FAQs on company laws [Part - 4]


What is Share certificate?

A share certificate is a document issued by the company stating that the person named therein is the registered holder of specified number of shares of a certain class and they are paid up upto the amount specified in the share certificate. The share certificate must bear the common seal of the company and also must be stamped under the relevant stamp act. One or more directors must sign it .It should state the name as well as occupation of the holder and number of shares , their distinctive number and the amount paid up.

Every company making allotment of shares must deliver the share certificate of all shareholders within three months of allotment. In case of transfer of shares, the share certificate must be ready for delivery within two months after the shares are lodged with the company for transfer. If default is made in complying with the above provisions, the company and every officer of company who is in default is liable to punishment by way of fine which may extent to Rs500 for every day of default. The allotee must give notice to the company reminding of its obligation and even then, if default is not made good within 10 days of the notice, the allotee may apply to the Company Law Board for direction to the company to issue such share certificate in accordance with the Act. Application for this purpose must be made with the concerned regional bench of the Company Law Board by way of petition. The petition should be accompanied by the following documents :-

1.Copy of the letter of allotment issued by the company

2.Documentary evidence for the allotment of the shares or debentures for transfer

3.Copy of the notice served on the company requiring to make good the default

4.Any other correspondence

5.Affidavit verifying the petition

6.Bank draft evidencing payment of application fee

7.Memorandum of appearance with the Board copy of resolution of the board for the executive Vakalat Nama as the case may be Companies act does not prescribe any form for share certificate.

A Shareholder must keep his share certificate in safe custody or in case of shares which are traded in demat mode, with the depository. The company may renew or issue a duplicate certificate if such certificate is proved to have been lost or destroyed or having being defaced or mutilated or torn or is surrendered to the company. However, if the company, with the intention to defraud issues duplicate certificate, the company shall be punishable with the fine upto Rs10000 and every officer of the company who is in default with imprisonment upto 6 months or fine upto Rs10000 or both.

Once a share certificate is issued by the company, the name of the person in whose favour it has been issued becomes the registered shareholder. Nobody can then deny the fact of his being the registered shareholder of the company. Similarly, if the certificate states that on each of shares a certain amount has been paid up, nobody can deny the fact that such amount has been paid up

Once a charge is registered, it acts as a notice to the public at large that the charge holder has an interest in the charged property. No person can take a defense against the charge holder that he was not aware that a charge was created against the property. That person will be entitled to the property subject to the interest of the charge holder. Once certificate of charge is issued by the Registrar, it is conclusive evidence that the document creating the charge is properly registered.

A company must file within 30 days of creation of a charge with the Registrar complete details of the charge together with the instrument of charge or its verified copy in respect of certain charges. Otherwise the charge will be void. This does not mean that the creditors cannot recover their dues. It merely means that the benefit of the charged security will not be available to them. The following charges are compulsorily registrable :-

 

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What is the difference between Sweat Equity and Employee Stock Options?

Sweat Equity Shares mean equity shares issued by the company to its directors and / or employees at a discount or for consideration other than cash for providing know how or making available the rights in the nature of intellectual property rights or value additions.

A company may issue sweat equity shares of a class of shares already issued if the following conditions are fulfilled :-

1.A special resolution to the effect is passed at a general meeting of the company

2.The resolution specifies the number of shares, the current market price, consideration, if any, and the class of employees to whom the shares are to be issued

3.At least 1 year has passed since the date on which the company became eligible to commence business.

4.In case of issue of such shares by a listed company, the Sweat Equity Shares are listed on a recognized stock exchange in accordance with SEBI regulations and where the company is not listed on any stock exchange, the the prescribed rules are complied with.

 

 

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How bonus shares are issued?

Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalization of the reserves of the company. Bonus shares can be issued by a company only if the Articles of Association of the company authorises a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorised share capital. Otherwise, the authorised capital must be increased by amending the capital clause of the Memorandum of association. If the company has availed of any loan from the financial institutions, prior permission is to obtained from the institutions for issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board to issue bonus shares immediately after the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bank should be obtained.

Only fully paid up bonus share can be issued. Partly paid up bonus shares cannot be issued since the shareholders become liable to pay the uncalled amount on those shares.

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Can a company issue the shares at premium?

A company may issue shares at a premium i.e. at a value above its par value. The following conditions must be satisfied in connection with the issue of shares at a premium:-

1.The amount of premium must be transfered to an account to be called share premium account. The provisions of this Act relating to the reduction of share capital of the company will apply as if the share account premium account were paid up share capital of the company.

2.Share premium account can be used only for the following purposes :-

1. 1.In issuing fully paid bonus shares to members.

2.In Writing off preliminary expenses of the company.

3.In writing off public issue expenses such as underwriting commission, advertisement expenses, etc

4.In providing for the premium payable paid on redemption of any redeemable preference shares or debentures.

5.In buying back its shares

 

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Can a company issue shares at discount?

A company may issue shares at a discount i.e at a value below its par value. The following conditions must be satisfied in connection with the issue of shares at a discount :-

1.The shares must be of a class already issued

2.Issue of the shares at discount must be authorised by resolution passed in the general meeting of company and sanctioned by the company law board.

3.The resolution must also specify the maximum rate of discount at which the shares are to be issued

4.Not less than one year has elapsed from the date on which the company was entitled to commence the business.

5.The shares to be issued at discount must issued within 2 months after the date on which issue is sanctioned by the company law board or within extended as may be allowed by the Company Law Board.

6.The discount must not exceed 10 percent unless the Company Law Board is of the opinion that the higher percentage of discount may be allowed in special circumstances of case.

 

 

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Can a company further issue the capital?

If, at any time after the expiry of 2 Years from the date of incorporation of the company or after one year from the date of first allotment of shares, whichever is earlier, a public company limited by shares issues further shares within the limit of authorised capital, its directors must first offer such shares to the existing holders of equity shares in proportion to the capital paid up on their shares at the time of further issue. This is commonly known as “Rights Issue of shares”. The company must give notice each of the equity shareholders giving him the option to buy the shares offered to him. The shareholders must be informed of the number of shares he has the option to buy. He must be given at least 15 days to decide for exercising his option. The directors must state in the notice of the offer the fact that the shareholders also has the right to renounce the offer in whole or part in favour of some other person. This is commonly known as “Renunciation of Rights”.

If the shareholder does not inform the company of his decision to take the shares, it is deemed that he has declined the offer. In case where the rights shares are not taken by the shareholders, the directors of the company may dispose of the shares in the manner they think fit.

A company may by special resolution in the general meeting decide that the directors need not offer the shares to the existing shareholders of the equity shares and that they may dispose them off in a manner thought fit by them. This is known as “preferential offer of shares” where third parties or only certain shareholders are given shares in priority over the other shareholders.

However, if a special resolution for preferential issue of shares is not passed but merely an ordinary resolution is passed, preferential issue of shares may be done provided sanction of the Central Government is obtained. The price at which the preferential shares are to be offered are governed by the SEBI guidelines in case of listed companies. Such shares cannot be issued at a price which is less than the higher of the following :-

1.The average of the weekly highs and lows of the closing prices of the shares on the stock exchange during 6 months preceding the date of issue ; or

2.The average of the weekly highs and lows of the closing prices of the shares on the stock exchange during 2 weeks preceding the date of issue

The above provisions of preferential allotment do not apply to conversion of loans or debentures in equity shares provided the terms of the loan or terms of issue of debentures give an option to convert such loans or debentures into shares of the company. Such terms and conditions must be approved before the issue of debenture or raising of the loan by the Central Government or must be in confirmity with the rules made by the Government for this purpose. The proposal must be approved by the special resolution passed by Company at the general meeting before the issue of debentures or raising of the loan. For this purpose the Central Government has framed the Public Companies (Terms of issue of debentures and raising of loans with option to convert such debentures or loan into equity shares ) Rules, 1977. The following is the broad gist of these rules :-

1.The debenture or loan is raised or issued either through private subscription or through issue of the prospectus to the public.

2.The financial institutions specified for this purpose either underwrite or subscribe to the whole or part of the issue of debentures or sanction the raising of loan.

3.Having regard to financial position of the company, the terms of issue of debentures or terms of loan (eg rate of interest payable on debenture and loan the capital of the company, its liabilities and its profits during immediately preceeding five years and the current market price of shares of the company), the conversion must be either at par and or at premium not exceeding 25 percent of the face value of the shares.

The provisions of rights and preferential issue do not apply in the following cases :-

1.Increase in share capital by a private company.

2.Increase in share capital by a deemed public company.

 

 

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What are the Voting Rights of the Members?

Every member of a public company limited by shares holding equity shares will have votes in proportion to his share in paid up equity capital of the company.

Generally, preference shareholders do not have any voting rights. However, they can vote on matters directly relating to the rights attached to the preference share capital. Any resolution for winding up of the company or for the reduction or repayment of the share capital shall be deemed to affect directly the rights attached to preference shares. Where the preference shares are cumulative (in respect of dividend) and the dividend thereon has remained unpaid for an aggregate period of two years before date of any meeting of the company, the preference shareholders will have right to vote on any resolution. In case of non-cumulative preference shares, preference shareholders have right to vote on every resolution if dividend due on their capital remains unpaid, either in respect of period of not less than two years ending with the expiry of the financial year immediately preceding the commencement of the meeting or in respect of aggregate period of not less than three years comprised in six years ending with the expiry of concerned financial year.

Every equity shareholder has a right to vote at a general meeting. No company can prohibit any member from exercising his voting right any ground including the ground that he has not held his shares for a minimum period before he becomes eligible to vote. However, a member’s voting rights can be revoked if that member does not make payment of calls or other sums due against him or where the company has exercised the right of lien on his shares.

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What are the Rights of Dissenting Shareholders

The rights of the shareholders who did not consent to or vote for variation of their rights are protected by the Companies Act. If the rights of any class of the shareholders are varied, the holders of not less than 10 per cent of the shares of that class, being persons who did not consent to or vote in favour of resolution for variation of their rights can apply to the court to have the variation cancelled. Where such application is made to the court, such variation will not be given effect unless and until it is confirmed by the court.

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How much Variation is in shareholders rights?

The rights, duties and liabilities of all shareholders are clearly defined at the time of issue of the shares. Once the rights of shareholders are fixed, they cannot be altered unless the provisions of the Companies Act for this purpose are complied with. The rights attached to the shares of any class can be varied only with the consent in writing of shareholders holding not less than 75 % of the issued shares of that class or with the sanction of special resolution passed at a separate meeting of the holders of issued shares of that class. However, the following conditions also must be complied with :-

1.The variation of rights are allowed by the Memorandum or Articles of Association of the Company.

2.In absence of such provision in the Memorandum or Articles of company, such variation must not be prohibited by the terms of issue of shares of that class.

 

 

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What is Buy-back of shares ?

Buy back of its own shares by a company is nothing but reduction of share capital. After the recent amendments in the Companies Act, 1956 buy back of its own shares by a company is allowed without sanction of the Court. It is nothing but a process which enables a company to go back to the holders of its shares and offer to purchase from them the shares that they hold.

There are three main reasons why a company would opt for buy back :-

1.To improve shareholder value, since with fewer shares earning per share of the remaining shares will increase.

2.As a defense mechanism against hostile take-overs since there are fewer shares available for the hostile acquirer to acquire.

3.Public Signaling of the Management’s Policy.

A company may purchase its own shares or other specified securities out of :-

1.its free reserves; or

2.the securities premium account; or

3.the proceeds of any shares or other specified securities:

No buy-back of any kind of shares or other specified securities can be made out of the earlier proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

No company can purchase its own shares or other specified securities unless :-

1.the buy-back is authorized by its articles;

2.a special resolution has been passed in general meeting of the company authorizing the buy-back;

3.the buy-back is of less than twenty five per cent of the total paid-up capital and free reserves of the company:

4.the buy-back of equity shares in any financial year shall not exceed twenty five per cent of its total paid-up equity capital in that financial year

5.the ratio of the debt owned by the company is not more than twice the capital and its free reserves after such buy-back. However, the Central Government may prescribe a higher ratio of the debt than that specified under this clause for a class or classes of companies.

6.all the shares or other specified securities for buy-back are fully paid-up;

7.the buy-back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the regulations made by the Securities and Exchange Board of India in this behalf;

8.the buy-back in respect of shares or other specified securities other than those specified in clause (g) is in accordance with the guidelines as may be prescribed.

The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an explanatory statement stating

1.a full and complete disclosure of all material facts

2.the necessity for the buy-back

3.the class of security intended to be purchased under the buy-back

4.the amount to be invested under the buy-back and

5.the time limit for completion of buy-back.

Every buy-back must be completed within twelve months from the date of passing the special resolution.

The buy-back may be :-

1.from the existing security holders on a proportionate basis;

2.from the open market or

3.from odd lots, that is to say, where the lot of securities of a listed public company whose shares are listed on a recognized stock exchange is smaller than such marketable lot as may be specified by the stock exchange;

4.by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

Where a company has passed a special resolution to buy-back its own shares or other securities under this section, it shall, before making such buy-back, file with the Registrar and the Securities and Exchange Board of India a declaration of solvency in the form as may be prescribed and verified by an affidavit to the effect that the Board has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year of the date of declaration adopted by the Board, and signed by at least two directors of the company, one of whom shall be the managing director, if any:

Such a declaration of solvency need not be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognized stock exchange.

Where a company buys back its own securities, it shall extinguish and physically destroy the securities so bought back within seven days of the last date of completion of buy-back.

Where a company completes a buy-back of its shares or, other specified securities under this section, it shall not make further issue of the same kind of shares or other specified securities within a period of twenty four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.

Where a company buys back its securities under this section it shall maintain a register of the securities so bought, the consideration paid for the securities bought-back, the date of cancellation of securities, the date of extinguishing and physically destroying of securities and such other particulars as may be prescribed.

A company shall, after the completion of the buy-back under this section, file with the Registrar and the Securities and Exchange Board of India, a return containing such particulars relating to the buy-back within thirty days of such completion as may be prescribed. However such return need not be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognized stock exchange.

If a company makes default in complying with the provisions of this section or any rules or any regulations, the company or any officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both.

For the purposes of buy back, “specified securities” includes employees’ stock option or other securities as may be notified by the Central Government from time to time;

Where a company purchases its own shares out of free reserves, then a sum equal to the nominal value of the share so purchased shall be transferred to the capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet.”

No company shall directly or indirectly purchase its own shares or other specified securities -

(a) through any subsidiary company including its own subsidiary companies; or

(b) through any investment company or group of investment companies; or

(c) if a default, by the company, in repayment of deposit or interest payable thereon, redemption of debentures, or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, is subsisting.

No Company can, directly or indirectly, purchase its own shares or other specified securities in case such company has not filed its annual returns with the Registrar of Companies, or has not paid the dividends declared by it within 42 days from the date of declaration or has not prepared its annual accounts in the prescribed manner.

 

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Can Reduction of capital take place without the sanction of the court?

Reduction of capital can take place without the sanction of the court in the following cases:-

1.Buy back of shares in accordance to the provisions of Section 77A and 77B

2.Forfeiture of shares – A company may if authorised by its articles forfeit shares for non-payment of calls by the shareholders. Such proceedings amount to reduction of capital but the act does not require court sanction for this purpose.

3.Valid surrender of the shares – A company may accept the surrender of shares

4.Cancellation of capital – A company may cancel the shares which has not been taken up or agreed to be taken by the person and diminish the amount of its share capital.

5.Purchase of shares of member by the company under Section 402B. The Company Law Board may, on application made under Section 397 or Section 398, order the purchase of shares or interest of any member of the company by the company. These provisions come in force when a prescribed number of members make a complaint to the CLB for mis-management or oppression of the minority shareholders in the company.

6.Redemption of redeemable preference shares. Where redeemable preference shares are redeemed, it actually amounts to reduction of the capital. However, this does not require the sanction of the court.

 

 

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Under what circumstances Reduction of share capital with sanction of the Court is possible?

A company limited by the shares or a company limited by guarantee and having share capital can if authorised by its articles, by special resolution and subject to confirmation by the court on petition reduce its share capital. It may effect reduction of its share capital in any of following circumstances:-

1. Where the company is overcapitalised :-

1. 1.It may extinguish or reduce the liability of member in respect of uncalled or unpaid capital. For example, where shares are of Rs100 each with Rs60 paid up, the company may reduce them to Rs60 fully paid and thus release the shareholder from the liability on uncalled capital of Rs. 40/-.

2.Pay off or return part of the unpaid capital not wanted for the purpose of the company. For example, where the shares are fully paid of Rs100 they may be reduced Rs40 each and Rs60 may be paid back to the shareholders.

3.Pay off part of the paid up share capital on the footing that it may be called up again. If shares are of Rs100 each the company may pay off Rs25 per share on condition that when desired the company may call it again without extinguishing the liability of shareholders to pay the uncalled share capital.

4.Reduce by a combination of the aforesaid methods

2. Where has suffered loss of capital, in such situation the company can write off or cancel the share capital which has been lost or is unrepresented by available assets.

Where the company has passed the resolution for reducing the share capital, it must, by petition, apply to the court in the prescribed form to the court for an order confirming the reduction. Where the proposed reduction of share capital involves the either diminution of liabilities in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital or in any other case if the court so directs the following provisions shall have effect :-

1.Every creditor of the company who on the date fixed by the court is entitled to debt from or any claim against the company shall be entitled to object to the reduction.

2.The Court shall settle a list of creditors so entitled to object and for that purpose shall ascertain as far as possible without requiring an application from any of the creditors, the names of creditors and the nature and amount of debt or claims and publish notices fixing the day or days within which creditors not entered in the list are to be entered if they so desire.

3.Where a creditor entered on the list whose debt or claim is not discharged or has not been determined does not consent to the reduction, the court may, if it thinks fit, dispense with the consent of the creditors if the company secures payment of this debt or claim by appropriating the following amounts as the court may direct:-

1. 1.The company admits the full amount claim or debt or though not admitting it is willing to provide for it, then the full amount of debt or claim

2.If the company does not admit and is not willing to provide for the full amount of debt or claim or if the amount is contingent or not ascertained, then amount fixed by the court after due enquiry.

1.Where the proposed reduction of share capital involves either diminution of any liability in respect of the unpaid share capital or payment of any shareholder of any paid share capital, the Court may, having regard to any special circumstances of the case as it thinks proper so to do, direct that the above provisions shall not apply to any class or classes of creditors.

2.If the court is satisfied with respect to every creditor of the company entitled to object to reduction that either his consent to the reduction has been obtained or his that debt or claim has been discharged or has been determined or has been secured, make an order confirming the reduction on such terms and conditions as it thinks fit.

3.Where the court makes such an order, it may, if for any special reasons thinks fit and proper to do so, make an order directing that the company shall shall during such period commencing on and any time after the date of the order as is specified in the order add to its name as the last words the words “& Reduced” and make an order requiring the company to publish the same along with the reasons for the reduction or such other information in regard thereto as the court may think expedient with view to giving proper information to the public and if the court thinks fit the causes which led to reduction.

4.Where the company is ordered to add to its name the words “& Reduced” those words shall until the expiry of period specified in the order shall be deemed to be part of the name of the company.

5.The registrar, on the production to him, of an order of the court confirming the reduction of the share capital of the company and on delivering to him the certified copy of the order and of minutes approved by the court showing with respect to the share capital of the company as altered by the order register the reduction of share capital. On registration of order and minutes, the reduction of share capital shall take effect.

6.Notice of the registration shall be published in such manner as the court may direct.

 

 

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How shares can be converted into stocks?

Conversion of fully paid shares into stock may likewise be affected by the ordinary resolution of the company in the general meeting. Notice of the conversion must be given to the Registrar within 30 days of the conversion, the stock may be converted into fully paid shares following the same procedure and notice given to the Registrar in Form no 5. In this connection, the following provisions are important :-

1.Only fully paid shares can be converted into stocks

2.Direct issue of stock to members is not lawful and cannot be done.

3.The difference between shares and stock is that shares are transferable only in complete units so that transfer of half or any portion of share is not possible whereas stock is expressed in terms of any amount money and is transferable in any money fractions.

4.Articles may be give the Board of Directors authority to fix minimum amount of stock transferable.

5.Since stock is not divided into different units it is not required to be numbered. Shares on the other hand must be numbered.

 

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What is Alternation of capital?

A company limited by shares can alter the capital clause of its Memorandum in any of the following ways provided that such alteration is authorised by the articles of association of the company :-

1.Increase in share capital by such amount as it thinks expedient by issuing new shares.

2.Consolidate and divide all or any of its share capital into shares of larger amount than its existing shares. eg, if the company has 100 shares of Rs.10 each ( aggregating to Rs. 1000/-) it may consolidate those shares into 10 shares of Rs100 each.

3.Convert all or any of its fully paid shares into stock and re-convert stock into fully paid shares of any denomination.

4.Subdivide shares or any of shares into smaller amounts fixed by the Memorandum so that in subdivision the proportion between the amount paid and the amount if any unpaid on each reduced shares shall be same as it was in case of from which the reduced share is derived.

5.Cancel shares which have been not been taken or agreed to be taken by any person and diminish the amount of share capital by the amount of the shares so cancelled.

The alteration of the capital of the company in any of the manner specified above can be done by passing a resolution at the general meeting of the company and does not require any confirmation by the court.

Reduction of the share capital can be effected only in the manners specified in Section 100-104 of the Act or by way of buy back under Section 77A and 77B of the Act. Notice of alteration to share capital is required to be filed with the registrar of the company in Form no 5 within 30 days of the alteration of the capital clause of the MA. The Registrar shall record the notice and make necessary alteration in Memorandum and Articles of Association of the company. Any default in giving notice to the registrar renders company and its officers in default liable to punishment with fine which may extend to the Rs50 for each day of default.

 

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How many Types of Preference Shares are there?

1.Cumulative or Non-cumulative : A non-cumulative or simple preference shares gives right to fixed percentage dividend of profit of each year. In case no dividend thereon is declared in any year because of absence of profit, the holders of preference shares get nothing nor can they claim unpaid dividend in the subsequent year or years in respect of that year. Cumulative preference shares however give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution . In this case dividends which are not paid in any year are accumulated and are paid out when the profits are available.

2.Redeemable and Non- Redeemable : Redeemable Preference shares are preference shares which have to be repaid by the company after the term of which for which the preference shares have been issued. Irredeemable Preference shares means preference shares need not repaid by the company except on winding up of the company. However, under the Indian Companies Act, a company cannot issue irredeemable preference shares. In fact, a company limited by shares cannot issue preference shares which are redeemable after more than 10 years from the date of issue. In other words the maximum tenure of preference shares is 10 years. If a company is unable to redeem any preference shares within the specified period, it may, with consent of the Company Law Board, issue further redeemable preference shares equal to redeem the old preference shares including dividend thereon. A company can issue the preference shares which from the very beginning are redeemable on a fixed date or after certain period of time not exceeding 10 years provided it comprises of following conditions :-

1.It must be authorised by the articles of association to make such an issue.

2.The shares will be only redeemable if they are fully paid up.

3.The shares may be redeemed out of profits of the company which otherwise would be available for dividends or out of proceeds of new issue of shares made for the purpose of redeem shares.

4.If there is premium payable on redemption it must have provided out of profits or out of shares premium account before the shares are redeemed.

5.When shares are redeemed out of profits a sum equal to nominal amount of shares redeemed is to be transferred out of profits to the capital redemption reserve account. This amount should then be utilised for the purpose of redemption of redeemable preference shares. This reserve can be used to issue of fully paid bonus shares to the members of the company.

3.Participating Preference Share or non-participating preference shares : Participating Preference shares are entitled to a preferential dividend at a fixed rate with the right to participate further in the profits either along with or after payment of certain rate of dividend on equity shares. A non-participating share is one which does not such right to participate in the profits of the company after the dividend and capital have been paid to the preference shareholders.

 

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How many types of shares are there?

Shares in the company may be similar i.e they may carry the same rights and liabilities and confer on their holders the same rights, liabilities and duties. There are two types of shares under Indian Company Law :-

1.Equity shares means that part of the share capital of the company which are not preference shares.

2.Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share.

1.It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the holders of the equity shares can be paid dividend.

2.It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital.

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What are the different terms used to denote different aspects of share capital?

1.Nominal, authorised or registered capital means the sum mentioned in the capital clause of Memorandum of Association. It is the maximum amount which the company raise by issuing the shares and on which the registration fee is paid. This limit is cannot be exceeded unless the Memorandum of Association is altered.

2.Issued capital means that part of the authorised capital which has been offered for subscription to members and includes shares alloted to members for consideration in kind also.

3.Subscribed capital means that part of the issued capital at nominal or face value which has been subscribed or taken up by purchaser of shares in the company and which has been alloted.

4.Called-up capital means the total amount of called up capital on the shares issued and subscribed by the shareholders on capital account. I.e if the face value of a share is Rs. 10/- but the company requires only Rs. 2/- at present, it may call only Rs. 2/- now and the balance Rs.8/- at a later date. Rs. 2/- is the called up share capital and Rs. 8/- is the uncalled share capital.

5.Paid-up capital means the total amount of called up share capital which is actually paid to the company by the members.

In India, there is the concept of par value of shares. Par value of shares means the face value of the shares. A share under the Companies act, can either of Rs10 or Rs100 or any other value which may be the fixed by the Memorandum of Association of the company. When the shares are issued at the price which is higher than the par value say, for example Par value is Rs10 and it is issued at Rs15 then Rs5 is the premium amount i.e, Rs10 is the par value of the shares and Rs5 is the premium. Similarily when a share is issued at an amount lower than the par value, say Rs8, in that case Rs2 is discount on shares and Rs10 will be par value.

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What is Memorandum of satisfaction?

company must make a report to the Registrar of payment of satisfying in full of any charge registered under this act. The satisfaction of charges must be filed with the Registrar within 30 days from the date of such a payment of charge. On receipt of intimation to the company, the Registrar gives notice to the charge-holder calling upon him to show cause within time not exceeding 14 days as why the payment of satisfaction should not be registered. If no cause is shown within the time stipulated above the Registrar must enter the satisfaction of the payment of charge. If some cause is shown, the Registrar must record note to that effect in the register and inform the company accordingly

Once a charge is registered, it acts as a notice to the public at large that the charge holder has an interest in the charged property. No person can take a defense against the charge holder that he was not aware that a charge was created against the property. That person will be entitled to the property subject to the interest of the charge holder. Once certificate of charge is issued by the Registrar, it is conclusive evidence that the document creating the charge is properly registered.

A company must file within 30 days of creation of a charge with the Registrar complete details of the charge together with the instrument of charge or its verified copy in respect of certain charges. Otherwise the charge will be void. This does not mean that the creditors cannot recover their dues. It merely means that the benefit of the charged security will not be available to them. The following charges are compulsorily registrable :-

company must make a report to the Registrar of payment of satisfying in full of any charge registered under this act. The satisfaction of charges must be filed with the Registrar within 30 days from the date of such a payment of charge. On receipt of intimation to the company, the Registrar gives notice to the charge-holder calling upon him to show cause within time not exceeding 14 days as why the payment of satisfaction should not be registered. If no cause is shown within the time stipulated above the Registrar must enter the satisfaction of the payment of charge. If some cause is shown, the Registrar must record note to that effect in the register and inform the company accordingly

Every company must keep at its registered office a register of charges in which all the charges and mortgages specifically affecting the property of the company must be entered. The register must contain short description of the property charged, the amount of the charge, the name of the person entitled to the charge, etc. The company must keep at its registered office, a copy of every instrument creating any charge requiring the registration. During the business hours inspection by the creditor or member of the company is allowed to be without charge of the register and documents. Any outsider can inspect them on the payment of Rs10 for each inspection during the business hours. Registrar of the company must keep also the register of charges in respect of each company and register therein full particulars relating to the charge created by the company and registrable under the Act. This register is also open to inspect by any person on payment of Rs 10 as fees . The company must submit to the Registrar the instrument creating the charge or its certified copy which will be returned after the registration along with the certificate of registration. The company must cause the copy of every registration to be endorsed on every debenture or certificate of debentures stock which is issued by the company and the payment of which is secured by the charge.

When the charge holder takes steps to enforce his charge, a floating charge becomes a fixed charge on the assets covered by that charge. Until a floating charge becomes a fixed charge, the company is free to deal with the property charged in any manner it deems fit. But once the floating charge crystallises, the company cannot dispose off the charged assets without paying of the chargeholder. Otherwise, the chargeholder can recover his dues from the proceeds. A floating charge crystallises or becomes the fixed in following situations :

Capital refers to the amount invested in the company so that it can carry on its activities. In a company capital refers to “share capital”. The capital clause in Memorandum of Association must state the amount of capital with which company is registered giving details of number of shares and the type of shares of the company. A company cannot issue share capital in excess of the limit specified in the Capital clause without altering the capital clause of the MA.

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What are the Consequences of Non-Registration?

1.A charge which is compulsorily registarble but which is not registered is void. This does not mean that the creditors cannot recover their dues. It merely means that the benefit of the charged security will not be available to them.

2.Although the security becomes void by non-registration, it does not affect the contract or obligation of the company to repay the money thereby secured.

3.Omission to registrar particulars of charge is required punishable with fine. A company or every officer of company is in default shall be liable to fine upto Rs 500 for each day of continuing default. A further fine of Rs. 1000 may be impose on the company and every officer for other defaults relating to registration of charges.

Wherever the terms and conditions or the extent of the operation of any registered charge is modified , the company is required to file the particulars of modification within 30days thereof with the Registrar of Companies.

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Registration of charges

Charges requiring registration :

1.A charge for the purpose of securing any issue of any debentures

2.A floating charge

3.A charge on uncalled share capital

4.Charge on calls made but not paid

5.A charge on any immovable property

6.A charge on ship

7.A charge on book debts of the company

8.A charge on goodwill or on patent or on license under the patent or on trademark or copyright or on the license under the copyright

9.A charge other than a pledge on any movable property of the company.

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What does the term charge refers to in context of a company?

A charge means an interest or right which a lender or creditor obtains in the property of the company by way of security that the company will pay back the debt. Charges are of 2 types :-

1.Fixed Charge

2.Floating Charge

: Such a charge is against a specific clearly identifiable and defined property. The property under charge is identified at the time of creation of charge. The nature and identity of the property does not change during the existence of the charge. The company can transfer the property charged only subject to that charge so that the charge holder or mortgage must be paid first whatever is due to him before disposing off that property. : Such a charge is available only to companies as borrower. A Floating charge does attach to any definite property but covers the property of a circulating and fluctuating nature such as stock-in-trade, debtors, etc. It attaches to the property charged in the varying conditions in which happens to be from time to time. Such a charge remains dormant until the undertaking charge ceases to be a going concern or until the person in whose favour charge created takes steps to crystallise the floating charge. A floating charge on crystallisation becomes a fixed charge.

Crystallization of floating charge :

1.Where the company ceases to carry on the business, whether the principal money has become payable or not, unless the debenture or trust deed contains the stipulation to the contrary.

2.Upon the commencement of winding up of the company.

3.If a debentureholder, having become entitled to realise the securities by the reason of the fact that the principal money has become payable, intervenes for the purpose by appointing the receiver or by making an application to the court for appointment of the receiver.

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What is the meaning of Dissolution?

Dissolution of a meeting means termination of a meeting. The meeting no longer exists once it has been dissolved. If within half an hour after the time appointed for holding a general meeting; the quorum is not present, the meeting shall stand dissolved if it was called on requisition by members.

Minutes of Proceedings of Meetings

Every company must keep minutes of the proceedings of general meetings and of the meetings of board of directors and its committees. The minutes are a record of the discussions made at the meeting and the final decisions taken thereat.

Every company must keep minutes containing details of all proceedings at the meetings. The pages of the minute books must be consecutively numbered and the minutes must be recorded therein within 30 days of the meeting. They have to be written directly on the numbered pages. Pasting or attaching of papers is not allowed. Each page of every such minutes books must be initialed or signed and last page of the record of proceedings of each meeting in such books must be dated and signed by :-

in the case of the meeting of the Board of directors or committee thereof, by the chairman of that meeting or that of the succeeding meeting, and

in the case of a general meeting, by the chairman of the same meeting within the aforesaid 30 days or in the event of the death or inability of that chairman within the period, by a director duly authorised by the Board of directors for the purpose.

The Company Law Board, however, may not object if minutes are maintained in loose leaf form provided all other procedural requirements are complied with and all possible safeguards against manipulation or interpolation of the minutes are ensured. The loose leaves must be bound at reasonable intervals. Entering the minutes in a bound minute book by a chemical process, which does not amount to attachment to any book by pasting or otherwise is permissible provided on the mechanical impression of the minutes, the original signatures of the Chairman are given on each page. All appointments of officers made at any of the meetings must be included in the minutes of the meeting. In the case of a meeting of the Board of directors or its Committee, the minutes must also state the names of directors present at the meeting and the names of directors, if any, dissenting from, or not concurring with a resolution passed at the meeting.

The chairman may exclude from the minutes any matters which are defamatory, irrelevant or immaterial or which are detrimental to the interests of the company. The discretion of the Chairman with regard to the inclusion or exclusion of any matter is absolute and unfettered.

Where minutes of the proceedings of any meeting have been kept properly, they are, unless the contrary is proved, presumed to be correct, and are valid evidence that the meeting was duly called and held, and all proceedings thereat have actually taken place, and in particular, all appointments of directors or liquidators made at the meeting shall be deemed to be valid.

The minute books of the proceedings of general meetings must be kept the registered office of the company. Any member has a right to inspect, free of cost during business hours at the registered office of the company, the minutes books containing the proceedings of the general meetings of the company. Further, any member shall be entitled to be furnished, within 7 days after he has made a request to the company, with a copy of any minutes on payment of Rupee One for every hundred words or fraction thereof. If any inspection is refused or copy not furnished within the time specified, every officer in default shall be punishable with fine up to Rs. 500 for each offence. The Company Law Board may also by order compel an immediate inspection or furnishing of a copy forthwith. But the minutes books of the board meetings are not open for inspection of members

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What does the term Postponement of a meeting means?

Postponement of a meeting means defering the holding of the meeting itself at a later date. Postponement is done by the Board of Directors or by the person convening the meeting. In case of adjournment, it is the decision of the majority of the members present at the meeting itself.

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What does the term Adjournment refers to?

Adjournment means suspending the proceedings of a meeting for the time being so that the meeting may be continued at a later date and time fixed in that meeting itself at the time of such adjournment or to decided later on. Only the business not finished at the original meeting can be transacted at the adjourned meeting.

The majority of members at a meeting may move an adjournment motion at a meeting. If the chairman adjourns the meeting, ignoring the views of the majority, the remaining members can continue the meeting. The chairman cannot adjourn the meeting at his own discretion without there being a good cause for such an adjournment. Where the chairman, acting bona fide within his powers, adjourns the meeting as per the view of the majority, the minority members cannot to continue with such meeting and, if they do the proceedings there will be null and void.

An adjourned meeting is merely the continuation of the original meeting and therefore, a fresh notice is not necessary, if the time, date and place for holding the adjourned meeting are decided and declared at the time of adjourning it. If a meeting is adjourned without stipulation as to when it will be continued, fresh notice of the adjourned meeting must be given.

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What are the different Kinds of Resolutions?

Resolutions mean decisions taken at a meeting. A motion, with or without amendments is put to vote at a meeting. Once the motion is passed, it becomes a resolution. A valid resolution can be passed at a properly convened meeting with the required quorum. There are broadly three types of resolutions :-

1. Ordinary Resolution :

An ordinary resolution is one which can be passed by a simple majority. I.e. if the votes (including the casting vote, if any, of the chairman), at a general meeting cast by members entitled to vote in its favour are more than votes cast against it. Voting may be by way of a show of hands or by a poll provided 21 days notice has been given for the meeting.

2. Special Resolution :

A special resolution is one in regard to which is passed by a 75 % majority only i.e. the number of votes cast in favour of the resolution is at least three times the number of votes cast against it, either by a show of hands or on a poll in person or by proxy. The intention to propose a resolution as a special resolution must be specifically mentioned in the notice of the general meeting. Special resolutions are needed to decide on important matters of the company. Examples where special resolutions are required are :-

To alter the domicile clause of the memorandum from one State to another or to alter the objects clause of the memorandum.

To alter / change the name of the company with the approval of the central government

To alter the articles of association

To change the name of the company by omitting “Limited” or “Private Limited”. The Central Government may allow a company with charitable objects to do so by special resolution under section 25 of the Companies Act, 1956.

3. Resolution requiring Special Notice :

There are certain matters specified in the Companies Act, 1956 which may be discussed at a general meeting only if a special notice is given regarding the proposal to discuss these matters at a meeting. A special notice enables the members to be prepared on the matter to be discussed and gives them time to indicate their views on the resolution. In case special notice of resolution is required by the Companies Act, 1956 or by the articles of a company, the intention to propose such a resolution must be notified to the company at least 14 days before the meeting. The company must within 7 days before the meeting give the notice of the proposed resolution to its members. Notice of the resolution is required to be given in the same way in which notice of a meeting is given, or if that is not practicable, the company may give notice by advertisement in a newspaper having an appropriate circulation or in any other manner allowed by the articles, not less 7 days before the meeting.

The following matters requiring Special Notice before they are discussed before tha meeting :-

To appoint at an annual general meeting appointing an auditor a person other than a retiring auditor.

To resolve at an annual general meeting that a retiring auditor shall not be reappointed.

To remove a director before the expiry of his period of office.

To appoint another director in place of removed director.

Where the articles of a company provide for the giving of a special notice for a resolution, in respect of any specified matter or matters.

Please note that a resolution requiring special notice may be passed either as an ordinary resolution (Simple majority) or as a special resolution (75 % majority).

Circulation of Member’s Resolution

Generally, the Board of Directors prepare the agenda of the meeting to be sent to all members of the meeting. A member, by himself has very little say in deciding the agenda. However, there are provisions in the Companies Act which enable members to introduce motions at a meeting and give prior notice of their intention to do so to all other members of the company. If members having one twentieth of the total voting rights of all members having the right to vote on a resolution or if 100 members having the right to vote and holding paid-up capital of Rs1,00,000 or more, require the company to do so, the company must :-

Give to the members entitled to receive notice of the next annual general meeting, notice of any resolution which may be properly moved and is intended to be moved at that meeting; and

Circulate to members entitled to have notice of any general meeting sent to them, any statement of not more than 1,000 words with respect to the matter referred to in any proposed resolution, or any business to be dealt with at that meeting.

The expenses for this purpose must be borne by the requisitionists and must be tendered to the company. The requisition, signed by all the requisitionists, must be deposited at the registered office of the company at least 6 weeks before the meeting in the case of resolution and not less than 2 weeks before the meeting in case of any other requisition together with a reasonable sum to meet the expenses. However, where a copy of the requisition requiring notice of resolution has been deposited at the registered office of the company and an annual general meeting is called for a date six weeks or less after the requisition is deposited, the copy though not deposited within the prescribed time is deemed to have been properly deposited.

The company is required to serve the notice of resolution and/or the statement to the members as far as possible in the manner and so far as practicable at the same time as the notice of the meeting ; otherwise as soon as practicable thereafter.

However, a company need not circulate a statement if the Court, on the application either of the company or any other aggrieved person, is satisfied that the rights so conferred are being abused to secure needless publicity or for defamatory purposes. Secondly a banking company need not circulate such statement, if in the opinion of its Board of directors, the circulation will injure the interest of the company.

Registration of Resolutions and Agreements

A copy of each of the following resolutions along with the explantory statement in case of a special business and agreements must, within 30 days after the passing or making thereof, be printed or typewritten and duly certified under the signature of an officer of the company and filed with the Registrar of Companies who shall record the same :-

All special resolutions

All resolutions which have been unanimously agreed to by all the members but which, if not so agreed, would not have been effective unless passed as special resolutions

All resolutions of the board of directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director

All resolutions or agreements which have been agreed to by all members of any class of members but which, if not so agreed, would not have been effective unless passed by a particular majority or in a particular manner and all resolutions or agreements which effectively bind all members of any class of shareholders though not agreed to by all of those members

All resolutions passed by a company conferring power upon its directors to sell or dispose of the whole or any part of the company’s undertaking; or to borrow money beyond the limit of the paid-up share capital and free reserves of the company; or to contribute to charities beyond Rs50000 or 5 per cent of the average net profits

All resolutions approving the appointment of sole selling agents of the company

All copies of the terms and conditions of appointment of a sole selling agent or sole buying or purchasing agent

Resolutions for voluntary winding up of a company

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What does the term Amendment means?

Amendment means any modification to a motion before it is put to vote for adoption. Amendment may be proposed by any member who has not already spoken on the main motion or has not previously moved an amendment thereto. There can be an amendment to an amendment motion also. A motion must be in writing and signed by the mover and put to the vote of the meeting by the chairman. An amendment must not raise any question already decided upon at the same meeting and must be relevant to the main motion which it seeks to amend. The chairman has the discretion to accept or reject an amendment on various grounds such as inconsistency, redundancy, irrelevance, etc. If the amendment is adopted on a vote by the members, it is incorporated in the body of the main motion. The altered motion is then discussed and put to vote and if passed, becomes a resolution.

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What does the term Motion refers to?

Motion means a proposal to be discussed at a meeting by the members. A resolution may be passed accepting the motion, with or without modifications or a motion may be entirely rejected. A motion, on being passed as a resolution becomes a decision. A motion must be in writing and signed by the mover and put to the vote of the meeting by the chairman. Only those motions which are mentioned in the agenda to the meeting can be discussed at the meeting. However, motions incidental or ancillary to the matter under discussion may be moved and passed. Generally, a motion is proposed by one member and seconded by another member.

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When there is need for Voting and Demand for Poll?

Generally, initially matters are decided at a general meeting by a show of hands. If the majority of the hands raise their hands in favour of a particular resolution, then unless a poll is demanded, it is taken as passed. Voting by a show of hands operates on the principle of “One Member-One Vote”. However, since the fundamental voting principle in a company is “One Share-One Vote”, if a poll is demanded, voting takes place by a poll. Before or on declaration of the result of the voting on any resolution on a show of hands, the chairman may order suo motu (of his own motion) that a poll be taken. However, when a demand for poll is made, he must order the poll be taken. The chairman may order a poll when a resolution proposed by the Board is lost on the show of hands or if he is of the opinion that the decision taken on the show of hands is likely to be reversed by poll. When a poll is taken, The decision arrived by poll is final and the decision on the show of hands has no effect.

A poll is allowed only if the prescribed number of members demand a poll. A poll must be ordered by the chairman if it is demanded:-

in the case of a public company having a share capital, by any member or members present in person or by proxy and holding shares in the company-

which confer a power to vote on the resolution not being less than one-tenth of the total voting power in respect of the resolution, or

on which an aggregate sum of not less than fifty thousand rupees has been paid up.

in the case of a private company having a share capital, by one member having the right to vote on the resolution and present in person or by proxy if not more than seven such members are personally present, and by two such members present in person or by proxy, if more than seven such members are personally present.

in the case of any other, by any member or members present in person or by proxy and having not less than one-tenth of the total voting power in respect of the resolution.

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What are the Duties of the chairman?

Without a chairman, a meeting is incomplete. The chairman is the regulator of the meeting. His duties include the following :-

He must ensure that the meeting is properly convened and constituted i.e. that proper notice has been given, that the required quorum is present, etc.

He must ensure that the provisions of the act and the articles in regard to the meeting and its procedures are observed.

He must ensure that business is taken in the order set out in agenda and no business which is not mentioned in the agenda is taken up unless agreed to by the members.

He must impartially regulate the proceedings of the meeting and maintain discipline at the meeting.

He may exercise his powers of adjournment of the meeting, should he in good faith feel that such a step is necessary. The chairman has the power to adjourn the meeting in case of indiscipline at the meeting. A chairman however does not have the power to stop or adjourn the meeting at his own will and pleasure. If he adjourns the meeting prematurely, the members present may decide to continue the meeting and elect another chairman and proceed with the business for which it was convened.

He must exercise his power to order a poll correctly and must order it to be taken when demanded properly.

He must exercise his casting vote bonafide in the interest of the company.

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Who is a Chairman?

The chairman is the head of the meeting. Generally, the chairman of the Board of Directors is the Chairman of the meeting. Unless the articles otherwise provide, the members present in person at the meeting elect one of themselves to be the chairman thereof on a show of the hands. If there is no Chairman or he is not present within 15 minutes after the appointed time of the meeting or is unwilling to act as chairman of the meeting, the directors present may elect one among themselves to be the chairman of the meeting. If, however no director is willing to act as chairman or if no director is present within 15 minutes after the appointed time of the meeting, the members present should choose one among themselves to be chairman of the meeting. If, after the election of a chairman on a show of hands, poll is demanded and taken and a different person is elected as chairman, then that person will be the chairman for the rest of the meeting.

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What does the term Quorum refers to?

Quorum refers to the minimum number of members who must be present at a meeting in order to constitute a valid meeting. A meeting without the minimum quorum is invalid and decisions taken at such a meeting are not binding. The articles of a company may provide for a quorum without which a meeting will be construed to be invalid. Unless the articles of a company provide for larger quorum, 5 members personally present (not by proxy) in the case of a public company and 2 members personally present (not by proxy) in the case of a private company shall be the quorum for a general meeting of a company.

It has been held by Courts that unless the articles otherwise provide, a quorum need to be present only when the meeting commenced, and it was immaterial that there was no quorum at the time when the vote was taken. Further, unless the articles otherwise provide, if within half an hour from the time appointed for holding a meeting of the company, a quorum is not present in the person, the meeting :-

if called upon the requisition of members, shall stand dissolved;

in any other case, it shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and time as the Board of Directors may determine.

If at the adjourned meeting also, the quorum is not present within half an hour from the time appointed for holding the meeting, the members present shall a quorum.

In case the Company Law Board calls or directs the calling of a meeting of the company, when default is made in holding an annual general meeting, the government may give directions regarding the quorum including a direction that even one member of the company present in person, or by proxy shall be deemed to constitute a meeting. Similarly the Company Law Board may, direct a meeting of the company (other than an annual general meeting) to be called and held where for any reason it is impracticable to call a meeting and direct that even one member present in person or by proxy shall be deemed to constitute a meeting.

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What does the term Proxy refers to?

In case of a company having a share capital and in the case of any other company, if the articles so authorise, any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of himself. Every notice calling a meeting of the company must contain a statement that a member entitled to attend and vote is entitled to appoint one proxy in the case of a private company and one or more proxies in the case of a public company and that the proxy need not be member of the company.

 

A member may appoint another person to attend and vote at a meeting on his behalf. Such other person is known as “Proxy”. A member may appoint one or more proxies to vote in respect of the different shares held by him, or he may appoint one or more proxies in the alternative, so that if the first named proxy fails to vote, the second one may do so, and so on.

 

The member appointing a proxy must deposit with the company a proxy form at the time of the meeting or prior to it giving details of the proxy appointed. However, any provision in the articles which requires a period longer than forty eight hours before the meeting for depositing with the company any proxy form appointing a proxy, shall have the effect as if a period of 48 hours had been specified in such provision.

 

A company cannot issue an invitation at its expense asking any member to appoint a particular person as proxy. If the company does so, every officer in default shall be liable to fine up to Rs1,000. But if a proxy form is sent at the request of a member, the officer shall not be liable. Every member entitled to vote at a meeting of the company, during the period beginning 24 hours before the date fixed for the meeting and ending with the conclusion of the meeting may inspect proxy forms at any time during business hours by giving 3 days notice to the company of his intention to do so.

 

The proxy form must be in writing and be signed by the member or his authorised attorney duly authorised in writing or if the appointer is a company, the proxy form must be under its seal or be signed by an officer or an attorney duly authorised by it.

 

The proxy can be revoked by the member at any time, and is automatically revoked by the death or insolvency of the member. The member may revoke the proxy by voting himself before the proxy has voted, but once the proxy has exercised the vote, the member cannot retract his vote. Where two proxy forms by the same shareholder are lodged in respect of the same votes, the last proxy form will be treated as the correct proxy form.

 

A proxy is not entitled to vote except on a poll. Therefore, a proxy cannot vote on show of hands.

 

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What are the Power of Company Law Board to Order Calling of Extraordinary General Meeting ?

If for any reason, it is impracticable to call a meeting of a company, other than an annual general meeting, or to hold or conduct the meeting of the company, the Company Law Board may, either i) on its own motion, or ii) on the application of any director of the company, or of any member of the company, who would be entitled to vote at the meeting, order a meeting to be called and conducted as the Company Law Board thinks fit, and may also give such other ancillary and consequential directions as it thinks fit expedient. A meeting so called and conducted shall be deemed to be a meeting of the company duly called and conducted.

Procedure for Application under Section 186 :

An application by a director or a member of a company for this purpose is required to be made to the Regional Bench of the Company Law Board before whom the petition is to be made in Form No 1 specified in Annexure II to the CLB Regulations with a fee of Rs200. The petition must be accompanied with the following documents -

Evidence in proof of status of the applicant.

Affidavit verifying the petition.

Bank draft evidencing payment of application fee.

Memorandum of appearance with copy of the Board’s resolution or executed vakalat nama, as the case may be.

D. Class Meeting

Class meetings are meetings which are held by holders of a particular class of shares, e.g., preference shareholders. Such meetings are normally called when it is proposed to vary the rights of that particular class of shares. At such meetings, these members dicuss the pros and cons of the proposal and vote accordingly. (See provisions on variations of shareholder’s rights). Class meetings are held to pass resolution which will bind only the members of the class concerned, and only members of that class can attend and vote.

Unless the articles of the company or a contract binding on the persons concerned otherwise provides, all provisions pertaining to calling of a general meeting and its conduct apply to class meetings in like manner as they apply with respect to general meetings of the company.

II. Meetings of the Board of Directors

- Meeting of the Board of Directors

- Meeting of a Committee of the Board

III. Other Meetings

A. Meeting of debenture holders

A company issuing debentures may provide for the holding of meetings of the debentureholders. At such meetings, generally nmmatters pertaining to the variation in terms of security or to alteration of their rights are discussed. All matters connected with the holding, conduct and proceedings of the meetings of the debentureholders are normally specified in the Debenture Trust Deed. The decisions at the meeting made by the prescribed majority are valid and lawful and binding upon the minority.

B. Meeting of creditors

Sometimes, a company, either as a running concern or in the event of winding up, has to make certain arrangements with its creditors. Meetings of creditors may be called for this purpose. Eg U/s 393, a company may enter into arrangements with creditors with the sanction of the Court for reconstruction or any arrangement with its creditors. The court, on application, may order the holding of a creditors’ s meeting. If the scheme of arrangement is agreed to by majority in number of holding debts to value of the three-fourth of the total value of the debts, the court may sanction the scheme. A certified copy of the court’s order is then filed with the Registrar and it is binding on all the creditors and the company only after it is filed with Registrar.

Similarly, in case of winding up of a company, a meeting of creditors and of contributories is held to ascertain the total amount due by the company and also to appoint a liquidator to wind up the affairs of the company.

Requisites of a Valid Meetings The following conditions must be satisfied for a meeting to be called a valid meeting :-

It must be properly convened. The persons calling the meeting must be authorised to do so.

Proper and adequate notice must have been given to all those entitled to attend.

The meeting must be legally constituted. There maust be a chairperson. The rules of quorum must be maintained and the provisions of the Companies Act, 1956 and the articles must be complied with.

The business at the meeting must be validly transacted.. The meeting must be conducted in accordance with the regulations governing the meetings.

Notice of General Meeting

A meeting cannot be held unless a proper notice has been given to all persons entitled to attend the meeting at the proper time, containing the necessary information. A notice convening a general meeting must be given at least 21 clear days prior to the date of meeting. However, an annual general meeting may be called and held with a shorter notice, if it is consented to by all the members entitled to vote at the meeting. In respect of any other meeting, it may be called and held with a shorter notice, if at least members holding 95 percent of the total voting power of the Company consent to a shorter notice.

Notice of every meeting of company must be sent to all members entitled to attend and vote at the meeting. Notice of the AGM must be given to the statutory auditor of the company.

Accidental omission to give notice to, or the non-receipt of notice by, any member or any other person on whom it should be given will not invalidate the proceedings of the meeting. The notice may be given to any member either personally or by sending it by post to him at his registered address, or if there is none in India, to any address within India supplied by him for the purpose. Where notice is sent by post, service is effected by properly addressing, pre-paying and posting the notice. A notice may be given to joint holders by giving it to the jointholder first named in the register of members. A notice of meeting may also be given by advertising the same in a newspaper circulating in the neighbourhood of the registered office of the company and it shall be deemed to be served on every member who has to registered address in India for the giving of notices to him.

A notice calling a meeting must state the place, day and hour of the meeting and must contain the agenda of the meeting. If the meeting is a statutory or annual general meeting, notice must describe it as such. Where any items of special business are to be transacted at the meeting, an explanatory statement setting out all materials facts concerning each item of the special business including the concern or interest, if any, therein of every director and manager, is any, must be annexed to the notice. If it is intended to propose any resolution as a special resolution, such intention should be specified.

A notice convening an AGM must be accompanied by the annual accounts of the company, the director’s report and the auditor’s report. The copies of these documents could, however, be sent less than 21 days before of the date of the meeting if agreed to by all members entitled to vote at the meeting.

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List the different Kinds of Company Meetings?

Broadly, meetings in a company are of the following types :-

I. Meetings of Members :

These are meetings where the members / shareholders of the company meet and discuss various matters. Member’s meetings are of the following types :-

A. Statutory Meeting :

A public company limited by shares or a guarantee company having share capital is required to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the company. Such a meeting must be held within a period of not less than one month or within a period not more than six months from the date on which it is entitled to commence business i.e. it obtains certificate of commencement of business. In a statutory meeting, the following matters only can be discussed :-

Floatation of shares / debentures by the company

Modification to contracts mentioned in the prospectus

The purpose of the meeting is to enable members to know all important matters pertaining to the formation of the company and its initial life history. The matters discussed include which shares have been taken up, what money has been received, what contracts have been entered into, what sums have been spent on preliminary expenses, etc. The members of the company present at the meeting may discuss any other matter relating to the formation of the Company or arising out of the statutory report also, even if no prior notice has been given for such other discussions but no resolution can be passed of which notice have not been given in accordance with the provisions of the Act.

A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members, holding not less than 95% of voting rights in the company.

A statutory meeting may be adjourned from time to time by the members present at the meeting.

The Board of Directors must prepare and send to every member a report called the “Statutory Report” at least 21 days before the day on which the meeting is to be held. But if all the members entitled to attend and vote at the meeting agree, the report could be forwarded later also. The report should be certified as correct by at least two directors, one of whom must be the managing director, where there is one, and must also be certified as correct by the auditors of the company with respect to the shares allotted by the company, the cash received in respect of such shares and the receipts and payments of the company. A certified copy of the report must be sent to the Registrar for registration immediately after copies have been sent to the members of the company.

A list of members showing their names, addresses and occupations together with the number shares held by each member must be kept in readiness and produced at the commencement of the meeting and kept open for inspection during the meeting.

If default is made in complying with the above provisions, every director or other officer of the company who is in default shall be punishable with fine upto Rs. 500. The Registrar or a contributory may file a petition for the winding up of the company if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting on or after 14 days after the last date on which the statutory meeting ought to have been held.

Contents of Statutory Report must provide the following particulars:- (a)The total number of shares allotted, distinguishing those fully or partly paid-up, otherwise than in cash, the extent to which partly paid shares are paid-up, and in both cases the consideration for which they were allotted.(b) The total amount of cash received by the company in respect of all shares allotted, distinguishing as aforesaid.(c) An abstract of the receipts and payments upto a date within 7 days of the date of the report and the balance of cash and bank accounts in hand, and an account of preliminary expenses.(d) Any commission or discount paid or to be paid on the issue or sale of shares or debentures must be separately shown in the aforesaid abstract.(e) The names, addresses and occupations of directors, auditors, manager and secretary, if any, of the company and the changes which have taken place in the names, addresses and occupations of the above since the date of incorporation.(f) Particulars of any contracts to be submitted to the meeting for approval and modifications done or proposed.(g) If the company has entered into any underwriting contracts, the extent, if any, to which they have not been carried out and the reasons for the failure.(h) The arrears, if any, due on calls from every director and from the manager.(i) The particulars of any commission or brokerage paid or to be paid, in connection with the issue or sale of shares or debentures to any director or to the manager.

The auditors have to certify that all information regarding calls and allotment of shares are correct.

B. Annual General Meeting

Must be held by every type of company, public or private, limited by shares or by guarantee, with or without share capital or unlimited company, once a year. Every company must in each year hold an annual general meeting. Not more than 15 months must elapse between two annual general meetings. However, a company may hold its first annual general meeting within 18 months from the date of its incorporation. In such a case, it need not hold any annual general meeting in the year of its incorporation as well as in the following year only.

In the case there is any difficulty in holding any annual general meeting (except the first annual meeting), the Registrar may, for any special reasons shown, grant an extension of time for holding the meeting by a period not exceeding 3 months provided the application for the purpose is made before the due date of the annual general meeting. However, generally delay in the completion of the audit of the annual accounts of the company is not treated as “special reason” for granting extension of time for holding its annual general meeting. Generally, in such circumstances, an AGM is convened and held at the proper time . all matters other than the accounts are discussed. All other resolutions are passed and the meeting is adjourned to a later date for discussing the final accounts of the company. However, the adjourned meeting must be held before the last day of holding the AGM.

A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members, holding not less than 95% of voting rights in the company. The notice must state that the meeting is an annual general meeting. The time, date and place of the meeting must be mentioned in the notice. The notice of the meeting must be accompanied by a copy of the annual accounts of the company, director’s report on the position of the company for the year and auditor’s report on the accounts. Companies having share capital should also state in the notice that a member is entitled to attend and vote at the meeting and is also entitled to appoint proxies in his absence. A proxy need not be a member of that company. A proxy form should be enclosed with the notice. The proxy forms are required to be submitted to the company at least 48 hours before the meeting.

The AGM must be held on a working day during business hours at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated. The Central Government may, however, exempt any class of companies from the above provisions. If any day is declared by the Central government to be a public holiday after the issue of the notice convening such meeting, such a day will be traeted as a working day.

A company may, by appropriate provisions in its its articles, fix the time for its annual general meeting and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings.

Companies licensed under Section 25 are exempt from the above provisions provided that the time, date and place of each annual general meeting are decided upon beforehand by the Board of Directors having regard to the directions, if any, given in this regard by the company in general meeting.

In case of default in holding an annual general meeting, the following are the consequences :-

Any member of the company may apply to the Company Law Board. The Company Law Board may call, or direct the calling of the meeting, and give such ancillary or consequential directions as it may consider expedient in relation to the calling, holding and conducting of the meeting. The Company Law Board may direct that one member present in person or by proxy shall be deemed to constitute the meeting. A meeting held in pursuance of this order will be deemed to be an annual general meeting of the company. An application by a member of the company for this purpose must be made to the concerned Regional Bench of the Company Law Board by way of petition in Form No. 1 in Annexure II to the CLB Regulations with a fee of rupees fifty accompanied by (i) affidavit verifying the petition, (ii) bank draft for payment of application fee.

Fine which may extend to Rs. 5,000 on the company and every officer of the company who is in default may be levied and for continuing default, a further fine of Rs. 250 per day during which the default continues may be levied.

Business to be Transacted at Annual General Meeting :

At every AGM, the following matters must be discussed and decided. Since such matters are discussed at every AGM, they are known as ordinary business. All other matters and business to be discussed at the AGM are specila business.

The following matters constitute ordinary business at an AGM :-

Consideration of annual accounts, director’s report and the auditor’s report

Declaration of dividend

Appointment of directors in the place of those retiring

Appointment of and the fixing of the remuneration of the statutory auditors.

In case any other business ( special business ) has to be discussed and decided upon, an explanatory statement of the special business must also accompany the notice calling the meeting. The notice must should also give the nature and extent of the interest of the directors or manager in the special business, as also the extent of the shareholding interest in the company of every such person. In case approval of any document has to be done by the members at the meeting, the notice must also state that the document would be available for inspection at the Registered Office of the company during the specified dates and timings.

C. Extraordinary General Meeting

Every general meeting (i.e. meeting of members of the company) other than the statutory meeting and the annual general meeting or any adjournment thereof, is an extraordinary general meeting. Such meeting is usually called by the Board of Directors for some urgent business which cannot wait to be decided till the next AGM. Every business transacted at such a meeting is special business. An explanatory statement of the special business must also accompany the notice calling the meeting. The notice must should also give the nature and extent of the interest of the directors or manager in the special business, as also the extent of the shareholding interest in the company of every such person. In case approval of any document has to be done by the members at the meeting, the notice mus also state that the document would be available for inspection at the Registered Office of the company during the specified dates and timings.

The Articles of Association of a Company may contain provisions for convening an extraordinary general meeting. Eg. It may provide that “the board may, whenever it thinks fit, call an extraordinary general meeting” or it may provide that “if at any time there are not within India, directors capable of acting who are sufficient in number to form a quorum, any director or any two members of the company may call an extraordinary general meeting”.

Extraordinary General Meeting on Requisition :

The members of a company have the right to require the calling of an extraordinary general meeting by the directors. The board of directors of a company must call an extraordinary general meeting if required to do so by the following number of members :-

members of the company holding at the date of making the demand for an EGM not less than one-tenth of such of the voting rights in regard to the matter to be discussed at the meeting ; or

if the company has no share capital, the members representing not less than one-tenth of the total voting rights at that date in regard to the said matter.

The requisition must state the objects of the meetings and must be signed by the requisitioning members. The requisition must be deposited at the company’s registered office. When the requisition is deposited at the registered office of the company, the directors should within 21 days, move to call a meeting and the meeting should be actually be held within 45 days from the date of the lodgement of the requisition. If the directors fail to call and hold the meeting as aforesaid, the requisitionists or any of them meeting the requirements at (a) or (b) above, as the case may be, may themselves proceed to call meeting within 3 months from the date of the requisition, and claim the necessary expenses from the company. The company can make good this sum from the directors in default. At such an EGM, any business which is not covered by the agenda mentioned in the notice of the meeting cannot be voted upon.

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What is a company?

A company is an association of several persons. Decisions are made according to the view of the majority. Various matters have to be discussed and decided upon. These discussions take place at the various meetings which take place between members and between the directors. Needless to say, the importance of meetings cannot be under-emphasised in case of companies. The Companies Act, 1956 contains several provisions regarding meetings. These provisions have to be understood and followed.

 

For a meeting, there must be at least 2 persons attending the meeting. One member cannot constitute a company meeting even if he holds proxies for other members.

 

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FAQs on Company Laws are in 4 parts :

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11 thoughts on “FAQs on company laws [Part - 4]

  1. JD

    Can a company offer a percentage of shares as remuneration and offer part of it as on completion of the condition and if the responsibilities are not fulfilled can the company revoke and take back the earlier shares allotted.

    Reply
  2. anonymous

    what will be the date of allotment on share certificate on fresh of shares after the payment of stamp duty? the date of board meeting resolution with respect to allotment or the date when the share certificate is issued after the payment of stamp duty?

    Reply
  3. sam

    I HAVE INVESTED IN A PRIVATE LIMITED COMPANY Rs 150 LAKHS AND HOLD ABOUT 30% OF THE EQUITY. THE PROMOTERS WANT TO CLOSE THE COMPANY AND ARE DISPOSING OFF THE ASSETS. IF I FEEL THEY ARE UNDERVALUED, CAN I OFFER TO PURCHASE THEM AT Rs 1/- MORE THAN THE FINALISED PRICE. IF YES, CAN I MOVE THE CLB FOR THE SAME IF THERE IS AN EXISTING MATTER BEFORE IT OR DO I HAVE TO TRY THE CITY CIVIL COURTS.

    Reply
  4. Mayank

    Hi All,

    Would like to have case laws pertaining to sec. 293. More specifically on 293 (1)(d).
    And also would like to subscribe to site where i can get latest judgement of Company’s Act related cases.
    Please reply to my mail id :mayanklunawat@parry.murugappa.com.
    Thanks in advance !

    Reply
  5. Rajesh Gosia

    Whether a pvt co can acquire a propreitorship business by passing a resolution in a Board meeting. The propreitor is the director and member of the acquiring company and also there is a general clause in the moa of the company for acquring a business

    Reply
    • sushant

      against an employee if he/she refuses appraisal letter and wants to continue with the last salary ?
      (what if an employee returns PLR amount and revised salary amount granted to him/her to company by cheque?

      Reply

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