Companies Act 2013:

Module 2

SYLLABUS
1. Characteristics and types of companies,
2. Formation of companies: documents and registration process,
3. Directors: Appointment, Powers, Duties and Liabilities,
4. Company Meetings,
5. oppressions and Mismanagement

An Introduction of Company under theCompanies Act 2013

Introduction:
There are many different forms of businesses like Sole Proprietorship, Partnership Firm,
Hindu Undivided Family Business, Limited Liability Partnership, etc. But Company form
of business has certain advantages over another form of business like limited liability,
perpetual succession, Separatelegal identity, etc.
Meaning and Definition of Company under Companies Act 2013:

The word ‘Company’ has been derived from the Latin word made from two words
i.e. Com and panies. The word ‘com’ in Latin means ‘with or together’and the word
‘panies’ in Latin means ‘bread’. Hence, a company meant an association of persons
who took their meal together.
In common parlance, the meaning of company form of business can be understood as
an association of persons formed for the purpose of carrying onsome business or
undertaking. A company is a body corporate having separatelegal identity having status
separate from members constituting it.
As per Section 2(20) of the Companies Act, 2013, the term “Company has been
defined as a company incorporated under this Act or under any previous
company law.” The definition of the company under this Act can be more clarify as
below:
 The persons who form the company and contribute money or money’s worth for the
business of the company are called ‘Members’. They get ‘shares’ in thecompany in the
Proportion of their contribution in the company.
The contribution made by members of the company is the ‘Capital’ of the company.
Nature and Characteristics of a Company:

The company is a legal person created by a process of law other than natural birth. For
this reason, a company is also called as an artificial legal person. As anatural person, a
company also enjoys many rights and incurred many liabilities of a natural person.

Following are the characteristics of the company:

1. Separate Legal Entity: Unlike other forms of business e.g. Partnership Firm,
Association of Persons, etc., the company has an entity separate from its members
constituting it. Once a company is incorporated under the case of Shiromani
Gurudwara Prabandhak Committee vs. Shri Sham Nath Das,it was held that Company
acts like a natural person but only through its designated persons, whose acts are
proceeded within the ambit of the law.

2.Artificial Person: The Company is called an Artificial Legal Person because it is

invisible, intangible and cannot be touched, but existing in the contemplation of law,
hence, it has rights and liabilities same as a natural person.

Has Nationality and Residence but no citizenship A company has the nationality of a
nation where it is incorporated and has a residence where it has established its
Registered Office. However, Company cannot be a citizen under the Citizenship Act,
1955 or the Constitution of India. Section 2(f) of theCitizenship Act, 1955, expressly
excludes a company or association or body of individuals from citizenship.

3.Limited Liability The principal advantage of doing business under Companyform

of business is Limited Liability of its members towards the debts of the company. The
liability of the company is limited to the extent of the amount not paid on the shares
held by them and in case of a company limited by guarantee, members of such
company are also liable to the amount guaranteed to be paid by them in the
Memorandum of the company at the time of winding up.

For Example, if a person holds shares of a company having a nominal value of

Rs.1,00,000/- out of which it has paid to the company only Rs.75,000/-, then he cannot
be called upon to pay more than balance unpaid amount i.e. Rs.25,000/- inthis case.
However, if he has paid the full amount on his shares, he will not be further liable to pay,
even if the company is in liquidation.
 4.Perpetual Succession Perpetual succession means membership anddirectorship of
the company keep changing but that doesn’t affect the continuity of the company In
the words of Professor L.C.B. Gower, Members may come and go, but thecompany can
go on forever.

During a war, all members of one private company were killed by a bomb, but the
company survived-not even hydrogen bomb could have destroyed it.

5. Capacity to sue and be sued A company is a legal entity in the eyes of law and
hence, has the capacity to sue and be sued in its own name. Legal action or proceeding
can be instituted against a company in its own name and similarly, a company in its own
name file suit against any company in the courtof law.
6. Profit is object: A company is formed for the purpose of earning a profit, which is
further divided among the members or saved for the expansionof the business. Section 8
company is the exception to this characteristic because Section 8 Company is formed
with no profit motive.
7. Separate Management: A company is an artificial legal person in the eyes of law,
but it cannot carry its activities on its own. The company is administered and managed
by its managerial personnel. Members who formand contribute to the company, do not
carry corporate function, rather theyappoint their representatives as directors of the
company to conduct its activities.
8. Limitation of Power: A company is formed for the objects specifiedin
the Memorandum of Association of the company. Memorandum of Association is the
principal document of the company which provides the objects which can carry by the
company. A company cannot go beyond its powers mentioned under its Memorandum
of Association.
9. CAN be Termination by winding up: A company is a perpetual entity, which
cannot be died or dissolved except by the procedure of law. Hence, the company is
terminated by means of winding up
Kinds of Companies

1. Chartered companies:
These companies are incorporated under a special charter granted by the King on
Queen of England. Such a company is given the exclusive powers, rights and privileges
under the royal charter whichgives restricted power to the company. Members of such
company are not liable for the debts of a company. Example of such companies are
"The East India Company" "The Bank of England" etc.This type of a company does not
exist in India after the independence. They are rarely formed in any country nowadays.

2. Statutory Companies:
A company formed by a special Act passed either by the Central or State Legislature is
called a statutory company or a statutory corporation. Such companies or corporations
are governed by their respective Acts, and are not required to have any Memorandum
or Articles of Association. Changes in their structure are possible only by legislative
amendments. An Annual Report on the working of eachsuch company is required to be
placed on the table of Parliament.
The audit of such company is conducted under the supervision, control and guidance of
the auditor General of India. These companies are usually formed to carry out some
special public undertakings requiring extraordinary powers and privileges. The object
of such companies is not so much to earn profit but to serve people. Though the liability
of the members of such companies is limited, yet in most of the cases, they may not be
required to use theword 'limited' as a part of their manes. Some of the important

Statutory companies are the Reserve Bank of India, The State Bank ofIndia, Nationalized
banks, etc.

1. Registered Companies:
The most common type of companies are the registered companies. These companies are
formed and registered under Indian CompaniesAct. The registered companies are divided
into following categories

A. Companies Limited by Shares.

B. Companies Limited by Guarantee,
C. Unlimited Companies.
2. Foreign Company:
Company's Act defines a Foreign Company as "A Company which is incorporated is
incorporated outside India and employs agents in India but has no office or does not
establish a place of business in India, will not be a foreign company. A company shall be
said to havea place of business such as an office, store house, or other premises having
some concrete connection between locality and its business. Company's Act lays down
that within 30 days of the establishment ofthe business in India, a Foreign Co. must
submit the following documents to the Registrar of Companies. Outside India but has a
place of a business in India." Accordingly, a company, which

A. A certified copy of the charter. Status memorandum and article ofthe co. in English.
B. The full address of the registered office of the company abroad.
C. A list of directors and secretary of the co.

2. Companies limited by Guarantee:

These companies are usually formed to set up non-trading organizations like schools,
hospitals, charitable institutions, chamberof commerce etc. the liability of each member
in such a company is limited to the amount he has guaranteed to contribute in the event
of the winding up of the company. The amount of guarantee is fixedat the time of
formation of the company but no member is required to pay it till the winding up. These
companies have to use the word "limited" or "private limited" as the last word in their
names unless exempted by the govt.

3. Companies limited by shares:

A company, in which the liability of each member is limited up to thenominal or face
value of the shares held by him, is known as a company limited by shares. This type of
co. is commonly formed to undertake manufacturing, trading or other business
activities.
Companies limited by shares may again be of two types
(1) Public Companies & (2) Private Companies.

ON THE BASIS OF OWNERSHIP

 1.One Person Companies (OPC)

These kinds of companies have only one member as their sole shareholder. They are
separate from sole proprietorships because OPCs are legal entities distinct from their sole
members. Unlike other companies, OPCs don’t need to have any minimum share capital.

2,Private Company: It means a company, which by its article

(a) Restricts the right to transfer its share

(b) Restricts the number of its members to 200

(c) Prohibits any invitation to the public to subscribe for any sharesin, or
debentures of the company. There must be at least two members in a private
company.

Features of Private Companies

These are some features that distinguish private companies from other types of companies:

i. No minimum capital required: There was a minimum paid-up share capital

requirement of Rs. 1 lakh previously, but that is omitted now.

ii. Minimum 2 and maximum 200 members: A private company can have a minimum of
just two members (but just one is enough if it a One Person Company), and a maximum
of up to 200 members.

iii. Transferability of shares restricted: Private companies cannot freely transfer their
shares to the public like public companies. This is why stock exchanges never list private
companies.

iv. “Private Limited”: All private companies must include the words “Private Limited” or
“Pvt. Ltd.” in their names.

v. Privileges and exemptions: Since private companies do not freely transfer their
shares and involve limited interest by members, the law has granted them several
exemptions that public companies do not enjoy.
 3.Public Company:

It is defined as one, which is not a private company. There must be atleast 7 members
while there is no maximum limit of members. Each member is free to transfer his shares
to anyone he likes. Such company can also issue prospectus to the public, inviting them to
purchase its shares and debentures.
Some examples of public companies are, Reliance Industries, Tata Motors, Bharti
Airtel, Larsen & Tourbo, etc

Government Company:
Companies Act 1956 defines Government Companies as "Any company in which not
less than fifty one percent of the share capitalis held by the Central Government or by
any State Government or partly by Central Government and partly by one or more
State Governments." The Companies Act contains the provisions for the formation of
two types of govt. companies:

1. A Government Company, in which the entire capital is supplied byGovernment. 2. A

Government Company in which the government holds not less than 51% of the
share capital and the remaining capital is furnished by the members of the public.
Such company is also called as "Mixed Economic Enterprise" or Mixed Ownership
Corporation" Some examples of Government companies are Hindustan Machine
Tools Ltd., Hindustan Antibiotics Ltd. Characteristics of a Government Company:
4. Holding Company:
A holding company means a company holding more than

A. 50% of the issued share capital or more than 50% of voting power,
B. Having power to appoint the majority of the directors of the othercompany.

5. Subsidiary Company:
There two companies are under terms that one controls the other,the controlling
company is called "Holding Company" and the controlled one is the "Subsidiary
Company" Thus Subsidiary Company is a company whose shares are purchased by
other big company (holding company) and it is managed and controlled by Holding
Company
Chart of Difference Between Public Company and Private Company: –

Basis of
Public Company Private Company
ference
 A Public company is the one that is
A private company is the one that has the
registered in the share market of the country
minimum paid-up share capital as prescribed in
to issue shares for the public to subscribe to
the Articles of Association.
Meaning them.

Number of
It has a minimum of 7 and no maximum It has a minimum of 2 and a maximum of
member limit on the number of owners/ members. 200 owners/ members.

Rights of share capital and profits are

Share Rights of share capital and profits are
distributed among all owners/members are
distributed among all owners/members are
capital per article of association and the number of
as per the article of association.
shares owned by one person.

As per the terms and conditions decided in the

Transfer of Owners/Members are free to transfer their
article of association. many types of
are share to the other person in the market.
restrictions are imposed by the AOA.

Share The prospectus must be issued to invite the

public to subscribe to shares of the The prospectus does not need to be issued.
Prospectus company.

Number of
It must have at least 3 Directors and it can
It must have at least 2 Directors and it can hav
have a maximum of 15 Numbers of
a maximum of 15 Numbers of Directors.
Directors.
directors

Name of The word ‘Limited’ is used as part of the The word ‘Private Limited’ is used as part of
Company name of the company. the name of the company.

Funds For public companies, it is very easy to Possible to raise funds by issuing shares of the
rising raise funds by issuing shares to the company with the mutual consent of all
public in the share market. members of the company.

Who can
subscribe the
ares
The public can easily subscribe to the share The public can’t subscribe to the share of the
of the company. company.

STAGES OF FORMATION OF A COMPANY

Company formation is the term for the process of starting of a company. Generally a
company comes into existence by a process referred to as incorporation. Once a company
has been legally incorporated, it becomes a separate legal entity from those who invest their
capital and labour to run the company. The persons who wish to start a company is called
promoters. They take necessary steps to form a company. The whole process of formation
of a company is divided into four stages.
They are:
A. Promotion of Company
B. Incorporation or Registration of Company
C. Subscription of Capital
D. Commencement of Business
PROMOTION OF COMPANY
Promotions a term of business and not of law as it is frequently used in business. The
term Promotion refers to the process of by which a company is ‘incorporated’ or brought
into existence. Usually ‘promotion’ is the first step to form a company.
Haney defines promotion as “the process of organizing and planning the finances of
a business enterprise under the corporate form”.
Gerstenberg has defined promotion as “the discovery of business opportunities and
the subsequent organization of funds, property and managerial ability into a business
concern for the purpose of making profits therefrom.”
Very first the idea of forming a company is conceived by promoters. They are
persons engaged in the formation of a company. Before a company is actually being started
(i.e., formed and registered under the Companies Act), first they have to decide about the
following issues such as
(a) Which business to start,
(b) Whether to form a new company or take over the business of existing company,
(c) If new company is to be formed, whether it should be a private company or pubic
company,
(d) What should be the amount capital of the company etc.
After deciding the above issues, promoters take necessary steps, for assembling the
business elements and making provision of the funds required to launch the business
enterprise.

INCORPORATION
It is the second stage in the company formation. It is the incorporation or
registration that brings a company into existence. A company is legally formed only on
being registered under the Act and after the issue of Certificate of Incorporation by the
Registrar of Companies. For the incorporation of a company the promoters take the
following preparatory steps:
1. Application for Availability of Name: To find out whether the name by which the new
company is to be started is available or not, an application has to be made in the
prescribed form along with requisite fee. Because company cannot be registered in the
name of an existing company. It also cannot be registered in a name, which is undesirable
in the opinion of the Central Government. Therefore, it is necessary for the promoters to
find out the availability of the name of the company from the Registrar of Companies.
This approval is provided subject to certain conditions. For instance, there should not be
an existing company by the same name. Further, the last words in the name are required
to be “Private Ltd.” in the case of a private company and “Limited” in the case of a Public
Company.
2. Filing an application: By filing an application with the Registrar of Companies of the
State in which the registered office of the company is to be situated, registration of a
company can be obtained.
The application should be accompanied by the following documents:

a. Memorandum of association properly stamped, duly signed by the signatories of

the memorandum and witnessed.
b. Articles of Association, if necessary.
c. A copy of the agreement, if any, which the company proposes to enter into with any
individual for his appointment as managing or whole-time director or manager.
d. A written consent of the directors to act in that capacity, if necessary.
e. A statutory declaration stating that all the legal requirements of the Act prior to
incorporation have been complied with.
3. Payment of Stamp Duty and Filing Fee:
The Company has to pay the necessary stamp duty and filing fee, according to the
authorized share capital of the company.
4. Declaration of Compliance of Act and Rules:
A declaration that the requirements of the
Act and the rules framed there under have been complied. This declaration is to be
signed by an advocate of the Supreme Court or High Court or attorney or a pleader
having the right to appear before High Court. Alternatively, this declaration can be
signed by a Company Secretary or Chartered Accountant in whole time-practice,
who is engaged in the formation of a company or a person named in the articles as
a director. This declaration is also to be filed with the Registrar of Companies,
where the registered office of the company would be
located. - Section 33(2).
5. Other documents: In case of a Public Company the following documents s are to be
complied with:
(i) A list of persons who have consented to act as directors.
(ii) Written consent of the directors to act in that capacity.
(iii) An undertaking by the directors to take up and pay for the qualification shares.
6. Certificate of Incorporation or Registration: After receiving all the required
documents the Registrar will scrutinize these documents. If the Registrar finds the
document to be satisfactory, he registers them and enters the name of the company in
the Register of Companies and issues a certificate called the certificate of incorporation
(Section 34).
The certificate of incorporation is the birth certificate of a company. The company
comes into existence from the date mentioned in the certificate of incorporation. Once
the company is created it cannot be got rid-off except by resorting to provisions of the
Act which provide for the winding up of company. The certificate of incorporation, even
if it contains irregularities, cannot be cancelled.
MEMORANDDUM OF ASSOCIATION:

Q.. What do you mean by Memorandum of Association?

Ans.: Memorandum of Association is one of the documents, whichhas to be filed with

the Registrar of Companies at the time of incorporation of company. Thus the first
step in the formation of acompany is to prepare Memorandum of Association, which
is the fundamental document of the company
Ans.: It is the charter of the company and defines its power. It contains the fundamental
conditions on which the company is incorporated. It defines the relationship of the
company with the outside world. Its purpose is to enable shareholders and creditors
and those who deal with the company to know what is permitted range of company for
business. Memorandum of Association is thearea beyond which the action of the
company cannot go. This document cannot be altered easily.

IMPORTANCE OF MEMORANDUM OF ASSOCIATIAN

1. Memorandum of Association of a company is its charter and defines the limitation of

the power of the company, established under the Act.
2. The Memorandum of Association contains the fundamental conditions upon which
alone the company is allowed tobe incorporated.
3. The Memorandum of Association is the most important documents with regards to its
constitution.
4. It is the foundation on which the whole super structure of thecompany is built
up.
5. It has two fold objects, the first is prospective investor knows within what field his
money is to be risked. Secondly, outsiders alsoknow the nature of the activities of the
company and their rights against the company at the time of breach of contract.
6.Memorandum of Association is the basis of the company on which itsexistence
depends.

CONTAINS OF MEMORANDUM OF ASSOCIATION:

1. NAME CLAUSE:

Name clause states about the name of the company. The company isalways registered
with its name which gives the company an identityand existence. The following points
should be noted in connection with name clause.
(a) Name of the company should not be undesirable according to central government
and should not be similar to the name of another company. (b) The name of the
company must end with theword "limited" if it is public limited
Company and in the case of private company, the name must endwith the
word"Pvt. LTD".

2. DOMICILE CLAUSE:
A Memorandum of Association must state the name of the state where the registered
office of the company is to be situated. All the communications and notices of the
company must be addressed to its registered office. The various registers, books and
other records ofthe company are kept here. The companies are required to
communicate to the Registrar of Companies within 30 days of the date of incorporation,
with complete address of its registered office.
3. OBJECT CLAUSE:
The third clause in the Memorandum of Association states the objects of company. It is
the most important clause since it defines the area of operation of the company. A
company engages itself in only those types of business, which are expressly included in
the objects clause. It cannot carry another business, which is beyond theobjects clause.
Any act beyond the power of the company is ultra- vires and void. As per the provision
of company act, object clause of every company must be divided into two parts which
are below.
(a) MAIN OBJECTS: This sub clause contains the main object of the company, to be
pursued on its incorporation. (b) OBJECTS INCIDENTAL OR ANCILLARY TO MAIN
OBJECTS: It covers the objectswhich are incidental or ancillary to the attainment of
the main object.

4. LIABILITY CLAUSE:

The liability clause states the nature of liability of the members. Memorandum of
Association must specify in this clause that the liability of the member is limited by
shares or limited by guarantee.In case the company is limited by shares then the
liability clause must state that the member's liability is limited to the face value of
shares. If the company is limited by guarantee then the liability clause shall state the
guaranteed amount, which each member undertakes to contribute to the assets of the
company at the eventof its winding up.

5. CAPITAL CLAUSE

This clause states the amount of share capital with which the company is to be registered
and its subdivision into shares of fixed amount. The shares capital so stated in the
memorandum is usuallycalled the authorized or nominal shares capital of the company.
Theauthorized shares capital is the maximum limit of share capital, which a company is
authorized to raise. If company wants to raise share capital in excess of this limit, the
company will have to alter the capital clause

6. SUBSCRIPTION CLAUSE:

The Memorandum of Association concludes with this clause. It contains a declaration

by the subscribers to the memorandum that they are desirous of forming themselves
into a company and that they agree to take up shares stated against their names. Each
subscriber must take at least one share. There must be at least sevensubscribers in the
case of public company and at least two in the case of a private company. At least one
witness who is not a subscriber must attest the signatures of each subscriber
 Articles of Association

The articles of association is a very important document for a company as it holds the rules,
regulations and bye-laws for internal administration and management of the company. The
articles are basically for the internal management of the company.

All the powers of directors and other officials are described in the articles. All the rights and
obligations are prescribed under the articles of association. In the articles of a private
company, all the restrictions are also laid down. All the provisions regarding the shares are
also mentioned under the articles of association. In a matter of internal conflict, it is the
article of association what’s referred to.

There are several rules, rights and provisions which leads to the importance of an article of
association such as:

1. The valuation of intellectual rights and assets are done in accordance with the
articles.
2. The appointment of directors and other key personnel are done in accordance
with the articles.
3. All the meetings either board meetings, annual meeting or a general meeting or
any type of meetings are conducted in accordance with the articles.
4. The managerial operations are dealt with the articles.
5. The voting rights and other rights of shareholders are dealt with the articles of
association.
6. The audit and accounts are managed through the articles.
7. The appointment, removal and remunerations are managed by the articles.
8. The borrowing power is decided by the articles.
9. The winding of the company is done according to the articles.
10. The dividend policy is decided by the articles.
So, the articles of association hold key importance in any company or organisation as whole
internal management is done in accordance with it.

Features of Articles of Association

The features of Article of Association are:

1. It is a part of the constitution of an organization.

 2. It is a contract between the members and among the members themselves.
3. It lays down the duties of stockholders also.
4. Some statutory clauses should be included in the article of associations and other
clauses can be chosen by the stockholders to make them the by-laws of the
organization.
5. The Court can declare a clause ultra vires if it is unreasonable.
6. Article of associations can be inspected by anyone as they are a public document.
7. Special interest in the provision of Articles of Association is taken by the lender
of the organization.

Prospectus

A prospectus is defined as a legal document describing a company’s securities that have

been put on sale. The prospectus generally discloses the company’s operations along with
the purpose of the securities being offered. As per the Companies Act, 2013, a prospectus
can include information such as advertisement, circular or notice among other legal
documents inviting the public for the offering. Also, the prospectus should be issued only
for the purchase of a company's securities.

In order for a document to be considered a prospectus, it should act as an invitation for

the public to purchase of stocks/shares, debentures or other instruments. Also, the
prospectus should be issued by the company or an institution on behalf of the company
and made solely for the public.

In case a private company wishes to convert to a public company, it is required to

either issue a prospectus or file a statement in lieu of prospectus of which the provisions
are mentioned under Section 70 of the Companies Act, 2013.

Essentials for a document to be called as a prospectus

For any document to consider as a prospectus, it should satisfy two conditions.

1. The document should invite the subscription to public share or debentures, or it

should invite deposits.
2. Such an invitation should be made to the public.
3. The invitation should be made by the company or on the behalf company.
4. The invitation should relate to shares, debentures or such other instruments.

Statement in lieu of prospectus

Every public company either issue a prospectus or file a statement in lieu of
prospectus. This is not mandatory for a private company. But when a private
 company converts from private to public company, it must have to either file a
prospectus if earlier issued or it has to file a statement in lieu of prospectus.

A Company is an artificial person and hence, is not capable to work on its own. As a
consequence there is a need to appoint director in every Company. A Director is the
person appointed to the Board of a Company. Director is responsible for management of
the Company of which he is a director. Board of Directors refers to the collective body of
directors who are in charge of smooth running of business.

Who can be a Director?

Managing a Business is not an easy task. Therefore there are eligibility criteria for a
person to become a Director.

 Only an Individual person can become a Director of the Company. A person other than
individual is not eligible to become a director.
 Furthermore, a minor individual cannot become director of Company as he is not
eligible to obtain DIN as well as cannot file a valid consent to act as director.
 At least one director of Company should be Resident of India.
 Moreover the person acting as Director should be :-
o of sound mind
o capable to enter into a contract
o Not an insolvent person.

Powers and Duties of a Director

The Companies Act 2013 defines the powers and duties that a Director should take care of
while acting on behalf of the Company. Sections 179 and 166 of Companies Act 2013
prescribes the powers and duties of a Company Director respectively.

Powers of Directors

According to Companies Act 2013, the Board of Directors of a Company has the following
powers in the Company.
  Power to make calls in respect of money unpaid on shares
 Call meetings on suo moto basis.
 Issue shares, debentures, or any other instruments in respect of the Company.
 Borrow and invest funds for the Company
 Approve Financial Statements and Board Report
 Approve bonus to employees
 Declare dividend in the Company
 Power to grant loans or give guarantee in respect of loans
 Authorize buy back of securities
 Approve Amalgamation/Merger/ Takeover
 Diversify the business of the Company

Duties of Directors

The role and duties of a company director

A company director is either appointed by shareholders or other directors, and plays a

key role in the management and strategic direction of the business. Major decisions will
almost always be taken by a vote of the board of directors, although there will be some
delegated powers to, for example, sales or finance director in their area of expertise.

Many of the key duties of the company director are codified in the Companies Act 2006,
while others will be set out in each company’s articles of association, which detail the
limits of directors’ decision-making powers.

The Companies Act states that directors must:

 Promote the success of the company for the benefit of its shareholders, while considering
the impact of decisions on employees, suppliers, customers, communities and the
environment

 Exercise independent judgement when making decisions

 Exercise reasonable care, skill and diligence

 Manage conflicts of interest appropriately

Directors are also responsible for keeping proper records, and there are restrictions on
certain transactions, for example, securing a loan from the company. A breach of these
duties, plus a number of other circumstances discussed below, could see a director held
liable, either along with their company or as an individual.
Board of Directors acts as agent of the Company. However while acting for Company,
Director Needs to take care of his duties which are as follows:-

 To act in good faith

 Act in accordance with the Articles of Association of the Company
 To act so as to promote the objects of the Company
 Act in best interest of the Company and its stakeholders
 Exercise duties with due and reasonable care
 To exercise independent judgement
 Not to get involved in a situation where his interest conflicts with the interest of the
Company
 He cannot assign his office to any other person.
 Not to achieve undue gain or advantage

 Liabilities of Directors
 It is not easy to describe the liabilities of a director. The Director can’t delegate
their authority which is specifically imposed on them, and which involve the
exercise of their own judgment and discretion. However, General tort principles
make the directors personally liable if they have either intentionally or negligently
caused harm to third parties. Here it is to be also noted that the directors, who act
in good faith and within the scope of their authority, will not be held liable for the
tortuous acts of the association. It is only when directors act in bad faith or outside
the scope of their authority, will they have a problem. For example, an employee
may be fired without just cause, but the dismissal may be in the best interests of
the association.

 The liabilities of Directors can be considered under the following heads.

 1. Liability to the Company-
 The liability of directors to the company arises under few circumstances only for
example the directors have acted ultra vires the company.

 The liability of the Director to the company may arise from:
 (a) Breach of fiduciary duty.
 (b) Ultra Vires acts
 (c) Negligence, and
 (d) Mala fide Acts.

 (a) Breach of Fiduciary duty- whenever a director works dishonestly to the interest
of company, he will be held liable for breach of fiduciary duty. Most of the powers
of Directors are ‘powers in trust’ as explained above and therefore, should be
exercised in the benefit of company and not for their own benefit or for the benefit
of other members.

 (b) Ultra vires acts- everybody in the company are supposed to work within the
prescribed limits or the provisions of Companies Act, Memorandum and Articles of
association since these lay down the limits to the activities of the company and
consequently to the power of board of Directors. If the Directors do anything which
is beyond these prescribed limits it would be considered as ultra vires and so he
shall be made personally liable for this.

(c) Negligence- as long as the Directors Act within their powers, and exercise their
duty with reasonable care and skill as every prudent businessman is expected to
 take care of, they will not be made liable. But where they fail to exercise reasonable
care, skill and diligence, they shall be deemed to have acted negligently in
discharge of their duties and consequently shall be liable for any loss or damage
resulting therefrom. Although, there are no objective standards of skill and care
with the help of which we can decide whether a director has been negligent,
instead, there are only general principles which may be applied depending on the
facts of each case. The directors are not bound to bring any special qualification
into their office. The mere omission to take every possible care will not amount to
negligence.

(d) Mala fide Acts- directors are the trustees of the assets of the company
including money, property and also exercise power over them. And If they exercise
such power dishonestly or perform their duties in a malafide manner, they will be
held liable for the breach of trust and would be asked to reimburse the company of
whatever the loss company has suffered of such malafide act. It is the foremost
duty of director to disclose all the facts to the company which is known to him and
so he could be made accountable to the company for any secret profits he might
have earned in the course of performing duties on behalf of the company. Directors
can also be made liable for the acts of Misconduct or wilful misuse of powers.

2. Liability to third parties:

In addition to the statutory duties, directors also owe common law duties. As a
result of this, they may often find themselves liable to third parties. If, for example,
you assumed personal responsibility for a misstatement to a customer, you could
find yourself sued by that customer alongside the company.

The directors are not personally liable to outsiders or third parties if they act
within the scope of the powers vested in them. The directors are not personally
liable to the third parties for any contract on behalf of the company.
 The discussion on liabilities of Directors towards third parties may be
grouped as under:
(a) Liability under the provisions of Companies Act, 1956:
(i) Prospectus: in case of any omission to state any particulars as per the
requirement of the section 56 and Schedule II of the act or mis-statement of facts in
prospectus renders a director personally liable for damages to the third party. Also
if the party subscribes for any shares or debentures on faith of the prospectus then
for any loss or damage he may sustain by reason of any untrue or misleading
statement included therein, director shall be made liable to pay compensation, as it
is given in the Section 62. He may, however, escape his liability, where he proves
his innocence.

Civil Liability to the Company:

Director’s liability to the Company may arise in either of the circumstances:
· The directors are guilty of negligence,
· The directors committed breach of trust,
· There has been misfeasance and
· The director has acted ultra vires and the funds of the company have been applied for
such an act.
A director is required to act honestly and diligently by applying his mind and discharging
his duties as a man of prudence of his ability and knowledge would do. It has been
explained more precisely in the duties of directors as to what is standard or due care and
diligence expected from him as explained by Justice Romer in Re City Aquintable Fire
Insurance Company.

Any willful misconduct or culpable negligence falls within the category of misfeasance. It
was held in Re Duomatic Ltd,

“A director has to act in the way in which a man of affairs dealing with his own affairs with
reasonable care, and circumspection could reasonably be expected to act.....”

Therefore, Directors would decidedly be liable for omitting to do what the was supposed
to do in the

Company Meetings | Essentials | Kinds of Company Meetings

Table of Contents
What is a Meeting?
In common parlance, the word meeting means an act of coming face to face, coming in
company or coming together.

Company meeting – Essentials, Kinds

The Oxford Dictionary defines a meeting as

An assembly of number of people for entertainment, discussion or the like.

A meeting therefore, can be defined as a lawful association, or assembly of two or more
persons by previous notice for transacting some business. The meeting must be validly
summoned and convened. Such gatherings of the members of companies are known
as company meetings.
Essentials of Company Meetings
The essential requirements of a company meeting can be summed up as follows:
1. Two or More Persons: To constitute a valid meeting, there must be two or more persons.
However, the articles of association may provide for a larger number of persons to
constitute a valid quorum.
2. Lawful Assembly: The gathering must be for conducting a lawful business. An unlawful
assembly shall not be a meeting in the eye of law.
3. Previous Notice: Previous notice is a condition precedent for a valid meeting. A meeting,
which is purely accidental and not summoned after a due notice, is not at all a valid meeting
in the eye of law.
4. To Transact a Business: The purpose of the meeting is to transact a business. If the
meeting has no definite object or summoned without any predetermined object, it is not a
valid meeting. Some business should be transacted in the meeting but no decision need be
arrived in such meeting.

Kinds of Company Meetings

The meetings of a company can be broadly classified into four kinds.

1.Meetings of the Shareholders.

2. Meetings of the Board of Directors and their Committees.
3. Meetings of the Debenture Holders.
4. Meetings of the Creditors.
1. Meeting of the Share Holders
The meetings of the shareholders can be further classified into four kinds namely,

1. Statutory Meeting,
2. Annual General Meeting,
3. Extraordinary General Meeting, and
4. Class Meeting.
1. Statutory Meeting
This is the first meeting of the shareholders conducted after the commencement of the
business of a public company. Companies Act provides that every public company limited
by shares or limited by guarantee and having a share capital should hold a meeting of the
shareholders within 6 months but not earlier than one month from the date of
commencement of business of the company.

Usually, the statutory meeting is the first general meeting of the company. It is conducted
only once in the lifetime of the company. A private company or a public company having no
share capital need not conduct a statutory meeting.

2. Annual General Meeting

The Annual General Meeting is one of the important meetings of a company. It is usually
held once in a year. AGM should be conducted by both private and public ltd companies
whether limited by shares or by guarantee; having or not having a share capital. As the
name suggests, the meeting is to be held annually to transact the ordinary business of the
company.

3. Extra-ordinary General Meetings (EOGM)

Statutory Meeting and Annual General Meetings are called the ordinary meetings of a
company. All other general meetings other than these two are called Extraordinary General
Meetings. As the very name suggests, these meetings are convened to deal with all the
extraordinary matters, which fall outside the usual business of the Annual General
Meetings.

EOGMs are generally called for transacting some urgent or special business, which cannot
be postponed till the next Annual General Meeting. Every business transacted at these
meetings is called Special Business.

Persons Authorized to Convene the Meeting

The following persons are authorized to convene an extraordinary general meeting.

1. The Board of Directors.

2. The Requisitionists.
3. The National Company Law Tribunal.
4. Any Director or any two Members.
4. Class Meetings
Class meetings are those meetings, which are held by the shareholders of a particular class
of shares e.g. preference shareholders or debenture holders.

Class meetings are generally conducted when it is proposed to alter, vary or affect the rights
of a particular class of shareholders. Thus, for effecting such changes it is necessary that a
separate meeting of the holders of those shares is to be held and the matter is to be
approved at the meeting by a special resolution.

For example, for cancelling the arrears of dividends on cumulative preference shares, it is
necessary to call for a meeting of such shareholders and pass a resolution as required by
Companies Act. In case of such a class meeting, the holders of other class of shares have no
right to attend and vote.

2. Meetings of the Directors

Meetings of directors are called Board Meetings. These are the most important as well as
the most frequently held meetings of the company. It is only at these meetings that all
important matters relating to the company and its policies are discussed and decided upon.

Since the administration of the company lies in the hands of the Board, it should meet
frequently for the proper conduct of the business of the company. The Companies Act
therefore gives wide discretion to the directors to frame rules and regulations regarding
the holding and conduct of Board meetings.

The directors of most companies frame rules concerning how, where and when they shall
meet and how their meetings would be regulated. These rules are commonly known as
Standing Orders.

3. Meetings of Debenture Holders

The debenture holders of a particular class conduct these meeting. They are generally
conducted when the company wants to vary the terms of security or to modify their rights
or to vary the rate of interest payable etc. Rules and Regulations regarding the holding of
the meetings of the debenture holders are either entered in the Trust Deed or endorsed on
the Debenture Bond so that they are binding upon the holders of debentures and upon the
company.

4. Meetings of the Creditors

Strictly speaking, these are not meetings of a company. They are held when the company
proposes to make a scheme of arrangements with its creditors. Companies like individuals
may sometimes find it necessary to compromise or make some arrangements with their
creditors, In these circumstances, a meeting of the creditors is necessary.
given circumstances.

Oppression and Mismanagement under Companies Act, 2013

A. Oppression
INTRODUCTION: Special powers have been vested in the National Company
Law Tribunal (NCLT)) for the protection of members against oppression by
the majority of shareholders and for intervention in case of mismanagement
of a company's affairs.

It is a known fact that the management of a company is completely based on the majority
rule, however, at the same time the interests of the minority can’t be completely
neglected. While discussing with regard to majority and minority, let us be clear that we
are discussing about majority or minority voting strength. The reason for this distinction
is that a small group of shareholders may hold the majority shareholding whereas the
majority of shareholders may, among them, hold a very small percentage of share capital.
Once they acquire control, the majority can, for all practical purposes, do whatever they
want with the Company with practically no control or supervision, because even if they
are questioned on their acts in the general meeting, they always come out winners
because of their greater voting strength. Once resolution is passed by majority it is
binding on all members. As a result, court will not ordinarily intervene to protect the
minority interest affected by resolution.

2.7.2. Meaning of Oppression [Section 397] The term oppression has not been defined in
the Act. According to Lord Cooper, "The essence of the matter seems to be that the
conduct complained of should at the lowest involve a visible departure from the standards
of fair dealing, and a violation of the conditions of fair play on which every shareholder
who entrusts his money to the company is entitled to rely".
Prevention of Oppression

Section 397 of the Act deals with the concept of oppression. There are basically two very
important ingredients involved:

1) Affairs of the company are conducted in a manner prejudicial to the public at large, or
oppressive to any member therein; and

2) To wind up the company would result in unfairly prejudicing the members, but the
facts and circumstances otherwise suggest that winding up of the company would be the
right course of action?

Meaning of Mismanagement [Section 398]

The word "Mis" means "wrong or bad" Mismanagement is defined in Johnson's Dictionary
as ill management or ill conduct".

Section 398, in dealing with the concept of mismanagement also highlights two basic
concepts that the affairs of the company are being conducted or such affairs are likely to
be conducted in a manner which is:

1) Prejudicial to Public Interest: Conduction of the affairs of the company in a manner

prejudicial interest, and to public

2) Prejudicial to the Interest of the Company: Material alterations in the company, in

whatever manner, that would result in the affairs of the company being conducted in a
manner prejudicial to the public. 2.7.5. Prevention of Mismanagement [Section 398]
Provides for relief against mismanagement. A requisite number of members (as laid
down in Section 399) of a company may apply to the Company Law Board for appropriate
relief on the ground of mismanagement of the company.

The Company Law Board may give relief if it is of opinion:

1) That the affairs of the company are being conducted in a manner prejudicial to the
public interest or the interests of the company, or

2) That by reason of a material change in the management or control of the company, the
affairs of the company is likely to be conducted in a manner prejudicial to the public
interest or the interests of the company.

On such application being made, the Company Law Board may make such order as it
thinks fit to prevent or bring an end to the matter complained of or apprehended. 2.7.6.
Parties Entitled to Apply [Section 399]

Requisite number of members should sign on the application:

1) Company having Share Capital

2)Not less than 100 members or 1/10 of the total number of its members,
whichever is less
3) By any member(s) holding not less than 1/10 of the issued share capital.

2) Company not having Share Capital: 1/5 of the total number of member of the company.

3) Besides members the following can also apply:

1) The central government or any person authorised by the central government

ii) Trustees of a shareholder/member.

iii) A legal representative of a deceased member.

----------------------------------------------------------------------------------------------------------------
.
[Type here]
[Type here]