Share capital
Definition (Sect.2(46))
Share means share in the share capital of the company and include stock, except when a distinction between stock and share is expressed or implied.
A Share is the interest of shareholder in the company measured by a sum of money for the purpose,of liability in the first place , and of interest is second , but also consisting of aseries of convenants entered into by all the shareholder inter se.
Kinds of share:; 1) 2) 3) Before the company act, 1956 was passed a company could issue three types of share
Equity share Preference share Deferred share But under the company act ,1956 a company can issue only two type of share namely; 1) 2) Equity share Preference share Section 86 as amended by the companies act 2000, provide that the new issues of share capital of a company limited by shares shall be of two kinds namely
1)Equity share This type of share can be further divided into, 1 . With voting rights; or 2 . With differential right as to dividend , voting or other wise 2)Preference share
1) 2)
They have preferential rights to be paid dividend during the life time of company and They have preferential right to the return of capital when the company goes into liquidation.
1)Cumulative or non-cumulative:With regard to the payment of dividends, preference share may be cumulative or non-cumulative. A cumulative preference share confers a right on its holder to claim fixed dividend of the past and the current year out of future profits.the fixed dividend keeps on accumulating until it is fully paid.
2)Participating or non-Participating :- Participating preference shares are those shares which are entitled to a fixed preferential dividend and , in addition carry a right to participate in the surplus profits along with equity shareholder.
2)Participating or non-Participating :- Participating preference shares are those shares which are entitled to a fixed preferential dividend and , in addition carry a right to participate in the surplus profits along with equity shareholder.
3)Redeemable or irredeemable:Redeemable preference share are issued by a public limited company, to be redeemed either at a fixed date or after a certain period of item during the life time of the company . Condition for issue of such shares are laid down in section 80 of the act.
4)Convertible or non-convertible :convertible preference shares are those which would be convertible into equity shares after a specified period.
Ordinary or Equity shares :All shares other than preference share will be ordinary shares . The holder of these shares are entitled to dividend from the net profit of the company after the fixed dividend on preference share has been paid up . If after paying the divident on preference share, no profit remain, equity shareholder will receive no dividend.
Kinds of equity shares :section 86,as amended by the companies (amendment) Act 2000, empowers companies to issue the following types of equity shares:
1)
Equity shares with voting right :The holder of such equity shares will have the right to vote on every resolution placed before the company . His voting right on a poll will be a proportion to his share of the paid-up equity capital of the company. [Sec.87(1)] Equity shares with differential rights:The holder of such equity shares have differential rights as to dividend ,voting or otherwise in accordance with such rules and subject to such condition as may be prescribed by the central government.
2)
Buy-Back of shares by a company:Section 77(1) The companies (amendment) act, 1999, vide section 77A, and 77B(effective from 31-10-1998)and as amended by the companies act 2002 (effective from 23-10 2001) .
The relevant provisions are: Sources to buy back Condition for buy back. Notice of the meeting . Sources of buy-back. Declaration of solvency. Destruction of the securities. Further issue of shares. Maintenance of register. Filing a completion return. Penalties. Prohibition for buyback.
1) 2) 3)
4)
5) 6) 7)
8)
9) 10) 11)
PROSPECTUS:
Definition:[sec.2(36)]
Prospectus means any document issued as a prospectus & include any notice,circular,advertisement or other document inviting deposits from the public /inviting offers from the public for the subcription/purchase of any shares in /debentures of a body corporate.
Company name & address of its registered office. -Particulars about its capital structure -Information about directors,bankers,brokers,solicitors. -Object & prospectus of company. -Location of factory,machinary & equipment,nature of business etc. of company. -Underwriting contracts, brokerage & commission & priliminary expenses incurred of the company. -Directors & mgt. of company. -Borrowing powers, details of material contracts
DATING OF PROSPECTUS:[SEC.55]
Prospectus shall be dated & date shall be taken as the date of publication of prospectus.
MIS-STATEMENT OF THE PROSPECTUS:[SEC.65] -Mis-statement includes:1.Untrue statement 2.Statement which produce wrong impression 3.Statement which are misleading 4.Statement which produced wrong impression.
5.omission of facts.
-Mis-leading prospectus:The prospectus which contains mis-statement/misleading statement -Who is liable for mis-statement in prospectus:-[sec.62]
CRIMINAL LIABILITY:-[Sec.63(1)&sec.68]
punishable for untrue statement with imprisonment for a term which may be extended to 2 years/with fine which may extended to Rs.50,000/with both.
On proving that: -The statement was immaterial. -He has reasonable ground to belief & did upto the time of issue of prospectus believe that the statement was true.
DIRECTOR
Agenda: 1. Appointment 2. Qualification 3. Disqualification 4. Remuneration 5. Retirement 6. Vacation of Office 7. Removal 8. Resignation 9. Powers 10. Duties
1. Appointment
First Director [Sec.254] -: By the Promoters of the company Subsequent Appointment [Sec.255] -: By the members & subscribers to memorandum at AGM Additional Director [Sec.260] -: By the Board of Directors Casual Vacancies [Sec.262] -: By the Board of Directors Alternate Directors [Sec.313] -: By the Board of Directors Appointment of Director [Sec.255] -: By Third Parties Appointment of Director [Sec.408] -: By Central Government
2. Qualification
The act prescribes no academic, professional or share qualifications Articles may provide for any qualifications Where share qualification is fixed by articles then the Act provides:
Qualification share must be taken within 2 months after appointment. Nominal value of qualification shares must not exceed Rs.5000.
3. Disqualification
According to Sec.274, in following cases directors get disqualified if,
1) 2) 3) 4) 5) 6) 7)
He is found to be of an unsound mind He is an undischarged insolvent He has applied to be adjudicated as an insolvent and his application is pending He has been convicted by a court involving moral turpitude and sentenced to imprisonment for not less than 6 months He has not paid any call in respect of shares of the company held by him He has been disqualified by an order of the court under sec.203 of this act He is already a director of a public company which a) has not filed the annual accounts and annual returns for any continuous three financial years b) has failed to repay its deposits or interest thereon on due date
4. Remuneration
If article permits remuneration, it becomes an authority to pay remuneration to directors from the funds of the company It is not restricted to pay out of profit The amount of remuneration & mode of payment can be determined from the provisions of Sec.198 and 309. In a public company, remuneration given shall not exceed 11% of the net profit of that company in that particular year
5. Retirement
In a Public company, two third of the directors are liable to retire by rotation in every AGM. Out of these one third of the directors shall retire from office at every AGM. However, the retiring directors are eligible for re-appointment unless the articles provide.
6. Vacation of Office
1) 2) 3) 4) 5) 6) 7)
8)
9)
7. Removal
A director of the company may be removed before the expiry of his term by
1) 2) 3)
8. Resignation
If the article permits -: Director may resign at any time and his resignation will take effect without any need for its acceptance by board of directors If the article not permits -: In this case also director can resign at any time. No matter whether the company accepts it or not
9. Powers of Directors
To control the work of offices of company like managing directors, managers, secretary, etc. To manage the affairs of the company They have right to recommend the payment of dividend They can transfer some of its powers to the MD
Powers which can be Exercised : To make calls on shares and debentures To issue shares and debentures To invest funds of the company To make loans To appoint secretary, manager, etc. To fill up casual vacancy in the office of directors, auditors,etc To appoint MD of the company
10. Duties
To decide the amount of minimum subscription To see that all the money received from applicants for shares is deposited in the bank To prepare a statutory report To send a copy of statutory report to every member of the company To approve the Balance and Profit & Loss Account before they are submitted to the Auditors for their reports To pay dividends only out of divisible profit of the company To manage affairs of company efficiently To see that Board Meetings are held at least once in every 3 months.
Meetings
Meetings
of Shareholders
Meaning:- By the law, Members of the company must meet at least once in the year in what is called Annual General Meeting Every company has to hold this meeting. 1st AGM shall be held within eighteen months of its incorporation. Notice:- Notice should be given at least 21 days before the meeting.
1.
2. 3.
Objects:Accounts, balance sheet and report of the Board of Directors. Decision on declaration of dividend. Appointment of Directors and Auditor & their remunerations. Purpose:- Give full information to members of progress made by the company during the year. Penalty for default:- If default is made in holding a meeting of the company, every officer who is in default shall be punishable with a fine up to fifty thousand rupees. (sec 168) Extension of time:- The registrar is empowered to extend the time of AGM upto three months but when special reasons exits. (166(1))
1. 2. 3.
Other factors of meetings:Meeting notice must in writing. Copy of agenda is to be sent along with the notice. Meeting is conducted by the chairman of the meeting.
4.
who must attend the meeting for the meeting to be a valid one. 5 member for public ltd co. and 2 members for private ltd co.
5.
5.
6. 7.
Special Resolution:- It require 75% of votes. Ordinary Resolution:- It require 50% of votes.
Meeting of Debenture holders Meeting of Creditors Meetings of creditors and contributories on the winding up of the company.
Accounts [Sec.209]
Every company has to maintain proper books of account at its registered office
All
sums of money received and expended by the company and the matters in respect of which expenditure takes place Sales & purchases of goods Asset & liabilities In case of production, processing, manufacturing activities, such particulars relating to utilization of material & labor
Sec.541(2)
Necessary to exhibit & explain the transaction and financial position of business of the company Sec.211 Schedule VI Preparation of Balance Sheet and Profit & Loss Account of Company (True & Fair)
Audit
Why Audit?? A Company carries on business with capital provided by persons who are not in control of use of the money supplied by them. They would, therefore like to see that their investment are safe are being used for intended purpose The annual account of company present a true & fair view of state of affairs of the company Outlines of Objective of an Audit
Auditor
Appointment (Sec.226)
Rights
Chartered Accountant within the meaning of The Chartered Accountant s Act 1949 A practicing CA A certificate holder in an erstwhile Part B state which entitled him to act as an auditor of company in the territories of that state. Right of access to books & accounts(Sect 227(1)). Right to obtain Information or Explanation(Sect 227(1)). Furnish all necessary information Right to inspect Branch Accounts(Sec228(2)) He/ she can refer though audit had done by somebody else. Right to receive notices.(Sect.231) All notices of and other communications relating to any general meeting of a Company. Right of attend general meeting(Sect.231) Right of Remuneration As work is over
According to the information provided to him he should interpret in the manner so required. Balance sheet and Profit & loss account gives a true and view of the companys affairs as at the end o financial year. Whether he has obtained all the information & explanations required by him for the purpose of his audit. Proper books of Account & returns to be maintained. Finally make Qualified Reports.
The first auditor appointed by the BOD may be removed by passing an ordinary resolution but get the nomination for that place within 14 days. Permission of Central Govt. Retiring an auditor before the expiry of the term only an ordinary resolution of which a special notice has been given to the effect that the retiring auditor shall not be reappoint is sufficient.
It empower the Central Govt. to issue necessary directions for conducting Cost Audit of companys engaged in production, processing, manufacturing mining activities. Specified in the order of the Govt. Conducted by Cost Accountant (Cost & Works Accountant Act. 1959) C.A. if cost accountant not available & the Central Govt. issues a notification to this effect. Appointed By BOD with the approval of Central Govt.
It empowers the Central Govt to appoint auditors for conducting a Special Audit where the Central Govt is of opinion. That affairs of a company are not being managed in accordance with sound business or prudent commercial practices That company is being managed in a manner likely to cause serious injury or damage to the interest of the trade, industry, business to which it pertains That financial position of a company. Special Auditor make report to members of the company & same for Central Govt. Central Govt has to take decision on the Report if not then a copy will circulate to members .
WINDING UP
Definition of winding upBy Professor Gower-winding up of company represents the process whereby its life is ended and its property administrated for the benefit of its creditors and members.
Modes of winding up
There are three modes of winding up---1>Compulsory winding up 2>Voluntary winding up by the members of 3>Voluntary winding up under the supervision of the court.
1>Compulsory winding up
Compulsory winding up takes place when the company is directed to be wound up by the order of the court. A company may be wound up by the court under the following circumstances. a>special resolution of the company. if the company has ,by special resolution resolved that company be wound up by the court.
B>DefaultC> Non commencing or suspending the company. D>Reduction of members. E>Inability to pay the debts.
Official Liquidators.
APPOINTMENT.
:-the companies act provide that in each High court there shall be an officer known as the official Liquidator appointed by the central government ,there may also be Deputy or Assistant official Liquidators.
To conduct proceeding in winding up the company. To make the list of the creditors. The liquidator must pay all the money received by him in to the public account of India in Reserve Bank of India. Liquidators shall keep proper books for making entries or recording minutes of the proceeding at meeting.
Committee of the inspection The committee of inspection is a joint committee of creditors and contributors consisting of not more than 12 person .The function of committee is to keep a general watch over the acts of liquidator for the protection of the interests of creditors and ontributions.
Contribution
Definition: The term contributory means every person liable to contribute to the assets of company the event of its being wound up. The list of contributors is made up of two parts A & B The A list contain name of the person who Aare the members of the company on the date of winding up The B list contain the name of person who were members within a period of 1 yr previous to the date of winding up.
Voluntary Winding Up
It means winding of the company by the members themselves without intervention of the court Sec. 484 of the act provides that company can be wound up voluntarily under the following circumstances:
By
an ordinary resolution of the members passed in general meeting cases. By special resolution pass by members