Corporate Veil

Q: What is the corporate veil under the Companies Act?

A: The corporate veil refers to the legal concept that separates the actions
and liability of a company from those of its shareholders, directors, and
officers. It treats the company as a separate legal entity, providing
protection to shareholders by limiting their personal liability for the
company's debts and obligations.

Q: Under what circumstances can the corporate veil be pierced?

A: The corporate veil can be pierced in the following circumstances:

1. Agency and Trust Principle: When the company acts as a trust agent
and trustee of shareholders.

2. Subsidiary Relationship: If a subsidiary company is created to avoid

legal obligations of the holding company.

3. Defective Incorporation and Alteration: If the incorporation or

alteration of the memorandum and articles of the company is done
for an improper purpose.

4. Non-Compliance with Statutory Requirements: Defaults in complying

with statutory requirements related to annual general meetings,
financial statements, and other filings.

5. Fraudulent Conduct: If any person is found guilty of fraud involving

the company.

Public Company Membership

Q: What happens if the number of members in a public company reduces

to less than seven?

A: If the number of members in a public company reduces to less than

seven, the company will no longer be considered a public company. It will
face legal consequences, including potential penalties under the
Companies Act. Remedies include issuing new shares, transferring existing
shares, or converting to a private company.

Producer Company

Q: What is a producer company, and what are its objectives?

A: A producer company is a type of corporate entity defined under the

Companies Act, specifically designed to facilitate the formation of
cooperatives and promote the interests of primary producers such as
farmers, artisans, fishermen, and others engaged in agriculture and allied
activities. Its objectives include:
 1. Production, Harvesting, Procurement, Grading, Pooling, Handling,
Marketing, Selling, and Exporting: Primary produce of the members.

2. Processing: Including preserving, drying, distilling, brewing, venting,

canning, and packaging of produce of its members.

3. Manufacture or Supply: Machinery, equipment, or consumables

mainly to its members.

4. Education: On the mutual assistance principles to its members and

others.

5. Rendering Technical Services: To its members.

6. Promotion of Techniques: Of mutuality and mutual assistance.

7. Welfare Measures: Or facilities for the benefit of its members.

8. Generation, Transmission, and Distribution: Of power, revitalization

of land and water resources, their use, conservation, and
communications relatable to primary produce.

9. Promotion of Mutual Assistance: Among members.

10. Insurance of Producers: Or their primary produce.

Conversion of Private Limited Company to Public Limited

Company

Q: What is the procedure for converting a private limited company into a

public limited company?

A: The procedure involves the following steps:

1. Board Resolution: Hold a board meeting to pass a resolution for

conversion.

2. Alteration of MOA and AOA: Pass a special resolution to alter the

memorandum and articles of association to include provisions
related to a public limited company.

3. Shareholder Approval: Conduct an extraordinary general meeting to

obtain shareholder approval.

4. Filing with ROC: File the special resolution with the Registrar of
Companies within 30 days using Form MGT-14.

5. ROC Approval: Obtain approval from the ROC after verification of

documents and compliance with legal requirements.

6. Certificate of Incorporation: Receive a fresh certificate of

incorporation indicating the change of status.
 7. Compliance with Additional Requirements: Ensure compliance with
additional requirements applicable to public limited companies.

8. Public Announcement: Make a public announcement regarding the

change in the status of the company.

Promoters

Q: What is the legal position of promoters under the Companies Act?

A: Promoters are individuals involved in the promotion and organization of

a company. Their legal position includes:

1. Fiduciary Duty: Act in good faith and in the best interest of the
company during its formation and incorporation.

2. Disclosure of Profits: Disclose any profits made or benefits accrued

directly or indirectly from the promotion of the company.

3. Personal Liability: Can be held personally liable for

misrepresentation or misleading statements in the prospectus.

4. Pre-Incorporation Contracts: Personally liable for any pre-

incorporation contracts and transactions entered into before the
company's incorporation.

5. Indemnity: The company may provide indemnity to promoters for

actions taken during the promotion and formation of the company,
subject to shareholder approval.

Online Registration of Company

Q: What is the procedure for online registration of a company?

A: The procedure involves the following steps:

1. Create an Account on MCA Portal: Create an account on the MCA

portal if you are a new user or log in if you are an existing user.

2. Obtain Digital Signature Certificate: Obtain a digital signature

certificate for all proposed directors and subscribers to digitally sign
the incorporation documents.

3. Apply for Director Identification Number (DIN): Apply for DIN for all
directors if they do not already have one.

4. Check Name Availability: Check the availability of the company

name using the RUN service on the MCA portal.

5. Prepare Incorporation Documents: Prepare the memorandum of

association (MOA), articles of association (AOA), and other
supporting documents.
 6. File SPICe Form: File the SPICe form for name reservation, DIN
allotment, incorporation, and PAN/TAN application.

7. Payment of Fees: Pay the online registration fees.

8. Issuance of Certificate of Incorporation: Receive the certificate of

incorporation from the ROC after verification of documents.

9. Post-Incorporation Formalities: Comply with statutory requirements

such as filing annual returns, conducting board meetings, and
maintaining statutory registers.

Change in Object Clauses in Memorandum of Association

Q: What is the procedure for changing the object clauses in the

memorandum of association?

A: The procedure involves the following steps:

1. Board Resolution: Pass a board resolution recommending the change

in the object clauses.

2. Shareholder Approval: Conduct an extraordinary general meeting

(EGM) to obtain shareholder approval.

3. Filing with ROC: File the special resolution with the Registrar of
Companies within 30 days using Form MGT-14.

4. ROC Approval: Obtain approval from the ROC after verification of

documents and compliance with legal requirements.

5. Updated MOA: Include the updated memorandum of association in

the company's statutory records.

Prospectus

Q: What should a prospectus state?

A: A prospectus must state the truth and nothing but the truth. It should
disclose all material facts accurately to potential investors to enable them
to make informed decisions. Misleading information can result in legal
consequences, including civil liability, fines, penalties, and criminal
charges.

Doctrine of Constructive Notice

Q: What is the doctrine of constructive notice as explained in Royal British

Bank v. Turk?

A: The doctrine of constructive notice states that any third party dealing
with the company is deemed to have knowledge of the company's
constitutional documents. However, if the third party has actual
knowledge of irregularities in the company's internal procedures and lack
of authority, they cannot rely on this doctrine.

One Person Company (OPC)

Q: Is a one-person company (OPC) a valid form of company?

A: Yes, an OPC is a valid form of company recognized under the

Companies Act, 2013. It allows an individual to operate and manage a
business with limited liability. An OPC can have only one shareholder and
one director, and it must nominate a natural person as a nominee director
in its memorandum and articles of association.

Allotment of Shares

Q: What are the statutory provisions for a valid allotment of shares?

A: The statutory provisions for a valid allotment of shares include:

1. Authorization in Articles of Association: The articles must authorize

the directors to allot shares.

2. Board Resolution: Pass a board resolution authorizing the allotment

of shares.

3. Disclosure Requirements: Comply with disclosure requirements

prescribed under the Companies Act and its regulations.

4. Consideration: Shares must be allotted for consideration as specified

in the articles.

5. Formal Letter of Allotment: Issue a formal letter of allotment

specifying the number of shares allotted.

6. Register of Members: Enter the details of allotment in the register of

members maintained by the company.

7. Additional Compliance for Public Companies: Comply with SEBI

regulations and guidelines on public issues for preference allotment.

Dormant Company

Q: What is a dormant company, and what conditions must be satisfied to

apply for this status?

A: A dormant company is a registered company that is currently not

engaged in any business activity or generating any income but exists as a
legal entity for future projects. The conditions to be satisfied include:

1. No Significant Accounting Transactions: The company should not

have any significant accounting transactions during the year.
 2. No Trading Activity: There should be no trading activity or turnover.

3. Statutory Filing Requirements: The company must comply with

statutory filing requirements such as annual accounts and annual
returns.

Right Shares vs. Bonus Shares

Q: What is the difference between right shares and bonus shares?

A:

 Right Shares: Issued to existing shareholders to maintain their

ownership percentage. Shareholders need to pay for right shares
within a specified period. Approval from shareholders in a general
meeting is usually required.

 Bonus Shares: Issued free of cost to shareholders. No payment is

required from shareholders to receive additional shares. Approval
from shareholders in a general meeting is required for issuing bonus
shares.

Employee Stock Option Plan (ESOP)

Q: What are the provisions of law regarding the Employee Stock Option
Plan (ESOP)?

A: The provisions of law regarding ESOP include:

1. Authorization in Articles of Association: The articles must authorize

the offering of ESOP.

2. Board Approval: Obtain approval from the board of directors.

3. Eligibility and Exercise Period: Define the eligibility criteria and

exercise period for employees.

4. Exercise Price: Set the exercise price at the fair market value of the
company's stock on the date of grant.

5. Tax Implications: Comply with tax laws applicable to ESOP.

6. Regulatory Compliance: Comply with company regulations,

securities regulations, and applicable stock exchange rules.

Legal Position of Directors

Q: What is the legal position of directors of a company?

A: The legal position of directors includes:

1. Fiduciary Duty: Act in the best interest of the company and exercise
reasonable care, skill, and diligence.
 2. Statutory Duties: Comply with all legal regulations and provisions of
the Companies Act.

3. Power and Responsibility: Collectively manage the business and

affairs of the company.

4. Liabilities: Personally liable for breach of duties, negligence, fraud,

and breach of trust.

5. Indemnity and Insurance: The company may provide indemnity and

insurance to directors against certain liabilities.

6. Meeting and Decision Making: Attend board meetings and

participate in collective decision-making.

Director Identification Number (DIN)

Q: What are the provisions of the Companies Act regarding the application
and allotment of Director Identification Number (DIN)?

A: The provisions include:

1. Application: Any person intending to become a director can apply for

DIN using Form DIR-3 on the MCA portal.

2. Documents Required: Identity proof, address proof, and digital

signature.

3. Processing and Allotment: MCA verifies the documents and

generates a unique DIN.

4. Notification: The applicant is notified via email, and the MCA portal
is updated.

5. Updates and Deactivation: Use Form DIR-6 for updates and Form
DIR-5 for deactivation.

Extraordinary General Meeting (EGM)

Q: Can an EGM be adjourned if the quorum is not present?

A: Yes, an EGM can be adjourned if the quorum is not present. The

chairperson of the meeting may adjourn the meeting to a later date and
time.

Video Conferencing in Board Meetings

Q: What matters cannot be dealt with in board meetings through video

conferencing?

A: Matters that cannot be dealt with through video conferencing include:

 1. Approval of Financial Statements: Directors must be physically
present.

2. Confidential Information: Matters involving insider information,

mergers, acquisitions, etc.

3. Strategic Decisions: Major strategic decisions requiring extensive

deliberation.

4. Director Evaluation and Disciplinary Matters: Matters involving the

evaluation or disciplinary action against directors.

Postal Ballot

Q: What is a postal ballot, and what resolutions can be voted on through

this method?

A: A postal ballot is a method of voting where shareholders can cast their

votes on resolutions without attending a physical meeting. Resolutions
that can be voted on through postal ballot include:

1. Election of Directors: Approval of financial statements.

2. Appointment and Re-appointment of Auditors: Matters requiring

shareholder approval.

Removal of Directors

Q: Can a director be removed before the expiry of their term?

A: Yes, a director can be removed before the expiry of their term by the
National Company Law Tribunal (NCLT) under the Companies Act. Grounds
for removal include mismanagement, breach of duty, non-compliance with
regulatory requirements, court orders, and voluntary removal.

Disqualification of Auditors

Q: What disqualifies a person from being appointed as an auditor?

A: Disqualifications include:

1. Conflict of Interest: Business or financial interest in the company.

2. Non-Compliance with Qualifications: Failure to meet the

qualifications prescribed under the Companies Act.

3. Conviction of Offenses: Conviction for fraud, dishonesty, or

professional misconduct.

4. Age and Mental Capacity: Not meeting the age limit or being of
unsound mind.

Voluntary Liquidation
Q: What are the grounds and process for voluntary liquidation of a
company under the Insolvency and Bankruptcy Code?

A: The grounds and process include:

1. Decision by Shareholders: Shareholders decide to liquidate the

company.

2. No Default: The company has no outstanding liabilities.

3. Declaration of Solvency: The company is declared solvent.

4. Board Meeting: Conduct a board meeting to discuss voluntary

liquidation.

5. Shareholder Approval: Obtain shareholder approval through a

special resolution.

6. Appointment of Liquidator: Appoint a liquidator within four weeks.

7. Public Announcement: The liquidator makes a public announcement

for claims.

8. Inventory and Valuation: The liquidator prepares an inventory and

valuation report.

9. NCLT Order: NCLT passes an order for dissolution after all dues are
settled.

Depository System

Q: What are the features and advantages of a depository system?

A: Features and advantages include:

1. Electronic Holding of Securities: Securities are held in electronic

form, eliminating the need for physical certificates.

2. Efficient and Cost-Effective: Facilitates efficient and cost-effective

holding and transfer of securities.

3. Centralized Record Keeping: Maintains transparency and accuracy in

transactions.

4. Risk Mitigation: Reduces the risk of loss, theft, and damage to

securities.

Dematerialization of Securities

Q: What is the process of dematerialization of securities?

A: The process involves:

 1. Open Demat Account: Open a demat account with a depository
participant (DP).

2. Deposit Physical Certificates: Deposit the physical certificates with

the DP.

3. DRF Form: Fill out the Demat Request Form (DRF) and submit it to
the DP.

4. Verification: The DP verifies the physical certificates and matches

the details with the DRF.

5. Confirmation from Issuer: The DP obtains confirmation from the

issuer company.

6. Credit to Demat Account: The securities are credited to the demat

account after confirmation.

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