Assignment Code: BCOC-135/TMA/2023-24

Course Code: BCOC-135

Assignment Name: Company Law

Year: 2023-2024

Verification Status: Verified by Professor

Maximum Marks: 100

Note: Attempt all the questions.

Section-A

Q1) Explain the different stages in the formation of a company.

Ans) A firm must go through a lengthy formation process. The following three phases are involved:

Promotion:

1. Conception of the Idea: The process begins with the conception of a business idea. Entrepreneurs identify a market opportunity or a need for a particular product or service.

2. Market Research: Promoters conduct market research to assess the feasibility and demand for their product or service. This includes studying competitors, target audience, and potential market size.

3. Business Plan Development: A comprehensive business plan is created, outlining the company's objectives, strategies, financial projections, and operational details. This plan is crucial for attracting investors and obtaining financing.

4. Assembly of Promoters: The individuals or entities who initiate the business venture, known as promoters, come together to form the initial core group. Promoters may include founders, investors, and key stakeholders.

5. Capital Raising: Depending on the funding requirements, promoters seek capital from various sources, such as personal savings, angel investors, venture capitalists, or through crowdfunding.

6. Legal Structure Decision: Promoters decide on the legal structure of the company, whether it will be a sole proprietorship, partnership, limited liability company (LLC), or a corporation.

Registration or Incorporation:

1. Name Reservation: Choosing a unique and suitable name for the company is the first step in the registration process. The name is usually checked for availability and reserved with the appropriate government agency.

2. Drafting of Documents: Legal documents, including the company's Memorandum of Association (MOA) and Articles of Association (AOA), are drafted. These documents outline the company's objectives, rules, and regulations governing its internal affairs.

3. Filing with Regulatory Authorities: The company's incorporation documents, along with required forms and fees, are submitted to the relevant government agency or registrar of companies. The process may involve obtaining a Certificate of Incorporation.

4. Statutory Compliance: The company must comply with various statutory requirements, including tax registration, obtaining necessary licenses and permits, and fulfilling regulatory obligations.

5. Appointment of Directors: The initial board of directors is appointed, and their roles and responsibilities are defined. The directors play a crucial role in the governance of the company.

6. Share Capital: If it's a corporation, the company may issue shares to initial shareholders and raise capital through the sale of these shares.

   
   

Commencement of Business:

1. Bank Account Opening: The company opens a bank account in its name to manage financial transactions and receive payments from customers and clients.

2. Business Operations Begin: With all legal formalities completed, the company can start its business operations. This includes product/service development, marketing, sales, and delivery of goods or services to customers.

3. Tax Registration: The company registers for tax purposes and obtains necessary tax identification numbers. This ensures compliance with tax laws and regulations.

4. Employment: If the company plans to hire employees, it initiates the recruitment and onboarding process, including HR policies and payroll setup.

5. Scaling and Growth: As the business grows, the company may seek additional funding, expand its operations, and adapt its strategies to changing market conditions.

Q2) Who is ‘promoter’? And explain its functions and legal position.

Ans) Definition: A promoter is an individual or group of individuals who play a key role in the formation and organization of a company. Promoters are often the driving force behind the creation of a company, and they are responsible for initiating the process of incorporating and establishing the business entity.

Functions of the promoter

1. To originate the scheme for formation of the company: Promoters are typically the ones who come up with a business idea first. They conduct the necessary research to determine whether it is feasible and lucrative to start a firm. They then establish a firm to organise the resources needed to turn the vision into reality. In this regard, the promoters are considered the creators of the business formation plan.

2. To secure the co-operation of the required number of persons willing to associate themselves with the project: The promoters work to enlist the support of the individuals required to form the firm, depending on whether they wish to incorporate a private or public corporation. A private business must have a minimum of two members, while a public firm must have a minimum of seven. The promoters may choose the number of primary members depending on the form they choose.

3. To seek and obtain the consent of the persons willing to act as first directors of the company: You discovered that the business is run by directors who are chosen under a system of representative management. However, the company's first directors are either the promoters themselves or are chosen by them. The promoters seek the approval of a few people they deem suitable so that they will agree to serve as the founding directors of the new firm. Promoters frequently end up being the company's first directors.

4. To settle about the name of the company: To choose the name of the firm, the promoters must obtain the Registrar of Companies' approval. Typically, the promoters provide three to four names in the order of their selection. The names chosen should not be too similar to or identical to those of any other companies already in existence, according to the promoters. Additionally, they must make sure that the suggested names comply with the draught regulations and other in this regard given by the Ministry of Corporate Affairs guidelines.

5. To settle preliminary agreements for acquisition of assets: The promoters may be required to find a good location for the factory, prepare plans for equipment and plant, and possibly even make loose plans for key staff. The corporation may occasionally need to take over the assets of an existing business in order to operate the business. Promoters perform the duty of ensuring that the proposed company acquires the relevant real estate and business on reasonable terms.

6. To enter into preliminary contracts with the vendors: The promoters would need to negotiate the terms of contracts with the third parties from whom these properties are to be purchased regarding the properties and assets previously indicated. Preliminary contracts are what these agreements are known as.

7. To arrange for filing of the necessary documents with the Registrar: For the company's registration, the promoters are responsible for paying the filing fee, stamp duty, and other fees. The promoters are responsible for ensuring that all necessary legal requirements are met in order to incorporate the firm.

Legal position of the promoter

Rights and Privileges:

• Ownership of Business Idea: Promoters have the right to claim ownership of the original business idea and may receive shares or other forms of compensation for contributing the concept.

• Profit from Promotion: Promoters may negotiate for a share of the company's profits or equity as a reward for their efforts in promoting and establishing the business.

Duties and Liabilities:

• Fiduciary Duties: Promoters owe fiduciary duties to the company they are promoting, including a duty of good faith, loyalty, and full disclosure. They must act in the best interests of the company and its shareholders.

• Disclosure: Promoters are legally obligated to provide full and accurate information about the company, including any potential risks, to prospective investors.

• No Secret Profits: Promoters are prohibited from making secret profits or taking advantage of their position to benefit personally at the expense of the company or its investors.

• Avoiding Conflicts of Interest: Promoters must avoid conflicts of interest that could compromise their ability to act in the best interests of the company.

• Due Diligence: Promoters are expected to conduct due diligence in all their actions related to the company, including the valuation of assets and liabilities.

• Liability for Misrepresentation: Promoters can be held liable for any misrepresentations or omissions in the prospectus or other documents used to promote the company.

• Financial Responsibility: Promoters may be personally liable for any debts or liabilities incurred on behalf of the company before its incorporation if the company does not adopt or ratify such contracts or debts.

Q3) Discuss the Liabilities of Directors.

Ans) The liabilities of directors may be considered under the following heads:

Liability to the company

A director may be liable to the company for the following reasons:

• Breach of fiduciary duty: A director will be held responsible for breach of fiduciary responsibility if they act dishonestly in the company's best interests. The majority of the directors' authority is "in trust," which means that it should be used to benefit the firm rather than the directors or any particular group of members. As a result, it was determined that the directors had violated their fiduciary duties when they transferred unissued company shares to trustees to be held for the benefit of the employees in order to thwart a takeover bid and advanced the trustees an interest-free loan from the company to help them pay for the shares.

• Ultra vires acts: Since they set restrictions on the operations of the company and, as a result, the powers of the Board of directors, directors are expected to act within the confines of the requirements of the Companies Act, Memorandum, and Articles of Association. Additionally, certain limitations outlined in the Articles of Association may serve to restrict the directors' authority. For actions that go beyond the aforementioned parameters and are considered ultra vires the company or the directors, the directors will be held personally accountable. As a result, whenever dividends or interest are paid using capital, the directors are responsible for covering the company's losses or damages as a result.

• Negligence: The directors fulfil their obligations to the company as long as they act within their authority and with the reasonable skill and care that can be expected of them as shrewd businessmen. However, they will be regarded to have behaved negligently in the performance of their obligations and will therefore be responsible for any loss or harm as a result if they fail to exercise reasonable care, skill, and diligence. However, a mistake in judgement won't be considered carelessness. However, under section 463 of the Act, the Court may give relief to directors from such liability.

• Mala fide Acts : In addition to exercising the authority granted to them, directors are stewards of the company's funds and property. If they use their authority and perform their duties dishonestly or maliciously, they will be held accountable for breach of trust and may be compelled to make good any losses or damages the firm incurs as a result of such malicious activities. Additionally, they are liable to the firm for any covert gains they may have acquired while performing tasks on its behalf.

Liability to Third Parties

The subject of directors' obligations to third parties can be divided into the following categories:

1. Liability under the provisions of the Companies Act, 2013: Refers to the legal responsibility or obligation of individuals associated with a company for the company's actions, financial obligations, and compliance with the regulations outlined in the Companies Act of India, which was enacted in 2013. This Act sets out the legal framework for the formation, operation, governance, and dissolution of companies in India, including various rules and provisions related to corporate governance, shareholder rights, financial reporting, and more.

2. Liability for Breach of warranty of authority : Several legislative obligations are placed on directors by the Companies Act of 2013 under various Act parts. Penalties apply when these obligations are not fulfilled. The different statutory penalties that directors may face for failing to comply with the Companies Act's obligations have been covered in the proper areas.

3. Criminal liability - Directors of a corporation may be subject to criminal liability under common law, the Companies Act, and other acts in addition to civil liability under the Act and common law. Directors may be held criminally liable for violating specific Act provisions, which could result in a fine, jail time, or both. The following are some of the clauses of the Act that subject the directors to criminal liability:

• Publishing a prospectus that contains a false assertion.

• Failing to pay the application fee into a designated bank.

• Coercively persuading people to make investments in the company.

• Accepting or requesting deposits that are greater than the permitted limit.

• Falsification, mutilation, alteration, or destruction of any written materials.

• Failing to submit yearly returns.

• Failure to hold the annual general meeting as scheduled.

• Lending to directors without obtaining the required consents.

• Failure to keep accurate records, etc.

Liability for acts of co-directors

A director is not accountable for the actions of his or her co-directors, unless the director himself took part in the incident. A director does not serve as the agent for his co-directors. Due to the fact that he ought to have been aware of the deception, it is impossible to hold him accountable for it. However, they are not exempt from liability even if they sign the accounts in their capacity as managing director or chairman while being unaware of the full implications of their actions.

Q4) What do you mean by winding up of a company? Explain the procedure.

Ans)

Meaning/Definition

A company's "winding up" or "liquidation" is the process of putting an end to its existence. Gower stated that "closing up a corporation is the method of ending its existence and managing its assets for the benefit of its members and creditors. A liquidator, a type of administrator, is chosen When he assumes control of the business, gathers its resources, settles its obligations, and the surplus among the members in accordance with liabilities and their rights in mind.

Even a profitable business could be shut down. Upon closing, a business is "Formally dissolved; no longer has any assets or liabilities. a person's legal personality of the business shall expire. In the event that a business is unable to pay its debts, liquidation will take place under newly "Insolvency and bankruptcy code 2016" was passed. The code is about bankruptcy, bankruptcy, involuntary liquidation, or liquidation. Consequently, the Company shall either liquidated under the Insolvency Act or wound up under the 2013 Companies Act and the Bankruptcy Code of 2016, if necessary.

In order to wind up, the procedure is as follows:

1. Petition filing: The petition and the statement of affairs are submitted to the Tribunal by the corporation. Company is entitled to raise objections if it is filed by anybody else.

2. Provisional Liquidator: The Tribunal may name a provisional liquidator at any time following the filing of a winding-up petition but before the creation of a winding-up order. However, before setting such an appointment. The Company must receive notice from the Tribunal in order for it to submit unless, for reasons to be documented in writing, it continues to represent itself in the issue. it deems appropriate to do without such notice. The authority of the temporary Unless the Tribunal specifies otherwise, the powers of a liquidator remain unaffected.

3. Company Liquidator: In the event that a winding-up order is issued with regard to the Tribunal will designate an official liquidator or liquidator for a firm. The According to the 2016 Insolvency and Bankruptcy Code, a liquidator must be registered. A liquidator may be changed or taken out.

4. Winding-up Committee: Three months after the winding-up order, the firm liquidator must submit a request to establish a winding up. a committee to support and oversee the winding-up process. a periodic report The minutes of the winding up committee's meeting must be included with them. put before the Tribunal by the convener, the corporate liquidator. The Tribunal must receive a preliminary report from the company liquidator. sixty days following the winding up order.

5. Advisory Committee: When deciding on winding up, the Tribunal may. Upon a company's request, or at any point subsequently, instruct to create an advisory committee to work with company liquidator and provide Tribunal with a report on such issues as the Tribunal may specify. The most people who can join the Twelve members of the committee are contributors and creditors. The panel has the ability to examine financial records, other documents, and property and Company assets are being liquidated in a reasonable amount of time. a majority of the quorum is two or one-third of the entire membership, whichever is higher. The Advisory Committee meetings will be presided over by the company liquidator.

6. Company Dissolution: When a corporation's affairs have been conclusively resolved, the company. The liquidator must submit a request for the Tribunal's dissolution of the company. When the report from the company's liquidator or another source is received, The tribunal's consideration of whether an order is just and reasonable dissolution, shall issue a decree for the company's dissolution. The Company will be dissolved starting on the day the order is issued. When the corporation dissolves, no lawsuit or other legal action will be brought against a dissolved firm since it is no longer a legal entity in the eyes of law.

Q5) Discuss the type of companies on the basis of control.

Ans) The classification of companies on the basis of control, i.e., who effectively controls the affairs of the company. On this basis, the companies may be grouped as follows:

Holding and Subsidiary Companies:

In general, a controlling firm may be referred to as the "Holding company" and the company it is controlling as a "Subsidiary" if it owns more than one company.

1. In accordance with Section 2 (87), a firm that the holding company owns is referred to as a "subsidiary company" or "subsidiary" in regard to any other company (i.e., the holding company).

2. Determines the makeup of the Board of Directors

3. Either alone or jointly with one or more of its subsidiary firms, exerts or controls more than 50% of the entire share capital1:

Only the following situations will constitute a company (let's call it Company "S") as a subsidiary of another company (let's call it Company "H"):

1. When a firm (Company "H") controls the make-up of another company's board of directors (Company "S")

2. When Company "H" owns more than 50% of Company "S's" entire share capital. Once more, if Company 'H' and Company 'S' own more than half of Company 'Z's' entire share capital, then Company 'Z' will be a subsidiary of Company 'H'.

3. In the case where Company "S" is a subsidiary of Company "T," which is a subsidiary of Company "H." The Company "S" would only be considered a subsidiary of the Company "H" in any of the aforementioned scenarios.

The holding company is typically a significant shareholder in its subsidiary, as you have just seen from the explanation above, but both entities continue to be treated as independent legal entities for purposes of the law. One cannot be considered the agent of another company unless a clear contract exists between the two. Additionally, a subsidiary business cannot be considered a part of the owning business.

Government Company

A government company is any company (registered under the Companies Act) in which not less than 51 percent of the paid-up share capital is held by any of the following:

• By the Central Government;

• By Any State Government; or

• By the Central Government and One or More State Governments In Combination.

Like Life Insurance Corporation of India, Act of Parliament of State Legislature is not a "company" under the Companies Act and is not, therefore, a government-owned corporation. These are corporations, as opposed to government-owned firms, and they were formed in accordance with distinct Acts.

A government-registered firm is not the government's agent if it is registered under this Act.

It enjoys an entity separate from its members, just like every other company incorporated under the Companies Act. Such a company's employees cannot be considered government workers. It can be registered as a private corporation or a public company, just like any other company. Additionally, it is governed by the requirements of the 2013 Companies Act, just like any other company.

Foreign Company

According to Section 2 (42) "foreign company" refers to any business or other entity incorporated outside of India that:

• Has a physical location or an online presence in India where it conducts business, whether on its own or through an agent; and

• Conducts any other type of business there.

Within 30 days of a foreign company opening a location in India, Section 380 mandates that the following documents be submitted to the Registrar of Companies:

• A certified copy of the company's charter, laws, memorandum of incorporation, or other document outlining or defining its constitution, as well as, if the document is not in English, a certified translation into English.

• The whole address of the business's registered or main office;

• A list of the company's directors and secretary, together with any specified details;

• The company's name and address or the names and addresses of one or more Indian residents authorised to accept any notifications or other documents that must be served on the company;

• A complete address for the company's office in India, which is considered to be its major place of business there;

• Information regarding the opening and closing of a business location in India at a previous event or events;

• A statement that none of the company's directors or its authorised representative in India has ever been found guilty or disqualified from managing or forming firms in India or overseas;

• Any additional details that may be required.

Section-B

Q6) Why pre-incorporation contracts are not binding on the company?

Ans) Pre-incorporation contracts are contracts entered into by individuals or promoters on behalf of a company that has not yet been formally incorporated. These contracts are typically made during the planning and preparation phase, before the company's legal existence comes into being. Pre-incorporation contracts are not binding on the company for several reasons:

1. Non-Existence of the Company: At the time pre-incorporation contracts are made, the company does not exist as a separate legal entity. It is merely a proposed business entity in the planning stage. Legal contracts require at least two parties, and since the company is not yet in existence, it cannot be a party to the contract.

2. Lack of Capacity: A company, once incorporated, gains legal capacity and can enter into contracts. However, prior to incorporation, the promoters or individuals involved do not have the authority to bind the future company. They may have personal liability for the contract, but it is not enforceable against the non-existent company.

3. Risks and Uncertainties: Pre-incorporation contracts often involve commitments, obligations, and potential liabilities. Since the company's formation is not guaranteed, and its structure and terms may change during the incorporation process, it is impractical and legally uncertain to enforce such contracts on an entity that may or may not come into existence.

4. Adoption and Ratification: Once the company is formally incorporated, it can choose to adopt or ratify pre-incorporation contracts. This means that after incorporation, the company may agree to be bound by the terms of these contracts. However, this decision is typically at the discretion of the board of directors or shareholders.

5. Promoters' Personal Liability: In many jurisdictions, promoters who enter into pre-incorporation contracts may have personal liability for the obligations outlined in those contracts. This personal liability exists because the promoters are considered parties to the contract in their individual capacities, not as agents of the company.

6. Statutory Requirements: Companies Acts and related regulations in various jurisdictions often explicitly state that pre-incorporation contracts are not binding on the company until the company formally adopts or ratifies them after incorporation.

Q7) Explain the meaning and purpose of Memorandum of association?

Ans) Memorandum means "Memorandum of Association of a Company as initially drafted or revised from time to time in pursuance of any prior Company Law or of this Act," as defined by Section 2(56) of the Companies Act, 2013. This term does not accurately describe the nature of the paper or convey its significance. We thus examine the legal scholars' notion of a memorandum of association. Palmer asserts that the planned company's proposed memorandum of association is a crucial document. It lists the purposes for which the business was established and, as a result, indicates the outer limits of what it is capable of doing. It limits and defines the company's authority. Anything done outside of these bounds will be void and ultra vires (outside the company's authority).

The memorandum of association of a corporation defines the limitation on the powers of the company. It contains both: that which is affirmative and that which is negative, according to Lord Cairns in the well-known case of Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875). If it is required to say it negatively, it states that nothing shall be done outside of that ambit. It states affirmatively the scope and extent of vitality and authority that by law are granted to the corporation.

Thus, the company's Memorandum of Association enables shareholders, creditors, and any other parties dealing with it to understand what authorities it has and the scope of its actions. An aspiring shareholder can learn what the company will do with his money and the level of risk he will be accepting by investing. Additionally, anyone doing business with the company, such a provider of goods or money, will be aware that the transaction they wish to do with them is within the organization's scope of operations and does not violate those objectives. In a nutshell, a company's constitution is its memorandum of association. It serves as the foundation upon which the Company's structure is built.

Q8) Discuss the limitation of a company while altering its Article of Association.

Ans) The limitations a company may face when altering its Articles of Association:

1. Compliance with Legal Framework: The company must comply with the legal framework and provisions of the Companies Act or other relevant laws and regulations in the jurisdiction where it is incorporated. Any alteration that violates these laws would be deemed invalid.

2. Shareholder Approval: In most jurisdictions, any alteration to the Articles of Association typically requires the approval of the shareholders, often by a special resolution passed at a general meeting. Significant changes, such as alterations related to share capital or rights of shareholders, often require a higher majority vote.

3. Protection of Minority Shareholders: Alterations should not unfairly prejudice or discriminate against minority shareholders' rights. Certain changes that disproportionately benefit majority shareholders or diminish minority shareholders' rights may be subject to legal challenges.

4. Creditors' Interests: Companies need to consider the interests of creditors, especially when altering provisions related to the issuance of debentures or loans. Changes that could negatively impact the rights of creditors may require their consent or could be challenged in court.

5. Objective of Alteration: The alteration must be consistent with the company's best interests and be made for a proper purpose. Courts may intervene if alterations are made for fraudulent, oppressive, or illegal purposes.

6. Restrictions in Memorandum of Association: The company's Memorandum of Association may contain restrictions or limitations on the types of alterations that can be made to the Articles. These restrictions must be observed.

7. Provisions for Protection of Directors: The rights and protections of directors, particularly non-executive or independent directors must be upheld. Alterations should not undermine directors' ability to act independently and in the best interests of the company.

8. Public Disclosure: Changes to the Articles may require public disclosure, ensuring transparency for shareholders, regulatory bodies, and the public.

9. Contractual Obligations: Companies must consider any contractual obligations, agreements, or covenants with third parties, such as lenders or suppliers, which could be affected by the alterations.

10. Rights of Preference Shareholders: Alterations should not prejudice the rights of preference shareholders in terms of dividend preferences or redemption rights unless they provide their consent.

11. Consent from Regulatory Authorities: In some cases, changes to the Articles may require consent or approval from regulatory authorities or government bodies, depending on the industry and jurisdiction.

Q9) What is Global Depository Receipts?

Ans) Using the Global Depository Receipts (GDR) instrument, a firm with headquarters in one nation may issue one or more of its shares or convertible bonds outside of that nation. By issuing equity shares, a corporation can raise foreign currency funds.

A Global Depository Receipt (GDR) is any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside of India and authorised by a company (in India) making an issue of such depository receipts, according to Section 2(44) of the Companies Act (2013). Indian Depository Receipt is defined in Section 2 (48) as "only an instrument in the form of a depository receipt generated by a domestic depository in India and permitted by a corporation incorporated outside of India making an issue of such depository receipts."

Depository receipts are mostly issued by Indian corporations because it is against the law for them to issue securities denominated in rupees that can be listed on foreign stock markets. In addition to this, raising money through a depository receipt results in a broader range of investors, more visibility, a more worldwide presence, increased liquidity, better disclosures, and other related advantages.

Section 41 and the Companies (Issuance of Global Depository Receipts) Rules should be read together In accordance with the scheme and applicable sections of the Foreign Exchange Management Rules and Regulation, a corporation may issue depository receipts in any foreign nation as of 2014. The depository receipts may be issued through a private placement, a public offering, or any other method that is common overseas. They may also be listed or traded on an international listing or trading platform.

The Company shall appoint a merchant banker or a practising chartered accountant, practising cost accountant, or practising company secretary to oversee all the compliances relating to issuance of GDRs. The GDRs shall be issued by an overseas bank appointed by the Company and the underlying shares shall be kept in the custody of a domestic custodian bank. When it comes to the public issue of shares or debentures, the Act's requirements and any rules made pursuant thereto do not apply to the issuance of depository receipts abroad.

The Reserve Bank of India's Depository Receipts Scheme 2014 governs the issuing of depository receipts (ADR/GDR) in India. The following are some of the scheme's key characteristics:

• No Prior Finance Ministry Approval Required: Issuing depository receipts (DRs) does not require prior approval from the Finance Ministry. However, compliance with Foreign Exchange Management Act, 1999 (FEMA) may necessitate approvals under FEMA regulations.

• Eligibility Criteria: Any Indian company, whether listed or unlisted, public or private, or any entity holding permissible securities can issue or transfer securities for the issuance of DRs. Entities barred from accessing the capital market cannot participate in DR issuance

• Two Types of DR Issues: DRs can be issued in two ways: sponsored and unsponsored. Sponsored DRs involve the company converting existing shares into ADRs/GDRs, with the issuer being a party to the deposit agreement. Unsponsored DRs do not involve the issuer and can coexist in multiple programs. Unsponsored DRs are permitted only for listed permissible securities, provided they meet certain conditions like listing on an international exchange and granting voting rights.

• Permissible Securities: DRs can be issued against any permissible securities issued by government entities, companies, mutual funds, etc. These securities must be in dematerialized form before being used for DR issuance.

• End Use Restrictions: While the 2014 Scheme places no restrictions on the use of proceeds from DR issuance, it is subject to applicable restrictions under FEMA (1990).

  
  

Q10) Explain Further Public Offer and its Eligibility requirements.

Ans) Further Public Offer: After an initial public offering, a publicly-traded company may decide to sell more shares of its stock to members of the general public as well as institutional investors through a procedure known as a Further Public Offer (FPO), which is also known as a Follow-On Public Offering (IPO). A FPO enables a firm to increase its capitalization by selling more shares to existing and new investors.

Eligibility Requirements

Entities not eligible to make a further public offer.

The following conditions must be met for an issuer to be ineligible to make a subsequent public offer:

• If the Board decides that the issuer, any of its promoters or promoter group, directors, or selling shareholders are not allowed access to the capital market, the issuer will be prohibited from doing so.

• if any of the issuer's promoters or directors are also serving as promoters or directors of another company that the Board has barred from accessing the capital market, then the restriction applies to both companies.

• In the event that any of the issuer's promoters or directors are willful defaulters.

• whether any of the people who are financially supporting it or serving on its board of directors are wanted for committing financial crimes.

• The individuals or businesses identified therein that have been previously barred by the Board but whose period of debarment has already expired as of the date the draught offer document was submitted with the Board are exempt from the restrictions outlined in points (a) and (b) above.

Eligibility requirement for further public offer

• If an issuer has changed its name within the past year and at least fifty percent of the issuer's income for the entire year prior comes from the activity represented by its new name, then the issuer is eligible to make a subsequent public offering of securities.

• A further public offering by an issuer that does not meet the requirements of sub-regulation (1) is only permitted if the issue is made using the book-building process, and the issuer agrees to allocate at least 75 percent of the net offer to qualified institutional buyers, as well as to refund the full amount of subscription money in the event that the minimum allotment is not made.

Section-C

Q11.) What are the effects of Forfeiture of share?

Ans) Effects of Forfeiture are as follows:

• Cessation of membership : According to Regulation 32(1) of Table F, a person whose shares have been forfeited no longer qualifies as a member with regard to those shares.

• Cessation of liability : If and when the firm obtains complete payment of all such money in relation to the shares forfeited, the person whose shares have been forfeited is no longer liable [Regulation 32(2) of Table F]. Nevertheless, despite the forfeiture, he is still obligated to pay the firm any sums that were due to it from him as of the forfeiture date in relation to the shares that were forfeited [Regulation 32(1) of Table F]. Thus, even after share loss, responsibility for unpaid calls persists.

• Liability as past member : If liquidation occurs within a year after the forfeiture, the former holder will still be responsible for paying calls as a prior member.

• Non-Entitlement to Dividends: Shareholders whose shares have been forfeited are not entitled to receive any dividends or other benefits associated with those shares. Any dividends declared after forfeiture are retained by the company.

• Loss of Voting Rights: Forfeited shareholders lose their voting rights in the company for the forfeited shares. They cannot participate in corporate decision-making through voting at general meetings.

• Record Keeping: The company must maintain accurate records of forfeited shares, including the details of the shareholder, the reason for forfeiture, the amount due, and any subsequent actions taken (e.g., reissue or sale).

• Disclosure: The company may be required to disclose information about forfeited shares and their disposition in its financial statements or annual reports as per accounting and regulatory standards.

• Liability for Costs: Shareholders whose shares are forfeited may be liable for any costs incurred by the company in the forfeiture process, such as legal fees or administrative expenses.

• Legal Recourse: Shareholders have the right to challenge the forfeiture in court if they believe it was executed unfairly or improperly. Legal proceedings can result in the restoration of shares or compensation for losses.

Q12) Distinguish between Transfer and Transmission of Shares?

Ans) Comparison between Transfer and Transmission are mentioned below,

Q13) Discuss the different position of a Company Secretary?

Ans) The role of a business secretary has changed significantly over the past many decades. From being a clerk, he has advanced to become a crucial member of the corporate hierarchy. Along with the CEO/Managing director/Manager, Whole-time director, and Chief Financial Officer, he is listed as "important managerial people" under the Companies Act, 2013, which also applies to him. The following topics can be covered in relation to the role of a corporate secretary:

• As a Servant of the Company: In the course of his ruling in Barnett Hoares & Co. vs. The South London Tramways Co. Ltd., Lord Esher made the observation that the secretary is merely a servant and that it is his responsibility to carry out orders. The secretary and the business have a service agreement, and since this agreement's terms and conditions control his employment, he is an employee of the business. The Board of Directors will be in charge of his job. He is required to follow out the directors' instructions. The successful execution and implementation of the management policies set forth by the Board is the secretary's responsibility. He is unable to use his own judgement in the tasks that have been given to him.

• As an Agent of the Company: The secretary represents the corporation because he is responsible for running the business. A secretary's responsibilities are administrative and ministerial in nature. The secretary is trusted with taking care of the everyday business issues. He has to deal with the employees, shareholders, unions, staff, and outsiders. He must therefore exercise judgement when handling such situations. He serves as a crucial conduit between the organisation and the public. The secretary communicates all policy choices to the personnel and outside parties.

• As an Officer of the Company: Company secretaries are regarded as senior officers of the company and "officers in default" for the purposes of several sections of the Act because they are one of the essential managerial staff. In accordance with Section 205, the Company Secretary is accountable for:

  • Reporting to the Board regarding compliance with this Act's provisions, its rules, and other laws that apply to the Company;

  • Ensuring that the business adheres to the relevant secretarial standards established by the Central Government and the Institute of Company Secretaries of India;

  • Performing any other tasks that may be required.

  • As previously mentioned, the company secretary is in charge of ensuring that various legal requirements as outlined by numerous Acts are met. He falls under the category of managerial staff, including directors, and is subject to penalty for violating the Companies Act by jail, a fine, or other means.

• As an Advisor to the Board: The secretary is an essential member of the management team and holds a special position. Although the directors are responsible for developing the company's policies, the secretary is in a better position to provide the directors with the necessary knowledge and guidance because he is fully informed about all internal issues and changes to governmental policies. He offers the Board legal advice on a variety of topics. He may be considered the Board of Directors' true guiding soul.

Q14) What are the different rules regarding Annual General Meeting?

Ans) The rules for annual general meetings are:

• First Annual General Meeting : A firm must hold its first Annual General Meeting (AGM) no later than nine months following the end of its fiscal year. The initial AGM cannot be postponed under any circumstances.

• Subsequent AGMs :

  • Every year, or each calendar year, must have one meeting. A firm does not required to hold another AGM in the year of formation if its first AGM was held within nine months of the date the financial year ended.

  • Two AGMs cannot be separated by more than fifteen months.

  • Meetings must be held no later than six months after the fiscal year's end.

  • The business must provide twenty-one clear days' advance notice to:

  • Each member of the corporation.

  • The executor or administrator of a decedent member.

  • The assignee of an insolvent member.

  • The corporate auditor(s).

  • Each director of the corporation. Notice may be delivered in writing or electronically in accordance with the rules.

• Annual General Meeting: Every annual general meeting must be convened between 9 a.m. and 6 p.m. on a work day that is not a national holiday, and it must be held at the company's registered office or anywhere else in the city, town, or village where the registered office is located [Section 96 (2)]. Therefore, no meeting may be scheduled during a national holiday, such as August 15th, October 2nd, or January 26th.

• The Board of Directors: The Board of Directors has the authority to postpone or cancel the scheduled meeting, but only if there are good grounds and justifications for doing so. The Board should call the meeting and let the meeting decide how to proceed with the situation.

• Consequences of not holding Annual General Meeting : You discovered that it is a legal necessity to convene the annual general meeting. The following two repercussions will occur if a business fails to hold the annual general meeting in compliance with Section 96 of the Companies Act:

  • Any corporate member may ask the Tribunal to convene the meeting. On such an application, the Tribunal may order the summoning of the meeting, or it may issue directions for calling the meeting, including a directive that the annual general meeting shall be composed of one person present in person or by proxy. A meeting summoned according to a Tribunal order will be considered the company's annual general meeting (Section 97).

  • A punishment of up to one lakh rupees may be imposed on the company and any of its officers who is in default. If the default continues, a further fine of up to 5,000 rupees may be imposed for each additional day that the default continues (Section 99).

• The Business to be transacted: Ordinary business must be conducted at the annual general meeting in accordance with Section 102 of the Companies Act of 2013. At the annual general meeting, any additional business may be discussed, but it will be referred to as "special business." Therefore, both regular and extraordinary business can be handled at the annual general meeting.