrar at the time of its registration.
 Articles of Association are the rules, regulations and bye-
laws for governing the internal affairs of the company. They
may be described as the internal regulation of the company
governing its management and embodying the powers of
the directors and officers of the company as well as the
powers of the shareholders. They lay down the mode and
the manner in which the business of the company is to be
conducted.
 The Articles of Association (AoA) is a document that
defines the purpose of a company and specifies the
regulations for its operations. The document outlines how
tasks should be accomplished within an organization,
including the preparation and management of financial
records, and the process of director appointments.
 In framing Articles of Association care must be taken to see
that regulations framed do not go beyond the powers of the
company it self as contemplated by the Memorandum of
Association nor should they be such as would violate any of
the requirements of the companies Act, itself. All clauses in
the Articles ultra vires the Memorandum.
 Article of Association are to be printed, divided into
paragraphs, serially numbered and signed by each
subscriber to Memorandum with the address,
description and occupation. Each subscriber shall sign
in the presence of at least one witness who shall attest
the signatures and also mention his own address and
occupation.
Articles generally contain provision relating to the following matters;
(1) the exclusion, whole or in part of Table A; (ii) share capital
different classes of shares of shareholders and variations of these
rights (iii) execution or adoption of preliminary agreements, if any;
(iv) allotment of shares; (v) lien on shares (vi) calls on shares; (vii)
forfeiture of shares; (viii) issue of share certificates; (ix) issue of share
warrants; (x) transfer of shares; (xi) transmission of shares; (xii)
alteration of share capital; (xiii) borrowing power of the company;
(xiv) rules regarding meetings; (xv) voting rights of members; (xvi)
notice to members; (xvii) dividends and reserves; (xviii) accounts and
audit; (xix) arbitration provision, if any; (xx) directors, their
appointment and remuneration; (xxi) the appointment and
reappointment of the managing director, manager and secretary; (xxii)
fixing limits of the number of directors (xxiii) payment of interest out
of capital; (xxiv) common seal; and (xxv) winding up
 Section 31 grant power to every company to alter its articles
whenever it desires by passing a special resolution and filing a copy
of altered Articles with the Registrar.
 Alteration of articles is much easier than memorandum as it can be
altered by special resolution. However, there are various limitations
under the Companies Act to the powers of the shareholders to alter
the articles.
 In case of conversion of a public company into a private company,
alteration in the articles would only be effective after approval of
the Central Government [Section 31].
 Alteration of the articles shall not violate provisions of the
Memorandum. It must be made bonafide the benefit of the company.
 Alteration must not contain anything illegal and shall not constitute
fraud on the minority.
 Alteration in the articles increasing the liability of the
members can be done only with the consent of the members.
 The Court may even restrain an alteration where is likely to
cause a damage which cannot be adequately compensated in
terms of money. Similarly, a company cannot by altering
articles, justify a breach of contract. Any alteration so made
shall be valid as if originally contained in the articles.
 Where a special resolution has been passed altering the articles
or an alteration has been approved by the Central Government
where required, a printed copy of the articles so altered shall
be filed by the company with the Registrar of Companies
within one month of the date of the passing of special
resolution.
 The Memorandum and Articles of a company are registered
with the Registrar. These are the public documents and open
to public inspection,. Every person contracting with the
company must acquaint himself with their contents and
must make sure that his contract is in accordance with them,
otherwise he cannot sue the company.
 On registration the memorandum and articles of association
become public documents. These documents are available
for public inspection either in the office of the company or
in the office of the Registrar of Companies on payment of
one rupee for each inspection and can be copied (Sec. 610).
 Every person who deals with the company, whether shareholder
or an outsider is presumed to have read the memorandum and
articles of association of the company and is deemed to know the
contents of these document. Therefore, the knowledge of these
documents and their contents is known as the constructive notice
of memorandum and articles of association.
 It is presumed that persons dealing with the company have not
only read these documents but they have also understood their
proper meaning.
 Where a person deals with the company in a manner, which is
inconsistent with the provisions of memorandum or articles, or
enters into a transaction which is beyond the powers of the
company, shall be personally liable to bear the consequences
regarding such dealings.
 The doctrine helps protect external members from the
company. And indeed, states that it entitles the people to
presume that internal proceedings are as per documents with
the Registrar of Companies.
 According to this doctrine, persons dealing with the company
need not inquire whether internal proceedings relating to the
contract are followed correctly, once they are satisfied that the
transaction is in accordance with the memorandum and articles
of association.
 Shareholders, for example, need not enquire whether the
necessary meeting was convened and held properly or whether
necessary resolution was passed properly. They are entitled to
take it for granted that the company had gone through all these
proceedings.
 The doctrine of indoor management is an exception to the
earlier doctrine of constructive notice. It is important to note
that the doctrine of constructive notice does not allow
outsiders to have notice of the internal affairs of the company.
 In simple words, the doctrine of indoor management means
that a company’s indoor affairs are the company’s problem.
A prospectus is a formal document that is 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. The document can help investors make more informed
investment decisions because it contains a host of relevant
information about the investment security.
Section 2(36) defines a prospectus an “any document
described as issued as a prospectus and includes any notice,
circular, advertisement or other document inviting deposits
from the public or inviting orders from the public for the
subscription or purchase of any share in, or debentures of, a
body corporate”.
 In simple words, a prospectus may be defined as an
invitation to the public to subscribe to a company’s
shares or debentures.
 By virtue of the Amendment Act of 1974, any
document inviting deposits from the public shall also
come within the definition of prospectus.
 The word “Prospectus” means a document which
invites deposits from the public or invites offers from
the public to buy shares or debentures of the company.
A prospectus includes some of the following information:
 A brief summary of the company’s background and
financial information
 The name of the company issuing the stock
 The number of shares
 Type of securities being offered
 Whether an offering is public or private
 Names of the company’s principals
 Names of the banks or financial companies performing
the underwriting
 To bring to the notice of public that a new company has
been formed.
 To preserve an authentic record of the terms of
allotment on which the public have been invited to buy
its shares or debentures.
 The secure that the directors of the company accept
responsibility of the statement in the prospectus.
 Characteristics Of Prospectus
 It is a document by which the company procures its
share capital needed to carry on its activities.
 It is an invitation to a member of the public
 It includes any notice, circular, advertisement inviting
deposits from the public.
 It must contain full and honest disclosures.
Issue after Incorporation
Section 55 of the Act permits the issue of prospectus in
relation to an intended company. A prospectus may be issued
by or on behalf of the company.
a) by a person interested or engaged in the formation
company, or
b) through an offer for sale by a person to whom the company
has allotted shares.
Dating of Prospectus
A prospectus issued by a company shall be dated and that date
shall be taken as the date of publication of the prospectus
(Section 55). Date of issue of the prospectus may be different
from the date of publication.
 Registration of Prospectus
A copy of every prospectus must be delivered to the Registrar
for registration before it is issued to the public. Registration
must be made on or before the date of its publication. The
copy sent for registration must be signed by every person who
is named in the prospectus as a director or proposed director of
the company or by his agent authorized in writing. Where the
prospectus is issued in more than one language, a copy of its
as issued in each language should be delivered to the registrar.
This copy must be accompanied with the following
documents:
a) If the report of an expert is to be published, his written
consent to such publication
b) a copy of every contract relating to the appointment and
remuneration of managerial personnel;
c) a copy of every material contract unless it is entered in the
ordinary course of business or two years before the date of the
issue of prospectus;
d) a written statement relating to adjustments; if any, made by
the auditors or accountants in their reports relating to profits
and losses, assets and liabilities or the rates of dividends, etc.;
and
e) written consent of auditors, legal advisers, attorney,
solicitor, banker or broker of the company to act in that
capacity.
 A copy of the prospectus along with specific documents
must been field with the Registrar. The prospectus must
be issued within ninety days of its registration. A
prospectus issued after the said period shall be deemed
to be a prospectus, a copy of which has not been
delivered to the Registrar for registration. The company
and every person who is knowingly a party to the issue
of prospectus without registration shall be punishable
with fine which may extend to five thousand rupees
(Section 60).
Application Forms to be Accompanied with the Copy of
Prospectus
Every from of application for subscribing the shares or
debentures of a company shall not be issued unless it is
accompanied by a copy of prospectus except when it is
issued in connection with a bona fide invitation to a person
to enter into an underwriting agreement with respect to
shares or debentures or in relation to shares or debentures
which were not offered to the public [(Section 56(3)].
Section 56(5) provides that the prospectus need not contain
all the details required by the Act where the offer is made to
exiting members or debenture holders of the company.
 A prospectus is an invitation to the public to subscribe to
the shares or debentures of a company. Every person
authorizing the issue of prospectus has a primary
responsibility to seed that the prospectus contains the true
state of affairs of the company and does not give any
fraudulent picture to the public.
 People invest in the company on the basis of the
information published in the prospectus. They have to be
safeguarded against all wrongs or false statements in
prospectus. Prospectus must give a full, accurate and a fair
picture of material facts without concealing or omitting any
relevant fact. This is known as the ‘Golden Rule’ for
framing prospectus.
  The statements which do not qualify to the particulars mentioned in the
prospectus or any information is intentionally and willfully concealed
by the directors of the company, would be considered as mis-statement.
A statement included in a prospectus shall be deemed to be untrue, if
 The statement is misleading in the form and context in which it is
included; and
 the omission from a prospectus of any matter is calculated to mislead
(Section 65).
If there is any misstatement of a material fact in a prospectus as if the
prospectus is wanting in any material fact, this may arise
1. Civil Liability: It means the liability to pay damages or
compensation.
2. Criminal Liability: Criminal liability means the liability which
improve punishment of imprisonment or fine or both.
 1. Civil Liability
A person who has induced to subscribe for shares (or
debentures) on the faith of a misleading prospects has
remedies against the company, directors, promoters, and
experts. Every person who is a director and promoter of the
company, and who has authorized the issue of the prospectus
[Section (2)].
a) Compensation
The above persons shall be liable to pay compensation to
every person who subscribes for any shares or debentures for
any loss or damage sustained by him by reason of any untrue
statement included therein [Section 62(1)].
b) Recession of the Contract for Misrepresentation
Avoiding the contract is recession. Any person can apply to the court
for recession of the contract if the statements on which he has taken
the shares are false or caused by misrepresentation whether innocent
or fraudulent.
The contract can be rescinded if the following conditions are
satisfied:
1) The statement must be a material misrepresentation of fact
2) It must have induced the shareholder to take the shares.
3) The deceived shareholder is an allottee and he must have relied
on the statement in the prospectus.
4) The omission of material fact must be misleading before
recession is granted.
5) The proceedings for recession must be started as soon as the
allottee comes to know of a misleading statement.
c) Damages for Deceit as Fraud
Any person induced to invest in the company by fraudulent
statement in a prospectus can sue the company and person
responsible for damages. The share should be first surrendered to
company before the company is used for damages.
Fraud occurs when any statement is made without belief in the
truth or carelessly. A statement made with knowledge that it is
false, will constitute fraud or deceit.
d) Liability for non-compliance
A director or other person responsible shall be liable for damage
for noncompliance with or contravention of any of the matters to
be stated and reports to be set out in the prospectus as provided
[by Section 56(41)].
e) Damages for Fraud under General Law
Any person responsible for the issue of prospectus may be held liable
under the general law or under the Act for misstatements or fraud.
f) Penalty for Contravening Section 57 & 58
If any prospectus is issued is contravention of Section 57, (experts to
be unconnected with formation or management of company), or
Section 58 (expert’s consent to issue of prospectus containing statement
by him) the company and every person who is knowingly party to the
issue thereof, shall be punishable with fine which may extend to Rs.
5,000/-.
g) Penalty for issuing the Prospectus without Registration
If a prospectus is issued without a copy of thereof being delivered to
the Registrar, the company and every person who is knowingly a party
to the issue of the prospectus shall be punishable with fine which may
extent to Rs 5,000 [Section 60(5)].
2. Criminal Liability
Every person who authorized the issue of prospectus shall be punishable for
untrue statement with imprisonment for a term which may extend to 2 years or
with fine which may extend to Rs. 5,000/- or with both [Section 63(1)].
Penalty for Fraudulently inducing Persons to Invest Money [Section 68]
Any person who either knowingly or recklessly makes any statement, promises
or forecast which is false, deceptive or misleading or by any dishonest
concealment of material facts, induces or attempts to induce another person to
enter into;
• Any agreement with a view to acquiring, disposing of, subscribing for, or
underwriting shares or debentures;
• An agreement to secure to any of the parties from the yield of shares or
debentures; or by reference to fluctuation in the value of shares or debentures;
shall be punishable for a term which may extend to 5 years of with fine which
may extend to Rs. 10,000/- or with both.
According to Companies Act 2013, there are four types of a
prospectus as per section 2 (70)
1. Red-herring Prospectus :
 Name is inspired with fish
 Red-herring means to distract from one point and to
attract on other points
 After filling draft prospectus, the company use the
prospects to attract investors, that prospectus is known
as Red-herring prospectus.
 As per Section 32, two details does NOT be include :
Quantum & Price
2. Abridged Prospectus : As per Section 2(1)
 Summary of Prospectus
 Original Prospectus usually contain 300-500 pages, which
is filed in SEBI.
 Investors need to read Abridged Prospectus before investing
 As per Section 33, Any company can NOT issue application
for subscription WITHOUT Abridged Prospectus.
3. Shelf-Prospectus : Section 31
 Not for Every Company
 SEBI specified company/ institutions, who are in financial
related works can issue
 Shelf means life, validity period
 Validity period is maximum 1 year
 After filling the Shelf-Prospectus, if company will have any
material changes which is considerable, in this case,
company will use Information Memorandum.
 Information Memorandum is a document to use the convey
the change related information to investors
4. Deemed Prospectus: Section 26
 Deemed means to presume or assume
 Treat a document as a prospectus
 Example: There is a company; XYZ, which is not interested in
SEBI. Now this company wants to issue shares to public
without following SEBI guidelines.
 No guidelines of SEBI or Companies Act are applicable
 This company make an agreement with Issue House to issue
the shares.
 Issue house is offering the shares of XYZ company to public.
 That document is Deemed Prospectus, and it will be of the
company, not of Issue House
 Section 149(1) of the Companies Act, 2013 requires that
every company shall have a minimum number of
3 directors in the case of a public company,
two directors in the case of a private company, and
one director in the case of a One Person Company.
A company can appoint maximum 15 fifteen directors.
 A director is a person appointed to
perform the duties and functions of
director of a company in accordance
with the provisions of
the Companies Act, 2013.
 The directors are the persons elected by the shareholders to direct, conduct,
manage or supervise the affairs of the company.
 The Companies Act does not precisely define the term ‘director’.
 But it has been defined under several sections of the Act, in
the following manner:
 According to Sec. 2 (13) of the Companies Act., “Director
includes any person occupying the position of director by
whatever name called.” This definition given by the
Companies Act does not give the clear meaning of the word
director, but it means that a person who performs the duties of
a director will be deemed to be a director irrespective of the
name by which he is called.
 According to Sec. 2(30), “A director is the officer of the
company.”
 The Act does not define the position/status of directors, and it
is difficult to define the exact legal position of the directors of
a company.
 Although, the directors have been referred as the trustees, or
the managing partners of the company, but in real sense they
are none of them. Directors may be considered as the agent,
trustees or managing partner for a particular moment and for
the particular purpose.
(i) Legally a director is not the trustee: Legally speaking, a
director is not the trustee of the company. The office of director is
that of a paid servant of the company. A director never enters into
a contract for himself, but he enters into a contract for his
principal i.e., for the company of which he is a director or for
whom he is acting.” From this point of view, directors are not the
trustees of the company, because they are not the legal owners of
the properties of the company.
(ii) Directors as trustees of the company’s property and
money:
Although the directors are not, properly speaking, the trustees, yet
they are trustees of the company’s money and property and they
are bound to deal with capital under their control as a trust. They
must act in good faith and exercise their powers in the interest and
benefit of the company.
(iii) Directors as trustees to the powers entrusted to them:
The directors are the trustees in respect of powers entrusted to
them. They must exercise these powers bonafide and for the
benefit of the company as a whole.
Examples of such powers are as follows:
 The power of employing the funds of the company;
 The power to declare dividend in the general meeting
 The power to make call;
 The power of forfeiting shares;
 The power of approving the transfer of shares;
 The power of accepting the surrender of shares;
 The power of issuing the unissued shares of the company
and making allotments thereof.
(iv) Directors not as trustees to the shareholders: It
should be noted that directors occupy a fiduciary
relationship only in relation to the company and not in
relation to an individual shareholder. They are not
trustees for any particular shareholder.
(v) Directors not as trustees to the outsiders: The
directors are not as trustees to other persons entering
into any contract with the Company.
 The company being an artificial person cannot manage its
affairs itself but the management of the company is
entrusted to some human agency known as directors.
 The directors must act in the name of the company and
within the scope of their authority. If the directors enter into
a contract which is beyond their powers but within the
powers of the company, the company, like any other
principal, may ratify it.
 Where the directors enter into a contract which is ultra virus
the company, the company cannot ratify it and neither the
company nor the directors are liable on it. However the
directors may be held liable for breach of implied warranty
of authority.
 3. Position of Directors as Managing Partner
Directors have been described as the managing partners
because, on the one hand, they are entrusted with
management and control of the affairs of the company, and
on the other hand, they are usually important shareholders
of the company.
4. Position of Directors as Officers
Under Sec. 2 (30) of the Companies Act, the directors are
the officers of the company. As officers, they may by held
liable if the provisions of the Companies Act have not been
fully complied with by them.
 5. Position of Directors as Employees
The directors may be considered as the employees of the company
also, because they work under a special contract of service with the
company and are paid remuneration accordingly.
6. Position of Directors as Organs of the Company
Directors have also been treated, in judicial decisions, organs of the
company for whose action the company is to be held liable just as a
natural person is liable for the actions of his limbs.
In Bath vs. Standard Land Co., Neville J. stated, “The board of
directors are the brain and the only brain of the company which is
the body and the company can and does act only through them.”
SECTION 152 OF THE COMPANIES ACT, 2013 –
APPOINTMENT OF DIRECTOR
 An individual who is appointed or elected as the member of
the board of Directors of a Company, who, along with the
other directors, has the responsibility for determining and
implementing the policies of the company.
 Director is an individual who directs, manages, oversees or
controls the affairs of the Company.
 In public or a private company, a total of two-thirds of
directors are appointed by the shareholders. The rest of the
one-third remaining members are appointed with regard to
guidelines prescribed in the Article of Association.
 In the case of a private company, their Article of
Association can prescribe the method to appoint any
and all directors. In case the Articles are silent, the
directors must be appointed by the shareholders.
 Nominee directors will be appointed by third party
authorities or the Government to tackle
mismanagement and misconduct. The duties of
directors are to act honestly, exercise reasonable care
and skill while performing their duties on behalf of
the organization.
1. He or she should not have been sentenced to
imprisonment for any period, or a fine.
2. He or she should have completed twenty-five (25)
years of age, but be less than the age of seventy (70)
years. However, this age limit is not applicable if the
appointment is approved by a special resolution
passed by the company in general meeting or the
approval of the Central Government is obtained.
3. He or she should be a resident of India.
 There in an old proverb that "Two heads are always better than
one". When two or more than two persons come together to
discuss matters of common interest, there is said to be a
meeting.
 It follows that to constitute a meeting there must be two or
more persons. Generally, the purpose of a meeting is to
consider issues of common interests to its attendants.
 Meeting: Get together of individuals or persons with some
plan is known as meeting.
 Business meeting: When two or more persons gathered as per
given notice to discuss some business matters is known as
business meetings.
 Company meeting: when the members of a company
gathered at a certain time and place to discuss business affairs
it is called company meeting.
1. Meeting of Members 4. Meetings of the
2. Meetings of the shareholders Creditors
(i) General meetings
a. Meeting of
a. Statutory meeting
b. Annual general meeting
Debenture-holders
c. Extraordinary general b. Meeting of creditors
meeting and contributories at
(ii) Class meetings the time of
3. Meetings of the Directors liquidation of the
a. Board meetings company
b. Committee meetings
 These meetings are general meetings as they are
attended by all the members.
 The management of the company is undertaken
through meetings of the company’s shareholders
where major decisions are to be taken. The meetings
are usually called by directors, but may also be called
by the shareholders. In case of default the
Commission may call a meeting, either of its own
accord or on the application of members.
STATUTORY MEETING
 Every public company limited by shares and every
company limited by guarantee and having a share capital,
shall, within a period of not less than one month nor more
than six months from the date on which the company is
entitled to commence business hold a general meeting of
the members of the company. This meeting is called 'the
statutory meeting'. [Sec. 165 (1)].
 Private companies, public companies limited by
guarantee and not having a share capital and unlimited
companies are not required to hold the statutory meeting.
Annual general meeting
Every company must in each year hold in addition to any
other meeting a general meeting, as its annual general
meeting and must specify the meeting as such in the notices
calling it [Section 166 (1)]. The annual general meeting is to
be held in addition to any other general meeting that might
have been held in a year. It appears that holding of an annual
general meeting in every calendar year is a statutory
necessity. Calendar year is to be calculated from 1st January
to 31st December and not twelve months from the date of
incorporation of the company
 Extraordinary general meeting
An extraordinary general meeting (EGM) refers to any
shareholder meeting called by a company other than it's
scheduled annual meeting. The extraordinary general
meeting is utilized to deal with urgent matters that come up
between annual shareholders' meetings.
Class meetings
Class meetings are the meetings of the shareholders
and the creditors. Class meetings are held to pass
resolutions which will bind only the members of the
particular class concerned
Board meetings are meetings at the highest level, i.e. a
meeting where board members or their representatives are
present. A company is not an actual entity but a legal one so
it cannot take actions and make decisions. The board of
directors act as agents through which the company takes
actions as well as makes decisions.
The board of directors is the supreme authority in a
company and they have the powers to take all major actions
and decisions for the company. The board is also responsible
for managing the affairs of the whole company.
For the effective functioning and management, it is
imperative that board meetings be held at frequent intervals.
Committee Meeting
A committee consists of a named subgroup of people within an
organization who come together to fill a predetermined function.
A committee's work is described in its charter and is often
conducted in a series of meetings.
Meetings of the Creditors: Meeting of Debenture Holders
The debenture holders of a particular class conduct these
meeting. They are generally conducted when the company wants
to vary the terms of security or to modify their rights or to vary
the rate of interest payable etc. Rules and Regulations regarding
the holding of the meetings of the debenture holders are either
entered in the Trust Deed or endorsed on the Debenture Bond so
that they are binding upon the holders of debentures and upon
the company.
 Meeting of creditors
Strictly speaking, these are not meetings of a company.
They are held when the company proposes to make a
scheme of arrangements with its creditors. Companies like
individuals may sometimes find it necessary to
compromise or make some arrangements with their
creditors, In these circumstances, a meeting of the
creditors is necessary.
Meeting of creditors and contributories at the time of
liquidation of the company
 Board Meeting through Video Conferencing under
Companies Act 2013
As stated in Section 173(2) of Companies Act, 2013 read
with Rule 3 of the Companies (Meetings of Board and its
Powers) Rules, 2014, The participation of directors in a
meeting of the Board may be either in person or through
video conferencing or other audio visual means as may be
prescribed, which are capable of recording and
recognizing the participation of the directors and of
recording and storing the proceedings of such meetings
along with date and time.
Matters which cannot be transacted through Video
Conferencing
i. The approval of the annual financial statements;
ii. The approval of the Board’s report;
iii. The approval of the prospectus;
iv. The approval of the matter relating to merger,
demerger, acquisition and takeover
Who is an Auditor?
Any individual trained to review and verify accounting data
and recognized as a Chartered Accountant (CA) under the
Chartered Accountant Act 1949 is deemed to be an auditor.
What is the purpose for the appointment of the Auditor?
The purpose of the auditors in the company is to protect the
interests of the shareholders. The auditor is obligated by law
to examine the accounts maintained by the directors and
inform them of the true financial position of the company.
Auditor gives his independent opinion to the owners or
shareholders of the company to protect and keep the
company in a safe financial condition.
How is the appointment of an Auditor for different kinds of Companies
done?
Application for 1st Auditor post Incorporation
 Non Government Company: Appointed by the Board Of Directors. This
has to be done within 30 days from the date of Registration. Appointment
can also be done by Members at Extraordinary General Meeting within 90
days of information.
 Listed/Specified Company: Appointed by Board Of Directors. This has to
be done within 30 days from the date of Registration. Appointment can
also be done by Members at Extraordinary General Meeting within 90 days
of the information.
 Government Company: Appointed by the Comptroller and Auditor
General of India. This has to be done within 60 days from the date of
Registration. Appointment can also be done by Board Of Directors within
30 days of incorporation. Members can also appoint at an Extraordinary
General Meeting within 60 days of Information
Auditor at First AGM. The written consent and a certificate.
Please note, the appointment shall be in accordance with the
conditions laid down by the auditor.
 Non Government Company: The appointment is done by the
members. He will hold office till the end of the 6th AGM.
 Listed/Specified Company: The appointment is done by the
members for a maximum term of 5/10 consecutive years.
Cooling off period of 5 years before next appointment will be
there.
 Government Company: The appointment is done by
the Comptroller and Auditor General of India. He
should be appointed within 180 days from the 1st
of April
Appointment of Subsequent Auditor
 Non Government Company: The appointment is done by the members
and he will hold office till the conclusion of the 6th meeting.
 Listed/Specified Company: The appointment is done by the members for
a Maximum term of 5/10 consecutive years.
 Government Company: The appointment is done by the Comptroller and
Auditor General of India within 180 days from the 1st of April
Casual Vacancy due to resignation and other reasons
• Non Government Company: The appointment is by the members within
3 months of the recommendations of Board and he will hold office till the
next AGM.
 Government Company: The appointment is done by the : -CAG
(Comptroller and Auditor General) within 30 days OR BOD within
the next 30 days
Retiring auditor may be reappointed at AGM if –
1. He is not disqualified for reappointment.
2. He has not given the company a notice in writing of
his unwillingness to be re-appointed; and
3. A special resolution has not been passed at that
meeting appointing some other auditor or providing
expressly that he shall not be reappointed.
 Winding up of a company is the process whereby its life is
ended.
 Winding up is proceeding for the realization of the assets, the
payment of creditors, and the distribution of the surplus, if
any, among the shareholders, so that the company may be
finally dissolved.
 Professor Govern in his book Principles of Modern Company
Law has described the winding up of a company in the
following words : ‘‘Winding up of a company is the process
whereby its life is ended and its property administered for the
benefit of its creditors and members. An administrator called a
liquidator is appointed and he takes control of the company,
collects its assets, pays its debts and finally distributes any
surplus among the members in accordance with their rights.’’
 Thus winding up is the last stage in the life of a company. It
means a proceeding by which a company is dissolved.
 Winding up should not be taken as if it is dissolution of a
company. The winding up of a company precedes its
dissolution. Prior to dissolution and after winding up, the legal
entity of the company remains and it can be sued in a Court of
law. On dissolution the company ceases to exist, its name is
actually struck off from the Register of Companies by the
Registrar and the fact is published in the official Gazette.
A company can be wound up in three ways :
1. Compulsory winding up by the Court;
2. Voluntary winding up :
(i) Members' voluntary winding up;
(ii) Creditors' voluntary winding up;
3. Voluntary winding up subject to the supervision of the Court
[Sec. 425].
 WINDING UP BY THE COURT
A company may be wound up by an order of the Court. This is
called compulsory winding up or winding up by the Court.
Section 433 lays down the following grounds where a company
may be wound up by the Court.
A petition for winding up may be presented to the Court on any
of the grounds stated below
 Default in filing statutory report or holding statutory meeting
 Failure to commence business within one year or suspension
of business for a whole year
 Reduction of membership below the minimum
 Company's inability to pay its debts
 VOLUNTARY WINDING UP
Winding up by the creditors or members without any
intervention of the Court is called 'voluntary winding up'. In
voluntary winding up, the company and its creditors are left
free to settle their affairs without going to the Court, although
they may apply to the Court for directions or orders if and
when necessary.
A company may be wound up voluntarily under the
circumstances given hereunder :
 when the period fixed for the duration of the company by
the articles has expired
 The company has passed a special resolution to wind up
voluntarily.
 When a company has passed a resolution for voluntary
winding up, it must within 14 days of the passing of the
resolution gives notice of the resolution by advertisement in
the official Gazette and also in some newspaper circulating in
the district where the registered office of the company is
situated.
Members' voluntary winding up
A members' voluntary winding up takes place only when the
company is solvent. It is initiated by the members and is entirely
managed by them. The liquidator is appointed by the members.
No meeting of creditors is held and no committee of inspection is
appointed. To obtain the benefit of this form of winding up, a
declaration of solvency must be filed. (Section 488)
Creditors' Voluntary Winding up (Sections 500-509)
In creditors' voluntary winding up, it is the creditors who move
the resolution for voluntary winding up of a company, and there
is no solvency declaration made by the directors of the company.
In other words, when a company is insolvent, that is, it is not able
to pay its debts, it is the creditors' voluntary winding up.
WINDING UP SUBJECT TO SUPERVISION OF THE
COURT
Voluntary winding up may be under the supervision of the Court.
At any time after a company has passed a resolution for voluntary
winding up, the Court may make an order that the voluntary
winding up shall continue, but subject to such supervision of the
Court.