UNIT- II Company Law

8/11/2019 UNIT- II Company Law

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UNIT II

Company Law

Major principles Nature and types of companies, Formation, Memorandum and Articles of Association, Prospect

Power, duties and liabilities of Directors, winding up of companies, Corporate Governance.

A company means a group of persons associated voluntarily together for the attainment of a commogoal either, social or economic

Company - MeaningAccording to section 3(1) (i) of The Companies Act, 1956, Company means a company formed and

egistered under this Act or an existing company. An existing company means a company formed and registered uny of the previous companys law.

Nature of a Company:

1. Separate Legal EntityA company in Law is regarded as an entity separate from its members. It has an independent corporaexistence.

2. Limited Liability (accountability or responsibility)In case of a company limited by share where, the liability of a member is limited up to the am

remaining unpaid on the shares held by a member, or a company limited by guarantee, where the liabilmembers is limited to such amount as the members may undertake to contribute to the assets of the compathe event of its being wound up.

3. Perpetual (long lasting or continuous) SuccessionThe term perpetual existence means the continued existence. The death, insolvency or unsoundn

mind of its members or transfer of shares by its members does not in any way affect the existence ocompany. Members may come and members may go but the company goes on forever. The company ccompared with flowing river where water (members) keeps on changing continuously, still the identity oriver (company) remains the same.

4. Common SealThe term Common Seal means the official signature of the company. Since the company bei

artificial person cannot sign its name on a document, every company is required to have its common seal wname engraved on the same. This seal acts as the official signature of the company. Any document bearincommon seal of the company and duly witnesses by at least two directors will be binding on the company.

5. Transferability of SharesThe shares of a public company are freely transferable. A shareholder can transfer association, even a pu

limited company can put certain restrictions on the transfer of shares but it cannot altogether stop it. Ashareholder of public company possessing fully paid up shares is at liberty to transfer his shares to anyone hlikes in accordance with the manner provided for in the articles of association of the company.

6. Separate propertyThe company is the real person in which all its property is vested and by which it is controlled, manand disposed of.

7. Capacity to Sue (take a legal action)

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A Company can Sue and can be sued in its corporate name.

Lifting or Piercing the Corporate Veil

From the juristic point of view, a company is a legal person distinct from its members. This principle is referred as veil of Incorporation.

o There is a Fictional Veil between the company and the members

o The human ingenuity however started using this veil of corporate personality blatantly(unashamedly) a cloak for fraud or improper conduct. Thus, it became necessary for the cour(NCLT- National Company Law Tribunal) to break through or lift the corporate veil or crackshell of corporate personality and look art the persons behind the company who are the realbeneficiaries of the corporate fiction.

ExceptionsThe various cases in which the corporate veil has been lifted are as follows.

1. Protection of Revenue2. Prevention of fraud or improper conduct3. Determination of Character of a company whether it is enemy4. Where the company is a sham (fraud)

5. Company avoiding legal Obligations6. Company acting as Agent or trustee of the shareholders7. Avoidance of Welfare legislations8. Protecting public Policy

Statutory Exceptions1. Number of members below statutory minimum2. Failure to refund application money3. Misdescription of companys name4. Fraudulent trading5. Holding and Subsidiary Companies

Types or Kinds or Classification

of companies

On the Basis

Of

Incorporation

On the Basis

Of

Liability

On the Basis

Of Number

of Members

On the Basis of

Control

On the Basis

Of

Ownership

. On the Basis of Incorporation

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i. Statutory CompaniesThese are companies which are created by a special Act of the Legislature. Example is Reserve Bank

ndia, the State Bank of India.

ii. Registered CompaniesA registered company is one, which is registered in accordance with the provisions of the Companie

of 1956 and also includes the existing companies. By existing company means that a company formed and register

under any of the previous laws

2. On the Basis of LiabilityOn the basis of liability, an incorporated company may either bei. a company limited by sharesii. a company limited by guaranteeiii. an unlimited company

. Company Limited by Shares

A Company limited by shares is a company in which the liability of its members is limited by its

memorandum to the amount unpaid on the share respectively held by them.The companies limited by shares may be either public companies or private companies.If a member has paid the full amount of shares, then his liability shall be nil.

i. Company Limited by Guarantee

A Company limited by guarantee is a company in which the liability of its members is limited by itsmemorandum to such an amount as the members may respectively undertake to contribute to the assets of the compn the event of its being wound up.

ii. Unlimited Company

An unlimited company is a company in which the liability of its members is not limited by itsmemorandum.

In other words, the liability of members is unlimited.The members of such companies may be required to pay companys losses from their personnel prop

3. On the Basis of Number of Members

Private Company Public Company

. Private Company

A private company means a company which has a minimum paid up capital of Rs.1, 00,000 or suchhigher paid up capital as may be prescribed, and by its articles-

a) Restricts theright to transfer its shares, if any

b) Limits the number of its members to fifty, and

) Prohibits any invitation to the public to shares in or debentures of the company.

d) Prohibits any invitation or acceptance of deposits from persons other then its members, directors or their relative

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i. Public CompanyThe Public company means a company which is either

not a private company and has a minimum paid up capital of Rs 5,00,000 or such higher paid-up capas may be prescribed:

or

is a private company, which is subsidiary of public company.

Special Privileges of a Private Company

i. Number of Members: a private company may have only 2 members

i. Allotment before minimum subscription: a private company can allot shares before the minimum subscriptionubscribed for or paid

ii. Prospectus or statement in lieu of prospectus:

may allot shares without issuing a prospectus or delivering to the registrar a statement in lieu ofprospectus.

v. Issue of new shares:when a public company issues new shares, after the expiry of 2 yearsfrom its formationor at any tim

fter the expiry of 1year from the date of first allotment of shares, whichever is earlier, a private company has first offer these shares to the existing equity share holderspro rata. However, the members in a general meeting may, bypecial resolution, decide otherwise.

There is no such provision in case of private companies.

v. Kinds of shares: a private company may issue share capital of any kind, and with such votingrights, as it may th

it.

vi. Commencement of Business: a private company can commence business immediately on incorporation.

vii. Index of members: need not keep any index of members.

viii. Statutory meeting and statutory report:need not hold statutory meeting or file with the registrar the statutoreport.

x. Demand for Poll: even one member having the right to vote and present in person or by proxy (substitute) maydemand a poll. If the number of members present in more than 7, two members present in person or by proxy may

demand a poll.

x. Managerial Remuneration: The rule of overall maximum managerial remuneration does not apply to a privateompany which is not a subsidiary of a public company; the overall managerial remuneration must not exceed 11

percent of the net profits.

xi. Number of Directors: A private company need not have more than two directors

xii. Rules regarding directors:The rules regarding directors of a private company are less stringent.

o Legal Position of a Private company:

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The legal position of a private company is in most respects similar to that of a public company, andven if one member holds practically all the shares, the company is a distinct person.

When does a private company become a public company?

a. Conversion by Default:Where a default is made by a private company in complying with essential requirements of a

private company, the company ceases to enjoy the privileges and exemptions conferred on a private company.a. Conversion by Choice or Volition (wish or desire):

A private company which becomes a public company shall also(i)File a copy of the resolution (declaration or decision) altering the articles, within 30 days

passing thereof, with the registrar;(ii) Take stepsto raise its membership to at least 7 if it is below that number on the date of

onversion, and also increase the number of its directors to more than two if it is below that number;(iii) Alter the regulations contained in the articles which are inconsistent with those of a publ

ompany.

Conversion of Public Company into a Private Company:

- By passing special resolution- Change the articles of the company to includes the conditions as prescribed in sec. 3 (1) (iii) which make a

ompany private company.- Alteration has effect only if approved by the central government .Where the alteration has been approved

he central Government a printed copy of the articles as altered shall be filed by the company with the registrar withmonth of the date of receipt of approval.

4. Classification On the Basis of Control

On the basis of control, companies may be classified into:

Holding companies, and subsidiary companies

Holding companies:A company in known as the holding company of another company if it has control over the other company

Subsidiary companies:A company in known as a subsidiary of another company when control is exercised by the late

he former called a subsidiary company.1. Company controlling composition of Board of directors.2. Holding of majority of shares.

3. Subsidiary of another subsidiary.

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Flowchart explaining a Holding Company and a

Subsidiary company.

Company H

(Holding Company)

Company S 1(Subsidiary of Company H)

Company S2(Subsidiary of Company S1)

Company S3(Subsidiary of Company S2)

5. Classification on the Basis of Ownershipi. Government Company

ii. Foreign Company

Government Company:A government company means any company in which at least 51% of the paid up share capital is he

he central government or by any state government or government or partly by the central government and partly bor more state governments and includes a company which is a subsidiary of a government company as thus defined

Example:Hindustan Aeronautics Ltd.

Non-Government CompanyA company which may not be termed as a government company as a defined in Section 617

egarded as a non-government companyForeign Company

A foreign company means a company which is incorporated in a country outside India underaw of that country.

One Man CompanyThis is a company (usually private) in which one man holds practically the whole of the shar

apital of the company, and in order to meet the statutory requirement of minimum number of members, some dummembers who are mostly his relations or friends, hold just 1 or 2 shares each.

The dummy numbers usually may be the nominees of the principal shareholder who is the viowner of the business and who carries it with limited liability.

Prohibition of Large Partnerships (Sec. 11)LLEGAL ASSOCIATION:

A company, association or partnership consisting of more than 10 persons for the purpose of carryinbanking business and of more than 20 persons for the purpose of carrying on any other business with the object ofarning profits can be legally formed only when it is registered under the companies Act, 1956 or is formed in purs

of some other Indian law or is a Joint Hindu Family carrying on Business as Such.If the number of members in an association or partnership

Formation of Company

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Documents to be filed with the Registrar1. Before a company is registered, it is desirable to ascertain from the Registrar of Companies. (For t

tate registered office)After the name is approved, the following documents duly stamped together with the necessary fees

o be filled with the Registrar.

2. The Application should contain the following documents,

a. Memorandum of Associationb. Articles of Associationc. Statement of the Authorized Capitald. Address of the registered office of the company should be done within 30 dayse. A list of directorsf. A underwriting in writing and signed by each directorg. Finally declaration may be signed by an Advocate of the Supreme\ High courth. Items number e and f are not required in case of a private company

3. If the documents are in order, registrar will register the company,

4. The Registrar will be satisfied on the following points,a. Relevant provision of the act have been complied withb. Object of the company is lawfulc. Number of persons required under the act have subscribed and duly signedd. Memorandum and Articles comply with the acte. Statutory declaration properly made

. If the registrar is satisfied with the above points, he will register the company6. On refusal to register the company, he may be compelled to write a mandamus7. On registration, Registrars will issue Certificate of Incorporation

. From the date of Incorporation, the company becomes a Legal person

9. It is the birth certificate of a company0. If the signature is done by one person, the certificate indicates that company was duly registered.

Memorandum of Association It is one of the documents which have to be filed, with the registrar of companies at the time of Incorporatio It is the charter (license or agreement) of the company and defines its reason for existence It contains the fundamental conditions upon which the company is allowed to be incorporated The purpose of the memorandum is to enable shareholders, creditors and those who deal with the company

know what is the permitted range of the activities of the enterprise

Purpose of Memorandum of Association

The purpose of Memorandum is two-fold First, to enable the intending shareholders to know the purpose for which their money is going to be used a

within what field they are taking risk in making the investment. Second, to enable the outsiders intending to deal with the company to know with certainty as to whether the

contractual relationship which they intend to enter into with the company is within its corporate objects or n[Cotman v. Broughman, (1918) A.C. 514]

Printing and signature of Memorandum

The memorandum must be,

printed

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Articles of

Association

Memorandum of

Association

Basis of

Distinction

An act is intra vires the

Memorandum but ultra

vires the Articles may be

ratified by share-holders

by passing a special

resolution.

Any act of the company

which is ultra vires the

memorandum is wholly void

and cannot be ratified

(approve) even by the whole

body of shareholders.

6. Binding Effect of

ultra vires act

Articles can be easily

altered by passing a

special resolution.

There are strict restrictions

on its alteration. Some of the

conditions of incorporation

contained in it cannot be

altered except with the

sanction of the National

Company Law Tribunal.

5. Alteration

whether easy or

difficult

Doctrine of constructive notice (OR) constructive Notice of Memorandum and Articles

Every outsider dealing with a company is deemed to have notice of the contents of the Memorandumhe Articles of Association.

These documents, on registration with the Registrar, assume the character of public documents.

This is known as constructive Notice of Memorandum and Articles.

The Memorandum and the Articles are open and accessible to all.

It is the duty of every person dealing with a company to inspect these documents and see that it is whe powers of the company to enter into the proposed contract.

Doctrine of Indoor Management

The doctrine of indoor management is a limitation to the doctrine of constructive notice.

An outsider is presumed to know the constitution of a company but not what may or may not have taken pwithin the doors that are closed to him.

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Exceptions to the doctrine of Indoor

Management

1. Knowledge of

Irregularity2. Negligence 3. Forgery

4. Acts outside the

Scope of

apparent

authority

1. Knowledge of Irregularity

Where a person dealing with a company has actual or constructive (useful or beneficial) notihe irregularity as regards internal management, he cannot claim the benefit under the rule of indoor management

2. NegligenceWhere a person dealing with a company could discover the irregularity if he had made prope

nquiries, he cannot claim benefit under the rule of indoor management

3. ForgeryA company can never be held bound for forgeries committed by its officers.

4. Acts outside the Scope of apparent authorityIf an officer of a company enters into a contact with a third party and if the act of the officer is beyon

he scope of his authority, the company is not beyond.

Prospectus In order to finance its activities, a company needs capital which is raised by a public company by the issue o

prospectus inviting deposits or offers for shares and debentures from the public.

A private company is prohibited from making any invitation to the public for any shares or debentures, henneed not issue prospectus.

Prospectus - Definition According to Section 2(36) prospectus means

any document described or issued a prospectus and includes any notice, circular, advertisement or other documennviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in

debentures of, a body corporate.

the term `Prospectus` means a document which invites deposits from the publicor invites offers from thpublic to subscribe or buy the shares or debentures of the company.

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Changes in directors and auditors in the last 3 years

Misstatements in Prospectus and their consequences

f there is any misstatement of a material fact in a prospectus or if the prospectus is wanting in any material,here may arise,

Civil (public or general) Liability Criminal Liability (Illegal or against the law or unlawful)

Liability for Mis-statements in Prospectus

Civil Liability Criminal Liability

Against the Company Against the Directors,

Promoters and

Experts

Rescission

of

Contract

Claim for

DamagesDamages

Compensation

(Sec. 62)Damages

for

Non-compliance

(Sec, 56)

For Fraudulent

MisrepresentationFor Innocent

Misrepresentation

I. Civil LiabilityA person who has been induced to subscribe for shares (or debentures) on the faith of a

misleading prospectus has remedies against the company, and the directors, promoters and experts.1. Remedies against the company

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The proportional representation may be by a single transferable vote or by a system ofumulative voting or otherwise. The appointment shall be made once in 3 years and interim (temporary or short-tecasual vacancies shall be filled in the manner as provided in the Articles.

A single transferable vote or STV system is a type of proportional representation electoral system. In a singtransferable vote system, voters rank candidates in their order of preference by numbering the candidates onballot. The candidates with the highest preferences are elected.

Cumulative voting is a process that allows shareholders to cast all the votes at their disposal for a singlecandidate.

This type of voting system is understood to provide minority shareholders with stronger voice and vote inmatters that require the approval of a majority of the shareholders of a givencorporation.

The idea is that the process of cumulative votes makes it possible for all shareholders to more directly influethe outcome of an issue, such as the election of persons to open seats on the board of directors.

6. Appointed of directors by the Central Government (Sec. 408).

Sec. 408 empowers the Central Government to appoint such number of directors on the Board of aompany as the Tribunal may, by order in writing, specify as necessary to effectively safeguard the interests of theompany or its shareholders or the public interest.

The appointment will be for a period not exceeding 3 years on any one occasion.The purpose of the appointment is to prevent the affairs of the company from being conducted either in themanner-

(a)Which is oppressive (harsh or cruel) to any members of the company; or

(b)Which is prejudicial (harmful) to the interests of the company or to public interest?

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The Tribunal may pass the above order on a reference made to it by the Central Government or on the application- of not less than 100 members of the company, or of members of the company holding not less than 1/10th of the total voting power therein.

Any director appointed by the Central Government shall not be required to hold any qualification shares noshall his period of office be liable to termination by retirement of directors by rotation.

Any such director may be removed by the Central Government from his office and another person may beappointed in his place.

Powers of directors

General Powers

of the Board

Powers to be

Exercised at

Board Meetings

Powers to be

exercised with the

approval of

Company in

General Meeting

(1)General Powers of the Board(Sec. 291).

The Board of directors of a company is entitled to exercise all such powers and to do all such acand things as the company is authorized to exercise and do.

This proposition is, however, subject to two conditions:

First, the Board shall not do any act which is to be done by the company in general meeting.

Second, the Board shall exercise its powers subject to the provisions contained in the Companies Act, or in Memorandum or the Articles of the company or in any regulations made by the company in general meeting

But no regulation made by the company in general meeting shall invalidate any prior act of the Board whichwould have been valid if that regulation had not been made.

(2)Powers to be exercised at Board meetings(Sec. 292)-

The Board of directors of a company shall exercise the following powers on behalf of the company by means ofesolutions passed at the meetings of the Board, viz., the power to-

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Duties of directors

1. Fiduciary

Duties

Duties of Care, Skill

And Dil igence

(attentiveness)

Other duties of

Directors

1. Fiduciary duties.

As fiduciaries, the directors must-(a) exercise their powers honestly and bonafide for the benefit of the company as a whole; and

(b) not place themselves in a position in which there is a conflict between their duties to the company and thpersonal interests. They must not make any secret profit out of their position. If they do, they have to account for ithe company.

Fiduciary duties owed to the company. The fiduciary duties of directors are owed to the company and not to thendividual shareholders.

Anindividual,corporationorassociationholdingassetsfor anotherparty,often with thelegalauthorityandto makedecisionsregardingfinancialmatterson behalf of the other party.

A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter incircumstances which give rise to a relationship of trust and confidence

2) Duties of care, skill and diligence.

Directors should carry out their duties with reasonable care and exercise such degree of skill anddiligence as is reasonably expected of persona of their knowledge and status. He is not bound to bring any specialqualifications to his office.

Standard of care.The standard of care, skill, and diligence depends upon the nature of the companys business and

ircumstances of the case.

There are various standards of the care depending upon:

a) the type and nature of work;b) division of powers between directors and other officers;c) general usages and customs in that type of business; andd) whether directors work gratuitously or remuneratively.

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2. When the management is carried on in such a way that the minority is disregarded or oppressed. Oppression of minority shareholders will be a just and equitable ground where those who control the com

buse their power to such an extent as to seriously prejudice (injustice) the interest of minority shareholders.

3. Where there is a deadlock in the management of the company.When shareholding is more or less equal and there is a case of complete deadlock (standstill) in the

ompany on account of lack of probity (honesty) in the management of the company and there is no hope or possiof smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding uhe just and equitable ground.

Yenidje Tobacco Co. Ltd., Re (1916) 2 Ch. 426.A and B were the only shareholders and directors of a company with equal rights of managem

nd voting power. After a time they became bitterly hostile to each other and disagreed about the appointment ofmportant servants of the company. All communication between them was made through the secretary as they wereo speaking terms with each other. The company made large profits in spite of the disagreement. Held, there was aomplete deadlock in the management and the company was ordered to be wound up.

4. Where public interest is likely to be prejudiced.Having regard to the provisions of Sec. 397 and 398 (dealing with prevention of oppression

mismanagement) where the concept of prejudice to public interest is introduced, it would appear that the Tribunalwinding up a company will have to take to into consideration not only the interest of shareholders and creditors bupublic interest in the shape of need of the community, interest of the employees, etc.

5. When the company was formed to carry out fraudulent or illegal business or when the business of the compbecomes illegal.

6. When the company is a mere bubble and does not carry on any business or does not have any property

7. Acting against the interest of the State.If the company has acted against the interests of the sovereignty and integrity of India, the security o

tate, friendly relations with foreign states, public order, decency or morality.

8. Winding up of a sick company.If the tribunal is of the opinion that the company should be wound up under the circumstances speci

n Sec. 424G. The last two clauses in Sec. 333(i) have been added by the Companies (Amendment) Act, 2002.

Voluntary winding up (Secs. 484 to 520) Voluntary winding up means winding up by the members or creditors of a company without interference by

Tribunal. The object of a voluntary winding up is that the company, i.e. the members as well as the creditorleft free to settle affairs without going to the Tribunal. They may however apply to the tribunal for anydirections if and when necessary

Circumstances in which a company may be wound up voluntarily (sec. 484)- A company may be wound upvoluntarily

1) By passing an ordinary resolution: When the period, if any, fixed for the duration of a companyhe Articles has expired, the company in general meeting may pass an ordinary resolution for its voluntary winding

The company may also do so when the event, if any, on the occurrence of which the Articles provide that the comps to be dissolved, has occurred.

2)By passing a special resolution

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A company may at any time pass a special resolution that it be wound up voluntarily. No reasons need be givenwhere the members pass a special resolution for the voluntary winding up of the company. Even the Articles cannprevent the exercise of this statutory right.

Commencement of voluntary winding up(Sec. 486)- A voluntary winding up shall be deemed to commencthe time when the resolution (ordinary or special, as the case may be) for its voluntary winding up is passed

Advertisement of resolution. (Sec. 485)Within 14 days of the passing of the resolution for voluntary winding up of the company, th

ompany shall give notice of the resolution by advertisement in theOfficial Gazette, and also in some newspaperirculating in the district of the registered office of the company

Types of voluntary winding up

A voluntary winding up may be a members` voluntary winding up, or creditors` voluntary winding up.

Members voluntary winding up

Declaration of solvency (Sec. 488).

In a voluntary winding up of a company if adeclaration of its solvency is made in accordance with provisions of Sec.488, it is a members` voluntary winding up. The declaration shall be made by a majority of thedirectors at a meeting of the Board that the company has no debts or that it will be able to pay its debts in full withiyears from the commencement of the winding up. The declaration shall be verified by an affidavit (official declara

The declaration shall have effect only when it is

(a) made within five weeks immediately before the date of the resolution, and delivered to the Regis

or registration before that date; and

(b) accompanied by a copy of the report of the auditors of the company on,(i) the profit and loss account of the company from the date of the last profit and loss account to the lat

practicable date immediately before the declaration of solvency.(ii) the balance sheet of the company and

(iii) a statement of the companys assets and liabilities as on the last mentioned date.

A winding up in the case of which a declaration has been made and delivered is referred to a

members voluntary winding up, and a winding up in the case of which a declaration has not been so made and delis referred to as a creditors` voluntary winding up.

Provisions applicable to a members` voluntary winding up Secs. 490 to 498 shall apply in relation to a members` voluntary winding up (Sec. 489). The provisions of t

Sections are as follows:1.Appointment and remuneration of liquidators (Sec. 490)

The company in general meeting shall appoint one or more liquidators for the purpose of wiup its affairs and distributing the assets. It shall also fix the remuneration, if any, to be paid to the liquidator oriquidators. Any remuneration so fixed shall not be increased in any circumstances. The liquidator shall not take ch

of his office before his remuneration is fixed as aforesaid.

. Board's powers to cease on appointment of a liquidator (sec. 491).

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On the appointment of a liquidator, all the powers of the Board of directors, the managing or whole-ime directors, and manager, shall cease except when the company in general meeting or the liquidator may sanctiohem to continue.

3.Power to fill vacancy in office of liquidator (sec. 492) If a vacancy occurs by death, resignation orotherwise in the office of any liquidator appointed by the company, the company in general meeting may fill thevacancy. For this purpose a general meeting may be convened by any contributory or by the continuing liquidatoriquidators, if any.

4.Notice of appointment of liquidator to be given to Registrar (Sec.493).

The company shall give notice to the Registrar of the appointment of a liquidator or liquidators. It slso give notice of every vacancy occurring in the office of liquidator and of the names of the liquidators appointedill every such vacancy. The company shall give the notice within 10 days of the event to which it relates.

5.Power of liquidator to accept shares, etc. as theconsideration for sale of property(Sec. 494).

6.Duty of liquidator to call creditors` meeting in case of insolvency (Sec.495)

If the liquidator is at any time of opinion that the company will not be able to pay its debts inwithin the period stated in the declaration, he shall forthwith summon a meeting of the creditors. He shall lay befor

meeting a statement of the assets and liabilities of the company. Thereafter the winding up shall become creditorsvoluntary winding up.

7. Duty to call general meeting at the end of each year (Sec. 496).

In the event of the winding up continuing for more than 1 year, the liquidator shall call a general mof the company at the end of the first year from the commencement of the winding up. Likewise, he shall call a gemeeting at the end of each succeeding year. He shall lay before the meeting an account of his acts and dealings andhe conduct of the winding up during the year.

8. Final meeting and dissolution (Sec. 497). As soon as the affairs of the company are fully wound up, the liquidahall make up an account of the winding up, showing how the winding up has been conducted and how the propert

he company has been disposed of. He shall then call a general meeting of the company and lay before it the accouhowing how the winding up has been conducted.

The meeting shall be called by advertisement specifying the time, place and object of the meeting; and published not less than one month before the meeting in Official Gazette, and also in some newspaper circu

in the district the registered office of the company. Within one week after the meeting, the liquidator shall sent to the Registrar and the Official Liquidator a co

each of the account and shall make a return to each of them of the holding of the meeting and of the late theIf a quorum is not present at the final meeting, the liquidator shall make a return that the meeting was duly cbut could not be held for want of quorum.

The Registrar on receiving the account and return shall register them. The Official Liquidator, on receivingthem, shall make a scrutiny, the books and papers of the company. The liquidator of the company presentofficers shall give the Official Liquidator all reasonable facilities to make the scrutiny.

On such scrutiny the Official Liquidator shall make a report to the Tribunal. If the report shows that the affof the company have been conducted in a manner not prejudicial to the interests of its members or to publicinterest, then from the date of the submission of the report to the Tribunal, the company shall be deemed to dissolved.

9. Provisions as to annual and final meeting in case of insolvency (Sec.498)

If in the case of a members voluntary winding up, liquidator finds that the company is insolvent, Se

08 and 509 (what deal with the duty of the liquidator to call a meeting of the company of creditors at the end of ea

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On the appointment of a liquidator, all the powers of the Board of directors shall cease. But theommittee of inspection, or if there is no such committee, the creditors in general meeting, may sanction the contin

of the Board.

7)Power to fill vacancy in office of liquidator(Sec.506).If a vacancy occurs by death, resignation or otherwise, in the office of a liquidator (other than a

iquidator appointed by, or by the direction of, the Tribunal), the creditors in general meeting may fill the vacancy.

8)Power of liquidator to accept shares, etc., as consideration for sale of property (Sec. 507).The provisions of Sec. 494 shall apply in the case of a creditors` voluntary wounding up.

However the powers of the liquidator under Sec. 494 shall not be exercised except with the sanction either of theTribunal or of the committee of inspection.9)Duty of liquidator to call meeting at the end of each year (Sec.508).

The liquidator shall call a general meeting of the company and a meeting of the creditors every yearwithin 3 months from the close of every year. This will be so if the winding up continues for more than 1 year. Heay (put down ) before the meeting an account of his acts and dealings and of the conduct of winding up during the

preceding year and position of the winding up.

0) Final meeting and dissolution (Sec. 509)

As soon as the affairs of the company are fully wound up, the liquidator shall make up an acof the winding up showing how the winding up has been conducted and how the property of the company has beendisposed. He shall then call a general meeting of the company and a meeting of the creditors for the purpose of layhe account before the meeting and giving explanation thereof. Thereafter the procedure shall be the same and laid

down in Sec.497.

Corporate Governance

Corporate governanceis the set of processes, customs, policies, laws, and institutions affecting the way a corporaor company) is directed, administered or controlled. Corporate governance also includes the relationships among t

many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are thehareholders, the board of directors, employees, customers, creditors, suppliers, and the community at large.

A corporate stakeholderis a party that can affect or be affected by the actions of the business as a whole

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Parties to corporate governance

Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board odirectors, management, shareholders and Auditors). Other stakeholders who take part include suppliers, employeesreditors, customers and the community at large.

A board of directors often plays a key role in corporate governance. It is their responsibility to endorse theorganizations strategy, develop directional policy, appoint, supervise and remunerate senior executives and toensure accountability of the organization to its owners and authorities.

Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital

return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return the

individuals provide value in the form of natural, human, social and other forms of capital.

Principles of corporate governance

Commonly accepted principles of corporate governance include:

1) Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders ahelp shareholders to exercise those rights. They can help shareholders exercise their rights by effectivelycommunicating information that is understandable and accessible and encouraging shareholders to participa

general meetings.2) Interests of other stakeholders: Organizations should recognize that they have legal and other obligations

legitimate stakeholders.3) Role and responsibilities of the board: The board needs a range of skills and understanding to be able to d

with various business issues and have the ability to review and challenge management performance. It needbe of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. Thare issues about the appropriate mix of executive and non-executive directors.

4) Integrity and ethical behavior: Ethical and responsible decision making is not only important for publicrelations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations shoulddevelop a code of conduct for their directors and executives that promotes ethical and responsible decisionmaking. It is important to understand, though, that reliance by a company on the integrity and ethics of

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individuals is bound to eventual failure. Because of this, many organizations establish Compliance and EthiPrograms to minimize the risk that the firm steps outside of ethical and legal boundaries.

5) Disclosure and transparency: Organizations should clarify and make publicly known the roles andresponsibilities of board and management to provide shareholders with a level of accountability. They shoualso implement procedures to independently verify and safeguard the integrity of the company's financialreporting. Disclosure of material matters concerning the organization should be timely and balanced to ensuthat all investors have access to clear, factual information.

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