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 Introduction:Company law in India owea its origin to the English Company Law.

Companies Act passed in India have followed the English Companies Act from time to time with certain modification. In India the first Company Law legislation passed was Joint Stock Companies Act, 1850 which was based on English Joint Stock Companies Act 1844. In 1913, the India companies act was passed by following the English companies (consolidation)act 1908.several amendments were made in this act, as it was found to be highly unsatisfactory. In 1956, Indian companies act 1956 was passed, which was modeled on the English companies act 1948. The provisions of the Indian companies act 1956 were incorporated on the recommendation of Bhalsa Committee constituted by the government of India, to look into the working of the company law and to suggest appropriate changes and amendments. The present companies act is a complete code, covering the entire field of company organization and management. It has been amended several times to keep pace with the changing business scenario and to meet the new challenges. Some of the important amendments took place in the year 1960,1963,1965,1969,1972,1974,1977,1985,1988,1996,197,1999,2000,2001,and2002. The law, relating to companies in India is contained in the companies act 1956.the main object of the companies act,1956 is:     To encourage investment. To ensure proper administration. To prevent malprectices. To allow for investigation.

The present chapter deals with important section of part IV, V, and part VI the act.

 Characteristics of a company: Types of companies Most companies fall into two categories, depending on the type of liability that can be imposed on the owners: y A company limited by shares, limits the liability of shareholders to the value of their shares. This structure is suitable for most trading businesses and can be a private company or a public company A company limited by guarantee, most often used by non-trading organisations, for example, sporting clubs.

 The pros and cons Advantages of a company include :


y y y y y y

it is a separate legal entity from the owners; you can own property in the name of the company; there is usually limited liability for the shareholders (unless they have given a personal guarantee); you may be able to take advantage of tax minimisation schemes (legal ones, of course!); it can be owned and operated by only one shareholder and director; it may make it easier to attract capital investment because of shareholders' limited liability.

Possible disadvantages include:


y y y y y

they can be complicated and expensive to establish and administer if it is a "large company"; if you are not a sole shareholder, the shares may be difficult to sell; if you have only a minority shareholding you may be allowed little or no input into the affairs of the company; you will only be able to leave the shares in the company to your beneficiaries under your will, not the assets of the company separately; and they require expensive procedures to comply with reporting regulations.

 Is liability always limited? No, there are types of structures that do not provide limited liability for owners, but they are unusual and we will not look at them here. However, even in companies limited by shares it is possible for owners to be exposed to personal liability. For example:
y y

a bank may require a personal guarantee against loans or overdrafts; or sometimes a director can be held personally responsible for actions that are clearly beyond the ability of the company to pay.

 Shareholders Shares can either be available to the general public or the private owners. If the shares are available to the public it is called a "public" company. If the shares are available to private owners it is called a private (proprietary) company. We will deal solely with private companies.  Private companies The Corporations Act makes the procedures for small companies a lot easier than they used to be. A company will also have:
y y

y y

the words "Proprietary Limited" (Pty. Ltd.) after its name; a unique Australian Company Number (ACN) that will be included in most company literature and business documents, e.g. invoices, receipts, business letterhead, cheques etc; a common seal (i.e. a stamp) which contains the company name and other identifying details, e.g. the ACN (it is no longer compulsory to have a common seal); a registered office, although this doesn't have to be the place of business, in fact it is often the address of an accountant or lawyer. However, under the law, companies are required to notify the ASIC of changes in the company's place of business where that place is different from the registered office.

 Shelf companies Shelf companies are "sold" by services that simultaneously register a number of companies and then sell them "off the shelf". They suit people who have straightforward requirements for their company structure.  Starting a private company You must:
y

y y

y y y

y y

choose a name for the company and ensure the name is acceptable for registration, e.g. it is not identical to another name or otherwise unacceptable (e.g. it cannot be the same as a pre-existing name). This can be checked with the ASIC. Remember, this refers only to the corporate name - if the company operates in the public under a different business name, that name must be registered with the Office of Fair Trading; reserve the company name. It will be reserved for two months. Otherwise you can apply to use the name at the time you register, but remember it may already have been taken; decide on the names of members, directors and the secretary of the company - these people must agree to taking on theses roles. A company must have at least one company secretary who may also be a director and member - the secretary has responsibility for record-keeping including registers required by Corporations Law and minutes of meetings. Changes to appointments and changes of addresses of directors must be supplied to the ASIC within 14 days of the change; decide where the registered office will be; lodge the application with any ASIC Business Centre or with the Local ASIC Representative notify the ASIC of certain changes to the business practices of the company e.g. changes to the registered office, operating hours, company name, substantial transfers of shareholdings; lodge annual returns with the ASIC if this is needed (this is not always the case for a small private companies); keep company books and records.

Remember, unless a court agrees, you cannot be a company director if:


y y

you are declared bankrupt and have not been discharged; or you have been convicted of certain offences connected with the management of a company, a serious fraud, or certain other offences to do with the breach of duties of directors and insolvent trading. Usually you are barred for five years after the conviction.

 Forms You can get the ASIC forms from ASA Business & Management Services.  Constitutions Companies no longer require a memorandum and articles of association. Instead they may:
y

have a set of rules called a "constitution", which sets out the objects of the company. It does not have to be lodged with the application for registration but must to be kept with the company's records; or depend on the rules of internal management - these are called "replaceable rules" because they can be replaced in whole or part by a constitution. The replaceable rules do not apply to private companies with a single member who is also the sole director.

 Annual returns All companies must lodge an annual return with the ASIC not later than January 3

 Capital structure:In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc. The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it disregards many important factors in the capital structure decision. The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This result provides the base with which to examine real world reasons why capital structure is relevant, that is, a company's value is affected by the capital structure it employs. Some other reasons include bankruptcy costs, agency costs, taxes, and information asymmetry. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the firm.

 Capital structure in a perfect market:Consider a perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions. Modigliani and Miller made two findings under these conditions. Their first 'proposition' was that the value of a company is independent of its capital structure. Their second 'proposition' stated that the cost of equity for a leveraged firm is equal to the cost of equity for an unleveraged firm, plus an added premium for financial risk. That is, as leverage increases, while the burden of individual risks is shifted between different investor classes, total risk is conserved and hence no extra value created. Their analysis was extended to include the effect of taxes and risky debt. Under a classical tax system, the tax deductibility of interest makes debt financing valuable; that is, the cost of capital decreases as the proportion of debt in the capital structure increases. The optimal structure, then would be to have virtually no equity at all.

 Capital structure in the real world:If capital structure is irrelevant in a perfect market, then imperfections which exist in the real world must be the cause of its relevance. The theories below try to address some of these imperfections, by relaxing assumptions made in the M&M model

 Formation or incorporation of A Company:-

 Formation or incorporation of A Company For the formation of a company, a company passes through the following thee stages :    Promotion Stage Incorporation Stage Raising of Capital (Capital Subscription) Commencement of business stage

 Promotion Stage:The stage of conceiving an idea and its working is termed as promotion of a company. The person involved in this task is termed as Promoter. There are certain important decisions which are taken before the formation of the company. There first important matter to decide could be either :(1) To start a new business altogether, or (2) To acquire an already running business, if it is available at considerable attractive terms and conditions. Some time it does happen that some people may start a business without having sufficient knowledge or sufficient experience or sufficient funds and later on they decide to dispose of that business to avoid huge losses. In such a case it may be better to acquire a running business with favorable terms and conditions and it may prove to be a good decision The other important matters be decided before the formation of the company could be the decision regarding the product to be produced, the size of the company, the capital involved in the project, the sources of the capital and whether it shall be a Private Company or a Public Company. Any of the above decisions i.e., to start a new business altogether or to acquire an already running business, along with the other matters shall have to be taken by some person or persons who are at the helm of the affairs. They are called PROMOTERS Where it has been decided to form a Private Company 2 persons and where it has been decided to form a Public Company at least 7 persons shall subscribe their names to a Memorandum of Association and they shall also comply with the other formalities in respect of the registration of the company under the Indian Companies Act, 1956.
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Document to be filed with the Registrar: It is desirable to ascertain from the Registrar (Registrar of the State in which the Registered office of the company shall be situated) of the companies that whether the proposed name of the company shall be approved if registration is sought for a new company with such name. Where already a company with such name is existing, it shall not be allowed by the Registrar, because tow companies with the similar name cannot be registered. But if he says yes, because no other company is registered with that name, an application for the registration of the company should be presented to the Registrar of the State in which the Registered office of the company shall be situated. The appl9ication along with necessary fee shall be presented along with the following documents : (1) The Memorandum of Association. (2) The Articles of Association, if any which should be signed by the subscribers to the Memorandum of Association. (3) Any agreement with the individual persons who are proposed to e appointed as Managers, Directors or Managing Director of the company. (4) A statement of the nominal capital of the Company. (5) A notice of address of the registered office of the company. (6) A list of the Directors who have agreed to become the first Directors of the company along with their consent to act as Directors and to take up the qualification shares of the company in the case of a public company. (7) A declaration that all the requirements of the Companies Act have been complied with, shall also be submitted, which shall be signed by one nay of the following persons : (i) (ii) (iii) (iv) An advocate of the Supreme Court or High Court, or An attorney or a pleader entitled to appear before a High Court, or A Secretary or a Chartered Accountant in whole time practice in India, who is engaged in the formation of the company, or A person named in the Articles as a Directors, Manager or Secretary of the company.

Where the Registrar of Companies is satisfied that all the requirement have been complied with, he will register the company and enter the name of the company in the Register of Companie

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 Incorporation Stage :Where the Registrar of Companies is satisfied that all the requirements have been complied with, he will register the company, and enter the name of the company in the Register of Companies. When a company is registered and its name in entered in the register of companies, the Registrar will issue a Certificate of Incorporation in which he certifies that the company is incorporated under his hand and in the case of a limited company that the company is a Limited Company.

 Raising of Capital (Capital Subscription):A private company and a public company without share capital can commence business immediately after getting the certificate of incorporation. A private company is not permitted to invite the public to subscribe to its share capital. Therefore, a private company and a public company without share capital arrange the capital from private sources such as friends, relatives etc. But a public company with share capital raises its capital by inviting the public through issue of prospectus. However, it is not compulsory for a public company to issue prospectus. A public company which can arrange its capital without inviting the public (through of underwriters etc.) shall have to file a 'Statement in lieu of Prospectus' with the Registrar of Companies. If the public issue of shares and debentures exceeds a particular limit, then the company must obtain permission of the Securities and Exchange Board of India (SEBI). The company can invite the public to subscribe to its share capital only after obtaining the permission from SEBI (if required) and filing with the Registrar of Companies a copy of the prospectus for registration.

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 Commencement of Business:A public company having a share capital and issuing a prospectus will have to file the following documents with the Registrar of Companies to secure the 'Certificate of Commencement of Business'. The declaration that the shares payable in cash have been allotted upto the amount of minimum subscription. The declaration that every director has paid in cash the application and allotment money on the shares in the same proportion as others. The declaration that no money is liable to become refundable to the applicant by reasons of failure to apply for or to obtain the permission for shares or debentures to be dealt in on any recognised stock exchange. The statutory declaration by the Secretary or one of the directors that all the requirements have been duly complied. The Registrar will scrutinise the documents and if he is satisfied, then he will issue the certificate of commencement of business. After getting this certificate the public company is entitled to commence business from the date of issue of the certificate. The public company which has not issued a prospectus can submit the declaration immediately after the statement in lieu of prospectus is filed and other conditions have been fulfilled.

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 steps to Register a Company in India:The steps of registering a company in India are as under: Step 1 Acquire director identification number (DIN) by filling Form DIN-1. The temporary DIN is immediately issued which must then be printed, signed and sent to RoC for its consent along with the identity and address proofs. The Identity Proof should contain any one of the following:
y y y y

PAN Card Driving License Passport Voter Id Card

The Residence Proof should contain any one of the following:


y y y y y y y

Driving License Passport Voter Id Card Telephone Bill Ration Card Electricity Bill Bank Statemen

Step 2 Acquire digital signature certificate. This certificate can be acquired from any one of the six private bureaus sanctioned by MCA 21. Director of the company is required to submit the recommended application form along with the identity and residence proof.

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Step 3 To attain name of the Company, Form No. 1A should be filled citing the address of the Registered Office of the projected firm along with the signature of one of the promoters. A maximum of 6 proposed names can be presented which are verified by RoC staff for any resemblance with other company names in India. This process takes two days for attaining consent of the name Step 4 Arrange for stamping of the Memorandum and Articles with the appropriate stamp duty. The price of stamp duty differs from state to state.Stamp duty need to paid online. The documents should be signed by the firms promoters after the MOA and AOA have been stamped. Besides the promoters signature, other information which must be filled in applicants handwriting is the companys name, description of companys activities and motive, fathers name, address, occupation and number of shares subscribed. Step 5 Attain the Certificate of Incorporation from the Registrar of Companies, Ministry of Corporate Affairs. File e-form 1; e-form 18; and e-form 32 online on the Ministry of Company Affairs website. Along with these papers, copies of agreement of the original directors and signed and sealed form of the Memorandum and Article of Association must be enclosed in Form 1. Step 6 Make a seal (applicable for the private limited companies). Making a company seal is not a legal obligation for the firm to be integrated, but firms require a seal to deliver share certificates and other certificates.

Step 7 Attain a Permanent Account Number (PAN) from National Securities Depository Ltd. (NSDL) or the Unit Trust of India (UTI) Investors Services Ltd., as outsourced by the Income Tax Department. Each person is entitled to state his or her Permanent Account Number (PAN) for the purpose of tax payment under the Income Tax Act, 1961 and the Tax Account Number (TAN) for submitting tax reduced at source. One can get PAN application from IT PAN Service Centers or TIN Facilitation Centers using Form 49A with the acknowledged copy of the certificate of registration, released by the Registrar of Companies along with the identity and residence proof.
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Step 8 Attain a Tax Account Number (TAN) for income taxes abstracted at source from the Assessing Office of the Income Tax Department. The Tax Account Number (TAN) is required by anyone accountable for deducting or gathering tax. The prerequisites of Section 203A of the Income Tax Act state that all individuals who subtract or collect tax at the source must submit an application for a TAN. The submission for allotment of a TAN must be registered using Form 49B and deposited at any TIN Facilitation Center certified to accept-TDS returns. Step 9 Enroll with the Office of Inspector, Shops, and Establishment Act (State/Municipal). Under this procedure, a proclamation incorporating the names of employers and managers and the establishments name (if any), postal address, and group must be delivered to the local shop inspector with the pertinent fees. Step 10 Register the company for Value-Added Tax (VAT) at the Commercial Tax Office (State). Registration of VAT requires filling up of a prescribed Form along with the following documents:
y y y y y y

Attested copy of the memorandum and articles of association of the company, Residence proof, Proof of location of company, Applicants one current passport-sized photograph, Copy of PAN card, Challan on Form No. 210

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 Conversion of a Public Company into a Private Company:Under the Companies Act (Section31), all public companies, whether originally incorporated as a public limited company or at any time converted into a public limited company (under section 44 of the Act), may be converted into a private limited company, if the members so desire. The essential conditions for such a conversion are:y y The company must not be listed on any recognised stock exchange. In case of a listed company,it will have to wait for atleast one year after its delisting. Shareholders' approval by special resolution for alteration of Articles of Association for incorporation of the definition of a private company. The Articles shall be suitably amended to include the basic restrictions applicable on a private company and other provisions necessary thereto. No resolution amending the Articles, which has the effect of converting a public company into a private company, shall be effective unless it has been approved by the Central Government. After the alteration has been approved, a printed copy of the Article shall be filed with the Registrar of Companies within one month of the date of receipt of the order of approval. The name of the company shall be amended to include the word 'private' on all its documents.

The Companies Act contains the following procedure for the conversion:y y y

y y y y y y

Convene a Board meeting for consideration of the proposal of conversion of the company into a private company. Prepare the proposal for alteration of Articles of Association or prepare a new set of Articles of Association meeting the requirements of a private limited company. Hold the Board meeting and get approval of the Board for the proposal, fix up the day, date and time of holding the general meeting of the company, approve notice and explanatory statement and authority to sign notice. Hold the general meeting on the fixed day and pass the special resolution. Fill e-Form 23 with the copy of special resolution, explanatory statement and Memorandum and Articles (before and after alteration). Pay the requisite application fee. Publish a newspaper notice in two widely circulated dailies of the State where the Regd. Office of the company is situated. Get a no objection letter from major unsecured creditors and all secured creditors. Apply to the Central Government in e-Form 1B.
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Documents to be attached with the application are:y y y y y y y y y y y y y y Notice of extra-ordinary general meeting. Minutes of extra-ordinary general meeting. Copy of special resolution. Copy of newspaper advertisement. Affidavit that the company is not listed on any stock exchange. Reference number, date of passing and date of filing the e-Form 23. Payment of requisite application fee. One copy each of the annual reports for the last three financial years. Copy of the last annual return. Altered Memorandum and Articles of Association. No objection letters from major unsecured and all secured creditors supported by an Affidavit. Reasons for conversion. Terms of appointment of all managerial personnel. Power of attorney in favour of the authorised representative.

On receipt of application, the Registrar of Companies(ROC) shall examine:y y y y y y y y y Whether the interest of the public and particularly that of the creditors will be adversely affected. Whether the company is listed. Capital contribution by members. Whether e-Form 23 has been passed and taken on record. Whether the reasons for conversion are just and sufficient. How many members voted for the resolution. Whether any complaint against the company is pending. Whether any show cause letter has been issued to the company or its Directors. If there is any objection from members and creditors.

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If the ROC approves the application, he refers it to Technical Section and Prosecution Section for their report. The Technical Section reports on whether the relevant e-Form23 and the last years annual report and annual return has been filed and passed/taken on record. The Prosecution Section reports on whether any complaint is pending from anybody against the company. If during the scrutiny any adverse point arises, that has to be looked into and the authorised representative should take the initiative to make good the default or defect. If the reports are satisfactory, the ROC will issue a letter granting its approval for conversion of a public company into a private company. The concerned ROC then issues fresh certificates of incorporation consequent upon change of name after conversion of the company from 'Public Company' to 'Private Company'.

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Conclusion

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