Company Law - Only This Much

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

TYPE OF ISSUES

PUBLIC ISSUE

RIGHTS ISSUE

BONUS ISSUE

PREFERENTIAL ISSUE

Public Issue: Issue made to the public as whole requires filing prospectus with ROC, application to the stock exchange for listing and compliance with SEBI (DIP) Guidelines. [Public, if invitation is made to person exceeding 49 in number as per Sec 67(3)]. It includes Initial Public Offer (IPO), Follow-on Public Offer (FPO), et al. Rights Issue: Issue made to existing shareholders proportionately with right to renounce thereof [Sec 81(1)]. Listed companies to file letter of offer with stock exchanges and comply with SEBI (DIP) Guidelines and to send abridged letter of offer to shareholder. Bonus Issue: Issue made to existing shareholders where shares are issued (freely) as fully paid, out of securities premium account and free reserves. Listed companies cannot issue out of revaluation reserves and to comply with Chapter XV of SEBI (DIP) Guidelines. [proviso to Sec 205(3), Sec 78 & Sec 80]. Note: Student may note that Reliance Power Limited recently issued bonus shares in which the promoters waived of their rights to participate in the bonus issue by a written letter to the company and the company passed a special resolution in this regard. Preferential Issue: Unlisted companies can make private placement of equities or any other convertible instrument on complying with section 81(1A) read with Unlisted Public Companies (Preferential Allotment) Rules, 2003. Preferential Issue / QIP: Listed company making preferential issue or make qualified institutional placement (QIP) [made only to QIB] shall comply with sec 81(1A) and shall comply with Chapter XIII or Chapter XIIIA of SEBI (DIP) Guidelines respectively, which includes pricing provisions, lock-in conditions, time within which the resolution as to be acted upon, certification etc…

C*

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

APPOINTMENT OF DIRECTORS BY BOARD ADDITIONAL DIRECTORS u/s. 260 AoA may prescribe, Yes, Directors can themselves appoint an Additional Director but NOT exceeding the Strength of the Board.

Provisions: 1. AoA should authorize; 2. UPTO Total Strength of BoD; 3. By Board / Circular Resolution; 4. Retire @ the ensuing AGM.

DIRECTORS APPOINTED IN CASUAL VACANCY u/s. 262 1. Applicable ONLY for Public Limited Company; 2. ONLY if Member Director (Dir appointed by Mem) dies, resigns, etc... 3. By Board Resolution (NOT Circular Resolution); 4. Term will be the term of the Director in whose place he is appointed; (Retire once Original Director term gets over). ALTERNATE DIRECTORS u/s. 313 Provisions: 1. AoA should authorize; 2. ONLY if Original Director is outside State for more than 3 months; 3. By Board / Circular Resolution [Not by Director]; 4. Vacates if Original returns to the State or Orig Dir term expires; 5. Single Individual may act as Alternate to more than 1, then he will get such No. of Votes but with single Sitting Fees. Note: 1. AoA may specify Share Qualification; 2. On appointment, Original will get deemed Leave of Absence; S.N Particulars 1 Provides for . Appointment of 2 Applicability . 3 Articles [AoA] .3

Sec. 260 Additional Director All companies Shall authorize or

C*

Sec. 262 Directors in Casual Vacancy Only Public Limited -

Sec. 313 Alternate Directors All companies Shall authorize or amend AoA

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

Understand DEFINITIONS MD – Sec. 2(26) “means”

“includes”

A DIRECTOR ENTRUSTED with Substantial Powers of Mgmt THROAgreement/ GM Resol/Bd Resol/ MoA/AoA.

A DIRECTOR occupying the position of MD, by whatever name called. “SUBJECT TO” superintendence, control & direction of the Board.

Following are NOT Substantial Powers 1. Affixing Common Seal; 2. Operation of Bank of A/C. 3. Endorse/Sign/ Register a Sh. Certificate

WTD-Explanation to Sec. 269 “includes” A DIRECTOR in the Whole Time employment of the Co. ((Employee as a Dir))

Manager Sec. 2(24) “means” An INDIVIDUAL on whom whole of the powers of mgmt DEVOLVES.

“includes” A DIR/an Individual occupying the position of Mgr, by whatever name called.

((Employee as a BOARD MEETING (BM)

C*

“SUBJECT TO” superintendence, control & direction of the Board.

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

Meeting of Brains = Board Meeting [BM] CONSENT OF THE BOARD

@ the meeting of BoD SECTIONS 262 Sec. 292 Calls on Shares Buy-Back UPTO 10% (PC+FR) Borrowing thro Debentures & Others Make Investments & Loans PC – Paidup Capital FR – Free Reserves

Thro Circula r Resol (CR) [S.289]

293A 297 & 299

BALANCE ITEMS

316 & 386

The remaining items can be passed either through Circular Resolution OR Board Resolution [@ the meeting of the Board]

372A 488

C*

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

DIVIDENDS Dividend = Return on Investment (RoI) in Capital; Pay First Preference (shares), Then Equity; Payment is an Ordinary Business (OB) requiring Ordinary Resolution (OR);

FINAL DIVIDEND [at the AGM]

INTERIM DIVIDEND [between 2 AGMs]

Recommended by Board [BoD]

Recommended by Board [BoD]

UPTO BoD’s recommendation [if, Table A] may be DECLARED by Shareholders.

DECLARED by BoD

Dividend shall be paid out of (a) profits; (b) profit for previous Financial Years Profit and (c) amount PROVIDED by the Govt. for this purpose. The Company has to provide for the depreciation for the Previous Financial Years and Amount of Loss of the Previous Financial Years OR Amount equal to the amount of depreciation whichever is LESS, shall be SETOFF against the Previous Year profit BEFORE declaring the Dividend.

C*

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

CONDITIONS Depreciation (also ARREARS) to be provided; Note: Central Govt. can allow companies to declare dividend without providing for depreciation, if it is in public interest. Transfer of Reserves as per Rules; Board Recommendation; Shareholder or BoD Declaration.

DECLARATION

WITHIN 5 days in a Separate Bank Account

WITHIN 30 days, MAKE payments

WITHIN 7 days, OPEN Unpaid Dividend Account AFTER 7 years

INVESTOR EDUCATION & PROTECTION FUND U/S. 205C

C*

PENALTY for NONPAYMENT Imprisonment & Rs.1000 per Day & Simple Interest @ 18%

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

BUY BACK UNDER COMPANIES ACT S- 77B [>] 77A [>] Companies Act Section 77A OVERRIDES all other provisions of Companies Act, as it starts with the words “Notwithstanding anything contained in the Act” but is SUBJECT to Section 77B of Companies Act. Though Capital is Reduced under Buy Back, the provisions of Section 100 of Companies Act, requiring Court Approval is NOT REQUIRED as Section 77A overrides all other (Sec.100) provisions of Companies Act. Thus, only sections 77A, 77AA & 77B to be complied with.

Through Subsidiary (-ies)

77B – PROHIBITION OF BUY BACK Through Default in deposit Non-compliance of Investment or loan or its S-159=Annual Company interest, dividend, Return; S-207= (ies) redemption of Dividend; Spreference / debt 211=Annual Accounts 77A – BUY BACK

SOURCES Free Reserves as per latest Securities audited Balance Sheet, free Premium for distribution as Dividend Account

77 – TRANSFER to Capital Redemption Reserve (CRR) Account – the “Nominal Value of Shares purchased”

OPPRESSION & C*

Proceeds of shares / specified securities, NOT of the same kind issued earlier

W-http://onlythismuch.lawlabz.com

COMPANY LAW  Only This Much!

Rule in Foss v. Harbottle OR Rule of Majority OR Non-interference by Court Compliance of Law; Act ratified by Ordinary Resolution; Proper Plaintiff is the Company (Not, the individual member) This is a provision for Convenience & Expediency, to avoid multiplicity of suits.

Exceptions to Foss case OR Rule of Minority OR Interference by Courts OR Protection of Minority Interest

OPPRESSION & MISMANAGEMENT Ultra Vires Act (beyond the powers); Fraud on Minority; Invasion of Individual Rights; Articles amendment for the vested interest of few; Spcl resol but ord resol+CG approval for vested interest of few For Cos having Share Capital Lesser of 100 Members 1/10 (Toto Members) 1/10 (Issued Capital in which calls are paid)

Eligibility u/s. 399 [only @ the time of filing petition to CLB – Entry]

For Cos having Share Capital 1/5 (Total number of members in Register of Members) Central Government u/s. 400

Cent Govt u/s.401 May itself apply Authorise any person to move CLB

CLB to give notice & consider views of CG before passing the final

C*