23Oct 2018 by Reese Bannister

Procedure of Appointment of Company Directors in India (Companies Act 1956)

Government
Only individual who has been allotted a Director Identity Number (DIN) under section 266B.The appointment of directors is made in the following manner: 1. Appointment of Directors by Promoters: The first directors of the company are usually appointed by the promoters in the manner laid down by the company’s articles. Their names are usually given in the company’s articles. Where the articles do not provide for the appointment of first directors, the signatories to the memorandum, who are individual, shall be deemed to be the first directors of the company subject to the regulations of the company’s articles (Sec. 254) . Image Source: thestar.com ADVERTISEMENTS: The first directors can hold office only till the first annual general meeting of the company when they will be replaced by directors appointed by…
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23Oct 2018 by Reese Bannister

10 Salient Features of Limited Liability Partnership Act, 2008

Investment
Limited Liability Partnership (LLP) is a new corporate form to provide an alternative to the traditional partnership with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other. LLP is a good hybrid of partnership and company which enables professional expertise and entrepreneurial initiative to operate in flexible and efficient manner. LLP provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises and for investment by venture capital. (i) The LLP is a body corporate and a legal entity separate from its partners. Any two or more…
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23Oct 2018 by Reese Bannister

What is the meaning of “Contributory”? (Section 428 of the Companies Act)

Essays
The members of a company on the commencement of winding up are termed as contributory. As per Section 428 of the Companies Act, contributory means “Every person liable to contribute to the assets of the company in the event of its being wound up and includes holder of any shares which are fully paid-up.”The liquidator shall prepare a list of all such contributories who may be made liable to contribute towards the assets of the company on account of deficiency in the assets of the company. In case there is a surplus in assets the liquidator shall prepare a list of those members who are entitled to share this surplus. The term ‘contributory’ includes members of both of these categories.List of contributories is divided into two part, A and B.…
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23Oct 2018 by Reese Bannister

7 Differences between “Memorandum of Association” and “Articles of Association”

Management
The Memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated. They are conditions introduced for the benefit of the creditors, and the outside public, as well as of the shareholders. The Articles of Association are internal regulations of the company.The main points of difference between memorandum and articles are as follows:1. Memorandum of Association is the charter of the company. It contains those fundamental conditions upon which alone the company is granted incorporation. Articles of Association contain the rules and regulations framed to govern the internal management of the company. ADVERTISEMENTS: 2. Different clauses of the Memorandum cannot be easily altered. They can be altered for specified purposes and in accordance with the mode prescribed by the Act. Alteration of some of them requires…
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23Oct 2018 by Reese Bannister

Useful Notes on the “Prospectus” of a Company (Indian Companies Act, 1956)

Friends
According to Section 2 (36), prospectus means “any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of a body corporate.”Thus, prospectus is a document inviting the public to subscribe to the share capital of a public company. Any document which has the object of securing the required capital or public deposits for a company comes within the definition of prospectus. Invitation to public: ADVERTISEMENTS: Section 67 clarifies as to what will constitute an invitation to the public. It states that an offer or invitation to any section of the public, whether selected as members or debenture-holders of the company or…
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23Oct 2018 by Reese Bannister

3 Circumstances under which the Doctrine of Indoor Management is not applicable

Management
The doctrine of indoor management is subject to the following exceptions when the protection under the rule may not be given to the persons dealing with the company: 1. Knowledge of Irregularity: The protection of the doctrine is not afforded to a person who had the actual or constructive knowledge of the irregularity besetting the transaction. In Howard v Patent Ivory Co., for example, the directors of the company had the authority to borrow up to ? 1000 without sanction of the resolution at the general meeting.Directors lent to the company ? 3500 without any resolution being passed. It was held that the company would be bound only by ? 1000. The Turquand rule was not applied as the directors ought to know that the resolution was not passed so…
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23Oct 2018 by Reese Bannister

Useful Notes on “Shelf Prospectus” (Section 60A of Companies Act, 1956)

Politics & Government
Need: A company is required to issue a prospectus each time it accesses the capital market. It leads to unnecessary repetition for a company which makes more than one offer of securities in a year to raise funds from the public.A way out is ‘shelf prospectus’ which remains valid (on the shelf) for a specified time period during which offers for securities may be made by a company to the public without going through the arduous exercise of issuing fresh prospectus every time. Applicability: ADVERTISEMENTS: The Companies (Amendment) Act 2000 inserted Section 60A to enable public financial institutions, public sector banks, and scheduled banks, whose main object is to make loans to, or subscribe for securities of private industrial enterprises engaged in infrastructure financing to issue shelf prospectus. Meaning: Shelf…
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23Oct 2018 by Reese Bannister

9 Important Requirements for the Issue of a Valid Prospectus (Companies Act, 1956)

Management
Issue of prospectus, in order to be valid, must satisfy the following legal requirements: 1. Obligations of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009: These regulations inter-alia deal with appointment of Lead Merchant Banker, Bankers to the issue, Registrar to the issue, filing of various documents along with a draft prospectus, pricing of the securities, promoters contribution, minimum public offer, and disclosure in the offer document.The company is required to file a draft offer document through the lead merchant banker to the SEBI, at least 30 days prior to registering the prospectus with the Registrar of Companies. 2. It must be dated: ADVERTISEMENTS: Every prospectus must be dated. The date given in the prospectus shall be taken to be the date of its publication unless proved to the…
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23Oct 2018 by Reese Bannister

Top 15 Privileges and Exemptions Enjoyed by a Private Company in India

Management
Since a private company does not involve funds from the public, it needs less stringent control from the regulatory provisions. Accordingly, certain provisions of the Companies Act which are applicable to public companies do not apply to private companies.These exemptions are referred as the privileges or advantages of a private company. These are: 1. Members: ADVERTISEMENTS: A private company can be formed with only 2 persons as members. 2. Prospectus: A private company need not issue prospectus. It is also not required to file a ‘statement in lieu of prospectus’ with the Registrar before allotment of shares. Thus a private company is exempted from complying with the provisions of the Act regarding the issue of the prospectus. Image Source: knitasia.com 3. Certificate of commencement of business: A private company can…
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23Oct 2018 by Reese Bannister

8 Most Important Features of a Company (Indian Companies Act, 1956)

Business
Following are the broad features of a company: 1. Incorporated Association: Company is an incorporated association of persons created by the law of the country. In India companies are formed and registered under the Companies Act 1956. Incorporation of a company requires registration of formal documents with the Registrar of Companies.Memorandum of Association is the important document which contains the fundamental conditions and purposes for which a company is formed. In fact, a company does not have its existence beyond its memorandum of association. The other important document is the Articles of Association which lay down the rules and regulations for governance of the company. Image Source: myfirstchoicebusiness.com ADVERTISEMENTS: The ‘Registration Certificate’ or the ‘Certificate of Incorporation, grants a legal entity to a company enabling it to discharge functions such…
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