Business Law Ppt For Class Circulation.

Business Law

Prospectus

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Prospectus Section2(36) denies a prospectus as “any document described or issued as a prospectus that include any notice ,circular,advertisement or other document inviting deposits from the public or the subscription or purchase of any shares in or debentures of a body corporate”

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Red Herring Prospectus • "Red Herring Prospectus" is a prospectus which does not have details of either price or number of shares being offered or the amount of issue.

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Why Is it called so? • The reason it is called a red herring is due to a disclosure statement printed in red ink on the cover which explicitly states that the issuing company is not attempting to sell its shares.

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The following ingredients may be said to constitute a ‘prospectus’ (a) There must be an invitation to the public (b) The invitations must be made “by or on behalf of the company or in relation to an intended company. (c) The invitation must be “to subscribe or purchase” (d) The invitation must refer to shares or debentures or such other instrument.

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When Prospectus is not required to be issued(a) Where the shares or debentures are not offered to public, [section 56(3)] (b) Where a person is a bonafied invitee to enter into an underwriting agreement with regard to share or debenture [section 56(3)] (c) Where the shares or debentures are offered to the existing holders of shares or debentures respectively. [section 56(5)]

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Dating and Registration of Prospectus • (1) Prospectus must be dated-Section 55 of the Act • (2) A copy of prospectus must be filled with the register on or before its publication- The experts consent ,a copy of every contract under clause 16 .of Schedule II and adjustment under Clause 32 of the said schedule should must be attached to the prospectus.

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Dating and Registration of Prospectus • The Prospectus must be issued within 90 days of the date on which a copy thereof is delivered for registration. If a Prospectus is not issued within this period , it is deemed to be a Prospectus , a copy of which has not been delivered to the Registrar.

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The following documents must be attached to the copy of prospectus filed with the registrar: (a) The consent of the expert mentioned in the prospectus ,if his report is included in the prospectus; (b) A copy of every contract relating to the appointment or remuneration of a managing director or manager. (c) A copy of every material contract not being a contract entered into in the ordinary course of business of the company entered into within two years of the issue of the prospectus. October 17, 2009

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(d) A written statement relating to the adjustments ,if any,in respect of figures of any profits or losses ,and assets and liabilities. (e) The consent in writing of the person, of any,named in the prospectus as the auditor ,legal advisor,attorney,solicitor,issue house,banker managers to the issue or broker of the company to act in the capacity. (f) The consent of directors under section 266 in respect of new directors ,if any,named therein; (g) A copy of the underwriting ;agreement if any,should also be filed as required by section 76(1) (b) (v) October 17, 2009

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(h) The prospects must contain a statement that a copy has been delivered for registration ,also indicating the requisite documents(giving names) delivered with it. (i)

The consent of the expert should be obtained :If the prospectus includes a statement purporting to be made by an expert ;a consent in writing of that expert should be obtained and this fact be stated in the prospectus.It should also state that the consent given has not been withdrawn.

(j)

The company and every person who knowingly issue a prospectus without delivering a copy thereof to the Register for the registration shall be punished with fine upto Rs.5000.

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When Registrar must Refuse Registration Section 60(3) provides that the Registrar shall not register a prospectus if: (a) It is not dated-Section 55 (b) It does not comply with the requirement of section 56 as to the matter and reports to be set out in it. (c) It does not contain statements or reports of experts engaged or interested in the formation or promotion or management of the company-section 57

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(d) It includes a statement purported to be made by an expert without a statement that he has given and has not withdrawn his consent to the manner of its inclusion therein. (e) It does not contain in writing of directors a copy of the documents mentioned in section 60(1) has been filed or does not comply with regard to the fact that a copy of it has been filed with Registrar; (f) It is not accompanied by the consent in writing of the auditor ,legal advisor ,attorney,solicitor,issue house,banker managers to the issue or broker,if named in prospectus to act in that capacity-section 60(3). October 17, 2009

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Matters to be stated & Reports to be set out in Prospectus •

Sec .56 lays down that every prospectus issued by (a) by or behalf of a company,or (b) by or on behalf of any person engaged or interested in the formation of a company,shall (1) State the matters specified in Part 1 of Schedule II ,and (2) Set out the reports specified in Part II Of Schedule II

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Part 1 of Schedule II • • • • • •

General Information Capital structure of the Company Terms of the present issue Particulars of the issue Company,management and Project Particulars in regard to the company and other listed companies under the same management.

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Part 1 of Schedule II • Outstanding Litigation • Management Perception of Risk Factors

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Part 2 of Schedule II • General Information • Financial Information • Statutory and other information

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Part 3 of Schedule II-applying to Parts I & II of Schedule II • 1. Every person shall,for the purposes of this Schedule,be deemed to be a vendor who has entered into any contract,absolute or conditional,for the sale or purchase of any property to be acquired by the company ,in any case where-(a) the purchase money is to be paid at the date of the issue of prospectus; October 17, 2009

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Part 3 of Schedule II-applying to Parts I & II of Schedule II • (b) the purchase money is to be paid or satisfied,wholly or in part,out of the proceeds of the issue offered for subscription by the prospectus; • (c) the contract depends on its validity or fulfillment on the result of that issue

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Part 3 of Schedule II-applying to Parts I & II of Schedule II • 2.In the case of a company which has been carrying on business for less than 5 financial years means reference to that number of financial years for which business has been carried on. • 3.Reasonable time & place at which copies of all balance sheets & profit & loss accounts on which the report of the auditors is based,and material contracts & other documents may be inspected. • 4.Term ‘year’ means the financial year. October 17, 2009

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Deemed Prospectus-Offer of Sale of Existing Shares Under section 64(2) it will be presumed unless the contrary is provided ,that an allotment of shares or debentures was made a view to the being offered for sale to the public if, (a) The offer to the public (by the issue house) was made within 6 months of allotment or agreement to allot(to the issue house);or (b) The whole consideration was not recovered to be inserted in prospectus it should also state the net amount of consideration received by the company on the shares or debentures to which the offer relates ;and state the place and time at which the relevant contract may be inspected. [section 62(3)]

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Civil Liability 1. Remedies against the company Rescission of the contract  The statement must be a material misrepresentation of fact.  The statement must have induced the shareholder to take the shares.  The statement must be untrue.  The deceived shareholder is an allottee and he must have reited on the statement in the prospectus. October 17, 2009

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Civil Liability  The omission of material fact must be misleading before rescission is granted.  The proceedings for recession must be started as soon as the allottee comes to know of a misleading statement in the prospectus.  Damages for deceit

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Civil Liability 2. Remedies against the directors,promoters and experts. (1) Liability for damages for misstatement in prospectus(Sec.62)  Withdrawal of consent  Absence of consent  Ignorance of untrue statement  Reasonable ground for belief  Statement of expert. October 17, 2009

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Civil Liability

• (2) Liability for damages for non-compliance with Sec.56 • (3) Liability under the general Law

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Criminal Liability •

Where a prospectus contains any untrue statement,every person who authorised the issue of the prospectus is punishable with imprisonment which may extend to 2 years ,or with fine which may extend to Rs. 5000 or with both.He will not be liable if he proves either.(1) That the statement was immaterial,or (2) That he had reasonable ground to believe that the statement was true.

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Who can be sued 1) The company 2) Every director 3) Every person whose name appeared in the prospectus as a proposed director 4) Every promoter 5) Every person who has authorised the issue of the prospectus

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Onus for proof of misstatement    

The misrepresentation was of fact It was in respect of a material fact He acted on the mis-representation;and He has suffered damages on consequence.

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Issue & allotment of shares in fictitious names [Sec. 68-A] •

A person shall be punishable with imprisonment for a term which may extend to 5 years if he, (1) Makes in a fictitious name an application to a company for acquiring ,or subscribing for ,any shares therein,or (2) Otherwise induces a company to allot,or register any transfer of shares therein to him,or any other person in a fictitious name.

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Statement in Lieu of Prospectus • Where a company does not invite public to subscribe for its share , but arranges to get money from private sources , it need not issue a prospectus to the public .In such a case the promoters are required to prepare a draft prospectus known as a ‘statement in lieu of prospectus’, which should contain the information required to be disclosed by Schedule III of the Act. October 17, 2009

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Business Law

Membership

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MEMBERSHIP

The ‘members’ or ‘shareholders’ of a company are the persons who collectively constitute the company as a corporate entity. October 17, 2009

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Difference b/w Shareholder and a Member • A registered shareholder is a member but a registered member may not be a shareholder because the company may not have the share capital. • A person who owns a bearer share warrant is a shareholder but he is not a member as his name is struck off the register of members. • A legal representative of a deceased member is not a member until he applies for registration. He is, however, a shareholder even though his name does not appear in the register of members. October 17, 2009

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Who can become a member? • Any person who is competent to contract (sec.11of the Indian Contract Act, 1872) may become a member of a company.

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How to becoma a member? • • (i) (ii) (iii) (iv) • •

Membership by subscription. Membership by application and registration. By application and allotment By transfer By succession Agreement to be in writing. Membership by beneficial ownership Membership by qualification shares.

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Cessation Of Membership • Act of the parties • Operation of law

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Rights and Liabilities of Members Rights of members • Statutory Rights • Documentary Rights • Legal Rights Liability of members • Company with unlimited liability • Company limited by shares • Company limited by guarantee October 17, 2009

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Register and Index of members • Register of members (Sec.150) • Index of members ( sec. 151) • Place of keeping register and inspection of registers and returns (Sec.163) • Power to close register (sec.154) • Register to be prima facie evidence ( Sec.164) • Power to rectify register ( Sec.111) October 17, 2009

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Business Law

Share Capital

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Share capital • Share capital means capital raised by a company by the issues of shares. • The word capital can be used in several senses: 1. Authorized Capital or Nominal Capital. 2. Issued capital & Subscribed capital. 3. Called-up Capital. 4. Paid-up Capital. 5. Uncalled Capital. 6. Reserve Capital.

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KINDS OF SHARE CAPITAL •

The Share capital of a company shall be of two kinds only: (a) Equity Share capital. 1. With voting Rights. 2. With differential Rights as to dividend, voting or rules and subject to such condition may be prescribed. (a). Preference share capital. 1. Sec 86 as substituted by the companies Amendment Act ,2000. October 17, 2009

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ALTERATION OF CAPITAL • (Sec.94). is used to Alter Share Capital. • A Limited company having a share Capital may, has a Right to Alter his capital. • IT may follows as (a). Increase nominal share capital by issuing new shares. (b) Consolidate & divide all or any part of its share capital into shares of larger amount.

. October 17, 2009

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Contd… (c). Convert fully paid-up share into stock or vice versa. (d). Sub divides its shares or any of them into shares of smaller amount. (e). Cancels shares which have not been taken up and diminish the amount. October 17, 2009

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BUSINESS LAW

SHARES October 17, 2009

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Definition • A share is the interest of a shareholder in a company.

• “An interest having a money value and made up of diverse rights specified under the AoA”

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Types of Shares Preference Shares

Equity Shares

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Preference shares [Sec.85(1)] • With reference to any company limited by shares :  They have a preferential right to be paid dividend during the lifetime of the company.  They have a preferential right to the return of capital when the company goes into liquidation.

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Equity Shares [Sec.85(2)] • With reference to any company limited by shares are those which are not preference shares. • Sweat equity shares [ Sec.79 –A ]  These are Equity shares issued at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions.

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Kinds of Preference Shares • 1. Cumulative preference shares These are the shares on which dividends goes on accumulating till it is fully paid off. The company is bound to pay dividend only if it has sufficient profits available for distribution. October 17, 2009

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Cumulative preference shares • If the company goes into liquidation, arrears of dividends are payable – if the Articles contain express provision to this effect. The Articles, upon their true construction, give the preference shareholders a clear right to the dividends.

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Kinds of Preference Shares • 2. Non-cumulative preference shares Shares on which dividend does not goes on accumulating. If there are no profits/ inadequate profits in any year, these shares get no dividend or get a partial dividend. They cannot claim arrears of dividends of any year/years out of the profits of the subsequent years.

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Kinds of Preference Shares • 3. Participating preference shares These shares are entitled to a fixed rate of dividend and a share in the surplus profits which remain after the claims of the equity shareholders have been met.  The surplus profits are distributed in certain agreed ratio. October 17, 2009

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Kinds of Preference Shares • 4. Non-participating  Shares entitled only to a fixed rate of dividend.  Holders do not share in the surplus profits which go to equity shareholders.

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Kinds of Preference Shares • 5. Convertible Shares which entitle their holders to convert them into equity shares within a certain period. 6. Non- convertible  Shares which do not confer on their holders a right of conversion into equity shares. October 17, 2009

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Kinds of Preference Shares • 7.Redeemable preference shares [Sec.80] A company limited by shares may, if so authorized by its Articles, issue preference shares which are to be redeemed. Conditions:Shares to be redeemed must be fully paid-up. Shares can be redeemed only out of – a) profits of the company which would otherwise be available for dividends b) the proceeds of a fresh issue of shares made for the purpose of redemption. October 17, 2009

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Kinds of Preference Shares • 7.Redeemable preference shares [Sec.80]  Any premium payable on redemption must have been provided for out of the profits or out of the company’s share premium a/c before the shares are redeemed.  When redemption is made out of profits, a sum equivalent to the nominal value of the shares redeemed must be transferred to the ‘capital redemption reserve a/c.  No company limited by shares shall, issue any preference share which is irredeemable or is redeemable, after the expiry of a period of 20 yrs from the date of its issue. (Companies Amendment Act, 1996) October 17, 2009

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Preference Shares • Penalty – If a company fails to comply with the provisions of Sec.80, the company, and every officer of the company who is in default, shall be punishable with fine (may extend to Rs.10,000)

Notice to Registrar Any redemption of redeemable preference shares must be notified to the Registrar within 30 days of the date of redemption. October 17, 2009

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Application & Allotment of Shares • An ‘application’ for shares is an offer by a prospective shareholder of a company to take shares. • ‘Allotment’ is the acceptance by the company of that offer. – The term ‘Allotment’ is not defined in the Act. – Allotment is the appropriation to an applicant by a resolution of the directors of a company of a certain no. of shares in the company in response to an application. October 17, 2009

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Application & Allotment of Shares (Cont.....) •

Provisions of the Act applicable to ‘Application’ for & allotment of shares – – Minimum subscription [Sec.69(1)] – Application money [Sec.69(3) to (6)] – Effect of irregular allotment [Sec.71] – Opening of the subscription list [Sec.72] – Shares & Debentures to be listed on a stock exchange[Sec.73] – Return as to allotments [Sec.75]

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Calls on Shares • A call is a demand on its shareholders to pay the whole/ part of the balance remaining unpaid on each share. • Made in pursuance of a resolution of the Board of Directors & terms of the Articles. • Made any time during the lifetime of the company or during its winding up. October 17, 2009

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Calls on Shares (Continued….) • Legal provisions relating to calls – Resolution of the Board [Sec.292(1)] • A call must be made under a resolution of the Board of directors passed at a meeting of the Board. • In making a call, care must be taken – – – – –

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That the directors making it are duly appointed and qualified. The meeting of directors has been duly convened That the proper quorum is present That the resolution making the call is duly passed.

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Calls on Shares (Continued….) • Legal provisions relating to calls – Bona fide & for the benefit of the company • A call should be made by the company only when it is in bona fide need of capital.

– Uniform basis [Sec.91] • Calls must be made on a uniform basis on all shares falling under the same class. • If a call is made on some shareholders but not on others or a call of a greater amount is made on some shareholders than on others, the call is invalid.

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Calls on Shares (Continued….) •

Legal provisions relating to calls – In accordance with the Articles, amount, place and time of payment. – Calls in advance [Sec.92] • A company may, if so authorized by its Articles, accept from any member the whole or part of the amount remaining unpaid on any shares held by him in advance. • The payment of calls in advance does not give voting rights to the member in respect of that amount until that amount becomes presently payable.

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Share Certificate •

Every person whose name is entered as a member in the register of members of a company has a right to receive a certificate of his shares [Article 7 (1) of Table A, Schedule I]

•

A share certificate shall be under the seal of the company, and shall specify – – The shares to which it relates – The amount paid up thereon – The name of the holder of the shares.

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Share Certificate (Continued……) • Limitation of time for issue of share certificate[Sec.113] – The company shall deliver share certificates— • Within 3 months of the allotment of shares • Within 2 months after the application for registration of the transfer of any such shares.

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Share Certificate (Continued…..) • Object of share certificate – A share certificate is the prima facie evidence of the title of the member to the shares specified in the certificate. – Estoppel – A share certificate of a company creates two kinds of estoppel against the company • Estoppel as to title • Estoppel as to payment

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Share Certificate (Continued……) • Lost or defaced certificate [Sec.84] – A certificate may be renewed or a duplicate of a certificate may be issued if such certificate –

 is proved to be have been lost / destroyed.  having been defaced or mutilated or torn, is surrendered to the company.

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Share Warrant [ Secs. 114 & 115] • Issue of share warrants to bearer [Sec. 114] – A share warrant is a document issued by a public company stating that its bearer is entitled to the shares specified therein. – It is transferable by mere delivery and is a substitute for the share certificate. – A public company limited by shares may convert its fully paid-up shares into share warrants. – Registration of the transfer of shares with the company is not necessary. October 17, 2009

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Share Warrant [ Secs. 114 & 115] • Conditions for issue of Share warrants – The shares shall be fully paid up – The Articles shall authorize the issue of share warrants – Prior approval of the Central Government shall be obtained – The share warrants shall be issued under the common seal of the company. October 17, 2009

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Distinction btw Share Warrant & Share certificate • Share warrant

• Share certificate

– Can be issued only by public companies.

– Issued by all companies (public or private)

– Can be issued by a public company only if it is empowered to do so by its AoA & has obtained prior approval of the Central government. October 17, 2009

– There is a statuary obligation on every company issuing shares to issue a Share certificate. I.B.A.

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Distinction btw Share Warrant & Share certificate (Cont…..) • Share warrant

• Share certificate

– It can be issued only with respect to fully paid-up shares. – A holder of share warrant is not a member of the company unless the Articles otherwise provide. – It can be transferred by mere delivery.

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– It is to be issued even where the shares are -partly paid-up. – A holder of share certificate is the member of the company. – Shares are transferred by a transfer deed. 72

Distinction btw Share Warrant & Share certificate (Cont…..) • Share warrant

• Share certificate

– The holder of it cannot present a petition for the winding up of the company. – No stamp duty is payable on transfer of a share warrant.

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– The holder of it can present a petition for the winding up of the company. – Stamp duty is payable on transfer of the shares specified in share certificate. I.B.A.

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Transfer of Shares • The shares of member in a company are movable property, transferable in the manner prescribed in the Act & the Articles of the company [Sec.82]

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Transfer of Shares (Cont……) • Provisions of the Act relating to transfer: – Secs. 108 to 112 deal with the transfer of shares. – 1. Transfer not to be registered except on production of transfer deed [Sec. 108] • Transfer deed • Prescribed form – 2. Transfer by legal representatives [Sec. 109] – 3. Application for transfer [Sec. 110]

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Transfer of Shares (Cont……) • Provisions of the Act relating to transfer: – 4. Power to refuse registration & appeal against refusal [Sec. 111] – Forged transfer – An instrument of transfer of shares on which the signature of the transferor is forged is called a forged instrument & any transfer of shares effected on such instrument is called a ‘Forged transfer’. – Blank transfer October 17, 2009

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Lien on Shares • A lien is an equitable charge. • It gives company such rights as it would have had under the general law if the shares had been expressly charged. • Loss of lien:– A company loses lien if – – It registers a transfer of shares subject to the lien of the transferee – A member pledges his shares to a third party as security for a loan & the company has notice thereof, & then incurs a liability to the company.

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Surrender of Shares • When a shareholder of a company voluntarily gives up his shares in favor of the company. • The Companies Act does not contain any provision relating to the surrender of shares. • Table A gives no power to the company to accept a surrender.

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Surrender of Shares (Cont…..) • The surrender of shares by a member to the company is valid in the following cases: – In case of partly paid shares where forfeiture is called for. – In case of fully paid shares, where they are exchanged for new shares. October 17, 2009

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Forfeiture of Shares • If a shareholder, having been called upon to pay any call on his shares, fails to pay the call, the company has to remedies : • It may sue him for the amount due. • It may ‘forfeit’ his shares.

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Forfeiture of Shares (Cont…..) • Forfeiture means depriving a person of his property as a penalty for some act or omission. • Conditions: – In accordance with Articles – Notice prior to forfeiture – Resolution of Board – Good Faith October 17, 2009

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Forfeiture of Shares (Cont…..) • Effect of Forfeiture – Cessation of Membership – Cessation of liability

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Nomination & Transmission of Shares [ New Secs. 109-A & 109-B, CAA,1999]

• Nomination of Shares [109-A] – Single holder – Joint holders – Minor nominee October 17, 2009

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Nomination & Transmission of Shares [ New Secs. 109-A & 109-B, CAA,1999] •

Transmission of Shares [109-B] – Right to decline – Right of the nominee – Dividends – Notice by the Board

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Business Law

Debentures

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DEBENTURES • The documents which either creates a debt or acknowledges it

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Characteristics • Issued in the form of a certificate. • It may be or may not be under company seal. • It usually specifies a particular period or date as the date of repayment. • A debenture holder does not have any right to vote in the companies meetings. • It generally creates a charge on the undertaking of the company or some part of its property.

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Kinds Of Debentures • Bearer debentures:- these debentures, also known as unregistered debentures, are payable to its bearer. • Registered debentures:-these are the debenture which are payable to registered holders. A holder is one whose name appears both on the debenture certificate and in the company register of debentures. • Secured debentures:-Debenture which create some charge on the property of the company are known as secured debenture.

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Contd… • Unsecured debentures:-debenture which do not create any charge on the assets of the company are known as unsecured debenture • Redeemable debenture:-debentures are usually issued on the condition that they shall be redeemed after a certain period. • Irredeemable debenture:-debenture whose period of repayment is not fixed also known as perpetual debenture. October 17, 2009

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Contd… • Convertible debenture:-the debenture gives an option to the holder to convert them into preference or equity shares at a stated rate of exchange, after a certain period. • Non-convertible debenture:-these debenture don't gave any option to there holder to convert them into preference or equity shares. October 17, 2009

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Pari passu clause • Debentures are usually issued in a series with pari passu clause. In this case they are to be discharge rateably,though issued at different and varying times. if there is no pari passu clause in term of issue they are payable according to the date of issue.

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Debenture with voting right not to be issued :-A company can’t issue any carrying voting rights at any meeting of the company, whether generally or in respect of particular classes of business. Issued of a debentures at a discount:debenture can be issued at a discount. October 17, 2009

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Remedies of debenture holder • Unsecured debenture holder He may sue for his principal and interest. He may file petition under Sec.439 for winding up of the company ,that the company is unable to pay its debts.

• Secured debenture holder debenture holder action:- he may sue on the behalf of himself and all other debenture holder of the same class to obtain payment & enforce his security by sale

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Contd… Appointment of receiver:-he may appointed a receiver if the conditions which gave him power to do so are fulfilled or apply to the tribunal in a debenture holders action to appoint one. Foreclosure:-he may apply to the tribunal for foreclosure of the company’s rights to redeem the debenture.

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Contd… Sales:-he may sell the property charged as security if an express power to do so is contained in term of issue of debenture. Proof of balance:-if the company is insolvent and his security is in sufficient, he may value his security and prove for the balance.

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THANK You Group-10 (Section-A),I.B.A. Ajay Jha Ajay Mahajan Amrit Malhotra Arijit Rakshit Swapnil Agarwal October 17, 2009

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