BBA FIFTH SEMESTER

COMPANY LAW

Unit-I INTRODUCTION

Meaning of Company

The word 'company' is derived from the Latin words, 'com' which means 'together' and the
word 'panies' which means 'bread'. A company is thus an association of persons who took
their meal together. In simple language the term company means an association of persons
formed for some common purpose. When a few person form a company for the purpose of
some business of profit it is called a joint-stock company. The persons forming the company
are called 'share holders' The liability of the members of the company is usually limited.

Definition

The Indian Companies Act 1956 section 3(1) defines a company as "a company formed and
registered under this act or under other previous Acts". This is not a comprehensive
definition.

A more popular definition is the one given by the Lord Justice Lindley. According to him a
company is "an association of many persons who contribute money or money's worth to a
common stock and employed it in some trade or business and who share the profit or loss
arising there from. The common stock so contributed is denoted in money and is the capital
of the company. The persons who contributed it or to whom it belongs are members. The
portion of capital to which each member is entitled is his share The shares are always
transferable although the right to transfer them may be restricted".

From the above definition it is clear that, a company is an incorporated association, which is
an artificial person created by law, having an independent legal entity, with capital
divisible into transferable shares carrying limited liability, having a common seal and
perpetual succession.

Characteristics of a Company
A company as an entity has several distinct features, which together make it a unique
organization. The following are the defining characteristics of a company: -

1. Separate Legal Entity

On incorporation under law, a company becomes a separate legal entity as compared to its
members. The company is different and distinct from its members in law. It has its own name
and its own seal, its assets and liabilities are separate and distinct from those of its members.
It is capable of owning property, incurring debt, borrowing money, having a bank account,
employing people, entering into contracts and suing and being sued separately. The
importance of the separate entity of the company was however firmly established in the
following case.
Salomon v. Salomon & co. Ltd.(1897) A.C. 22. S sold his boots business to a newly formed
company for £ 30,000. His wife, one daughter and four sons took up one share of £ 1 each. S
took 23,000 shares of £1 each and £ 10,000 debentures in the company. The debentures gave
S a charge over the assets of the company as the consideration for the transfer of the business.
Subsequently when the company was wound up, its assets were found to the worth £ 6,000
and its liabilities amounted to £ 17,000 of which £ 10,000 were due to S (secured by
debentures) and £ 7,000 due to unsecured creditors, the unsecured creditors claimed that S
and the company were one and the same person and that the company was a mere agent for S
and was hence they should be paid in priority to S. Held, the company was, in the eyes of the
law, a separate person independent from S and was not his agent. S, though virtually the
holder of all the shares in the company, was also a secured creditor and was entitled to
repayment in priority to the unsecured creditors.

2. Limited Liability
The liability of the members of the company is limited to contribution to the assets of the
company up to the face value of shares held by him. A member is liable to pay only the
uncalled money due on shares held by him when called upon to pay and nothing more, even
if liabilities of the company far exceeds its assets. On the other hand, partners of a partnership
firm have unlimited liability i.e. if the assets of the firm are not adequate to pay the liabilities
of the firm, the creditors can force the partners to make good the deficit from their personal
assets. This cannot be done in case of a company once the members have paid all their dues
towards the shares held by them in the company. For example, if the face value of the share
in a company is Rs. 10 and a member has already paid Rs. 5 per share, he can be called upon
to pay not more than Rs. 5 per share during the lifetime of the company.

3. Perpetual Succession
A company does not die or cease to exist unless it is specifically wound up or the task for
which it was formed has been completed. Membership of a company may keep on changing
from time to time but that does not affect life of the company. Death or insolvency of
member does not affect the existence of the company.

4. Separate Property
A company is a distinct legal entity. The company’s property is its own. A member cannot
claim to be owner of the company’s property during the existence of the company.

5. Transferability of Shares
Shares in a company are freely transferable, subject to certain conditions, such that no
shareholder is permanently or necessarily wedded to a company. When a member transfers
his shares to another person, the transferee steps into the shoes of the transferor and acquires
all the rights of the transferor in respect of those shares.

6. Common Seal
A company is a artificial person and does not have a physical presence. Therefore, it acts
through its Board of Directors for carrying out its activities and entering into various
agreements. Such contracts must be under the seal of the company. The common seal is the
official signature of the company. The name of the company must be engraved on the
common seal. Any document not bearing the seal of the company may not be accepted as
authentic and may not have any legal force.

7. Capacity to sue and Being Sued

A company can sue or be sued in its own name as distinct from its members.

8. Separate Management
A company is administered and managed by its managerial personnel i.e. the Board of
Directors. The shareholders are simply the holders of the shares in the company and need not
be necessarily the managers of the company.

What are the different types or kinds of Companies ?

From the point of view of formation, the companies are of three kinds:

(1) Chartered Companies

Those companies which are incorporated under a special charter by the king or sovereign
such as East Indian Company. Such companies are rarely formed now-a-days as trading
companies.

(2) Statutory Companies

These companies are formed by special acts of Legislatures or Parliament. e.g.; the Reserve
Bank of India, the Industrial Finance Corporation, Damodar Valley Corporation.

(3) Registered Companies

Such Companies which are incorporate under the Companies Act, 1956 or were registered
under the previous Companies Act.

Form the point of view of liability there are three kinds of Companies

(1)LimitedCompanies
In case of such companies, the liability of each member is limited to the extent of a face value
of shares held by him. Suppose A takes a share of Rs 10., he remains liable to the extent of
that amount. As soon as that amount in paid, he is no more liable.

(2) Guarantee Companies

The liability of the member of such companies is limited to the amount he has undertaken to
contribute to the assets of the company in the event of its wound up. This guaranteed amount
is limited to fixed sum which is specified in the memorandum. Cambers of commerce, trade
associations and sports clubs are usually guarantee concerns. The object of such companies is
not to make profit and distribute dividend.
(3) Unlimited Companies

They are nothing but large partnership registered under the Companies Act and the members
just like partners have unlimited liability and both share contribution as well as their property
are at stake when the company is to be wound up. Such companies are rare these days.

From the point of view of Public investment companies may be of two kinds:

(1) Private Companies :

A private company means a company which by its articles (a) restricts the right to transfer its
shares, if any (b) limits the number of its members to fifty excluding past or present
employees of the company who are also members of the company. (c) Prohibits any
invitation to the public to subscribe for any shares in our debentures of the company.

(2) Public Companies:

Public companies are those companies which are not private companies. All the three
restrictions are not imposed on such companies.

Procedure for Formation of Private & Public Company in India

Step by Step procedure to Formation / Registration / Incorporation of Private and

Public Company in India

Company is a a legal entity, allowed by legislation, which permits a group of people, as

shareholders, to apply to the government for an independent organization to be created,
which can then focus on pursuing set objectives, and empowered with legal rights which are
usually only reserved for individuals, such as to sue and be sued, own property, hire
employees or loan and borrow money.

Incorporation / Formation of company involve a number of steps. We have tried to simplify

the procedure to the maximum extent possible.

Minimum Requirement of a Private Company:

1. Minimum 2 Shareholders
2. Minimum 2 Directors (The directors and shareholders can be same person)
3. Minimum Authorised Share Capital shall be Rs. 100,000 (INR One Lac)
4. DSC (Digital Signature Certificate) for all the Directors (for applying of DIN)
5. DIN (Director Identification Number) for all the Directors

Minimum Requirement of a Public Company:

1. Minimum 7 Shareholders
2. Minimum 3 Directors (The directors and shareholders can be same person)
3. Minimum Authorised Share Capital shall be Rs. 500,000 (INR Five Lac)
4. DIN (Director Identification Number) for all the Directors
5. DSC (Digital Signature Certificate) for one of the Directors
Brief of procedure / steps to company incorporation:

S.No. Procedure Detail

Obtain a Digital Signature Certificate
Obtain Digital Signature
1 from authorized DSC issuing
Certificate (DSC)
authority.
Obtain Director Identification No. Make Application in Form DIR-3
2
(DIN) [S.153] [Rule 9 of Chapter XI Rules]
Register DSC in the name of
3
Director on MCA portal
Application in Form No. INC.1 [Rule
Apply for Reservation of Name
4 9]. The same shall be reserved for a
[S.4(4)]
period of 60 days
Drafting and Printing of
5 Memorandum and Articles of
Asociation
Filing of INC -7, DIR 12 & INC
6 Discussed Later
22Adoption of Memorandum of
Association [S.4(6)]Adoption of
Articles of Association [S.5(6)]
Commencement of business Mandatory to file Declaration with
7
[S.11] ROC in Form No. INC.21 [Rule 24]
A company shall have a registered
office within 15 days of
8 Registered Office [S.12] Incorporation and it shall file Form
No.INC.22 [Rule 25] to verify the
same

Step 1: DSC

The basic step to company incorporation is to get DSC made of all directors.

The Information Technology Act, 2000 provides for use of Digital Signatures on the
documents submitted in electronic form in order to ensure the security and authenticity of the
documents filed electronically. This is the only secure and authentic way that a document can
be submitted electronically. As such, all filings done by the companies under MCA21 e-
Governance programme are required to be filed with the use of Digital Signatures by the
person authorised to sign the documents.

Names of Certification Agency (CA) from where DSC can be acquired are MTNL CA,
TCS, IDBRT, SAFESCRYPT (SATYAM), nCODE Solutions, NIC, Central Excise &
Customs (Does not issue DSCs to person other than those from the Department), e-Mudhra
(3i Infotech Consumer Services Limited).

Step 2: Acquire Director Identification Number

The concept of a Director Identification Number (DIN) has been introduced for the first time
with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such,
all the existing and intending Directors have to obtain DIN within the prescribed time-frame
as notified.

INCOME TAX PAN IS MANDATORY, so before applying of DIN a person must have his
PAN number. Details on PAN and DIN must be same.

Step by step Process

Step by step process to be followed by the applicant is as under:

As per the revised procedure for DIN Allotment, any person intending to apply for DIN shall
have to make an application in eForm DIR 3 and should follow the following procedure:

eForm DIR -3 has to follow the offline eFiling process i.e. the form can be downloaded from
MCA 21 portal and thereafter be filled up without internet connection. The connection is
required only for validating the form.

Attach the photograph and scanned copy of supporting documents i.e. proof of identity, and
proof of residence as per the guidelines. Physical documents are not required to submit at
DIN cell.

Identity Proof:

• In case of Indian nationals, Income-tax PAN is a mandatory requirement for proof of

identity.
• In case of foreign nationals, passport is a mandatory requirement for proof of identity.
• Proof of identify enclosed with eForm DIR-3 should also contain the date of birth of
the applicant and the same should match the date of birth filled in the application
form. In case the proof of identify does not indicate the Date of Birth then additional
proof of Date of Birth, duly certified/ attested, should be attached.

Address Proof:

Passport, Election (voter identity) card, and Ration card, driving license, electricity bill,
telephone bill or aadhaar

All Documents should be verified by CA/CS/CMA.

Name of person proposed to be the directors, address of directors and other details should be
correctly filed.

Step 3: Register DSC

Third step is to register DSC of the person authorized to sign E-forms on MCA21 or click on
the link
http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&
mode=36

Step 4: Apply for Reservation of Name [S.4(4)]

As per section 4(4) of Companies Act, 2013 read with rule 9 of Companies Incorporation
Rules, 2014, application is to be made to registrar for reservation of name. 6 names can be
proposed after checking its availability at MCA21 and as per guidelines given in the said
rules

While applying for a name in the Form INC -1, using Digital Signature Certificate (DSC), the
applicant shall be required to verify that:

1. he is a promoter (proposed first subscriber to the MoA) and is authorized by the other
proposed first subscribers to sign and submit he application.
2. He has gone through the provisions of Companies Act, 2013, the Rules there under
and prescribed guidelines framed there under in respect of reservation of name,
understood the meaning thereof.
3. he has used the search facilities available on the portal of the Ministry of Corporate
Affairs (MCA) i.e., www.mca.gov.in/MCA21 for checking the resemblance of the
proposed name(s) with the companies and Limited Liability Partnerships (LPs)
respectively already registered or the names already approved. He has also used the
search facility for checking the resemblances of the proposed names with registered or
applied trademarks.
4. the proposed name(s) is/are not in violation of the provisions of Emblems and Names
(Prevention of Improper Use) Act, 1950 as amended from time to time;
5. the proposed name is not offensive to any section of people, e.g., proposed name does
not contain profanity or words or phrases that are generally considered a slur against
an ethnic group, religion, gender or heredity (vi) the proposed name(s) is not such that
its use by the company will constitute an offence under any law for the time being in
force.
6. he has complied with al the mandated requirements of the respective Act/regulator,
such as IRDA, RBI, SEBI, MCA etc. (applicable only in case proposed name includes
words like Insurance, Bank, Stock Exchange, Venture Capital, Asset Management,
Nidhi, Mutual Fund, Finance, Investment, Leasing, Hire purchase etc. or any
combination thereof)
7. to the best of his knowledge and belief, the information given in the application and
its attachments is correct and complete, and noting relevant o this form has been
suppressed.
8. he undertakes to be fully responsible for the consequences, in case the name is
subsequently found to be in contravention of Section 4 of the Act, rules made there
under and the prescribed guidelines.

Following documents have to be attached to INC – 1:

1. Copy of Board resolution of the existing company or foreign holding company as a

prof of no objection
2. Copy of direction from Central Government, if name is changed due to direction
received from the Central Government
3. Trademark or authorization to use trade mark, if the name of the company is based on
trade mark or application for deed of assignment or a copy of application of registered
trademark.
4. In case the proposed name contains such word or expression for which the approval of
Central Government is required, a copy of Central Government’s approval.
5. Proof of relation.
 6. In principal approval from the concerned regulator wherever is applicable.
7. NOC from sole proprietor/ partners/ other associates.
8. NOC from existing company ,
9. Copy of affidavit in case of proposed name includes phrase ‘Electoral Trust’
10. Resolution of unregistered companies in case of Chapter XXI (Part I) companies,
11. Order of competent authority.
12. NOC as required in Rule 8(4)

Validity of Name approved by ROC: As per section 4(5), maximum time for which name
will be available has been prescribed in the law itself under section 4(5). The name will be
valid for a period of 60 Days from the date on which the application for Reservation was
made.

Where after reservation of name, it is found that name was applied by furnishing wrong or
incorrect information, then, –

1. if the company has not been incorporated, the reserved name shal be canceled and the
person making application shall be liable to a penalty which may extend to one lakh
rupees;
2. if the company has been incorporated, the Registrar may, after giving the company an
opportunity of being heard –

• either direct he company to change its name within a period of three months, after
passing an ordinary resolution;
• take action for striking of the name of the company from the register of companies; or
• make a petion for winding up of the company. [Section 4(5)] Rule 8 of The
Companies (Incorporation) Rules 2014 contain provisions relating to undesirable
names and Rules 9 has provisions relating to reservation of name.

Object of company incorporation should be mentioned carefully as the same should be the
first object of memorandum of association; or else eform INC 7 will be rejected on this
ground of mis-match.

Note:

• The applicant cannot start business or enter into any agreement, contract, etc. in the
name of the proposed company until and unless a certificate of registration is issued
by the registrar of companies as per the provisions of the Companies Act, 2013 and
the rules made there under.

• BE CAREFUL WHILE GIVING THE DETAILS OF PROPOSED DIRECTOR

because after reservation of name, i.e. while filing INC – 7, details of promoter as
given in e-form INC 1 can be changed but details of director cannot be changed. You
will have to wait for 60 days, i.e. expiry of the name and have to file e-form INC 1
with new directors as proposed.

Step 5: Drafting and Printing of Memorandum and Articles of Association

After ascertaining name availability from the Registrar of Companies steps should be taken to
get the memorandum and articles of association for the proposed company drafted and
printed. The memorandum of a company limited by shares shall be in Tables – A in Schedule
– I of the Companies Act, 2013.

A public company limited by shares may adopt all or any of the regulations contained in
model articles of association registered along with its memorandum of association.

The model articles of a company shall be in Tables – F in Schedule – I of the Companies Act,
2013 as may be applicable to the company. A company may adopt all or any of the
regulations contained in the model articles applicable to such company. There is no concept
of “other objects” now. Main object can be at maximum 4 (not given in law but practically
followed); where first object should be clearly the same as mentioned in eform INC 1.

The memorandum and articles shall be in conformity with the provisions of Section 4 and 5
of the Companies Act 2013.

If the promoters plan to get the securities of the proposed company listed with one or more
designated stock exchanges, it is advisable to send the draft of the memorandum and articles
of association to those stock exchanges for their scrutiny and suggestion to the effect whether
they would like to have certain articles incorporated therein in compliance with the
provisions of the Listing Agreements of the stock exchanges.

In subscriber’s page:

Name, Fathers name, Address, Designation and Occupation along with number of Equity
shares proposed to be subscribed is to be given.

In Witness Column:

“I witness to subscribers who have subscribed and signed in my presence. Further I have
verified their Identity Details for their identification and satisfied myself of their
identification particulars as filled in”

Sign

CA ………………..,

Membership No. ………

Address, Mob.-

Occupation: Chartered Accountant

is given.

Step 6: Filing of Company Incorporation form – eform INC 7, DIR 12 & INC 22

As per Rule-12 of Companies (Incorporation) Rules, 2014, application for incorporation of a

private and Public company, with the Registrar, within whose jurisdiction the registered
office of the company is proposed to be situated, shall be filed in Form no. INC 7 [Rule 12 to
18] along with Form no. INC.22 for situation of registered office of the Company, (as the
case selected in form no. INC 7) and DIR -12.

Note:

• Form is required to be filed within 60 days as the name is reserved only for this time
period.
• Stamp Duty is payable online as it exceeds Rs. 100/-
• If you have to file INC 22 with INC 7, then:

In point 3(c.) of INC 7, i.e. Whether the address for correspondence will be the address for
Registered of the company should be given YES, otherwise NO.

INC 7:

According to Section 7 of the Companies Act, 2013 al document related to incorporation

shall be filed be filed before the registrar, in whose jurisdiction registered office of a
company is proposed to be situated. A Registrar may have jurisdiction over several states or
only a part of a state.

INC 7 is for registering a company. Here details of work to be done by a company, promoter,
directors, number of shares to be subscribed, etc is to be filed along with many documents.

As per Rule-16(1) of Companies (Incorporation) Rules, 2014, Particulars of every subscriber

to be filed with the Registrar at the time of incorporation:

1. Name (including surname or family name) and recent Photograph affixed and scan
with MOA and AOA,
2. Father’s/Mother’s/ name,
3. Nationality,
4. Date of Birth
5. Place of Birth (District and State)
6. Educational qualification:
7. Occupation:
8. Income-tax permanent account number:
9. Permanent residential address and also Present address (Time since residing at
present address and address of previous residence address (es) if stay of present
address is less 24 than one year) similarly the office/business addresses.
10. E-mail id of Subscriber;
11. Phone No. of Subscriber;
12. Fax no. of Subscriber (optional)
13. Proof of Identity:

For Indian Nationals:

• PAN Card (mandatory) and any one of the following

• Voter’s identity card
• Passport copy
• Driving License copy
• Unique Identification Number (UIN)
For Foreign nationals and Non Resident Indians

• Passport

1. Residential proof such as Bank Statement, Electricity Bill, Telephone / Mobile Bill:

Provided that Bank statement Electricity bill, Telephone or Mobile bill shall not be more than
two months old.

1. Proof of nationality in case the subscriber is a foreign national.

2. If the subscriber is already a Director or Promoter of a Company(s), the particulars
relating to:

• Name of Company
• Corporate Identity Number
• Whether Interested as a Director or Promoter

Documents required to be filed:

1. Memorandum of Association as per Table A of schedule I

2. Articles of association as per Table F of Schedule I

1. Declaration in Form No.INC-8 by Professionals.

(As per Rule-14 of Companies (Incorporation) Rules, 2014, Pursuant to section 7(1) (b) and
rule 14 of the Companies (Incorporation) Rules, 2014:

Require to take a Declaration from Professionals Like: ( CS-CA-CWA), Giving declaration

that, all the requirements of Companies Act, 2013 and the rules made there-under relating to
registration of the company under the Act and matters precedent or incidental thereto have
been complied with. On Stamp Paper, Value of Stamp Paper as per the State stamp Act
(State: Where register office of Company will be situated). Instead of Stamp Paper, Stamp
Tickets can also be used.

Professional will sign the declaration and will mention Date, Place and Membership No.

1. Affidavit from each of the subscriber to the Memorandum in Form No.INC-9 as

per Rule-15 of Companies (Incorporation) Rules, 2014, (an affidavit from each of the
subscribers to the memorandum and from persons named as the first directors, if any,
in the articles that AFFIDAVIT FROM SUBSCRIBERS AND FIRST DIRECTORS
IN INC 9

Declaration is that:

• I have not been convicted of any offence in connection with the promotion, formation
or management of any company during the preceding five years; and
• I have not been found guilty of any fraud or misfeasance or of any breach of duty to
any company under this Act or any previous company law during the preceding five
years; and
 • All the documents filed with the Registrar for registration of the company contain
information that is correct and complete and true to the best of my knowledge and
belief.

INC 9 must be on Stamp Paper, Value of Stamp Paper as per the State stamp Act.

Declaration should be signed, Dated and Place.

5. Proof of residential address

1. For verification of signature of subscribers [Pursuant to rule 16 (1)(q) of companies

(Incorporation) Rules, 2014 in form no.INC – 10

7. NOC in case there is change in the promoters (first subscribers to Memorandum of

Association)

8. Proof of Identity (the particulars of name, including surname or family name, residential
address, nationality and such other particulars of every subscriber to the memorandum and
the particulars of the persons mentioned in the articles as the first directors of the company
along with proof of identity, as may be prescribed, and in the case of a subscriber being a
body corporate, such particulars as may be prescribed;)

9. Entrenched Articles of Association, if any.

Note: Where the articles contain the provisions for entrenchment, the company shall give
notice to the Registrar of such provisions in Form No. INC.7, as the case may be, along with
the fee as provided in the Companies (Registration offices and fees) Rules, 2014 at the time
of incorporation of the company.

10. PAN Card (in case of Indian national)

1. Copy of certificate of incorporation of the foreign body corporate and proof of

registered office address
2. Certified true copy of board resolution/consent by all the partners authorizing to
subscribe to MOA
3. Optional attachment, if any

Shapatpatra can be sent where signature is made by Director/ Promoter in Hindi.

DIR 12 for giving details of Directors:

As per Rule-17 of Companies (Incorporation) Rules, 2014, the particulars of each person
mentioned in the articles as first director of the company and his interest in other firms or
bodies corporate along with his consent to act as director of the company shall be filed in
Form No.DIR-12 along with the fee as provided in the Companies (Registration offices and
fees) Rules, 2014. Along with the above details in the Form no.INC.7, Form no.DIR 12 to be
filed with the following attachments:

1. Declaration by first director in Form INC-9is mandatory to attach in case of a new

company.
 2. Declaration of the appointee Director, in Form DIR-2;
3. Interest in other entities of director it is mandatory to attach in case number of entities
entered is more than one. Only a declaration can be filed that interest of directors is
taken on record by company.
4. Optional attachment(s), if any

INC 22 for giving details of Registered Office:

As per Rule 25 of Companies (Incorporation) Rules, 2014, verification of registered office

shall be filed in Form No.INC.22 along with the fee.

Section 12(2) of the Companies Act, 2013 states that the Company shall furnish to the
Registrar verification of its registered office within a period of thirty days of its incorporation
in such manner as may be prescribed.

Section 12(4) of the Companies Act, 2013 states that Notice of every change of the situation
of the registered office, verified in the manner prescribed, after the date of incorporation of
the company, shall be given to the Registrar within fifteen days of the change, who shall
record the same.

Attachments:

1. Proof of Registered Office address (Conveyance/Lease deed/Rent Agreement along with

the rent receipts) etc.; or

(the notarized copy of lease / rent agreement in the name of the company along with a copy
of rent paid receipt not older than one month; or the authorization from the owner or
authorized occupant of the premises along with proof of ownership or occupancy
authorization, to use the premises by the company as its registered office); and

1. Copies of the utility bills as mentioned above (not older than two months) (the proof
of evidence of any utility service like telephone, gas, electricity, etc. depicting the
address of the premises in the name of the owner or document, as the case may be,
which is not older than two months)
2. List of all the companies (specifying their CIN) having the same registered office
address, if any;
3. Optional attachment, if any

MOA Registration Fes

Other than OPCs and Small OPCs and Small

Companies Companies
Nominal Share For every
capital For every 10,
10, 00 or
Fixed 00 or part Fixed
part
thereof
thereof
Up to 1,00,000 5,000 NA 2,000 N/A
More than 1,00,000
5,000 + 400 2,000 N/A
up to 5,00,000
More than 5,00,000
21,000 + 300 2,000 N/A
up to 10,00,000
More than 10,00,000
36,000 + 300 2,00 0+ 200
up to 50,00,000
More than 50,00,000
1,56,000 + 100 N/A N/A
up to 1,00,00,000
More than
2,06,000 + 75 N/A N/A
1,00,00,000

On receipt of the aforementioned documents, the office of the Registrar of Companies will
scrutinize them and if they are found complete in al respects, the Registrar will register the
company and generate a CIN. If the Registrar finds any defect or deficiency in any of the
documents or forms, the Registrar will send an electronic communication pointing out he
defects and after the deficiencies are removed, the Registrar will register the company.

After the registration of the company, the Registrar will issue under his hand and seal of his
office, the Certificate of Incorporation in the name of the company and send it electronically.
One may also take printout of the Certificate of Incorporation generated online. The date
mentioned by the Registrar in the Certificate of Incorporation shall be the date of
incorporation of the company, on which date the company will be considered to have come
into existence as a legal entity separate from its subscribers.

The Certificate of Incorporation shall be in From INC – 1 of the Companies (Incorporation)

Rules, 2014.

Now comes the last step.

Step 7: Filing of Commencement of Business – eform INC 21

On registration, a company cannot commence business or exercise any borrowing powers

until it files a declaration by directors in Form INC – 21 to the effect hat every subscriber to
the memorandum has paid the value of the shares agreed to be taken by them as specified in
section 1(1)(a).

E-form INC.21 is required to be filed with concerned Registrar of Companies for obtaining
approval for commencement of Business and exercise of borrowing powers. This E-form is
required to be filed by all companies incorporated under Companies Act 2013.

Procedure for commencement of Business under Companies Act, 2013

A promoter must pay its subscription money in cash or through bank account for the number
of shares as mentioned in eform INC 7 / MOA after which this form will be filed.

Following documents required to be filed as an attachment of form INC.21:

1. E-form INC.10 of Specimen Signature, which you would have attached with Form
INC 1 at the time of incorporation.
 2. A declaration on stamp paper of Rs. 20/- signed by the directors. This stamp paper
should be in the name of the Company and you may write the following statement on
this stamp paper for stamp duty payment related compliance:

“This E- Stamp paper is for E-Form INC.21 (Declaration prior to the commencement of
business or exercising borrowing powers) of __________ Private Limited.”

Note: Rs. 20 as stamp duty or as the case may be can be paid online or offline as
payment of stamp duty of above Rs. 100 is mandated for taking online route. Name of
vendor, serial number of stamp paper and registration number of vendor is mandatory
to enter if the amount of stamp duty is more than or equal to Rs 50/-

1. Board Resolution stating that Company has received the subscription money in full,
which will be deposited into company bank account.
2. In case the affairs of the Company is regulated by any sectoral regulator (like RBI in
case of NBFI activities), Certificate of Registration issued by the RBI (Only in case of
Non-Banking Financial Companies)/ from other regulators must be attached.
3. You may also attach Bank Account statement as an optional attachment.
4. You may also attach duly certified signed minutes of First Board Meeting of the
Company as an optional attachment.

ROC processes the e-form INC.21 filed by the Company if it finds all the necessary
attachments and related compliance proper.

Status of the form can be checked at MCA.

After this approval, THE COMPANY IS READY TO RUN & PROSPER.

Memorandum of Association

Memorandum of Association (MOA) is the supreme public document which contains all
those information that are required for the company at the time of incorporation. It can also
be said that, a company cannot be incorporated without memorandum. At the time of
registration of the company, it needs to be registered with the ROC (Registrar of Companies).
It contains the objects, powers and scope of the company, beyond which a company is not
allowed to work, i.e. it limits the range of activities of the company.

Any person who deals with the company like shareholders, creditors, investors, etc. is
presumed to have read the company, i.e. they must know the company’s objects and its area
of operations. The Memorandum is also known as the charter of the company. There are six
conditions of the Memorandum:

• Name Clause – Any company cannot register with a name which CG may think unfit
and also with a name that too nearly resembles with the name of any other company.
• Situation Clause – Every company must specify the name of the state in which the
registered office of the company is located.
• Object Clause – Main objects and auxiliary objects of the company.
• Liability Clause – Details regarding the liabilities of the members of the company.
• Capital Clause – Total capital of the company.
• Subscription Clause – Details of subscribers, shares taken by them, witness etc.
Definition of Articles of Association

Articles of Association (AOA) is the secondary document, which defines the rules and
regulations made by the company for its administration and day to day management. In
addition to this the articles contain the rights, responsibilities, powers and duties of members
and directors of the company. It also includes the information about the accounts and audit of
the company.

Every company must have its own articles, however, a public company limited by shares can
adopt Table A instead of Articles of Association. It comprises of all the necessary details
regarding the internal affairs and the management of the company. It is prepared for the
persons inside the company, i.e. members, employees, directors, etc. The governance of the
company is done according to the rules prescribed in it. The companies, can frame its articles
of association as per their requirement and choice.

Key Differences between Memorandum of Association and Articles of Association

The major differences between memorandum of association and articles of association are
given as under:

1. Memorandum of association is a document that contains all the condition which are
required for the registration of the company. Articles of association is a document that
contains the rules and regulation for the administration of the company.
2. Memorandum of Association is defined in section 2 (28) while the Articles of
Association is defined in section 2 (2) of the Indian Companies Act 1956.
3. Memorandum of Association is subsidiary to the Companies Act, whereas Articles of
Association is subsidiary to both Memorandum of Association as well as the Act.
4. In any contradiction between the Memorandum and Articles regarding any clause,
Memorandum of Association will prevail over the Articles of Association.
5. Memorandum of Association contains the information about the powers and objects
of the company. Conversely, Articles of Association contain the information about the
rules and regulations of the company.
6. Memorandum of Association must contain the six clauses. On the other hand, Articles
of Association is framed as per the discretion of the company.
7. Memorandum of Association is obligatory to be registered with the ROC at the time
of registration of Company. As opposed to Articles of Association, is not required to
be filed with the registrar, although the company may file it voluntarily.

Conclusion

Memorandum and Articles are the two very important documents of the company, which are
to be maintained by them as they guides the company on various matters. They also help in
the proper management and functioning of the company throughout its life. That is why every
company is required to have its own memorandum and articles.

PROSPECTUS

Clause (70) of Section 2 of this Bill define “prospectus” means any document described or
issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf
prospectus referred to in section 31 or any notice, circular, advertisement or other document
inviting offers from the public for the subscription or purchase of any securities of a body
corporate.

Section 26 deals with matters to be stated in prospectus.

MATTERS TO BE STATED IN PROSPECTUS (SECTION 26):

A prospectus may be issued by or behalf of a public company either with reference to its
formation or subsequently, or by or on behalf of any person who is or has been engaged or
interested in the formation of a public company.

Information in Prospectus:

Every prospectus shall state following information:-

i. names and addresses of the registered office of the company, company secretary,
Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and
such other persons as may be prescribed;

ii. dates of the opening and closing of the issue, and declaration about the issue of
allotment letters and refunds within the prescribed time;

iii. a statement by the Board of Directors about the separate bank account where all
monies received out of the issue are to be transferred and disclosure of details of all monies
including utilised and unutilised monies out of the previous issue in the prescribed manner;

iv. details about underwriting of the issue;

v. consent of the directors, auditors, bankers to the issue, expert’s opinion, if any, and
of such other persons, as may be prescribed;

vi. the authority for the issue and the details of the resolution passed there for;

vii. procedure and time schedule for allotment and issue of securities;

viii. capital structure of the company in the prescribed manner;

ix. main objects of public offer, terms of the present issue and such other particulars as
may be prescribed;

x. main objects and present business of the company and its location, schedule of
implementation of the project;

xi. particulars relating to—

1. management perception of risk factors specific to the project;

2. gestation period of the project;
3. extent of progress made in the project;
4. deadlines for completion of the project; and
 5. any litigation or legal action pending or taken by a Government Department or a
statutory body during the last five years immediately preceding the year of the issue
of prospectus against the promoter of the company;

xii. minimum subscription, amount payable by way of premium, issue of shares

otherwise than on cash;

xiii. details of directors including their appointments and remuneration, and such
particulars of the nature and extent of their interests in the company as may be prescribed;
and

xiv. Disclosures in such manner as may be prescribed about sources of promoter’s

contribution.

Reports with Prospectus:

Every prospectus shall set out following reports for the purpose of financial information:

i. Reports by the auditors of the company with respect to its profits and losses and
assets and liabilities and such other matters as may be prescribed;

ii. Reports relating to profits and losses for each of the five financial years
immediately preceding the financial year of the issue of prospectus including such reports of
its subsidiaries and in such manner as may be prescribed. Where company has not completed
five financial years than such report for all financial years is required.

iii. Reports made in the prescribed manner by the auditors upon the profits and losses
of the business of the company for each of the five financial years immediately preceding
issue and assets and liabilities of its business on the last date to which the accounts of the
business were made up, being a date not more than one hundred and eighty days before the
issue of the prospectus. Where company has not completed five financial years than such
report for all financial years is required.

iv. Reports about the business or transaction to which the proceeds of the securities are
to be applied directly or indirectly.

Declaration of Compliance:

Every prospectus shall make a declaration about the compliance of the provisions of this Act
and a statement to the effect that nothing in the prospectus is contrary to the provisions of this
Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board
of India Act, 1992 and the rules and regulations made there under.

Other matters in Prospectus:

Clause (d) of Sub – section (1) of section 26 give unlimited power to central government to
list other matters and set out other reports to be included in a prospectus.

Delivery of Prospectus with Registrar:

A copy of prospectus shall be delivered to the Registrar for registration signed by every
person who is named as a director or proposed director of the company or by his duly
authorised attorney on or before the date of its publication and only then it shall be issued by
or on behalf of a company or in relation to an intended company.

Statement of an Expert:

A statement made by an expert shall be included only if expert is or was engaged or

interested in the formation or promotion or management of the company and has given his
written consent to the issue of the prospectus. Such consent of expert must not be withdrawn
by his before the delivery of prospectus to the Registrar for registration and a statement to
that effect shall be included in the prospectus.

Every prospectus issued shall state that a copy has been delivered to the Registrar and specify
attached documents.

The registrar shall not register a prospectus all requirements has been complied with and the
prospectus is accompanied by the consent in writing of all the person named in the
prospectus.

Prospectus shall not be valid if it is issued more than ninety days after the date on which a
copy thereof delivered to the Registrar.

Caution:

If a prospectus is issued in contravention of the provisions of section 26, the company shall
be punishable with fine which shall not be less than fifty thousand rupees but which may
extend to three lakh rupees and every person who is knowingly a party to the issue of such
prospectus shall be punishable with imprisonment for a term which may extend to three years
or with fine which shall not be less than fifty thousand rupees but which may extend to three
lakh rupees, or with both.

VARIATION IN TERMS OF CONTRACT OR OBJECTS IN PROSPECTUS

(SECTION 27):

A company may vary the terms of a contract refered in the prospectus or object for which the
prospectus was issued, only under approval or authority given by way of special resolution.

The notice of such resolution to shareholders shall also be published in the newspapers (one
in English and one in vernacular language) in the city where the registered office of the
company is situated. These notices shall clearly indicate justification for such variation.

The shareholders who have not agreed to the proposal to vary the terms of contracts or
objects referred to in the prospectus, shall be given an exit offer by promoters or controlling
shareholders at exit price as determined in accordance with regulation made by the Securities
and Exchange Board of India.

Requirement in Deemed Prospectus (Section 25):

Section 26 as applied by Section 25 shall have effect as if —

 1. it required a prospectus to state in addition to the matters required by section 26 to be
stated in a prospectus—

i. the net amount of the consideration received or to be received

by the company in respect of the securities to which the offer relates; and

ii. the time and place at which the contract where under the said
securities have been or are to be allotted may be inspected;

1. the persons making the offer were persons named in a prospectus as directors of a
company.

Unit-III
Meaning of a Director
One who supervises, regulates, or controls.

A director is the head of an organization, either elected or appointed, who generally has
certain powers and duties relating to management or administration. A corporation's board of
directors is composed of a group of people who are elected by the shareholders to make
important company policy decisions.

Director has been used synonymously with manager.

Appointment Of Directors – Process, Qualifications & Disqualifications

Who can be appointed as a Director

Appointment of a Director is not only a crucial administrative requirement, but is also a

procedural requirement that has to be fulfilled by every company. Under the Companies Act,
only an individual can be appointed as a Director; a corporate, association, firm or other body
with artificial legal personality cannot be appointed as a Director.

Appointment of Directors

Generally, in a public company or a private company subsidiary of a public company, two-

thirds of the total numbers of Directors are appointed by the shareholders and the remaining
one-third is appointed in accordance with the manner prescribed in Articles failing which, the
remaining one-third of the Directors must be appointed by the shareholders. The Articles of a
public company or a private company subsidiary of a public company may provide for the
retirement of all the Directors at every AGM.

In a private company, which is not a subsidiary of a public company, the Articles can
prescribe the manner of appointment of any or all the Directors. In case the Articles are silent,
the Directors must be appointed by the shareholders.
The Companies Act also permits the Articles to provide for the appointment of two-thirds of
the Directors according to the principle of proportional representation, if so adopted by the
company in question.

Nominee Directors can be appointed by a third party or by the Central Government in case of
oppression or mismanagement.

Appointment of Managing Directors

A Managing Director must be an individual and can be appointed for a maximum term of five
(5) years at a time.

A person who is already a Managing Director / Manager of a public company or a private

company subsidiary of a public company can become the Managing Director / Manager of
only one other company (whether private or public) with the prior unanimous approval of the
Board of such company. However, no such restrictions are applicable to a Manager or a
Managing Director of "pure" private companies.

In case of a public company or a private company that is a subsidiary of a public company, if

the appointment is not in accordance with Parts I and II of Schedule XIII of the Companies
Act, such appointment must be approved by the Central Government.

Remuneration

In the case of a public company or a private company which is a subsidiary of a public

company, the remuneration payable is subject to the provisions of the Companies Act, and
may be determined either by the Articles or, if the Articles so provide, by a special resolution
of the company in general meeting.

Qualifications for Directors

The Companies Act does not prescribe any qualifications for Directors of any company. An
Indian company may, therefore, in its Articles, stipulate qualifications for Directors. The
Companies Act does, however, limit the specified share qualification of Directors which can
be prescribed by a public company or a private company that is a subsidiary of a public
company, to be five thousand rupees (Rs. 5,000/-).

Conditions for appointment of managing / Whole-time Directors; Disqualifications

The Companies Act, under Schedule XIII, also prescribes certain other conditions that are to
be fulfilled for the appointment of a Managing or a Whole-time Director or Manager in case
of a public company and a private company that is a subsidiary of a public company.
Accordingly, no person shall be eligible for appointment as a Manager, a Managing Director
or a Whole-time Director if he or she fails to satisfy the following conditions:

1. He or she should not have been sentenced to imprisonment for any period, or a fine
imposed under any of the following statutes, namely:

i. The Indian Stamp Act, 1899;

ii. The Central Excise Act, 1944;

iii. The Industries (Development and Regulation) Act, 1951;

iv. The Prevention of Food Adulteration Act, 1954;

v. The Essential Commodities Act, 1955;

vi. The Companies Act, 1956;

vii. The Securities Contracts (Regulation) Act, 1956;

viii. The Wealth Tax Act, 1957;

ix. The Income Tax Act, 1961;

x. The Customs Act 1962;

xi. The Monopolies and Restrictive Trade Practices Act, 1969 – now the Competition Act,
2002;

xii. The Foreign Exchange Regulation Act, 1973 – now the Foreign Exchange Management
Act, 1999;

xiii. The Sick Industrial Companies (Special Provisions Act) 1985;

xiv. The Securities Exchange Board of India Act, 1992; and / or

xv. The Foreign Trade (Development and Regulation) Act, 1973.

2. He or she should not have been detained or convicted for any period under the
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

3. He or she should have completed twenty-five (25) years of age, but be less that the age of
seventy (70) years. However, this age limit is not applicable if the appointment is approved
by a special resolution passed by the company in general meeting or the approval of the
Central Government is obtained.

4. He or she should be a managerial person in one or more companies and draws

remuneration from one or more companies subject to the ceiling specified in Section III of
Part II of Schedule XIII.

5. He or she should be a resident of India. 'Resident' includes a person who has been staying
in India for a continuous period of not less than twelve (12) months immediately preceding
the date of his or her appointment as a managerial person and who has come to stay in India
for taking up employment in India or for carrying on business or vocation in India. However,
this condition is not applicable for companies in the Special Economic Zone, as notified by
Department of Commerce from time to time.

Restrictions on number of Directorships

The Companies Act prevents a Director from being a Director, at the same time, in more than
fifteen (15) companies. For the purposes of establishing this maximum number of companies
in which a person can be a Director, the following companies are excluded:

1. A "pure" private company;

2. An association not carrying on its business for profit, or one that prohibits the payment of
any dividends; and

3. A company in which he or she is only appointed as an Alternate Director.

Failure of the Director to comply with these regulations will result in a fine of fifty thousand
rupees (Rs. 50,000/-) for every company that he or she is a Director of, after the first fifteen
(15) so determined.

Director Identification Numbers

All Directors of Indian companies are required to obtain Director Identification Numbers
("DINs"). Primarily, DINs are required to authenticate any electronic filings made by the
company.

Additional disqualifications in case of a public company

In addition to the requirements mentioned above, the Companies Act further provides that a
person shall not be eligible to be appointed as a Director of any other public company for a
period of five (5) years from the date on which the public company, in which he or she is a
Director, has failed to file annual accounts and annual returns or has failed to repay its
deposits or interest thereon or redeem its debentures on the due date or pay dividends
declared.

Additional disqualification in case of a "pure" private company

A private company that is not a subsidiary of a public company can, by its Articles, provides
that a person shall be disqualified for appointment as a Director on any grounds in addition to
those specified in the Companies Act.

Additional disqualifications for Managing and Whole-time Directos

An individual cannot be appointed as a Managing or a Whole-time Director of a company if

he or she:

1. is an undischarged insolvent, or has at any time been adjudged an insolvent;

2. suspends, or has at any time suspended, payment to his or her creditors, or makes, or has at
any time made, a composition with them; or

3. is, or has at any time been, convicted by a court of an offence involving moral turpitude.

These requirements are not only more stringent than the requirements for an ordinary
Director, but are also of an absolute and mandatory nature.
Retirement of Directos

In any public company or a private company that is a subsidiary of a public company, one-
third of the Directors must retire at every AGM. However, every retiring Director is eligible
for re-appointment. If the vacancy is not filled and the meeting has not expressly resolved to
fill such vacancy, he or she shall be deemed to have been re-appointed until the next election
meeting, unless he or she is not otherwise disqualified or is unwilling to so act as a Director
or no resolution for such appointment has been put to the meeting and lost.

Removal of Directors

A Director can be removed by an ordinary resolution of the general meeting after a special
notice has been given, before the expiry of his term of office. However, this is not applicable
to Directors appointed by proportional representation or the Directors appointed by the
Central Government.

Vacation of Office

The office of a Director of a public company, or of a private company which is a subsidiary

of a public company, becomes vacant if he or she:

1. Becomes subject to any of the three (3) disqualifications mentioned above (with regard to
disqualifications for a Managing or a Whole-time Director) during his or her term of office;

2. Fails to obtain within any time period as may be specified in the Articles (two months in
case of a public company), or at any time thereafter ceases to hold, the necessary share
qualification if any as prescribed by the Articles;

3. Absents himself or herself from three (3) consecutive meetings of the Board, or from all
meetings of the Board for a continuous period of three (3) months, whichever is longer,
without obtaining leave of absence from the Board;

4. Whether by himself or herself, or by any person on his or her account or any firm in which
he or she is a partner or company in which he or she is a Director, accepts a loan or guarantee
or security for a loan from the company in contravention of the requirements governing loans
etc to Directors;

5. Acts in contravention of the requirements regarding disclosure of interests;

6. Is removed from office under the Companies Act; or

7. Having been appointed as Director by virtue of his or her holding an office or other
employment in the company (for instance, that of Managing Director), he or she fails to hold
such office or other employment.

Also, in such public companies and private companies that are subsidiaries of public
companies, if a Director or his or her relative holds an office of profit without the consent of
the company, and with such Director's knowledge, such Director shall be deemed to have
vacated his or her office.
In addition to these reasons for the Director's office becoming vacant, a "pure" private
company may prescribe other such reasons in its Articles.

If a person continues to act as a Director, despite knowing that his or her office has become
vacant, he shall be punishable with a fine up to five thousand rupees (Rs. 5,000/-) for every
day that he or she continues to function and act as such.

Resignation

The Companies Act is silent with respect to resignation of Directors. However, in a majority
of cases, the Articles provide for Directors to resign. Even in cases where the Articles are
silent, there is no absolute bar on Director's resigning, which becomes effective upon
submission of such resignation letter and the filing of the necessary form for such resignation
with the Registrar of Companies (whether or not the Board formally accepts the same, unless
the Articles provide otherwise). The filing of such resignation related form with Registrar of
Companies is an obligation to be discharged by the company in question.

The only exception to the above rule is in the case of Managing, Whole-time and Executive
Directors who are employees of the company, and where the terms of their respective service
contracts will ordinarily refer to resignations, notice periods and / or compensation in lieu
thereof.

Compensation of Loss of Office

Only a Managing Director, a Director holding the office of a Manager and Wholetime
Directors can receive compensation for loss of office or consideration for retirement, subject
to the conditions specified by the Companies Act.

Differences between directors and managers

There are many fundamental differences between being a director and a manager. It’s not
simply a trivial matter of getting a new job title and a bigger office. The differences are
numerous, substantial and quite onerous. The table below outlines the major differences
between directing and managing.

MANAGERS
DIRECTORS
It is the board of directors who must provide
It is the role of managers to
the intrinsic leadership and direction at the
Leadership carry through the strategy
top of the organisation; establish and
on behalf of the directors.
maintain its vision, mission and values
Decision making Directors are required to determine the future
of the organisation, its strategy and structure
and protect its assets and reputation. They Managers are concerned
also need to consider how their decisions with implementing the
relate to‘stakeholders’ and the regulatory decisions and the policies
framework. Stakeholders are generally seen made by the board.
to be the company’s shareholders, creditors,
employees, customers, and increasingly, a
 community in which it operates.
Directors, not managers, have the ultimate
responsibility for the long-term prosperity of
the company. Directors are required in law to
apply skill and care in exercising their duty to
Managers have far fewer
the company and are subject to fiduciary
legal responsibilities. See
Duties and duties. If they are in breach of their duties or
Factsheet “What are the
responsibilities act improperly, directors may be made
duties, responsibilities and
personally liable in both civil and criminal
liabilities of directors?”
law. On occasion, directors can be held
responsible for acts of the company.
Directors also owe certain duties to the
stakeholders of the company as listed above.
Directors are accountable to the shareholders
and other stakeholders for the company’s
Managers are usually
performance and can be removed from office
appointed and dismissed
Relationship by them or the shareholders can pass a
by directors or
with special resolution requiring the directors to
management and do not
shareholders act in a particular way. Directors act as
have any legal requirement
“fiduciaries” of the shareholders and should
to be held to account.
act in the best interests of the company (as a
separate legal entity).
Directors have a key role in the determination Managers must enact the
of the values and ethical position of the ethos,
Ethics and
company.
values
taking their direction from
the board.

Meetings of Board and Board's powers and restrictions thereon

Notice of every meeting of the Board of directors of a company shall be given in writing to
ever director for the time being in India, and at his usual address in India to every other
director.

Board to meet once in every three months

In the case of every company, a meeting of its Board of directors shall be held at least once
every three months and at least four such meetings must be held every year.

Notice of meetings
Notice of every meeting of the Board of directors of a company shall be given in writing to
ever director for the time being in India, and at his usual address in India to every other
director.

Every officer of the company whose duty it is to give notice as aforesaid and who fails to do
so shall be punishable with fine which may extend to one hundred rupees.

Quorum for meetings

The quorum for a meeting of the Board of directors of a company shall be one-third of its
total strength (any fraction contained in that one-third being rounded off as one), or two
directors, whichever is higher.

Provided that where at any time the number of interested directors exceeds or is equal to two-
thirds of the total strength, the number of the remaining directors, that is to say, the number of
the directors who are not interested, present at the meeting being not less than 2 shall be the
quorum during such time.

Interested director means any director whose presence cannot, by reason of his being
interested in some manner in the subject matter of discussion be counted for the purpose of
forming a quorum at a meeting of the Board, at the time of the discussion or vote on any
matter.

Procedure where meeting adjourned for want of quorum

If a meeting of the Board could not be held for wand of quorum, then, unless the articles
otherwise provide, the meeting shall automatically stand adjourned till the same day in the
next week, at the same time and place, or if that day is a public holiday, till the next
succeeding day which is not a public holiday, at the same time and place.

Passing or resolutions by circulation

No resolution shall be deemed to have been duly passed by the Board or by a committee
thereof by circulation, unless the resolution has been circulated in draft, together with the
necessary papers, if any, to all the directors, or to all the members of the committee, then in
India (not being less in number than the quorum fixed for a meeting of the Board of
committee, as the case may be), and to all other directors or members at their usual address in
India, and has been approved by such of the directors as are then in India, or by a majority of
such of them, as are entitled to vote on the resolution.

Validity of acts of directors

Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be
discovered that his appointment was invalid by reason of any defect or disqualification or had
terminated by virtue of any provision contained in this Act or in the articles.

Board's powers and restrictions thereon

General powers of Board

Subject to the provisions of this Act, the Board of directors of a company shall be entitled to
exercise all such powers, and to do all such acts and things, as the company is authorised to
exercise and do.

However, the Board shall not exercise any power or do any act or thing which is directed or
required, whether by this or any other Act or by the memorandum or articles of the company
or otherwise, to be exercised or done by the company in general meeting.

Certain powers to be exercised by Board only at meeting

The Board of directors of a company shall exercise the following powers on behalf of the
company, and it shall do so only by means of resolutions passed at meetings of the Board:-

a. the power to make calls on shares holders in respect of money unpaid on their shares
b. the power to issue debentures
c. the power to borrow moneys otherwise than on debentures
d. the power to invest the funds of the company
e. the power to make loans

However, the Board may, by a resolution passed at a meeting delegate to any committee of
directors, the managing director, or the manager of the company or any other principal officer
of the company or in the case of a branch office of the company, a principal officer of the
branch office, the powers specified in clauses (c), (d) and (e), to the extent specified in the
resolution and subject to such conditions as may be imposed.

Acceptance by a banking company in the ordinary course of its business of deposits of money
from the public repayable on demand or otherwise and withdrawable by cheque, draft, order
or otherwise or the placing of moneys on deposit by a banking company with another
banking company on such conditions as the Board may prescribe, shall not be deemed to be
borrowing of moneys or making of loans by a banking company for the purpose of these
provisions.

These provisions also do not apply to borrowings by a banking company from other banking
companies or from the Reserve Bank of India, the State Bank of India or any other banks.

In respect of dealings betwwen a company and its bankers, the exercise by the company of its
powers to borrow money otherwise than on debentures shall mean the arrangement made by
the company with its bankers for the borrowing of money by way of overdraft or cash credit
or otherwise and not the actual day-to-day operation of overdrafts, cash credit or other
accounts.

Every resolution delegating the power referred to in clause (c) ( the power to borrow moneys
otherwise than on debentures ) shall specify the total amount outstanding at any one time up
to which moneys may be borrowed by the delegate.

Every resolution delegating the power referred to in clause (d) (the power to invest the funds
of the company ) shall specify the total amount up to which the funds may be invested, and
the nature of the investments which may be made, by the delegate.

Every resolution delegating the power referred to in clause (e) (the power to make loans )
shall specify the total amount up to which loans may be made by the delegate, the purposes
for which the loans may be made, and the maximum amount of loans which may be made for
each such purpose in individual cases.

Nothing in this section be deemed to affect the right of the company in general meeting to
impose restrictions and conditions on the exercise by the Board of any of the powers
specified above.