CHAPTER-1

INTRODUCTION TO COMPANY

Meaning of company
A company is a legal entity formed by a group of individuals to engage in and operate a business,
commercial or industrial enterprise.
Definition of company
According to Prof. Haney “company is an artificial person created by law having separated entity with a
perpetual succession and common seal”.
According to Henry “as an incorporated association which is an artificial person created by law, having
separate entity with a perpetual succession and common seal”.

Features of company /Joint Stock Company

1. Voluntary association
A company is voluntary association formed by an individual or group of individuals. There is no
compulsion on any person to become member and also it does not compel any member to give up his
membership. It is purely a personal choice of members.
2. Incorporated association
The company is created only when it is registered under companies Act, it comes into existence from
the date mentioned in the certificate of incorporation. For forming a public company at least seven
persons and for a private company at least two persons are required.
3. Separate legal entity
A company is distinct entity from its members. The persons who contribute capital to the company,
even though treated as owners, do not enjoy the ownership rights. No member can either individually or
jointly claim any ownership rights in the assets of the company.
4. Limited liability
A company may be company limited by shares, the liability of members is limited to the unpaid value
of the shares and the members shall be liable to contribute up to the amount guaranteed by them.
5. Common seal
All the Acts of the company are authorized by its common seal. The common seal is the official
signature of the company, any document not bearing the common seal is not binding on the company.
6. Transferable shares
In a public company, the shares are freely transferable that is can buy and sell in stock market. The
rights to transfer shares is a statutory right and it cannot be taken away.
 7. Separation of ownership and management
In a company, the shareholders are the owners but the management is done by the board of directors
who are separate from shareholders.
8. Perpetual existence
A company is a stable from of business organization. Its life does not depend upon the death,
insolvency or retirement of any or all shareholders or directors. Law creates it and law aloe can dissolve
it. Members may come and go but the company can go on forever.
9. Artificial legal person
A company is a creation of law and is called an artificial person. It exists only in the eyes of the law
and cannot act on its own. It is not a natural person.
COMPANIES ACT REPLACED BY ACT 2013

SL.N BASIS COMPANIES ACT 1956 COMPANIES ACT 2013

O
1. Types of companies Public company Public company
Private company Private company
One person company
2. Contains 13 parts, 658 sections, 15 schedules 29 chapter, 470 section, 7 schedules
3. Maximum no. of A private company can have A private company can have
members for private maximum of 50 members. maximum of 200 members.
company
4. Woman director No provision At least one director(paid of capital
₹100 crores& turnover of ₹300
crores or increase)
5. One person company No provision for OPC New concept introduced

6. Types of companies 10 types of companies 15 types of companies

7. Maximum no. of 12 directors (The no can be 15 directors (The no can be increased

directors increased by taking permission by a resolution in the Annual general
from the govt) meeting)
8. Minimum capital Public company – 1 lakhs Public company – 5 lakhs
Private company – 5 lakhs Private company – 1 lakhs
9. Interest in calls in In the absence of a clause in the In the absence of a clause in the
advance AOA, maximum payable on calls in AOA, maximum payable on calls in
advance is 6%p.a. advance is 12%p.a.
10. Independent director No such concept Introduced for 1st time
11. Interest in calls in In the absence of a clause in the In the absence of a clause in the
arrears AOA, maximum interest chargeable AOA, maximum interest chargeable
on calla in arrears is 5% p.a on calla in arrears is 10% p.a
12. Minimum no. of Public company - 2 members Public company - 2 members
persons Private company – 7 members Private company – 7 members
One person company can’t form a One person company can form a one
company. person company.
13. Notice of change of 30 days of such change 15 days of such change
registered office
address
14. Transfer to reserves No Yes
compulsory
15. Object clause 1 main, 2 ancillary, 3 others are Objective for which company is
required to mention in MOA. formed required to mention in MOA.
16. Article of association Table A applied where companies Table F applies where companies
did not adopt their own AOA. limited by shares does not adopt their
own AOA.
17. Applicability of rights Section 81 of the 1956 Act applied Section 62 of the 2013 Act applies to
issues provisions only to public companies. all public companies as well private
companies.
18. Consolidated financial Not mandatory. No provision in this Mandatory if company has one or
statements regard. more subsidiaries or associates or
joint ventures.
19. Payment of dividend No express provisions allowing this. Expressly allowed.
through electronic
mode of registered
shareholder
20. Books of accounts Books of accounts may be kept in Books of accounts are kept in
paper form. electronic form like balance sheet,
 cash flow statements and P/L
statement.
21. Fraud No definition or no punishment Any activity which is in relation to
the affairs of company & punishment
in case of offence.
22. Political contributions 5% of average net profit of 3 years 7.5% average net profit of 3 years
immediately preceding FY. immediately preceding FY.
23. Non-banking financial NBFC were governed by the NBFC will now be governed by RBI
company companies act in respect of rules in respect of acceptance of
acceptance of deposits. deposits.
24. Period for which rights Minimum 15 days Minimum 15 days
fares offers should be No Maximum 30 days Maximum 30 days
open
25. From which date From the earlier of the following On and from the 15th day of its
company must have a two dates: The day on which it incorporation.
registered office begins to carry on business or the
30th day after the date of its
incorporation.

Highlights of Companies Act 2013

1. Maximum members of Private companies and association or firm: have been increased from 50
to 200 and in case of association or firm increased to 100 members.
2. New concept of one person companies has been introduced: one person can also form the
company One-person company need not hold any AGM (Annual General meeting) for each year.
3. A person cannot become director in more than 20 companies: out of this, he cannot be director
of more than 10 public companies.
4. Appointment of company secretary: Appointment of company secretary is not mandatory for
private company.
5. The financial year: The financial year of any company can be only from April-march: Existing
companies has to align within 2 years of the commencement ofthe act.
6. Concept of CSR introduced: For companies having net worth Rs.5 billion or more or turnover of
Rs.10 billion or more or net profit of 50 million or more. Above specified company need to spend at
least 2 % of average net profit of last 3 years as on CSR activities.
 7. Women Director: Every listed company with paid up capital of Rs.100 crores or more/ public company
with turnover of Rs.300 crores or more shall have at least one-woman Director.
8. Loans to Director: The Company CANNOT advance any kind of loan, guarantee security to any
director, director of holding company, his relative and his partner.
9. Disqualification of director: All existing director must have directors identificationnumber (DIN) allotted
by Central Government. Directors who already have DIN no need to take action. Directors not having
DIN should initiate the process of getting DIN.
10. Immediate changes in letterhead: Bills or other official communications, as if full name, address of
its registered office, corporate identity number(21 Digits), telephone number, fax number, and Email
id, website address.
11. Article of association: In the next General Meeting, it is desirable to adopt Table F as standard set
of Article of association.
12. Attending of Annual General meeting: Auditors are compulsorily required to attend the Annual
General meeting.
13. Provisions for compulsory rotation of individual auditors: Every listed company can appoint an
individual auditor for 5 years and a firm of auditors for 10 years. Therefore, those companies have
reappointed their statutory auditors for more than 5/10 years: have to appoint another auditor in
Annual General Meeting for year 2014.
14. No approval required for related party transactions: No approval of the centralgovernment require for
entering into any related party transactions.
15. Registers can kept soft copy.
16. A director who has resigned need to intimate the Registrar of Company about his resignation.
17. Extra- ordinary general meeting shall be held at place within India.
18. Valuation of share is mandatory, if issued at a premium.
19. Resident director: every company shall have at least one director who has stayed in India for a total
period of not less than 182 days in previous calendar year.

Types/kinds/categories/classification of company

a) On the basis of incorporation

a) Chartered company
If a company is incorporated under a special Monarch (king or queen) it is called a
chartered company. Such companies were generally started in the 17th and 18th centuries.
 For eg: East Indian company, the chartered bank of Australia, china and India were
Incorporated by the grant of a special royal charter. These companies are not there in
India at present.
b) Statutory Company
A company which is created by a special act of the legislature is called a statutory
company. The state bank of India, industrial finance corporation, life Insurance,
corporation of India etc. are the examples of this kind.
a) Registered Company
A company brought into existence by registration with the Registrar of the
companies under the Companies Act of 2013 is called registered company.
b) Based On the liability of the members
a) An unlimited company
The company in which the liability of the members is Unlimited is called
unlimited company. The liability of members is unlimited i.e. members are liable for
the debts of the company to an unlimited extent in the event of its winding up. But this
type of company has become rare.
b) Companies limited by guarantee
In these companies, each member gives a guarantee for the debts of a company
up to a certain extent. Eg: - Trade associations, clubs and societies which formed to
promote social and cultural activities.
c) Companies limited by share
In these companies, liability being limited by shares, the member is called upon
to pay only the unpaid amount on the shares held by him. Most of the companies
formed today are of this type & in the following discussion we will deal mainly with
this of type of company.
c) On the basis of transferability
a) Private Company [section2(68)]
A private company is a company in which the minimum number of shareholder is 2 and
maximum can be 200 shareholders. No invitation can be made to the public for subscription of
shares or debentures, cannot make or accept depots from public. The liability limited to the
extent of the unpaid amount of the share held by the, and minimum paid up capital of Rs.1 lakh.
b) Public company [section2(71)]
 Public company means a company is not a private company has a minimum paid up capital of
Rs. 5 lakhs. A public company needs minimum 7 members and with no limit on maximum
members and can invite general public to subscription of shares and debentures.
d) on the basis of control
a) Holding company
A holding company is one which holds more than 50% of the nominal value of the equity
share capital of another company or which controlled the composition of the board of directors of
another company.
A company which has control over another company is called holding company.
b) Subsidiary company
A subsidiary company is one which when majority of shares are held by the other company
or holding company are called assubsidiary company.
A company which is controlled by another company is called subsidiary company.
e) On the basis of other company
a) Government companies (Section 45)
Government company as one in which not less than 51% of the paid up share capital is held
by central government or by any stategovernment or partly by central government and partly by
one or more state government.
Example: Hindustan Aeronautics Limited (HAL), Indian Telephone Industries (ITI), Bharath
Electronics Limited (BEL).
b) Foreign companies [section 2(42)]
A foreign company is one which is registered outside India but has a place of business in
India.
c) Multinational companies/ Global/ transnational
A company has a head quarter inone country but that operates more than one country through
their branchesis called and Multinational company or transnational company.
d) Associate company [section 2(6)]
Companies Act of 2103, a company in which that othercompany has significant influence
but which is not a subsidiary company. The company owns a significant portion of voting share
usually 20- 50%.
e) Listed company
According to companies Act, 2013, “listed company means a company which has any of
its securities listed on any recognized stock exchange. In other words, listed company is a firm
whose shares are listed (quoted) on a stock exchange for public trading. Also called quoted.
f) Small company
Small company means a company, other than a public company
i. Paid-up share capital of which does not exceed 50 lakh rupees or such higher amount
as may be prescribed which shall not be more than 5 crores rupees or
ii. Turnover of which as per its last profit and loss account does not exceed 2 crores
rupees or such higher amount as may be prescribed which shall not be more than 20
crores rupees

Provided that nothing in this clause shall apply to –

 A holding company or a subsidiary company

 A company registered under section 8 (association not for profit)
 A company or body corporate governed by any special Act.
g) Association not for profit
Under section 25 of the companies act the central government may under a license direct
that an association be registered as acompany with limited liability, without addition to its name of
such words as‘limited’ or ‘private limited’ provided:
i. The company to be formed is for promoting commerce, science, charity,
religion or any other useful social or cultural object such as chamber of
commerce.
h) Body corporate
The term body corporate is defined in section 2(11) of the companies Act, 2013
this includes a private company, public company, one- person com p an y, s m a l l
com p an y, Li m i t e d Li ab i l i t y p a rt ne rs hi p s f o r e i g n company etc. but does not
include
 A co-operative society registered under any law relating to co-operative
societies and
 Any other body corporate (not being a company as defined in this Act). Which
the Central Government may, by notification, specify in this behalf;
i) One person company (OPC)/ one man company
Section 2(62) of the Companies Act, 2013 (“Act”) defines OPC as a company
which has only one person as a member. The provisions of companies act 2013 regarding
OPC are mentioned below:
 OPC should be incorporated as a private limited company.
  It must have only one member at any point of time and may have only one
director.
 The member and nominee should be natural persons, Indian citizens and
resident in India. The term “resident in India” means a person who has
stayed in Indian for a period of not less than 182 days during the
immediately preceding one calendar year.
 OPC’s are not required to hold annual general meeting.
 One person cannot incorporate more than 1 OPC or become nominee in
more than 1 OPC.
 No minor shall become member or nominee of the OPC or hold share with
beneficial interest.
 Such company cannot carry out Non-Banking Financial Investment
activities including investment in u of anybody corporates.
 An OPC cannot convert voluntarily into any kind of company unless two
years have expired from the date of incorporation of One PersonCompany.
 An OPC cannot be incorporated or converted into a company under section
8 of the Act. (Company not for Profit).

Features of One Person Company (OPC)

I. Only one shareholder: only a natural person, who is an Indian citizen and resident of India,
shall be eligible to incorporate a one-person company
II. Nominee for the shareholder: The shareholder shall nominate another person who shall
become the shareholder in case of death/incapacity of the original shareholder.
III. Director: Must have a minimum of One director, the Sole shareholder can himself be the sole
director. The Company may have a maximum numberof 15 directors.

Privileges of private company

1. Members: A private company can be started by two persons only, whereas seven persons are
required to start a public company.
2. Prospectus: A private company is not required to issue or file a prospectus or statement inlieu of
prospectus with the Registrar of Companies.
3. Statutory meeting: A private company is not required to hold a statutory meeting or to file
statutory report with the Registrar.
4. Directors: A private company can have only two directors. It is exempted from restrictions relating
to the appointment, reappointment, retirement, and remuneration etc., of managerial personnel.
5. Shares: A private company can issue deferred shares with disproportionate voting rights. It is
not required to observe restrictions concerning allotment of shares, minimum subscription, right
shares, investment of funds in the same groups of companies, etc.
6. Transfers of shares: A private company can refuse to register any transfer of shares without
any appeal.

7. Accounts: A private company is not required to keep its annual accounts open for instruction
for non-members.
8. Quorum: Two members personally present is sufficient quorum for the general meeting of a private
company.
9. Index of members: A private company is not required to prepare and maintain any index tothe
Register of members.
10. Commencement of business: A private company can commence business immediately after its
incorporation. It is not required to obtain the certificate of commencement of Business.

Difference between Private Company and Public Company

Basis Private company Public company

Name should A private company has A private company has “Ltd”
end with “Pvt.Ltd” at the end of its name. at the end of its name.
Minimum The minimum number of The minimum number of
number of members needed to form a members needed to form a
members private company is at least 2 public company is at least 7
members. members.
Maximum The maximum number of The public company have no
number of members in a private company is restriction on a maximum
members restricted to 200. number of members.
Minimum paid- Private company should have a Private company should have
up capital minimum paid up capital of 1 a minimum paid up capital of
lakh rupees. 5 lakh rupees.
Number of A private company must have at A public company can only
directors least 2 directors to head and commence its business after
 supervise the affairs of the receiving a certificate of
company. incorporation and certificate
to commencement.
Issue of A private company cannot issue Public company can issue a
prospectus a prospectus. Private company is prospectus. Public company
not allowed for inviting the is free to invite public for
public for subscription of its subscription of its shares.
shares.
Minimum A private company can allot A public company cannot be
subscription shares without waiting for the able to allot shares before the
completion of minimum minimum subscription of
subscription limit. shares is completed.
Transferability The Articles of association of a The public company is free to
of shares private company lays restriction transfer the shares of its
on transfer of the shares from one company from one person to
person to another person. another.
Commencement Commencement of business of a A public company can only
of business private company takes place commence its business after
immediately after getting the receiving a certificate of
certificate of incorporation. incorporation and certificate
to commencement.
Quorum A private company is obligated A public company is
to have at least 2 members obligated to have at least 5
personally present for holding members personally present
the company meeting. to constitute the meeting.
Managerial There are no restriction on There are some restriction on
remuneration payments and remunerations payments and remunerations
offered to the directors or offered to the directors or
managers of a private company. managers and the
remuneration should not
exceed 11 % of the net
profits.
Statutory A private company is not A public company is required
meeting required to conduct a statutory to conduct a statutory
 meeting of the members or filing meeting and file the report to
of report to the register of the register of companies.
companies.
Share warrant It is prohibited from the issue of It is allowed to issue share
share warrants per bearer. warrants per bearer.
Retirement of director Director are not subject to Director are subject to
retirement by rotation. retirement by rotation.
Loan to directors Directors can barrow the loan No loan to the directors can
from the company without the be granted without the
approval of central government. approval of central
government.
Public issue of It cannot invite the public to subscribe It can invite the public to
capital for its shares. subscribe for its shares through
prospects.

********
 CHAPTER-2

FORMATION OF COMPANY
 CHAPTER-2

FORMATION OF COMPANY
In the formation of a public limited company mainly four stages are involved, namely,

1. Promotion
2. Incorporation
3. Capital Subscription
4. Commencement of business or trading certificate

STAGE – I: PROMOTION STAGE

The steps which are taken to persuade / motivate a number of persons to come together for the
achievement of a common objective through the company form are called promotion.

PROMOTER

 The person or the persons who undertake the responsibility to bring the company into
existence are called promoters.
 The promoter may be a single individual or group of individuals.
 The promoter conceives the idea of incorporation of a company.
 Once the promoter conceive idea of starting a company, they have to decide about the name
of the company.
 The state in which it is to be registered.
 Type of the company.
 Size of its capital base.
As per section 2(69) of Companies Act, 2013, Promoter means a person,

a. Who has been named as such in a prospectus or is identified by the company in the
annual return; or
b. Who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
c. In accordance with whose advice, directions or instructions the board of directors of the
company is accustomed to act.
FUNCTIONS OF PROMOTER

1. Promotion of the company

The most important function of the promoters is the promotion of the company. They
undertake various processes of promotion.
2. Incorporation of the company
Promoters also undertake the function of getting the company registered. They
prepare necessary documents such as MOA, AOA etc. and submit them to the registrar
and get the company incorporated.
3. Raising capital
In the case of public limited company having share capital promoters raise the
required capital and obtain business commencement certificate.
4. Naming of a company
The promoter has to select a name of the company. While selecting the name the
promoter keeps in mind that the name should not be identical to the name of any of the
company.
5. Preparing preliminary documents
The documents prepared by promoters are MOA, AOA & prospectus.
6. Appointment of bankers, brokers, solicitors & underwriters
The promoter appoints the broker & underwriters to ensure the availability of capital
by sale of company's securities, solicitors are appointed to deal with the legal matters of the
company and bankers are appointed to have smooth financial dealings.
RIGHTS OF PROMOTER

1. Right to receive preliminary expenses.

2. Right to recover proportionate amount from the co-promoters.
3. Right to remuneration.
LIABILITY OF THE PROMOTERS

1. To disclose the liability and pay the secret profits if promoters have earned.
2. Liability is up to the completion of contracts.
3. Liability on statutory mistakes or fraud in the prospectus.
4. His property becomes liable for payment even after his death.
TYPES OF PROMOTERS

1. Professional promoters - they are experts who specialize in company promotion.

2. Occasional promoters - they are not engaged in promotion work on a regular basis.
They take up promotion of some company & once it is over they go to their original
profession. For eg. Engineers, lawyers.
3. Entrepreneur promoters - they conceive idea of a new business unit, do the
groundwork to establish it and subsequently become a part of management.
4. Financier promoters - some financial institutions, like investment banks or industrial
banks, may take up the promotion of a company with a view to find opportunities for
investment.
5. Government – sometimes both central and state governments undertakes the promotion
work by establishing government companies.
STEPS IN PROMOTION OF A COMPANY
The promotion may be undertaken either for starting a new business or expanding the existing
business or for forming a holding company for a merger etc. The company promotion has
involved 4 stages.
a) Discovery of an idea - The promoters start with an idea to start some business either in
new field or existing field of business. He makes preliminary investigation to find out
whether the particular business is useful and he roughly estimates income and expenditure
of the proposed business.
b) Detailed Investigation - The promoter needs to make detailed investigation of his idea
with the assistants of many experts like engineers, chemists, market analysis, finance
experts, management consultants etc. on the basis of reports of these experts the promoters
would be in a position to know the capital requirements, place of location, size of the unit,
demand condition in the market, price of product, cost of production, Written on capital
etc. A detailed investigation will help him to compare the estimated income is enough to
meet the cost of production and other expenses.
c) Assembling - After detailed investigation, if he is satisfied with practicability and
profitability of the proposal concern, he starts assembling preposition, assembling means
getting the support and consent of other persons to act as a director or founders, arranging
for patents, a suitable site for the company, machinery and equipment etc.
 d) Financing the proposition: financial plans are prepared with respect to the amount of
capital required, the nature of capital structure (how & when to raise the share capital from
the general public).
LEGAL POSITION OF PROMOTER
 A promoter is neither an agent of, nor a trustee for, the company can’t be the agents as the
company is yet to be incorporated.
 From the moment he acts with the company in mind, he stands in a fiduciary position (i.e.,
Position of trust & confidence) towards the company he promotes.
 The fiduciary relation requires full disclosure of the relevant facts, including any profile made.
 Promoters are not legally entitled to claim the expenses incurred in the promotion of the
company. However, the company may choose to reimburse them for the pre incorporation
expenses.
 The company may also remunerate the promoters for their efforts by paying a lump sum
amount or a commission on the purchase price of property purchased through them or on
the share sold.
 The company may also allot those shares or debentures or give them an option to purchase
the securities at a future data.
 They can make a profit: They can make profit only of it is disclosed but must not make any
secret profits. In the event of a non-disclosure, the company can rescind the contract to the
promoters. It can also claim the nondisclosure of material information.

STAGE- II: INCORPORATION

After taking all preliminary steps of for registration an application along with the necessary
documents stamp duty, registration fees etc. has to be made to the registrar for the issue of
certificate of incorporation. After reutilization of the document, if the registrar is satisfied, he will
issue a certificate of incorporation.

Steps and formalities for the incorporation of the company

1. Approval of name
It has to be ensured that the name selected for the company does not match with the
name of any other company. For this, promoter has to fill in a "Name Availability Form"
and submit it to the registrar of Companies along with necessary fees.
 2. Filing of documents
The application for registration must be accompanied by the following documents:
a) Memorandum of Association (MOA) - it defines objectives of the company &
incorporation. (Duly signed, stamped & witnessed)
b) Articles of Association (AOA) - it contains rules & regulations regarding the
internal management of company (duly signed, stamped & witnessed)
c) A list of persons who have agreed to become directors with their addresses.
d) The notice about exact address of the registered office of the company
e) A copy of name approval letter received from the registrar of companies.
f) A statutory declaration that all the legal requirements of the companies act in
regard to incorporation have been complied with
3. Payment of filing & registration fees
Along with the above documents, necessary filing fees & registration fees at the
prescribed rates are also to be paid. The registrar will scrutinize all the document & if he
finds them in order, he will issue a certificate of incorporation (birth certificate of a JSC).
4. Allotment of corporate identity number (CIN)
The registrar shall allot to the company a CIN, which shall be a distinct identity for
the company and which shall also be included in the certificate.
5. Effect of registration
From the date of incorporation mentioned in the certificate of incorporation, the
company shall be a body corporate by the name contained in the memorandum, capable of
exercising all the functions of an incorporated company under the act.
6. Documents to be preserved
The Company shall maintain and preserve at its registered office copies of all
documents and information originally filed till its dissolution under the Act.

Meaning of Memorandum of Association

It is the most important as well as the primary document of the company without which, a
company can never be registered in India. Hence it is also called as life- giving document or
character of the company it defines companies‟ relationship with shareholders and outside world.
It has to be divided into paragraphs, consecutively numbered and printed.
 It is a document that defines the company relations with the outside world and the scope of its
activities. It contains the fundamental conditions upon which the company has been incorporated
and it is prepared at the time formation of company.

Memorandum of Association is the most important document as it defines the objectives of

the company. No company can legally undertake activities that are not contained in its
Memorandum of Association.

According to Sec. 2(28) Memorandum of Association means originally framed or altered

time to time a pursuance of any previous company law.
Purpose of memorandum

1. The intending shareholder who contemplates investing in a company should know the field
in or the purpose for which it is going to be used & the risk he is taking in making the
investment.
2. The person dealing with the company should know, whether the contractual relationship
he contemplates with the company is one relating to matter which is within its corporate
objects.
Clauses or contents of memorandum of Association

1. Name Clause - This clause contains the name of the company. The name selected should
not be similar to that of the existing company. The name of the company must be approved
by the central govt. The name of the Public company must have limited and private
company must have private ltd. If company is formed not with the object of declaring
dividend, but to promote culture, art etc. The central govt may permit the company to drop
the word limited.
2. Situation or Domicile Clause - In this clause the name of the state in which the registered
office of the company is situated is mentioned. This clause fixes the jurisdiction (limit) of
the court for all the legal matters and that of the registrar of the company for the company
manners.
3. Object Clause - This clause defines the object for which the company is formed. The
object should be legal and must not be inconsistent with the companies act. The object must
not be the general. A company is not legally allowed to carry any business other than
specified in this clause.
 4. Liability Clause - This clause states that the liability of members is limited to the face value
of the shares up by them. If members have already paid some amount on shares, he can
called upon to pay only the unpaid amount on shares.
5. Capital Clause - In this clause, particulars regarding the amount of share capital with
which the company is proposed to be registered and the division of share capital into a
fixed amount are included.
6. Association or subscription Clause - subscribes to the memorandum will give a
declaration to this clause and express the desire to purchase a number of shares mentioned
against the respective names. Alternation of memorandum of association.
7. Succession clause (applicable only for OPC) - this clause shall state the name of the
person who in the event of the death or incapacity to contract of the subscribers, shall
become the member of the company. (This clause shall be the part of association &
subscription clause).
Alteration of MOA [section 13 (1)]

1. Alteration of Name Clause Steps or Procedure

a) Ascertainment - The secretary has to Ascertain from the registrar whether the
proposed name is desirable or not.
b) Written approval from Central government - If the registrar informs him that the
name proposed is not desirable then the secretary has to obtain written permission
from central government for changing the name.
c) Board meeting - The secretary has to arrange a board meeting for recommending the
changed name to the members and to call an extra- ordinary general meeting.
d) Special resolution - The secretary has to get the special resolution at the extra-
ordinary general meeting.
e) Copy of special resolution to registrar - Within 30 days of passing a resolution, a
copy of the same has to be filed with the registrar.
f) Obtainment of fresh incorporation certificate - On filing of the resolution the
registrar makes necessary changes in the register and issues fresh certificate of
incorporation with changes name.
g) Arrangement for change of name - The secretary has to arrange for the change of
name on all the documents and seal etc. and also should inform all the parties who
are dealing with the company.
2. Alteration of domicile or situation clause
a) Change within the City - If a company wants to change its registered office
from one place to another within the city, town 21 etc. The board of directors
will pass a resolution and the same to be informed the registrar within 30
days of passing the resolution
b) Change within the State - A special resolution must be passed and a notice
of such change should be given to the registrar within 30 days of passing the
resolution
c) Change of registered office from one state to another - The shifting of the
registered office from one state to another involves the following steps,
 Passing a special resolution at an extra-ordinary general meeting.
 Filing a copy of resolution with the registrar of companies within 30 days
of resolution.
 Under section 17 of the companies act, the company may after its
provisions of memorandum of association by special resolution with the
permission of central govt and the information about the change of
registered office to be given to the parties dealing with the company.
 Getting a certificate of registration of the transfer from the registrar of both
the states.
 Giving a notice of a location of new office to the registrar of the state to
which the company is shifted within 30 days of the transfer.
3. Alteration of object Clause
A change in object clause can be affected by passing a special resolution and with the
sanction of central govt. Steps or procedure to change the object clause.
a) To arrange board meeting, to discuss the proposed change and also to call an
extraordinary meeting to pass a special resolution.
b) To send notice of extra-ordinary general meeting to all the members and also
to debenture holders, creditors etc.
4. Alteration of capital clause
A company may alter its capital at the general meeting for the following purposes,
1. For increasing the capital
 2. For reorganization of capital
3. For reduction of capital
As per section 94 of the companies Act, the company limited by shares or guarantee and having
share capital if so authorized by articles may alter the share capital in the following ways,

1. Increases its shares capital by the issue of new shares.

2. Consolidate its share capital.
3. Convert its shares into stock and vice-versa.
4. Subdivides its shares into shares of into shares of smaller amount.
5. Cancel the shares which have not been taken.
ARTICLES OF ASSOCIATION (AOA)

The articles are the internal regulation of the company on the basis of which its internal affairs
are managed. They lay down the powers of directors, shareholders and officers. Articles must be
printed divided into paragraphs, numbered consecutively and signed by each subscriber of the
memorandum & filed with the registrar.

Contents of articles of association

1. Share capital & variation of rights
2. Calls on shares
3. Transfer, transmission, forfeiture & surrender of shares
4. Issue of share warrant
5. Alteration & reduction of capital
6. Voting powers of members
7. Borrowing power
8. Proceeding at the board meeting
9. Appointment, powers, duties qualification, remuneration etc. of director
10. Appointment of managers, managing director & secretary
11. Dividends & reserves
12. Maintenance of books of accounts & their audits
13. The company's seal
14. Winding up
15. Share certificate
Alteration of AOA

i. A company cannot replace existing articles. It can only change the regulations contained
in the articles.
ii. A decision in the meeting of board must be taken to change all or any regulation of
existing article.
iii. The change must not increase the liability of any member & the change must not provide
for expulsion of a member.
iv. A notice calling general meeting should be sent to every member at least 21 days before the
meeting.
v. If shares are listed in stock exchange than notice must be sent to stock exchange.
vi. A special resolution should be passed by the shareholder in the general meeting.
vii. A copy of resolution must be filed with registrar within 30 days.
viii. Necessary changes must be made in all the copies of articles.
ix. After article have been altered, then 6 copies of such amendments (one copy must be certified
copy) should be filed with stock market.
x. If the effect of alteration is to convert a public into private co, the approval of central
government is necessary.
DIFFERENCE BETWEEN MOA & AOA
MOA AOA
It is the charter of the company setting out its It is the by- laws of the company for the internal
constitution which states relations of co with administration.
outside world.
It states the objects for which the co is It states the rules or manners of carrying out the
established. business as stated in the memorandum.
Its preparation is compulsory without which Its preparation is not compulsory for the public
incorporation is not possible. company. Table A will be applicable in its
absence.
It governs external relations of It governs internal relations of
Company. Company.
It defines limits & powers of company. It defines rights, duties of directors,
 members etc.

It can be altered by special resolution & central It can be altered by special resolution without
government approval. central government approval.
It is primary & fundamental document of It's secondary & subsidiary document of
company. company.
It is defined in the section 2 (28) of the It is defined in the section 2 (2) of the
companies ACT 1956. companies ACT 1956.
It is the supreme document for the company. It is subordinate to the MOA.

STAGE III: RAISING CAPITAL OR SUBSCRIPTION OF CAPITAL

 After the company is incorporated, next stage is to raise the necessary capital.
 In case of a private limited company, funds are raised from members or through
arrangement from banks and other sources.
 In case of public limited company, the share capital has to be raised from the public.
 In the capital formation stage the company has to make necessary arrangements
for obtaining necessary capital for the company.
A. Preparation of a draft prospectus.
B. Filing a copy of prospectus with ROC.
C. Issue of prospectus to public by notifying in a newspaper.
D. If minimum subscription has been received, shares should be allowed to
applicants.
E. Listing of shares in stock exchange.
Prospectus

It can be altered by special resolution without any approval from court or central govt. The
companies‟ act 1956 defines prospectus as. “A Prospectus, notice, circular, advertisement or other
document inviting offers from the public for the subscription or purchase of any shares or
debentures of anybody corporate”.

Objective of prospectus

1. It informs the company about the formation of new company

2. It serves as written evidence about terms & conditions of issue of shares & debentures of a
 company
3. It induces the investors to invest in shares & debentures of co
4. To preserve the authentic record of the terms on which the investors have been invited
5. It describes the nature, extent & future prospectus of the company
Contents of prospectus
a. Name and address of registered office of company
b. Consent of central govt for issue.
c. Name of regional stock exchanges and other stock exchanges when the application is
made for listing of present issue.
d. Provisions of sub section 1 of section 68 A of Companies Act relating to punishment of
fictitious prospectus.
e. Statement of declaration about refund of money is the minimum subscription of 90% or
not received within 90 days from the date of close of the issue.
f. Date of opening and closing of issue.
g. Name and address of the auditors, underwriters etc.
h. Terms of payments.
i. Rights of instrument holders (deposit holder’s debentures holders).
j. How to apply – availability of forms, node of payment etc.
k. Any special tax benefits for the company and its shareholders.
STATEMENT IN LIEU OF PROSPECTUS

A public company not raising its share capital from general public, need not issue a prospectus.
However, it should file a ‘Statement in lieu of Prospectus’ (which contain almost the same
particulars) with the Registrar. This document must be in accordance with the Schedule III of the
Companies Act and must include practically the same information as required in the prospectus.
If a private company converts into a public company, it has to issue a prospectus or file a statement
in lieu of prospectus to the registrar.

Meaning of statement in lieu of prospectus: A public company not raising its share capital from
general public, need not issue a prospectus. However, it should file a ‘Statement in lieu of
Prospectus’ (Which contain almost the same particulars) with the Registrar.
Difference between Prospectus & Statement in lieu of Prospectus

Statement in lieu of prospectus

Basis Prospectus
Meaning It is document inviting the It is a document prepared for filing with
public to subscribe to the share capital of the Registrar. It is an alternative to
a company. prospectus.
Purpose It gives wide publicity to the company It is prepared only for
and provides share capital to the Complete the legal formality & not for
company. capital.
Filing It meant not only for filing with registrar It is meant only for filing with the
but also for capital raising. registrar.
Contents The prospectus gives detailed The contents are similar to that of
information about the company. prospectus but form in
detailed
Who It is normally prepared by big It is normally prepared by small
prepares Companies. Companies.
For whom It is meant for public at large. It is meant for friends &
relatives.

E-filing

Electronic filing or e-filing refers to the filing system which allows to the authorized users to
file a document with the different government authorities directly from a computer using Internet.

Electronic Filing or E-File: The Process of submitting tax retunes over the internet, using tax
preparation software that have been pre-approved by the relevant tax authority.

A web-based application that will allow users to view, modify, and submit filings on-line. The
process of using a computer program to transmit information electronically to another party. This
allows the use to complete and submit the information in a timely fashion.
Registrar of companies

According to Companies Act 2013 Section 2(75) “registrar of companies” means a registrar, an
Additional registrar, a joint registrar, a deputy registrar or an assistant registrar, having the duty of
registering companies and discharging various functions under this act.

 It is the official agency that deals with administration of companies Act, 2013. It falls
under ministry of corporate affairs.
 It has offices in all major states of India.
 Maharashtra (One in Mumbai & one in Pune) & Tamil Nadu (one in Chennai & another in
Coimbatore) have two ROCs.
Register of companies: According to companies Ac 2013 section 2(&$a0 “register of
companies” means the register of companies maintained by the registrar on paper or in any
electronic mode under this Act.

Minimum Subscription: The minimum subscription is the minimum amount of capital that
should be subscribed for by the public before the company can proceed with allotment of shares.
This amount should be stated in the prospectus. It has to be 90% of the issued share capital.

Book Building

Book building is the process of determining the quantum of shares to be issued & the price at
which the shares are to be issued on a feed-back from potential investors based upon their
perception about the company.

SEBI guidelines defines Book Building as "a process undertaken by which a demand for the
securities proposed to be issued by a body corporate is elicited and built-up and the price for such
securities is assessed for the determination of the quantum of such securities to be issued by means
of a notice, circular, advertisement, document or information memoranda or offer document".

Book Building is basically a process used in Initial Public Offer (IPO) for efficient price
discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected
from investors at various prices, which are above or equal to the floor price. The offer price is
determined after the bid closing date.
 As per SEBI guidelines, an issuer company can issue securities to the public though
prospectus in the following manner,

 100% of the net offer to the public through book building process
 75% of the net offer to the public through book building process and
 25% at the price determined through book building.
BOOK BUILDING PROCESS

 The issuing company hires an investment bank to act as an underwriter who decides the
price range of the security.
 The investment bank then, invites large scale buyers, fund managers and others, to submit
bids on the shares.
 The book is then built through the listing and evaluation of the aggregated demands for the
issue from the submitted bids.
 The final price of the security is termed as the cut-off price.
 The underwriter publicizes the details of the bids in order to maintain transparency in
the entire process.
 Shares are allocated to the accepted bidders, thereafter.
Different stages involved in Book Building Process

1. Issue stage
2. Allotment stage
Issue stage
1. Issue stage
Issue stage is concerned with all operational undertakes before the issue of shares and
also during the issue of share.
a) Entering into underwriting agreement: the lead book runner has to enter into
underwriting agreements with the syndicate members, who are eligible to be
appointed as underwriters for the underwriting of share.
b) Appointment of other financial intermediaries: The services of other financial
intermediaries like the registrar to the issue, bankers to the issue, etc. are required.
 The other financial intermediaries are appointed by the lead book runner in
consultation with the issuing company.
c) Sending application to stock exchange for listing: Listing of shares is mandatory
for book building. So an application has to be sent by the issuing company to the
stock exchange for the listing of its shares after allotment.
d) Preparation of draft red-herring prospectors: A red-herring prospectus has to be
prepared. A red- herring prospectus, is prospectus which contains all the details about
the public issue, except the price band and the quantum of shares to be issues.
e) Informing the registrar of companies: the registrar of companies has to be
informed about the issue of shares through book building by sending a copy of the
red-herring prospectus.
f) Agreement with the depositors: The issue should enter into an agreement with a
depository, either the NSDL (National Securities Depository Ltd.) or the CDSL
(Central Depository Services Ltd) for crediting the shares allotted in electronic form
to the Demat accounts of those who are allotted the shares.
g) Appointment of an advertising agency: the advertising agency announces the issue
of shares though book building process though statutory advertising media and also
through other conventional media of advertisement like hoardings, magazines, T.V
channels etc.
h) Dispatch of application forms: The registrar to the issue must make the necessary
arrangements for sending the bid-cum application forms to the syndicate members.
i) Opening the subscripting list: The issue should be kept open for a minimum of 5
days with at least 3 working days.
j) Receipt of bid-cum application forms: the syndicate members receive bidcum
application forms from the applicants.
k) Sending the bid forms on the closure of subscription list: the syndicate members
send the bid-cum applications forms received by them from the investors to either the
lead book runner or the registrar to the issue.
2. Allotment Stage: Lead book runner makes the allotment to qualified institutional buyers,
and the register to the issue makes the allotment to the retail investors. The allotment of
shares should be made within 15 days.
 Allotment of share involves the following operation
a) Determination of the cut-off price or issue price: the lead book runner, in
consultation with the issuer company, decides the issue price based on bid
received from the qualified institutional buyers and the retail investors.
b) Crediting the Demat accounts: As shares are allotted in electronic form or
Demat form in book building process, the allotted shares will be credited to
the Demat accounts of the allotters (i.e. investors).
c) Listing of shares: the shares should be listed immediately on the stock
exchange.
d) Sending of final prospectus: The prospectus containing the cut-off price or
issue price will be prepared, and sent to the registrar of companies.

The SEBI guidelines for book building are

 The book building process shall be made through an electronically linked transparent
facility.
 The number of bidding centers shall not be less than thirty, including all stock exchange
centers and there shall be at least one electronically linked computer terminal at all bidding
centers.
 The offer to buy shall remain open to the security holders for a minimum period of three
days the security holders shall have a right to revise their bids before the closing of the
bidding.
 The promoter or acquirer shall appoint “trading members’ for placing bids on the online
electronic system.
 Investors may approach trading members for placing offers on the on-line electronic
system.
 The offers placed in the system shall have an audit trail in the form of confirmations which
gives broker ID details with time stamp and unique order number.
 The final offer price shall be determined as the price at which the maximum number of
shares has been offered. The acquirer shall have the choice to accept the price. If
 If final price is accepted the acquirer shall have to accept offers up to and including the
final price.
  At the end of the book build period the merchant banker shall Announce in the press to the
concerned exchanges the final price and the acceptance.
 The acquirer shall make the requisite funds available with the exchange/clearing
corporation on the final settlement day which shall be three days from the end of the book
build period).
 The entire exercise shall only be available for Demat shares.
FORFEITURE OF SHARES
Meaning
Forfeiture of shares is referred to as the situation when the allotted shares are cancelled by the
issuing company due to non-payment of the subscription amount as requested by the issuing
company from the shareholder.
 In business, there are situations where stakeholder loses its share because of none of his
share of installment or dues. However, a company can only forfeit a share if they allow
forfeiture under the Article of Association of the company.
 In the event of forfeiture of shares, the shareholders loses the rights and interests of being
a shareholder and ceases to be a member of the organization, Some shareholders might fail
to pay installments, viz., allocation of money or call money.

Their share will be forfeited, which means that the shareholder's share will be cancelled.
ALLOTMENT OF SHARES

It means an appropriation of a certain number of shares to an applicant response to his

application for shares. Allotment means distribution of shares among those who have submitted
written application.

Allotment of shares means the distribution of securities in accordance with or in proportion to

application from subscribers.

Procedures regarding Allotment of Shares:

1. Fulfillment of statutory conditions which need to be fulfilled: The company secretary has to
see that the statutory conditions regarding the allotment of shares are fulfilled before the Board
proceeds to allot the shares.
The following are the statutory conditions which need to be fulfilled:
i. Valid offer and Acceptance: There should be a valid offer and acceptance for the
allotment to be a valid one. If there is no company to offer then there would be n public to
accept.
ii. Unconditional Allotment: The allotment must be absolute and the allotment should be
unbiased, and not according to the caste, creed, and religion. It is not that rich shareholders
pay more on the shares and the poor shareholders pay less on the shares.
iii. Collection of Minimum Subscription Amount: The minimum subscription amount as
noted in the prospectus has been received within 120 days of the issue of prospectus.
iv. Receipt of Application Money: Not less than 5% of the nominal value of the share has
been secured and has been received along with the applications.
v. Deposition of Application of Money in a Scheduled Bank: All application money
received along with the applications must be deposited in a scheduled bank. It cannot be
withdrawn until the company gets trading certificate or where such certificate is already
received or till the minimum subscription amount is received.
vi. Filing of Prospectus with the Registrar: A copy of the prospectus or statement in lieu of
prospectus has been duly filed with the registrar and at least three days have elapsed after
such filing before the allotment is taken up.
vii. Time of allotment: No allotment of shares can be effected until the beginning of the fifth
day from the date of issue of prospectus. The subscription list must be opened for at least
3 days as disclosed in the prospectus.
viii. Proper communication: The allotment must be duly communicated to the applicant
through post i.e. registered post with necessary details.
ix. Allotment strictly as per documents issued: The Board of Directors have to make the
allotment of shares strictly as per the documents issued which include the prospectus and
the application form.
x. SEBI nominee: SEBI's nominee is associated while finalizing the basis of allotment. The
purpose is to see that the allotment is done on a fair and just basis. The allotment also needs
to be approved by a leading stock exchange.

2. Appointment of Allotment Committee: - The Board will do the allotment of shares, but if the
issue is over subscribed, the Board appoints an allotment committee to do the allotment work.
3. Board meeting for finalization of allotment: Meeting of the Board of Directors will be called
to finalize the allotment formula, which is being prepared by the allotment committee. If the shares
are listed the allotment formula is to be finalized with the approval of the concerned Stock
Exchange Authorities.

4. SEBI's association with allotment work: A representative of SEBI need to be associated while
finalizing the allotment formula. For this, the company has to request SEBI to nominate a public
representation for allotment work.

5. Signature of chairman on application and allotment list: The secretary has to see that every
sheet of application and allotment list signed by the chairman. The secretary also has to sign the
application and allotment lists.

6. Resolution of the Board for allotment: The secretary has to see that the Board passes a
resolution regarding the allotment of shares and authorizing him to issue letters of allotment and
letters of regret.

7. Issue of letters of Allotment and letters of Regret: After the Board's resolution to allot shares,
the secretary prepares the allotment list. Then he will send allotment letters to those who have been
allotted shares and regret letters to those who could not be allotted shares.

8. Refund/Adjustment of application money: The secretary has to make suitable arrangement

for the repayment of application money sent by the applicant. The refunded application money is
made to those shareholders who could not be allotted shares.

9. Collection of allotment money: The secretary has to make suitable arrangements with the
Company’s Bankers for collection of allotment money against the allotment letters.

10. Arrangement relating to letters of Renunciation: To renounce means to give up. Certain
applicants who are being allotted shares do not want them, so they return the shares back to the
company. This is known as renunciation.

11. Arrangement relating to Splitting of Allotment letters: Splitting means putting the shares
in one or more names. In case any allotted requests for a split of the allotment letter, the secretary
places such a request before the Board for approval.
12. Submission of return of Allotment: Every company whether public or private and having a
share capital and within 30 days of allotment is required to send to the Registrar, a document
known as the “Return of Allotment”.

13. Preparation of Register of members and issue of share certificates: The secretary has to
prepare the Register of members from the Application and Allotment lists.

STAGE IV: COMMENCEMENT OF BUSINESS STAGE

Meaning of commencement of business certificate
Commencement of Business Certificate is the declaration that the Director of the Company
needs to file with Registrar of Companies. Moreover, this declaration is filed in Form INC-20A
within 180 days of the incorporation of the Company.
The ROC of satisfied with the documents and formalities, issue Certificate of commencement
of business. A public company can start its business. After during business commencement
Certificate.
Following are the document to be submitted to the ROC for getting business. Commencement
certificate.

Procedure or steps for obtaining Certificate of Commencement of business:-

1. Copy of prospectus
2. List of members with their share holding
3. List of directors, manager, secretary and auditor...
4. Consent of auditors to include their name in the prospectus.
5 Details of preliminary expenses
6. Details of preliminary contract
7. Details of resolution passed
8. Declaration by the director stating all the procedures have been followed.

DOCUMENTS TO BE FILED WITH THE REGISTRAR

After the promoters have got the necessary documents prepared, the required to be filed with
the Registrar of Companies. The documents that necessary for the purpose of registration are as
follows:
1. Memorandum of Association
2. Articles of Association
3. Declaration by subscribers
4. A list of first directors of the company
5. Communication Address of the Company
6. Statutory declaration

The commence the business the business commencement certificate is required. To obtain this
the following conditions must be filled.

1. A prospectus or a statement in lieu of prospectus has to be filed with the registrar of the company
2. The number of shares allotted should not be less than the minimum subscription as mentioned
in the prospectus

3. If the directors have taken up and paid for any qualification shares, the amount paid on such
shares should not be less than the amount paid by other member

4. A declaration is that no money is refundable to the applicants of shares if they fail to make full
payment of shares

5. A declaration of compliance by one of the directors or secretary that shares have been allotted
for the amount not less the minimum subscription and also that all the conditions regarding the
commencement of business have been complied with

6. The registrar after receiving the declaration of compliance with the provisions of section 149
from the secretary or one of the directors along with required filing fee, will scrutinize the
declaration and if satisfied will issue a certificate to commence the business. From the date of this
certificate, the company is entitled to commence its business.

**********
 CHAPTER-3

COMPANY ADMINISTRATION
Companies Act, 2013 (Act) has introduced many new concepts and Key Managerial Personnel is
one of them. While the companies Act, 1956 recognized only Managing Director, Whole Time
Director and Manager as the Managerial personnel.

Meaning of Key Managerial Person: The term, key management personnel includes those
people having authority and responsibility form planning, directing and controlling the activities of an
entity, either directly or indirectly. Key management personnel are employees who have the authority
too directly or indirectly plan and control business operations.

Definition of Key managerial personnel: The definition of the term key managerial personnel is
contained in section 2 (51) of the Companies Act, 2013 the said section states as under:

i. The chief Executive Officer or the managing director or the manger

ii. The company secretary
iii. The whole-time director
iv. The chief financial officer and
v. Such other officer as may be prescribed.
Companies which are required to appoint Key Managerial Personnel Mandatory:
A per section 203 of the companies Act 2013, the following class of companies,
1. Every listed company and
2. Every other public company having paid up share capital of Rs. 10 Crores or more shall have
the following whole-time key managerial personnel –
a. Managing director, or chief executive officer or manager and in their absence a
whole time director:
b. Company secretary and
c. Chief Financial officer
Apart from this, companies which doesn't fit the above description and which isn't having
a paid-up share capital of INR 5 crores or more must appoint a whole-time Company Secretary.

NORMS OF APPOINTMENT

i. The appointment of KMPs must be processed through a board resolution after

obtaining the consent of the Board of Directors at a meeting.
ii. Such a resolution shall include the terms and conditions of appointment and details
of remuneration.
 iii. Post the appointment, the company needs to file a return with the Registrar in the
prescribed form within sixty days of the date of such appointment.
ROLES AND RESPONSIBILITY OF KMP

• KMP is liable for any non-compliance of the provisions of Companies Act, 2013.
• KMP is responsible for implementing important decisions of the company.
• Future growth of the Company depends on the effectiveness of KMP.
• According to Sec 170, the details of total shares or securities held by KMP in the
Company along with its subsidiary and associate Companies shall be disclosed and
recorded in the Register of the Books.
• KMP has a right to be heard in the meetings of the Audit Committee, while considering
Auditor's Report.
• According to Section 189J2), KMP should disclose to the company, within 30 days
of appointment, relating to their concern or interest in the other associations, which are
required to be included in the register.
Chief Executive Officer (CEO)

According to Sec 2(18) of Companies Act, 2013, CEO is defined as “an officer of a
company who has been designed as such by it”.
Note:
 The Companies Act, 2013 does not define the qualification, experience or term or
conditions for CEO.
• It does not define the role, functions, term and conditions, etc.
• Hence, it is purely the discretion of management of company what their
qualifications, experience, roles or functions.
• Though it may be noted that it should be clearly set out in appointment letter to
be furnished by company to appoint CEO.
Manging director (MD)

Section 2(54) of Indian Companies Act, 2013, defines Managing Director as,
“managing director” means a director who, by virtue of the articles of a company or an
agreement with the company or a resolution passed in its general meeting, or by its Board
of Directors, is entrusted with substantial powers of management of the affairs of the company
and includes a director occupying the position of managing director, by whatever name called.

Whole time Director (WTD): Section 2 (94) of the Companies Act, 2013 defines “whole-time
director” as a director in the whole-time employment of the company.
Company Secretary

Section 2(24) of the Companies Act, 2013 defines “company secretary” or secretary”
means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the
Company Secretaries Act, 1980 who is appointed by a company to perform the functions
of a company secretary under this Act.

Chief Financial officer (CFO)

Chief Financial Officer means a person appointed as the chief financial officer of a
company.
The CFO may be appointed either by the board of directors or by the managing director
unless such person is designated as a key managerial person under section 203.
As per the provisions of section 203 every public Company having a paid-up share-
capital of Rs. 10 Crores or more shall have a whole time key managerial personnel, which
includes whole time Chief financial officer.
Resident Director
 Section 149(3) of the Companies Act, 2013 deals with the residence of a Director.
 The new Companies Act introduced this concept of Resident Director.
 The Act makes the residence of a Director in India mandatory.
It states that every Company shall have at least 1 Director who has resided in India for
a total period of not less than 182 days in the previous financial/ calendar year. This provision
applies to all companies, both private and public.
In the case of Companies that are newly incorporated, the requirement of 182 days shall
apply proportionately at the end of the financial year in which it is incorporated —
(provision to section 149(3) inserted w.e.f. 7-5-2018).
Women Director
 The Companies Act, 2013 made it mandatory for certain companies to appoint a
woman director
 As per the provisions of Section 149(1) of the Act and Rule 3 of the Companies
(Appointment & Qualification of Directors) Rules, 2014
 The Companies that need to appoint a women director are as follows,
 Every listed company
 Every public company having paid-up share capital of Rs. 100 crores or
more.
 Every public company which has a minimum turnover of Rs. 300 crores
or more.
Independent Director

 An independent director is a non-executive director who does not have any kind of
relationship with the company that may affect the independence of his/her judgment.
 An independent director should not have been a partner or executive director of the
auditors/lawyers/consultants of the company in preceding three years or should not hold
2% or more of shares of the company.
 In this article, we look at the process for appointment of an independent director in a
company.

AUDITORS

 An auditor is an individual who is appointed to inspect the books of accounts of a

company, the validity and accuracy of the transactions contained therein.
 Auditor also forms an opinion on the overall view of the financial statements, whether
the statements depict a true and fair view of the entity's financial position.
 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

ELIGIBILITYWQUALIFICATIONSOFAUDITOR

Section 141 of the Act prescribed the following eligibility and qualifications of
auditor which are as under,

“Only a Chartered Accountant - individual or an arm can be appointed as auditor”

Powers of Auditor

1. Right to access: Every auditor of a company shall have right to access at all time to
hook of accounts and vouchers of the company. The Auditor shall be entitled to require
from officers of the company such information and explanation as lie may consider
necessary for performance of his duties. There is an inclusive list of matter for which
auditor shall seek information and explanation.
The list includes issues related to

 Proper security for Loan and advances

  Transaction lay book entries
 Sale of investments
 Loan and advances made shown as deposits
 Personal expenses charged to revenue account
 Cash received for share allotted
2. Auditor to sign audit reports: The auditor of the company shall sign the auditor's report
or sign or certify any other document of the company and financial transactions or matters,
which have any adverse effect on the functioning of the company mentioned in the
auditor's report shall be read before the company in general meeting and shall be open
to inspection by any member of the company.
3. Auditor in general meeting: It is a prime requirement under section 146, that the
company must send all notices and communication to the auditor, relating to any
general meeting, and he shall attend the meeting either through himself or through
his representative, who shall also be an auditor. Such auditor must be given reasonable
opportunity to speak at the meeting on any part of the business which concerns him as
the auditor.
4. Right to remuneration: The remuneration of the auditor of a company shall be fixed
in its general meeting or in such manner as may be determined therein. It must include
the expenses, if any, incurred by the auditor in connection with the audit of the company
and any facility extended to him but does not include any remuneration paid to him for
any other service rendered by him at the request of the company.
5. Consent of auditor: As per section 26, the company must mention in their prospectus the
name, address and consent of the auditors of the company.

Duties of an Auditor

1. To give report on the account which are audited by him.

2. To give audit report of balance sheet& p/L account
3. To audit the document those are attached with balance sheet & p/L account of company.
4. He should express his true opinion in his report.
5. To ensure & exercise his true opinion in his report.
6. To give information in the prescribed manner.
7. Auditor must have sufficient base to believe
8. He should see whether company fulfills all legal compliance.
Responsibility of an Auditor

1. To make certain inquires.

2. To make report of the company on the accounts examined
3. To make a proclamation in terms of the provision set.
4. Detection& prevention of fraud
5. To report fraud
6. Ensure substantial precision
7. Oversight of company’s financial reporting process
8. To review quarterly & annual financial statement
9. Evaluating and understanding the internal control system.
Appointment of an Auditor

I. Appointment of first auditor

 A BOD meeting should be conveyed within one month of the date of
registration of the company.
 Then a resolution should be passed appointing & fixing remuneration of the
first auditor who shall old office until the conclusion of first annual general
meeting (AGM).
 The person being appointed as the first auditor of the company should not hold
any security carrying voting right of that company.
II. Appointment of retiring auditor
 An auditor is normally being reappointed at the AGM. Therefore, the
company should obtain a written certificate from the auditor that the re-
appointment, if made, will be in accordance with the limits specified in
section 224(1B).
 The company convening the AGM, (after issuing notices in writing at least
21 days before the meeting along with the explanatory statement), should pass
ordinary resolution in the AGM appointing he retiring auditor as auditor of
the company.
 He shall be holding the office till the conclusion of next AGM & next
resolution should also contain details of his remuneration.
III. Appointment of branch auditor
 The accounts of the branch office of a company, if any, is required to be
audited by the company’s auditor.
 Where the branch office is situated outside India the accounts to be audited
either by the company’s auditor or by an accountant duly qualified to act as an
auditor in accordance with the laws of that country.
 The shareholder may authorize the board to appoint the branch auditors in
consultation with the company’s auditors.
 However the central government is empowered to make such rules as it may
deem fit for the matters specified in relation to the branch auditors.
AUDIT COMMITTEE

Lega1 Reference for Audit Committee

The Companies Act, 20l3 has notified Section 177, Rule 6 and 7 of Companies
(Meetings of Board and its Powers) Rules, 2014, which deals exclusively with Audit
Committee.
Composition of audit committee

 Audit Committee shall constitute of minimum 3 Directors, with independent

director forming majority.
 Audit Committee including its Chairperson shall be persons with ability to read and
understand, the financial statement.
 The auditors and KMP of the company shall have a right to be heard in the meetings
of the Audit Committee when it considers the auditor‘s report but shall not have the
right to vote.
 The committee should meet at least 4 times in a year &not more than 4 months shall
lapse between 2 meetings.
Function of audit committee

1. Appointment and fixation of the remuneration of the Auditor.

2. Valuation of the undertakings or assets of the company.
3. Evaluation of any Related Party Transaction (also for omnibus approval under
Rule (6A).
4. Evaluation of the internal financial control and risk management.
5. Examination of the Financial Statements.
6. Scrutiny of Inter Corporate Loans and Investment.
7. Evaluation of the use of the funds rose through public offers.
Powers of audit committee

1. Call for comments of the Auditor about Internal Control Systems.

2. To Review the Financial Statements before submission of the report of the Board.
3. Power to discuss any issues with the Statutory & Internal Auditor and the Management
of the company in relation to matters contained in the Financial Statements.
4. Power to obtain professional advice from the external sources.
5. Power to have full access to the information contained in the records.
Penalty for violation of Audit Committee provision: The Company shall be punishable with fine
of Rs. 1 Lakh to Rs. S Lakhs and every officer of the company who is in default shall be
punishable with imprisonment up to 1 year or with fine of Rs. 25,000/- to Rs. 1 Lakh,
or with both.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

It refers to the initiative and contribution of an enterprise towards the economic,

environmental and social welfare of the general community.

APPLICABILITY

Every company having

 Net worth of Rs 500 cr. Or more or

 Turnover of Rs 1000 cr. or more or
 Net profit of Rs 5 cr. or more,
During immediately preceding financial year shall constitute a separate CSR
(CORPORATE SOCIAL RESPONSIBILITY) committee

However, where the amount to be spent for CFR activities does not exceed Rs. 5O
Lakhs, there is rim requirement for constitution of CFR committee, function of such
committee can be done by the board of the company.

COMPOSTION OF CSR COMMITTER

CSR committee comprises of three or more directors out of which one shall be the
independent director (Provided where the appointment of independent director is not
applicable to any company, it can form CSR committee with other directors)

FUNCTION OF CSR COMMITTEE

a) Formulate and recommend the CSR policy to the Board;

b) Recommend the amount of expenditure to be incurred on CSR activities;
c) Monitor the CSR policy of the company from time to time; and
d) Formulate and recommend to the Board, an annual action plan in pursuance of its
CSR policy, which shall include the items as mentioned in rule 5J2) of the
Companies (CSR Policy) Rules, 2014.
 CSR EXPENDITURE

Company to spend at least 2% of its average net profit of the company during the
three immediately preceding years.

DISCLOSURS OF CSR POLICY

Company shall disclose composition of CSR committee and contents of its CSR policy

 In the board report and

 On the website of the company and
In case the company /ails to spend amount on CSR activities, then also disclose

The reason o5such failure in the Board’s report.

CSR Activities

CSR policy should be inconsistent with activities given under Schedule VII of the
Companies Act 2013,

IV. Towards eradicating poverty, hunger and malnutrition, sanitation, and making
available clean drinking water.
I. Promoting education, vacation skills, special education for children, women and
elderly.
II. Promote gender equality, women empowerment, setting up old age homes, hostels,
orphans, day care centre and other facilities for senior citizens and economically
backward people.
III. Ensure sustainable environment, protection of flora and fauna, animal, soil, air
water and all other natural resources.
IV. Protect national heritage, art and culture, setting up libraries, protection and
development of traditional art and handicrafts.
V. Measures towards Development of widows of armed forces people.
VI. Promote rural sports, Olympics and Paralympic sports.
VII. Contribution towards prime minister national relief fund or any other fund set up by
the central government.
VIII. Contribution towards research and development projects in the field of science
 technology or medicines.
IX. Contribution to public funded universities, IITs, DRDO, AYUSH and ICMR etc.
X. Rural development projects.
XI. Towards disaster management activities.
CSR A M O U N T SHALL NOT BE SPENT FOR THE FOLLOWING
ACTIVITIES

1) Activities undertaken by the company in the normal course of the business

2) Activities undertaken by the company outside India except for training of Indian
sports personnel.
3) Contribution to any political party directly or indirectly.
4) Activities benefitting employees of the company.
5) Activities carried out for fulfilment of any other statutory obligations under any other
law.
6) Activities supported by the companies on sponsorship basis for deriving marketing
benefits for its ohm products and services.
Difference between a whole –time Director and a Managing director

Sl.no Whole-time director Managing Director

1 He is just an employee of a company He is entrusted with substantial powers of the
and doesn’t enjoy substantial powers of company.
the company.
2 His appointment requires sanction of His appointment doesn’t require the consent of
shareholders by means of special shareholders.
resolution
3 A company can appoint a whole-time A company cannot appoint a mangling director
director along with a managing director and a manger simultaneously.
or a manger.
4 He cannot act as a whole time director He can be a managing director in the
in more than one company. companies.
5 No restriction on term of office. He can be appointed as a managing director for
a maximum period of five years at a time.
Difference between a Director and a Managing Director

SL.NO Director Managing Director

1. Usually appointed by the shareholders at a Usually appointed by the board of directors at
general meeting a board meeting
2. Generally appointment doesn’t require the Appointment requires the approval of Central
approval of Central government Government
3. He is subject to retirement by rotation He is not subject to retire by rotation
4. He is appointed for a period not exceeding He is appointed for a period not exceeding five
three years at a time. years at a time
5. He can hold the directorship in 20 He cannot hold the office of managing director
companies at the same time. in more than 2 public companies at the same
time
6. A private company must have at least 2 A company usually has only one managing
directors and a public company must have director.
at least 3 directors.
7 Appointment of a director is compulsory for Appointment of a managing director is not
all public and private companies compulsory for every company.
8 He takes the responsibility of framing the He takes the responsibility of implementing
policies. the policies framed at the board meeting
9 He doesn’t take part in the day to day He takes part in the day to day management of
management of the company. the company.
10 His work is not a full time work. His work is a full time work.
11 A director is only the member of the board. He is a member of the board and also a chief
executive officer.
12 He is considered as an agent of the He is considered as an agent of the board of
shareholders of the company. directors of the company.
13 He doesn’t hold the office of profits. H He Holds the office of profits and receives
doesn’t receive any remuneration. He regular salary.
receives only fees for attending the meeting.
14. He doesn’t enter into an agreement with the He enters into an agreement with the company
company regarding the powers and duties. regarding the powers and duties.
15 He doesn’t exercise the powers individually He exercises the powers individually.
but he exercises collectively.

Differences between a Manager and A managing director

Sl.no Manager Managing Director
1 He need not be a director of the company. He must be a director of a company.
2 He may or may not hold shares of the He must hold the qualification share required
company. for a director of a company.
3 There can be only one manger in a There can be one or two managing director
company. in a company.
4 A manger is appointed by the board of A managing director is appointed wither by
directors. the board of directors or by the company in
the general meeting.
5 He derives the powers under the contract He derives the powers either under a contract
of service entered into by him with the with the company or as peer the provisions
company. of the AOA or MOA or under the resolution
of the company or by Board of directors.
6 He is only an employee of the company He is a member of the board and has to
and cannot participate in the board participate in the board meetings.
meetings.
7 He is appointed only for management. He is appointed both for direction and
management.
Managing Director (MD)

Meaning

A person who is appointed by the board of directors to look after the day to day affairs of the
company is called a managing director.

He is entrusted with substantial powers of the management to implement the policies framed by
the BOD.

Appointment of Managing Director

A managing directory may be appointed by

a) The board of director

b) By an agreement with the company
c) A resolution of the company in a general meeting
d) Under a memorandum or
e) Under the articles of the company.
Powers of MD

1. To supervise & control work of employees.

2. To conduct, negotiate & make arrangement for the purchase and sale of goods and their
proper storage etc., as may be entrusted to him by the board.
3. To perform such other functions that be delegated by the board from time to time.
4. To purchase furniture, fixtures and equipment to the office up to a limit of Rs.20, 000 in
each case subject to the budget allotment.
5. To move the government & other competent authorities for disciplinary action against
officials lent by government.
Duties of MD

i. As a director
As a director he attends the board meeting and takes part in the formulation of policies.
ii. As a manager
a) Executes policies framed by the board of directors.
b) Attends day to day administration of the company
 c) Investment of funds, buying and selling on behalf of the company, appointment of
employees of the company, entering into contract with third parties.
Other Duties

1) Brings in new business

He brings new clients to the business and sets meetings with potential clients (off site
at dinner) or (on site of the customer business) &presents proposal in order to win clients
business.
2) Recruitment and retention of employees
He oversees the Recruitment and retention of employees. He is responsible for finding
best talent and bringing new team members.
3) Keeps clients happy
Once a new client comes on aboard, the managing director nurtures this new business
relationship and also he addresses the client’s major concerns.
4) Report to BOD
One of the most important functions of MD, he meets with and report information about
the company’s overall performance to the BOD of the company.
5) Motivation and development
He motivates managers and develops the members of the management team.
6) Management of resources
He makes the arrangement to utilize the resources of the company efficiently &
effectively to achieve the company’s objective.
7) Leadership role
He should take a leadership role in establishing or developing the company’s culture
and value.
Responsibilities of MD

 Implement the boards policies & strategies

 Develop & present the strategic & annual business plans to the board for approval.
 Manage day to day operations of the company.
 Manage, motivate, develop & lead members of the management team.
 Chair management team meeting
  Develop & implement a risk management plan.
Rights of MD

1) Right to enter into contract with third parties.

2) Right to recruit the employees.
3) Right to exercise the powers within the limit of MOA & AOA.
4) Right to receive salary and remuneration regularly.
5) Right to supervise this subordinates say general manager, different departmental heads.

COMPANY DIRECTOR

If it is a public company it must have at least 3 directors, if it is a private company, it must have
at least 2 directors.

 A director may be defined as a person having control over the affairs, conduct, and
management or of a company.
 Directors are the brain of company, which is the body & the company can and does act
only through them.
 The representative elected by a shareholder to manage day today affairs of the company is
individually known as director.
 “Director” means a director appointed to the Board of a company.
 Under section 2(13) of the companies Act, defines a directors as, “any person occupying
the position of director, by whatever name called”.
Appointment of Director

1. By the promoters of the company

At the time of formation of a company, promoters generally name the first directions
of the company and mention their names in the articles of association.
2. By the subscribers memorandum
If the first directors of the company are not appointed by the promoters of the company
as per the powers conferred on them by AOA, the subscribers to memorandum who are the
original members of the company can appoint the first directors by passing a resolution to
the effect.
 3. By the company in the General Meeting
Under section 255 of the companies act, the subsequent directors of the company are
elected by shareholders at the annual General Meeting.
4. By the board of directors
As additional director under section 260 of the companies act 1956 the board may
appoint the directors if the AOA provides for such an appointment.
In a casual vacancy under section 262 of the companies’ act 1956 a casual vacancy may
arise due to reasons such as death, resignation, disqualification or failure of an elected
director to accept the office or due to any other reason.
As an alternate directors under section 313 the board of directors can appoint the
alternative director. The alternative directors has to act for the original director during his
absence for a period for more than 3 months.
5. By the central government (Sec 408)
The central government may appoint the board of directors when the company law board
decides that it is necessary to safeguard the interests of the company or public if:
i. Not less than 100 members of the company apply to the company law board to
make such an appointment.
ii. Members holding not less than one- tenth of the total voting power make an
application to the company.
iii. On its own initiative: they are appointed for a maximum period of three years.
6. By proportional representation (2/3rd) normally directors are appointed on the basis
election in the AGM.
7. By third parties (debenture holders and banking companies, the number of directors so
nominated should not exceed one third of the total strength of the board and they are not to
retire by rotation).
Powers of Directors

a) Power to make calls on shares

b) Power to forfeit the shares
c) Power to issue debentures
d) Power to borrow money
 e) Power to invest the funds of the company
f) Power to grant the loans
g) Power to fill up casual vacancy in the office of directors.
h) Power to appoint an alternative director.
i) Power to appoint an additional director.
j) Power to appoint first auditor of the company
k) Power to appoint MD, Manager, Secretary etc.
l) Right to fill up casual vacancy in the office of the auditors.
Duties of Company Director

Duties of a director are numerous and they can be broadly classified into two categories I.e.
Statutory duties and general duties. Some of the important duties of the directors of the company
are as follows:

Statutory duties:
1. To determine the amount of minimum subscription.
2. To see that all money received from applicants for shares is deposited in a scheduled bank until
the certificate to commence business is obtained.
3. To prepare a statutory report and file a copy of it with the registrar.
4. To forward a copy of the statutory report to every member of the company at least 21 days
before the date on which the statutory meeting is held.
5. To call an extraordinary general meeting of the company on the requisition of the specified
number of members.
6. To approve the balance sheet and profit and loss account before they are
submitted to the auditors for their report.
7. To prepare and place at the annual general meetings an annual report of the company along
with the balance sheet and profit and loss account
8. To pay dividends only out of divisible profits of the company.
9. To make a declaration of solvency of the company in case of member’s voluntary winding up
10. To purchase and pay for qualification shares within the specified time.
11. To see that the board meetings are held at least once in every three months and four times in a
calendar year.
12. To disclose to the company their interest if any, contract entered into by the company.
13. To see to the registrar of companies the copies of special resolution a notice of conversion of
shares into socks.
General duties: The general duties of a director refer to their duties under the general law. Some
of them are as follows:

14. To manage the affairs of the company efficiently.

15. They must act in good faith and in the interest of the company.
16. They must use the company’s property for the benefit of the company not for their personal
benefit.
17. They must not be negligent in the discharge of their duties.
18. As they stand in the fiduciary relationship with the company, they must not make any secret
profits.
19. They must attend all the board meetings unless physically impossible.

LIABILITIES OF DIRECTORS

1. Liability to outsiders
2. Liability to the company
3. Liability to the share holders
4. Criminal Liability

COMPANY SECRETARY

The word secretary is derived from a Latin word. The secretary is its eyes, ears & hands of
the company.

As per the Companies Amendment Act, 1988, ‘Company Secretary’ means “a person who is
the member of the Institute of Company Secretaries of India constituted under the act”.

The Companies Act 1956, as amended by the Amendment Act of 1974, defines secretary as
“an Individual possessing the prescribed qualification, and appointed to perform the duties
which may be performed by a secretary under this Act and any other ministerial or
administrative duties”.

Section 2(24) of Companies Act 2013, “CS or secretary means a company secretary defined
in clause © of sub-section 1 of section 2 of company secretaries Act, 1980 “who is appointed by
a company to perform the functions of a company secretary under this act”.

In other words, an officers who keeps records takes minutes of meeting and answers
correspondence is called secretary.

Secretaries which means confidential officers. A person employed to handle correspondence,

to keep files and do clerical work. For another person or an organization is called secretary.

Types of secretary

1. Private secretary
He is usually appointed by an important person such as minister in government. Member
of Parliament manager, business magnate or professional men like doctors, lawyers etc. his
main work is to attend the personal correspondence and other personal work of the
employer.
2. Secretary of club or an association
A full time secretary appointed by business association, cultural association, professional
association and sports club to conduct day to day activities of the association or club is
called a secretary of a club or an association.
3. Secretary of cooperative society
Generally the full time secretaries are appointed in cooperative society. In some cases,
one of the members of managing committee may be elected to act as secretary.
4. Secretary of a government company
Each department of the government is under the control of a secretary.
For eg: secretary finance dept., secretary education dept. etc. he is also executive head and
advisor to the minister who is concerned with a particular department.
5. Secretary of local body
Usually, municipal corporations and panchayat appoint a paid secretary who will
function as an office executive.
 6. Secretary a trade union
He is to hold the meetings of the union, to record their proceedings to maintain
accounts and statutory books and to conduct correspondence on behalf of the union.

Qualification of Company Secretary

 In case of a company having a paid-up share capital of not less than Rs. 2 Crores shall have
a whole-time secretary as per the Companies (Appointment and qualifications of Secretary
(Amendment) rules 2002
 No person shall be appointed as whole-time secretary unless he is member of the Institute of
Company Secretaries of India incorporated under the Companies Act, 1956,
 In the case of companies with a paid-up share capital of less than Rs.2 Crores, any individual
possessing any of the following qualifications may be appointed as its whole-time secretary to
perform of duties of secretary
1. Membership of the Institute of Company Secretary of India (ICSI).
2. Pass in the intermediate examination conducted by the Institute of Company Secretary in
India (ISCI).
3. Post-graduate degree in commerce or corporate secretary ship awarded by any university
in India.
4. Degree in law awarded by any university.
5. Membership of the institute of cost and Works Accountants of India
6. Membership of the institute of Chartered Accountants of India.
7. Post-graduate degree or Diploma in Management Sciences granted by any university.
8. Membership of the Association of Secretaries and Managers, Kolkata.
9. Diploma in Corporate laws and Management granted by the Indian Law institute, New
Delhi.
10. Post Graduate Degree or Diploma granted by the Indian Institute Management, Bangalore,
Calcutta, and Lucknow. Ahmadabad or Calicut.
Other Qualification of Company Secretary

a) Sound general education

 b) Command over language
c) Knowledge of various acts relating to staff, industry, company law, mercantile law,
accounting and taxation and office organization
d) General knowledge
e) Impressive personality.

Functions and Duties of the Company Secretary

1. Statutory Duties
a) Maintenance of book and registers of the company.

b) Filing of the necessary returns with the registrar of companies.

c) Supervising the issue, allotment, transfer and forfeiture of shares and

debentures.

d) Attending to meetings and recording their proceedings.

2. Duties in relation to Director
a) To conduct board meeting, under the direction of managing director.
b) To prepare minutes and execute the orders and instructions of the board.
c) To advice the directors on various provisions of the act.
d) To act as an agent of company.
e) To act as mouthpiece of the board of director.
f) To look after correspondence with directors.
3. Duties in relation to shareholders
The secretary has to organize and supervise correspondence with the shareholders with

regard to follows.

a) Application and allotment

b) Calls on shares

c) Forfeiture of shares

d) Transfer and transmission of shares

e) Distribution of dividend
 f) Notice and circulars to members

g) Meeting of the shareholders

h) Enquires and complaints from shareholders.

4. Duties towards organization and office

a) To supervise the various activities of the office

b) To coordinate the activities of various departments.

c) To select organize and guide the personnel

d) To maintain good relationship with the members.

5. Duties in relation with public

a) To act as a medium of communication between the directors and general public

consisting of debenture holders, bankers, creditors, solicitors etc.

b) To be in constant touch with the above persons.

c) To see that no confidential information is disclosed to the public.

6. Duties before incorporation

a) To attend preliminary meetings of the promotions and prepare the minutes

meeting.

b) To guide the promoters regarding the provisions of the companies act relating

incorporation of a company.

c) To assist the promoters in preparation of various documents such as MOA,

AOA ETC.
7. Duties after incorporation

a) To arrange for 1st board meeting and get the necessary resolution passed.

b) To take necessary steps to get the business commencement certificate by filing

necessary documents with the registrar of the companies.

c) To arrange for statutory meeting after obtaining business commencement

certificate.
 d) To look after the work in connection with application, allotment, calls on shares,

transfer and forfeiture of share etc.

Appointment of Company Secretary

To board of directors has power to appoint a regular secretary by passing a resolution in its
meeting. The first secretary appointed by the promoters.

1. A resolution has to be passed the BOD meeting regarding the appointment of a secretary

on certain condition & terms.

2. The particulars of appointment must be filled in duplicate with the registrar within 30 days

of the appointment.

3. Any director interested in the appointment of secretary must give his intention.

4. If any director or the relative of the director he is appointed as a secretary of the company.

A special resolution has to be passed at the general body meeting for such appointment.
Rights of company secretary

1. Right to supervise the secretarial department

He has rights to control & supervise the secretarial departments. He has rights to control

& supervise the secretarial department. He has the right to control & supervise the activities

of the department.

2. Right to sign documents

He has the right to sign documents requiring permission of the company.

3. Right to claim remuneration

Since he is employee of the company, he has the right to claim his salary.

4. The Secretary has the right to claim damages and compensation when his service is termi-

nated before the expiry of his terms as per service contract.

5. The Secretary has the right to inspect the books maintained by the secretarial department.
Position of company secretary (CS)
A. Legal position of the company

a) The companies act has recognised the secretary as the principal officers of the

company & he is responsible for the secretarial & other purely ministerial &

administrative work of the company.

b) He has to file various returns & statement with the registrar of companies.

c) He has to act in accordance with the order or directions of the BOD.

d) He derives his authority from the board & cannot exercise independent discretion
in the work.

B. Actual position or status of a CS

a) A CS occupies a position of importance in the administrative set up of the company.

b) The responsibility of the actual execution of the policies lies with the CS.

c) It is secretary who carries out the orders of the BOD.

Liabilities of CS
Liabilities of a Company Secretary emanate from various statutes and service contracts. The

Secretary has two sets of liabilities—statutory liabilities and contractual liabilities.

1. Statutory Liabilities
The Company Secretary may be held liable for many penalties under the

Companies Act if he makes any default in complying with its provisions.

I. The Company Secretary may be held liable for

 Default in holding Statutory Meeting and filing and circulating the

Statutory Report to the Registrar of Companies and members of the

company.

 Default in holding the Annual General Meeting of the Company.

 Failure to give due notice of Board Meetings.

 Failure to record the minutes of the Board and General Meetings.
  Failure to maintain Director ‘Members’ and Debenture Holders’ Registers

and Index;

 Failure in registering resolutions and agreements which need to be

registered;

 Failure to make entries in the register of members on the issue of a share

warrant.

 Default in filing with the Registrar particulars of any change created by the

company;
 failure to file with the Registrar copies of the annual Balance Sheet, Profit

and Loss Account, annual returns, statements, certificates, etc.;

 Failure in circulating resolutions for which members have given notice;

 Failure in delivering share certificates, debentures etc. within 3 months of

the date of allotment and within 2 months of the application for registration

of transfer of shares;

 Failure in painting or affixing the name of the company outside every

office and place of business;

 Non-compliance with the provisions of the Act relating to the appointment

of auditors, audit of accounts and auditor’s report;

 Like any officer of the company, the Secretary will be punishable with

imprisonment for falsifying the books of the company and making wilfully

and knowingly a material false statement in the Balance Sheet, or, in

certain returns, reports, certificates or other documents of the company.

II. Under the Income Tax Act, the Company Secretary is liable for
 Failure to deduct income tax from salaries of employees at source;

 Failure to deduct income tax from dividend payable to shareholders;

 Failure to deposit tax deducted at source to the Income Tax Authority;

 Failure to pay corporate tax in time.

 III. Under the Stamp Act, the Company Secretary is liable for
 Failure to verify whether the requisite stamps are affixed to various docu-

ments.

IV. Under the Sales Tax Act, the Company Secretary is liable for
 Failure to get the company registered with the Sales Tax Authority;

 Failure to pay sales tax in time.

V. Under the Registration Act, the Company Secretary is liable for

 Non-compliance with the rules and procedures of registration.
 Non-payment of registration charges under the MRTP, FERA, Shops and

Establishment Act. The Secretary may incur personal liability for default of

any provision of the respective Acts.

2. Contractual Liabilities
The Company Secretary also has certain liabilities arising out of his contract of

service with the company for:

 Disclosure of official secrets;

 Acts done beyond the limits of his authority;

 Acts of omission and commission in violation of the rules and fraud in course of

employment;

 Making breach of trust

 Discharging duties without reasonable care and skill.

Removal or dismissal of CS
 The Secretary any be removed from the office by the BOD under the powers expressively

given in the articles.

 When he makes the profit secretly.

 Willful disobedience, misconduct, negligence, incompetence, disability etc.

Internal Audit

 An internal audit is used to provide assurance that an organization's risk management,

governance, and internal control processes are running smoothly.
 An internal auditor is a person who is appointed to check the overall performance of
different companies with respect to the administrative, financial, and legal standards
they follow.
 Internal audits involve performing audits of both financial and non- financial nature
within a wide of areas of operation in business, including those that are directed by
the annual audit plan.
Functions of Internal Audit

Internal audit has many roles, one of which is to verify the existence of assets and recommend
proper safeguards for their protection.

The internal auditors execute an approved audit plan and performs the following tasks,

 Evaluate the validation of the system of internal controls.

 Recommend alternatives and improvement in controls.
 Assess compliance with federal laws and contract obligations.
 Review programs to clarify that results are consistent with the established objectives.
 Investigate the occurrence of theft, waste, and funds mismanagements.
 Comparison of objectives and real performance standards.
 Analyzing risks and protecting company assets among other functions.
Need or importance of Internal Audit

Every company is exposed to a certain risk over the course of its life, and what differentiates
a company from its competitors is how they deal with the potential threats.

Following is some of the ways an internal audit is important in dealing with these threats;

1. It helps review the rules and procedures so as to ensure that the activities of
the business or company are in line with the regulations
2. It keeps control over all the operations of an organization, therefore, protecting
the assets.
 3. Helps to identify gaps in the company that can be revisited to save your assets.
4. The stakeholders are aware of all the business transactions and this reduces the
risk of potential fraud and scandals.
Statutory Audit

 A statutory audit is a legally required review of a business or government's financial

records.
 In this, the role of the auditor is to report whether the financial statements issued
by an organization are true and fair.
 A statutory auditor is the person undertaking the process of Auditing.

Functions of Statutory Audit

• A statutory audit is conducted to comply with governing laws.

• To test financial statements for compliance with the set standards
• To ensure that the organization's financial statements are in accordance with
the company's financial performance and position.

Importance of Statutory Audit

The statutory audit is important as it provides a true and fair assessment of a company's
financial statement which helps to retain the confidence of shareholders. This helps in
improving the business's internal controls and systems.
Following is some of the reasons why statutory auditing is important,
• It increases the authenticity of the financial reports as the auditor properly
verifies the statements.
• It helps improve management to perform their job efficiently.
• Improves the reputation of the company because the reports are free from
errors misrepresentation and inaccuracies.
• Just like internal audits, it also minimizes the risk of fraud.
• It helps to gain the trust of banks and shareholders.
Difference between internal audit and Statutory Audit

Internal Audit

An internal audit is done basically to A statutory audit is done annually to form

prevent and detect errors and frauds. an opinion on the financial statement of the
company.
Internal auditors are appointed by the Statutory auditors are appointed by the
management of the company. shareholders of the company.
Internal audit c a n b e d o n e b y t h e Statutory audit is done by the
employee of the company... Practicing chartered accountants having
operations outside the company.
Internal auditor needs to give Statutory auditor requires to prepare
Suggestions to improve weaknesses A report after the completion of work.
but no need to present the report.
Internal audit is the act of checking Statutory audit deals with evidential
Books, accounts, and other activities of an Documents where book keeping is highly
organization. crucial.
The remuneration of an internal The remuneration of a statutory
Auditor is fixed by the management. Auditor is fixed by the shareholders.
Internal audit does as requires specific The statutory audit requires the
Qualification as per provision of law. Auditor to be a CA holder.

AUDIT REPORT
• Section 143 J2) prescribed that auditor shall make a report to the members of the
company on the accounts examined by him and on every financial statement which
is required to be laid in the general meeting of the company.
• The Audit report should take into consideration the provisions of this Act, the
Accounting and Auditing standards and 12 Audit and Auditors matters which are
required under this Act or rules made thereunder or under any order made u/s 143a
11)
 • The Audit report should state that to the best of his information and knowledge, the
said accounts and financial statements give a true and fair view of the state of the
company's affair as at the end of the financial year and the profit or loss and the
cash flow for the year and such other matters as may be prescribed.
E- Governance XBRL

What is XBRL?

XBRL is a language for the electronic communication of business and financial data
which is revolutionizing business reporting around the world. It provides major benefits in
the preparation, a n a l y s i s a n d communication of business information. It offers cost
savings, greater efficiency and improved accuracy and reliability to all those involved in
supplying or using financial data. XBRL stands for Extensible Business Reporting
Language. It is already being put to practical use in a number of countries and
implementations of XBRL are growing rapidly around the world.

Who d e v e l o p e d XBRL?
XBRL is an open, royalty-free software specification developed through a process
of collaboration between accountants and technologists from all over the world. Together,
they formed XBRL International which is now made up of over 650 members, which
includes global companies, accounting, technology, government and financial services
bodies. XBRL is and will remain an open specification based on XML that is being
incorporated into many accounting and analytical software tools and applications.
Advantages of XBRL
• XBRL offers major benefits at all stages of business reporting and analysis.
• The benefits are seen in automation, cost saving, faster, more reliable and more
accurate handling of data, improved analysis and in better quality of information
and decision-making.
• XBRL enables producers and consumers of financial data to switch resources
away from costly manual processes, typically involving time- consuming
comparison, assembly and re-entry of data.
• They are able to concentrate effort on analysis, aided by software which can validate
and process XBRL information.
 • XBRL is a flexible language, which is intended to support all current aspects of
reporting in different countries and industries.
• Its extensible nature means that it can be adjusted to meet particular business
requirements, even at the individual organization level.
Beneficiaries of XBRL
• All types of organizations can use XBRL to save costs and improve efficiency in
handling business and financial information.
• Since XBRL is extensible and flexible, it can be adapted to a wide variety of
different requirements.
• All participants in the financial information supply chain can benefit,
whether they are preparers, transmitters or users of business data.
Benefits to a company from putting its financial statements into XBRL
• XBRL increases the usability of financial statement information.
• The need to re-key financial data for analytical and other purposes can be
eliminated.
• By presenting its statements in XBRL, a company can benefit investors and other
stakeholders and enhance its profile.
• It will also meet the requirements of regulators, lenders and others consumers of
financial information, who are increasingly demanding reporting in XBRL.
• This will improve business relations and lead to a range of benefits.
• With full adoption of XBRL, companies can automate data collection.
For example, data from different company divisions with different accounting
systems can be assembled quickly, cheaply and efficiently. Once data is gathered in
XBRL, different types of reports using varying subnets of the data can be produced with
minimum effort. A company finance division, for example, could quickly and reliably
generate internal management reports, financial, statement for publication, tm and other
regulatory filling, as well as credit reports for lenders. Not only can data handling toe
nittOmnted, removing time-consuming, error-prone processes, but the data can be
checked by software for accuracy.
 CHAPTER-4

WINDING UP OF COMPANIES

Introduction to winding-up

 Winding up is a process whereby the existing company's affairs is brought to an

end.
 It is a very complex situation where the companies which came into existence in
an aspire to grow higher with the passage of each day, ‘turn- off their entire
business either voluntarily or by the Tribunal's involvement The statutory provisions
of the winding up and its procedure are dealt under Chapter XX Sections 270 to
378 of the Companies Act, 2013.

Meaning of winding-up

 If incorporation is the process of bringing the company into existence, then winding up is
the process of bringing an end to the existence of that company.
 A company cannot die a natural death. It has an indefinite life span, but if such reasons
have emerged which make it desirable to bring an end to its corporate life, then necessary
legal mechanisms have to be put into operation to get it done. This mechanism is the
process of winding up.
 It is a process by which the properties of the company are administered for the benefit of
its members and creditors.
 The person appointed for administering the assets and liabilities is called “Liquidator”.
 In case of compulsory winding up, the liquidator is appointed by the Tribunal under section
275 of the Act; or, in case of voluntary winding up, the liquidator is appointed by the
company itself under section 310 of the Act.
 Winding up is also referred as “Liquidation”.
 On liquidation, the company’s name is deleted from the list of companies by the registrar
of companies and the same is published in the official gazette.
Definition of winding-up

According to Prof. Gower’s “winding up of a company is a process where by its life is ended
and its property administered for the benefit of its creditors and members. An administrator, called
liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and
finally distributes the surplus among the members in accordance with their rights”.

Modes of winding-up

Section 270 of the Companies Act, 2013 provides for two modes of winding up, that is

1. Winding up by Tribunal (i.e., compulsory winding up); or

2. Voluntary winding up
A. Members Voluntary winding up
B. Creditors Voluntary winding up

The procedure for winding up order in compulsory winding up is as follows

1. Petition in Tribunal
2. Hearing of petition by the Tribunal
3. Appointment of Liquidator
4. Winding-up order

The procedure for winding up order in Voluntary winding up is as follows

1. Resolution passed by Company
2. Declaration of Solvency
3. Notice to Registrar
4. Appointment of Liquidator
5. Final Meeting
6. Dissolution
7. Publication in Official Gazzette
Difference between Compulsory Winding up & Voluntary winding up
compulsory winding up Voluntary winding up
Petition is filled before the Tribunal No petition is filled before the Court. In
either by This, the company passes the special
 The company or resolution in its meeting; or it passes a
 Any creditors or general resolution in case of expiry of the
 Contributory or period of its duration (Sec. 304).

 Registrar or
Any person a u t h o r i z e d b y the Central
Government (Dec. 272).
In this case the Tribunal, at the time of In this case the company appoint the
Passing the order of winding up, appoint an Company liquidator from the panel prepared
official liquidator or the liquidator from the by the Central Government for the purpose
panel maintained by the Central of winding up (Sec. 310).
Government (Sec. 275).
The official liquidator can be removed by The company liquidator can be
the Tribunal on the grounds mentioned in removed by the company (if it is appointed
Sec. 276. by the company), or by the creditors gif it is
appointed by the creditors) on the grounds
mentioned in Sec. 311
The order o f w i n d i n g u p o f t h e In this case, the company shall from
Company shall operate in favored of all the the commencement of the winding up cease
creditors and all contributories of the to carry on its business except as far as
company as if it had been made out on the required for the beneficial winding up of
joint petition of creditors and its business. Sec. 309.
contributories Sec. 278.
Difference between Members Voluntary winding up & Creditors Voluntary
winding up
sl.no Members Voluntary winding up Creditors Voluntary winding up
1. Such winding up takes place only when Such winding up takes place in case
the company is in a position to pay its debts. when the company is not in a position to
pay its debts.
2. Declaration of solvency is made by the No such declaration is made.
directors.
3. The liquidator is appointed and The liquidator in fact is appointed by the
remuneration is fixed by the company creditors and remuneration is fixed by the
itself. committee of inspection.
4. No committee of inspection is appointed. Committee of inspection is appointed.

5. Meeting of members is called on Meeting of members and creditors is

completion of proceedings of winding up. called when the proceeding for winding-
up has been completed.
6. The liquidator can exercise some powers The liquidator exercise some powers with
with the sanction of a special resolution the sanction of a special Tribunal.
of the company.
7. Only meeting of members called members Meeting of members and creditors is called
voluntary winding up. creditors voluntary winding up.
Grounds for winding up by the Tribunal (Sec 433)
1. Inability to pay debts
Section 27 1J2) provides that the inability to pay debts primarily arise under
three circumstances, namely,
 Where the company fails to clear the debt of the creditor within three
weeks immediately preceding the of demand for payment being made;
 Where execution or other process issued on a decree or order of any court
in favour of the company is returned satisfied in whole or part; and
 Where it is proved to the satisfaction of the court that the company is
unable to pay its debts.
2. Special resolution
 The company may pass a special resolution that it be wound up by the Tribunal.
 The resolution may be passed for any cause whatsoever.
 However, the Tribunal must see that the winding up is not opposed to public interest
or the interest of the company as a whole.
3. Against National interest
If the company has acted against the interest of sovereignty and integrity of India, the
security of the state, friendly relations with foreign states, public order, decency or
morality.
4. Failure of Scheme
If the scheme of revival and rehabilitation is not approved by the creditors,
then the company administrator shall submit a report to the Tribunal within 15 da s
and the Tribunal shall order for the winding up of the sick company. The Tribunal,
on passing the order of winding up, shall conduct the proceedings for winding up in
accordance with the provisions of Chapter XX [Sec. 27 1(1) (d)].
5. Fraudulent & unlawful affairs
If the Tribunal is of the opinion that the affairs of the company have been
conducted in a fraudulent manner or the company was formed for fraudulent and
unlawful purposes or the persons concerned in the formation or management of its
affairs have been guilty of fraud, misfeasance or misconduct in connection
therewith and that is proper that the company be wound-up; then in such a situation,
the Tribunal may, on a petition filed by any authorized person, pass an order for
the winding up of the company [Sec. 271 (e)].
6. Default in filling Financial statements
If the company has made a default in filling with the Registrar its financial statements
or annual return for immediately preceding five consecutive financial years [Sec. 271(1)
(f)].
7. Just & Equitable
When the Tribunal is of the opinion that it is just and equitable that the company should
be wound up; then the Tribunal may order the winding up of a company.
Consequences of winding up order under compulsory winding-up

1. The Tribunal must intimate to the official Liquidator and Registrar within a period not
exceeding seven days from the date of passing of the order (sec 277).
2. The petitioner and the company must also file with the registrar a certified copy of the
order. If default is made, then every person responsible for default shall be liable to
punishment with fine up to Rs. 1000 for every day.
3. The order of winding up is the notice of discharge to the officers, employees and
workmen of the company except when the business of the company is continued for
the beneficial winding up of the company [Sec.277(3)].
4. All actions and suits against the company are stayed, unless the Tribunal gives leave to
continue or commence proceedings. Further, any suit or proceeding pending in any other
court shall be transferred to the Tribunal in which the winding up of the company is
proceeding (sec 279).
5. The order operates in the interests of all the creditors and all the contributories, no matter
who in fact asked for it (sec 278).
6. The official liquidator by virtue of his office became the liquidator of the company and
takes possession and control of the assets of the company (sec 275).
7. All the powers of the board of directors cease and the same are then exercisable by the
liquidator.
8. On the commencement of winding up, the limitation remains suspended in favour of the
company till one year after the winding up order is made (sec 358).
9. Any disposition of the property of the company, and any transfer of shares in the company
or alteration in the status of members made after the commencement of the winding up
shall be void (sec 334).
10. Any attachment, distress or execution put in force, without leave of the Tribunal, against
the estate or effects of the company after the commencement of the winding up shall be
void [sec 335(1) (a)]; but not for the recovery of any tax or impost or any dues payable to
government [sec 335 (2)].
11. Any sale held, without leave of the Tribunal, of any of the properties or effects of the
company after the commencement of winding up shall be void [sec 335 (1) (b)].
12. Any floating charge created within 12 months immediately preceding the commencement
 of winding up his void unless it is proved that the company after the creation of the charge
was solvent (sec 332).
Consequences of voluntary winding up
1. Effect or status of company (Sec 3O9): The Company shall cease to carry on its
business except if it is required to secure a beneficial winding up.
2. Board’s power to cease (Sec. 313): on the appointment of the Liquidator, all the powers
of the Board of directors cease and went into the hands of the Liquidator.
3. Avoidance of transfers ( Sec.334): All transfer of shares and alterations in the status of
members, made after the commencement of winding up, are void unless sanctioned by the
Liquidator or the transfer is made to the Liquidator.
4. Discharge of employees (Sec 334): A resolution to wind up voluntarily operates as notices
of discharge to the employees of the company.
LIQUIDATOR
A liquidator is a person who is appointed when a company is about to wind up either
by compulsion or voluntarily in order to carry out the liquidation process of the company.

A liquidator comes into the picture only at the time of winding up of a company,

An official liquidator is appointed,

 By the court at the time of compulsory winding up.

 By the members of the company at the time of voluntary winding up.

ROLES & RESPONSIBILITIES OF LIQUIDATOR

The liquidator has a host of powers, depending on the type of liquidator that he\she is
administering.
Their main responsibility is to convert any remaining assets or property of the company into
cash to repay as many creditors as possible.
In addition to a wide range of admin tasks, such as paperwork, he\ she will have to
investigate director conduct and schedule meetings with creditors and directors.
The specific duties of the liquidator will also include the following,
 To assess all debts and decide which should be repaid in full or in part.
 Bring to an end any outstanding contracts or legal disputes.
  Seek valuations for company assets to maximize returns for creditors.
 Closely inspect the restoration of property that may have been sold at
undervalue.
 Keep creditors informed and involved in the decision-making process where ever
appropriate.
 Communicate how creditor claims are progressing, the reasons why the
company failed as well as details about the redistribution of assets.
 Distribute funds to creditors fairly, taking into account the repayment
structure which begins with the fees and expenses of the liquidation
process itself.
 Interview and report on the factors that 1ed to the company's demise and
liquidation. Report to the Secretary of State if he or she identifies director
misconduct or fraud.
 Dissolve the company.

DEFUNCT COMPANY

 A defunct company is a company who has no asset and no liability and failure to commence
business within one year of incorporation.
 The most awaited fast track exit came into existence on 5-4-2017 for striking off the
defunct companies.
 The ministry of corporate affairs (MCA) introduced strike- off mode to allow the defunct
companies to get their names removed from the register of companies (ROC).

INSOLVENCY CODE

INTRODUCTION TO INSOLVENCY CODE

 Prior to insolvency and bankruptcy code, there are multiple overlapping laws and
adjudicating forums dealing with financial failure and insolvency of companies and
individuals in India.
 The previous legal and institutional framework did not aid lenders in effective and timely
recovery or restructuring of defaulted assets and causes undue strain on the Indian credit
system.
  Recognizing that reforms in the bankruptcy and insolvency regime are critical for
improving the business environment and removing distressed credit markets, the
government introduced the Insolvency and Bankruptcy (IBC) code Bill in November 2015.
 It was drafted by a specially constituted “Bankruptcy Law Reforms Committee (BLRC)”
under the Ministry of finance.
 After a public consultation process and recommendations from a joint committee of
parliament, both houses of parliament have passed the Insolvency and Bankruptcy code,
2016.
 While the legislation of the Code is a historical development for economic reforms in
India, its effect will be seen in due course when the institutional infrastructure and
implementing rules as envisaged under the Code are formed.
 The IBC bill introduced in Lok Sabha on July 26, 2021.
 The code provides a time bound process for resolving the insolvency of corporate debtors
(within in 33o days) called the corporate insolvency resolution process (CIRP).

ADMINISTRATION OF NCLT (National Company Law Tribunal)

NCLT is a quasi-judicial authority incorporated for dealing with corporate disputes that are
of civil nature arising under the companies Act.
The central government has constituted NCLT under section 408 of the companies Act,
2013 w.e.f. 01-06-1016.
In the first phase the Ministry of corporate affairs have set up eleven benches,
o One principal Bench at New Delhi and
o One each Regional Benches at New Delhi, Ahmedabad, Allahabad, Bengaluru,
Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai.
o These benches will be headed by the president and 16 judicial members and 9
technical members at different locations.

SCOPE OF NCLT

The National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of
various bodies, namely,

 Company Law Board

  Board for Industrial and Financial Reconstruction (BIFR)
 The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and
 The powers relating to winding up or restructuring and other provisions,
vested in High Courts.
Hence, the National Company Law Tribunal will consolidate all powers to govern the
companies registered in India

Advantages for National Company Law Tribunal

1. NCLT is specialized court only for Corporates, i.e. companies registered in India.
2. This will be no more than a Tribunal for the Corporate Members.
3. NCLT will reduce the multiplicity of litigation before different forums and courts.
4. NCLT has multiple branches and is able to provide justice at a close range.
5. NCLT consists of both judicial and technical members while deciding on matters.
6. The time taken to windup a company is reduced.
7. Speedy disposal of cases will help reduce the number of cases.
8. NCLT & NCLAT have exclusive jurisdiction.

POWER OF NCLT

a) Power to seek assistance of Chief Metropolitan Magistrate.

b) De-registration of Companies.
c) Declare the liability of members unlimited.
d) De-registration of companies in certain circumstances when there is registration of
companies is obtained in an illegal or wrongful manner.
e) Remedy of oppression and mismanagement.
f) Power to hear grievance of refusal of companies to transfer securities and rectification of
register of members.
g) Protection of the interest of various stakeholders, especially non-promoter shareholders
and depositors.
h) Power to provide relief to the investors against a large set of wrongful actions committed
by the company management or other consultants and advisors who are associated with
the company.
 i) Aggrieved depositors have the remedy of class actions for seeking redressal for the
acts/omissions of the company which hurt their rights as depositors.
j) Powers to direct the company to reopen its accounts or allow the company to revise its
financial statement but do not permit reopening of accounts. The company can itself also
approach the Tribunal through its director for revision of its financial statement.
k) Power to investigate or for initiating investigation proceedings. An investigation can be
conducted even abroad. Provisions are provided to assist investigation agencies and courts
of other countries with respect to investigation proceedings.
l) Power to investigate into the ownership of the company.
m) Power to freeze assets of the company.
n) Power to impose restriction on any securities of the company.
o) Conversion of public limited company into private limited company.
p) If the company cannot or has not held an Annual General Meeting as required under the
Companies Act or a required Extraordinary General Meeting, then the Tribunal has powers
to call for a General Meetings.
q) Power to alter the financial year of a company registered in India.

ADMINISTRATION OF NCLAT (National Company Law Appellate Tribunal)

 NCLAT was constituted under section 410 of the companies ACT, 2013.
 NCLAT is also appellate tribunal for hearing appeals against the orders passed by NCLT
under section 61 of the Insolvency and Bankruptcy code, 2016 (IBC), with effect from 1st
December, 2016.
 NCLAT is also appellate tribunal for hearing appeals against the orders passed by
Insolvency and Bankruptcy board of Indian under section 202 and section 2011of IBC.
 NCLAT is also appellate tribunal to hear and dispose of appeals agonist any directions
issued or decision made or order passed by the completion commission of India (CCI).
 NCLAT is also appellate tribunal to hear and dispose of appeals agonist the orders of the
National Financial Reporting Authority.
DIFFERENCE BETWEEN NCLT & NCLAT

NCLT NCLAT
NCLT is established a s per Section 408 NCLAT is established a s per Section 410
of Companies Act, 2013. of Companies Act, 2013.
NCLT has 16 benches throughout India. NCLAT has two benches throughout India one
at New Delhi and another at Chennai.
NCLT collects facts and evidences. NCLAT collects facts and evidences.

It holds primary jurisdiction on cases of It holds appellate jurisdictions over the cases
insolvency and bankruptcy. judged by NCLT.
NCLT accepts and analyzes the NCLAT accepts and analyzes the decision
evidence from creditors and debtors. made by NCLT.
Cases can come to NCLT directly. No case can come to NCLAT directly, it
must either come from NCLT,
• under Sec 421 of Companies Act,
2013 or
• any other body given in Sec 410 of
Companies Act, 2013
ADMINISTRATION OF SPECIAL COURT
 Chapter XVIII under the Companies Act, 2013 contains provisions relating to the
Special Courts, specifically Sections 435 to 438 and Section 440.
 The Report of Companies Law Committee chaired by Shri Tappan Ray noted that
the establishment of Special Courts would enable faster prosecution of defaulting
companies.
 The Central Government is empowered to establish Special Courts for the purpose of
providing speedy trial of offences under the Companies Act, 2013.
 The special court shall consist of a single judge holding the office as a sessions judge or
additional session judge for offences with imprisonment of two years or more, such as
fraud including repayment of the debt, or failure to pay dividend knowingly; however, in
other offences, he shall hold office as a Metropolitan Magistrate or Judicial Magistrate
first class.
Powers of the special court

 Under Companies Act, 2013, the judicial magistrate or executive magistrate may
authorize the detention for 15 Days or 7 Days only respectively.
 These magistrates are also empowered to forward the person accused to the Special
Court without unnecessary detention.
 The Special Courts are empowered to take cognizance of the offence without accused
being committed for trial upon perusal of the police report and also to try an offence
under the Code of Criminal Procedure, 1973 with which the accused may be
charged at the same trial.
 The special courts may also try an offence summarily for which the imprisonment is
provide for a team not exceeding three years.
 However, the punishment for conviction in a summary trial is limited to one year.
 The provisions of reversion back to the regular trial and condition there to be also provided
under the Act.
 The person conducting a prosecution before a special court shall be deemed to be a public
prosecutor.

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