define the term company .Explain the kinds of companies. Distinguish b company and private limited company ?
- Introduction -
b) Define a joint stock company!
c) Define Joint Stock Company. Mention its characteristic. Give its classification?
d) Explain the characteristics of a company distinguish between public limited company
A company, means, a group of person associated together for the attainment of a common end, social or economic.
It has no technical or legal meaning .It represents different kinds of association both. Business and otherwise. According
to .registered under the companies Act, 1956 or an existing company (i.e. a company registered under any of the earlier
Company formed and registered under the companies Act. 1956.
It is a voluntary association of persons. Formed for some common purpose with capital divisible into parts. Known as shares
and with a limited liability. It is a creation of the law . It has a perpetual succession and a common seal. It exists only
in the eyes of the law.
An artificial person -
Has no body or soul. A company has no body, no soul and no conscience. It is not visible, save to the eyes of the law.
These physical disabilities make a company an artificial person.
Characterstics of a company.
1) Separate legal entity:-
A company is regarded as an entity separate from it members. In other words, it has an independent existence. Any of its
members can enter into contracts with it in the some manner as any other individual can and he cannot be held liable
for the act of the company even if he holds virtually the entire share capital. The company’s money and property
belong to the company and not to the shareholders.
The important of the separate entity of a company was very well brought out in the following case
Salomon vs Salomon & co. Ltd.
2) Limited liability:-
A company may be a company limited by shares or a company limited by guarantee. In a company limited by shares, the
liability of members is limited to the unpaid value of the shares. limited liability is different from that of personal
Limited liability means “ you have to pay as mach as you have agreed to pay & unlimited liability means.
“You have to pay as much as you owe”. It also means that a company with limited liability a member is liable to the
company to a limited extent i.e. the extent to which he has agreed to subscribe for share in company.
For example, if the face value of a share in a company is Rs. 10 and a member has already paid Rs. 7 per share, the
balance is Rs. 3. members are bound to pay as and when the company makes the call. (Rs.3). It may be dewing the life
time of the company or when the company is being wound up. But, the extent of Liability on each shares is members only
the balance of Rs. 3 on each shares and nothing more. In a company limited by guarantee, the liability of members is
limited to such amount as the members may undertake to contribute to the assets of the company in the event of its being
3) Perpetual succerion and a common seal.
Perpetual means, “ for ever’, since the company is created by the process of law, it will be closed b the process of
law. Winding up is the only process by which the life of the company comes to an end. As such, company never dies,
nor does its life depend on the life of its members. It is not in any manner affected by insolvency, mental dis order
or retirement of any of its members. Members may come and go but the company can go on for ever. It continues to exist
even if all is human members are dead.
Even where during the war all the members of a private company while in general meeting, were killed by a bomb, the
company survived, not even a by drogen bomb could have destroyed it. A chang in the composition of membership does not
effect the continued existence of the company. This characteristic of the company is called perpetual succerion.
4) common seal:-
Since, a company is a artificial person it has no hand and mind it has no physical existence, but it has its own legal
separate identity it is a independent legal artificial persons. It must act through its agents, who on behalf of the
company will act, for the benefit of the company and not for personal use. And all such contracts extend into by the
agents of the company must be under the seal of the company.
In short. The Signature of the company is called common seal. A company signifies its assent to any document, contract
ect, by affixing its common seal on it. ( which bears the name of the company exqraved upon it).
5) Transferability of shares:-
The capital of a company is divided into parts, called shares. the shares in the share capital of a company are generally
transferable, These shares are, subject to certain conditions, freely transferable, so that no shareholder is permanently
or necessarily wedded to a company. In other words, A share holder can transfer his share to any one he likes so that no
shareholder is bound to be permanently connected with a company.
6) Separate property:-
A company is a legal person distinct from its members, It is, there fore capable of owning, enjoying and disporting of
properly in its own name. Although its share holders, they are not the private and joint owners of its property. The
company is the real person in which all its properly is vested and by which it is controlled managed and disposed of.
7) Capacity to sue:-
A company can sue and be sued in its corporate name it may also inflict or suffer wrongs. It can in fact do or have done to
it most of the things which may be done by or to a human being.
A company is not a citizen of India, Although a company is regarded as a legal person though artificial, It is not a citizen
either under the constitution of India or the citizenship Act. A company has a nationality and residence. Although a company
cannot be a citizen yet it has a nationality, domicile and residence.
Kinds of Companies.
Classification on the basis of incorporation.
1. Statutory companies:-
These are the companies which are created by a special Act of the legislature e.g. the reserve Bank of India, the state
bank of India, the life Insurance corporation, the industrial Finance Corporation, etc. These are mostly concerned with
public utilities, e.g. railways, tramways gas and electricity companies and enterprises of national importance. The
provisions of the companies act, 1956 apply to them, if they are not inconsistent with the provisions of the special
Acts under which they are formed.
2. Registered companies:-
These are the companies which are formed and registered under the companies Act, 1956, or were registered under any of
the earlier companies Acts. These are by for the most commonly found companies.
1.) Companies Limited by shares.
Where the Liability of the members of a company is limited to the amount unpaid on the shares, the company is known
as a company limited by shares. In terms of section 12(2)(a) of the act, a company having the liability of the
members. Limited by the Memorandum to the amount if any, Unpaid on the shares respectively held by them is termed
as a company limited by shares. Accordingly, a member is liable to contribute to the arrests of the company is case
of winding up of the company only up to the amount remaining unpaid on the shares held by him. However, in case of
partly paid shares. the unpaid amount on the shares is payable at any time when called on during the existence of
the company or even when the company is being wound up. A company limited by shares may be a public company or a
Companies limited by shares are the most common.
2) Company limited by Guarantee.
Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute
to the arrest of the company in case of its winding up, the company is called a company limited by guarantee. The
liability of tits members is limited. The Articles of such a company must state the number of members with which the
company is to be registered.
As per section 12(2)(a) of the Act, a company having the liability of the members limited by the Memorandum to such
amount as the members may respectively undertake to contribute to the assets of the company in the event of its being
wound up is called a company limited by guarantee. No member is is required to pay the guaranteed amount when the
company is a going concern. A Guarantee Company may be a company having share capital or not having share capital,
The Memorandum of the company contains the provisions as to that every member of the company. Under takes to
contribute to the asked of the company at the time of its being wound up and the amount must be shards in the
Companies limited by guarantee are not formed for the purpose of profit
but for the promotion of art, science culture, charity, sports commer or for some similar purpose. These companies may or may
not have a share capital.
It must includes its in its name the word limited or private limited as the case may be. A guarantee company must
register its article of Association along with its memorandum.
3) Unlimited Companies:-
Section 12 specifically provides that any 7 or more person in case of public company and 2 or more person in case of
private company. May form an incorporated company with or without limited liability. A company without limited
liability is known as an unlimited company. In other words, A company not having any limit on the liability of
its members is an unlimited company it means in case of winding up of the company the member are liable to pay
the full amount to meet its obligation and there is no limitation to amount obligation which is too be paid by the
members. An unlimited company ma be converted into a limited company as per section 32 of the Act.
III ) Classification on the Baris of Number of Members
1) Private Company:- A Private company is normally what the Americans call a close corpotion. According to section 3(1)(iii)
a private company means a company which by its articles.
a) Restricts the right to transfer its shares, if any: this restriction is meant to preserve the private character of the
b) Limits the number of its member to 50 ( not including its present or past employee-members) and
c) Prohibits any invitation to public to subscribe for any shares in or debentures of the company. In a public company,
the shares are freely transferable. In a private the right to transfer shares is resmtel by the Articles.
d) A private company must have its own Art ides of association which entrains the conditions as laid down in sec 3 (i)(iii).
e) Prohibits any invitation or acceptance of deporits from persons other than its members, director or their relatives.
Minimum number of members of a private company should be Z. The
Amendment of 2000 requires that the company should prohibit any invitation on acceptance of deposits from persons other than
its members, dissectors or their relatives. Existing private companies have to increase the capital to one lakh rupees
within two years.
In short a private company is one which has its minimum pail up capital of Rs. 1 Lakh or such higher paid up capital
as may be prescribed.
Its formation requires only two persons. Public participation by issuing a prospectus and can is prohibited,
statement in live of prospectus and can commence biasness immediately offer in corporation.
A private company is required to have only two divectors. All the dissectors can be given permanent appointment
and be appointed by a single resolution. A private company has not to hold a statutory meeting or file a statutory
2) Public company:-
A public company means a company which Is not a private company (sec3(1)(iv)). In other words, a public company means
a company which by its articles.
i) does not restrict the right to transfer its shares, if any,
ii) does not limit the number of its members, and
iii) does not prohibit any. Invitation to the public to subscribe for any shares or debentures of the company.
There must be at least seven (7) members while there is no maximum limit of members. Each member is free to transfer
his shares to anyone he likes. Public companies caps issue prospedius to the public, inviting them to purchase its
shares and debentures. Public company with paid up capital of less than Rs. 5 Lakhs, shall enhance the paid up
capital shall enhance the paid up capital of Rs. 5 Lakhs or such other amount as may be prescribed within 2 years
from the commencement of the companies (Amendment ) Act 2002. Its formation requires 7 performs. It has to issues
a prospectus or lieu of prospective. It has to hold statutory meeting which is compalrsny is public company failing
of which would result in winding up and public company has to submit statutory report before registrar.
Classification on the basis of control.
1) Holding companies.
2) Subsidiary companies.
1. Holding company:-
Subsielary company where one company has control over another, it is called the holding company.
i) Subsidiary company:-
Where one company controls the composition of the board dictators of the other company. Where the it
has power of its own to appoint or to remove the majority of the dissectors and it is said to have this power. When a person
cannot be appointed to a directorship without its support.
ii) Where one company holds the majority of shares in another company which it is deemed to have when it controls more than
half the total voting power in the company [sec4(3)]
According to sec 4(4), a company is “deemed to be the holding company of another if, but only if that other is its
2. Subsidiary company:-
A company is known as a subsidiary of another company when control is
exercised by the latter (called holding company) over the formers, called a subsidiary company.
A company is deemed to be a subsidiary of another company in the following castes.
Government company means any company is which not less than fifty one(51) percent of the paid-up share capital is
held by the central government or government or partly by central government and partly by one or more of the state
governments and includes a company which is a subsidiary of the government company. [sec 617] for example.
State trading corporation of Indies and Minerals and Metals trading corporation of India are Govt. companies.
It means any company incorporated outside India which has an established place of business in India. In foreign paid
up share capital of a foreign company is held by one or more citizens of India or/and by one or more Indian companies,
singly or jointly, such company shall comply with such provisions as may be prescribed as if it were an Indian company
Distinction between a public company and a private company.
Memorandum of Association.
The memorandum of Association is one of the most important document of the company. It is a fundamental document of
the company. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. It
is the charter of the company. It defines the relationship of the company with the outside world. It also regulates
the external officer of the company is relation to outside world. Its purpose is to enable shareholders and there who
deal with the company to know what its permitted range of enterprise is. It is the area beyond which the actions of
the company cannot go, inside that area the shareholder may make such regulation for they own governance as they
Purpose of Memorandum:-
a) The prospective shareholders know the field in, or the purpose for, which their money is to be used by the company and
what risk they are under taking in making investment.
b) The outsiders dealing with the company know with certainty as to what the object of the company are and as to when the
contractual relation into which they contemplate to enter with the company is within the object of the company.
The Memorandum of Association of a company shall be
2) Divided into paragraph numbered consecutively and
3) Signed by 7 in case of public co and by 2 in case of private co. subscribers.
Each subscriber shall writhe give his name, address, description and occupation, if
any and sign in presence of at least I witness who shall attest the signature and shall like wise add his address,
description and occupation if any. The memorandum of Association printed on computer provided it is neatly and legibly
Contents of Memorandum (sec.13) The Memorandum of every company shall contain the following classes.
1) The name of the company with limited as the last word of the name in the case of a public limited company and with
private limited as the last words of the name in the case of a private limited company.
2) The state in which the registered office of the company is to be situated.
3) The objects of the company which shall be classified as.
a) Main objects and other objects of the company.
4) In the case of company limited by shares or by guarantee. The the memorandum shall also state that the liability of
its members is limited.
5) In the case of companies with objects not confined to one state, the states to whose territories the objects entered.
6) In the case of a company having a shares capital the company is to be registered and the division there of into shares
of a fixed amount. The memorandum of a company limited by guarantee shall also state each member undertakes to contribute
to the assets of the company in the event of its would up.
1) Name clause:-
Section 20, The first clause of the memorandum stats the name clause. The name
of a company establishes its identity and is the symbol of its existence, if the company may, subject to is with limited
liability the last word of the name should be “limited” and in the Case of a private company “private limited.”
i) Undesirable name to be avoided:-
A company cannot be registered by a name which, in the opinion of the central government, is undesirable Broadly speaking,
a name is undesirable and there fore rejected if it is too similar to the name of another company or misleading i.e,
Suggesting that the company is connected with a particular business or that it is an association of a particular type
when this is not the case.
A company should not adopt a name which is identical with the name of an already existing company. Publication of name
a) Paint or affix its name and the address of its registered office, on the outside of every office or place in which its
barriers is carried on, in a conspicuous position in letter easily legible.
b) Have its name and the address of its registered office mentioned in all business letters, bill heads, notices and other
official publication etc of the company.
2) The registered office clause. (sec146)
Every company shall have a registered office from the day on which its begins to
came on business, or as from the 30th day after the date of its incorporation whichever is earliest. Notice of the situation
of the registered office and every change shall be given to the Register within 30th day after the date of incorporation of
the company or after the date of change.
If default is made in complying with these requirements, the company and every officer of this company who is in default
shall be punishable with fine which may extend to Rs. 50 for every day during which the default continues.
3) The object clause:-Sec13(1)(d)
The object clause both defines and confines scope of the company powers, The company carries on business with other
people’s money and, therefore, the investors must be in formed of the object in which these money is going to be employed.
The object clause in the Memorandum of every company shall state.
i) Main objects of the company and objects incidental or ancillary to the attainment of the main objects and.
ii) Other objects of the company not included in the above laurel.
The narrower the objects expressed in the Memorandum, the less is the subscriber’s risk, But the wider such objects
the gear grater the security of those who transact business with the company.
4) The capital clause [sex 13(4)(a)]
The Memorandum of a company having a share capital, shall state the amount of the share capital with which the company
is to be registered and the division there of into shares of a fixed amount. The Capital with which a company is
registered is called registered; ‘authorized’ or ‘nominal’ capital. A company can not issue more shares than are
authorized for the lime being by the memorandum.
The companies (A mend ment) Act, 2000 has, by amending section 3; prescribed the requirement that a public company
must have a minimum paid up capital of five lakh rupes or such higher amount as may be prescribed. A private company
is required to have a minimum paid up capital of a 1 Lakh Rupes or such higher amount as may be prescribed by its articles.
5) Liability clause[sec13(2)]:-
The memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is
limited. This means that the members can only be called upon to pay to the company at any time the uncalled or unpaid
amount on the shares held by then, or upto the maximum of the amount which they have guaranteed.
The memorandum concludes with the subscribers declaration that they desire to be formed into a company this clause static
“Wc the several persons where names and addresses are subscribed are desirous of being formed into a company in pursuance
of this memorandum of association.” And we respire lively agree to take the number of shares in the capital of the company
set opposite our respective names”. This is followed by the names, addresses and descriptions of the subscribers and the
nuvher of shares taken by each one of them. Each subscribers has to take at heart I shares. Each subscriber must sign the
memorandum. After incorporation no subscriber can with draw his name or any ground what so ever.
The memorandum has to be signed by at least 7 subscribers in the case of a public company, and by at leas 2 subscribers
in the case of a private company. The signature of each subscriber shall be attested by at heart I with ness who can not
be any of the other subscribers.
Alteration of Memorandum:-
1) Change in name :- According
a) A company may change its name by a special resolution ( i.e. three fourth majority of voting ) and with the approved of
the central government.
b) According to section 22 by an ordinary resolution a company may change its name, where a company is registered by a name,
which in the opinion of The central Government, is I Leah with, or to nearly resemble, the name of an existing company.
Fresh certificate of incorporation. Section 23. where a company change its name, the Registrar shall registrar the new
name in the place of the farmer name, it shall also issue to the company, a fresh certificate of incorporation.
2) Change of registered office.
This may invites
a) Change of registered office from one place to another place in the same city, loran or village.
b) Change of registered office from one town to another town in the same state.
c) Change of registered office from one state to another state.
Under section 146(2) a notice is to be given within 30 days of the change to the registrar in case a special resolution
is required to be passed at a general meeting of the share holders and a copy of it is to be filed with the Registrar
within 30 days.
The alteration shall be confirmed by the company low board. Sec17(1)
3) Alteration of objects:-
The objects clause is the must important clause in the Memorandum. The legal personality of a company exists only for
the particular purposes of incorporation as defined in the objects clause. By section 17(1) the objects of a company
may be altered by a special resolution so as to enable the company. To carry on its business more economically or more
efficiently or to attain its main purpose by new or improved means. Or to enlarge or change the local area of its
operations. An alteration of this nature may require an alteration in the name of the company or to amalgamate with any
other company or body of persons.
A special resolution shall be passed by the company for alteration of the object. The company shall file with the
Registrar a copy of the resolution within one month from the date of resolution.
4) Change in Liability clause:-
A company limited by shams or guarantee cannot change its memorandum so as to compose any additional liability on the
members or to compel them a buy additional shares of the company unlearn all the members agree is writing to such change
either before or after the change.
write short note on article of Association what do you understand by Article of Association.
The Articles of Association are the rules, regulations and bye-laws for the internal management of the affairs of a company.
They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Assonating. According
to section 2(2) of the companies Act, 1956 the ‘Articles’ means the articles of association of a company as originally framed
or as, altered from time to time in pursuance of any previous companies law or of the present act.
The Articles are next in importance to the memorandum. The Articles play a part subsidiary to Memorandum of Association.
They are distinguished from the Memorandum in that the memorandum contains the fundamental conditions upon which alone
a company is allowed to be incorporated, they are as such subordinate to, and controlled by, the memorandum.
Companies which must have articles of association are,
1) Unlimited companies
2) Companies limited by guarantee and
3) Private Companies limited by shares.
According to section 30 the Articles shall be
b) Divided into paragraphs, and
c) Signed by each subscriber of the memorandum ( who shall add his address,
description and occupation if any) in the presence of at least I witnen who will attest the signature and like wise add his
address, description and occupation, if any.
Contents of Articles:-
Articles us ually contain provitions relating of the following matters:-
1) Share capital, rights of share holders, variation of these rights payment of underwriting commission
2) Lien on shares.
3) Calls on Shares.
4) Transfer of Shares.
5) Transmarion of Shares
6) Forfeiture of Shares
7) Convention of shares into stock
8) Shares warrants
9) Alteration of Capital
10) General meetings and proceedings thereat
11) Voting rights of members, voting and poll, proxies
12) Directors, their appointment, remuneration, qualifications, powers and proceedings of board of directors.
15) Dividends and reserves
16) Accounts, audit and borrowing powers.
17) Capitalization of profits
18) Winding up
In faming the articles of a company case must be taken to see that
regulations farmed do not go beyond the powers of the company itself as contemplated by the memorandum of Association. They
should also not Violate any of the provisions of the companies Act. If they do, they would be ultra virus the memorandum
or the act and will be null and void.
Schedule I of the Act set out tables of model forms of articles for different companies. Table A is applicable to companies
limited by shares. [sec 28(1)] such a company may either frame its own articles or adopt table A and the Table automatically
applies to the extent to which it is not excluded.
Articles and Memorandum. Distinction.
The public about the formation of the company and about raising of the capital by company, to that the intending investors or
the intending subscribers and the person interested in purchasing the shares and investing there money in the company many
apply for the same.
2) The memorandum must be read in conjunction with the Articles. This is the case when it is necessary
(a) to explain any
ambiguity in the terms of the memorandum, or
(b) to supplement the memorandum upon any matter about which it is silent except
as regard matters which must by statute be provided by he Memorandum. The Articles may explain or supplement the memorandum,
but cannot extend or enlarge its scope.
3) The terms of the memorandum, cannot be modified or controlled by the Articles. However, if there is any ambiguity in the
Memorandum, the Articles may be referred to for clarification. But so far as the fundamental conditions I the memorandum are
concerned, they cannot be explained with the aid of the Articles.
ARTICLES AND MEMORANDUM-DUSTINCTION
LEGAL EFFECT OF MEMORANDUM AND ARTICLES
The effect of this provision is to constitute, through Memorandum and Articles of Association of the company, a contract
between each member and the company. The legal implication of these documents may be discussed as to how far these documents
1) Members to the company. The memorandum and Articles constitute a binding contract as between the members and the company.
The effect of this is that each member is bound to the company as if he has actually signed the memorandum and the Articles.
Borlands’s Trustee v. Steel Bros. & Co. Ltd. (1901) 1 Ch. 279. the Articles of a company as altered provided that the
shares of any member who became bankrupt should be sold to certain persons at a fair price. B, a shareholder, became
bankrupt and this trustee in bankruptcy claimed that he was not bound by the altered Articles, Bankruptcy claimed that
he was not bound by the altered Articles, Held, the Articles were a personal contract between B and the company, and as
such B and his trustee were bound.
2) Company to the members. A company is bound to the members in the same manner as the members are bound to the company. It
can, therefore, exercise its rights, as against any member, only in accordance with the provisions in the memorandum and the
Articles. A member can obtain an injunction restraining a company from doing an ultra vires act.
Wood v. Odessa Waterworks Co.,(1889)42 Ch. D 636. The Articles of W. Co. provided that the directors may with the sanction
of the company at general meeting declare a dividend to be paid to the members. A resolution was passed to give the
shareholders debenture bonds instead of paying the dividend in cash. A member filed a suit to restrain the directors
from acting on the resolution as it was not in accordance with the Articles of the company. The directors were restrained
from acing on the resolution as it was not in accordance with the Articles of the company. The directors were restrained
from acting on the resolution.
3) Members inter se. As Between the members inter se (among themselves) the memorandum and the Articles constitute a Contract
between them and are also binding on each member as against the other or others. Such a contract can, however, be enforced
through the medium of the company.
Rayfield v. Hands, (1960) Ch. 1. The Articles of a company provided that if a member wanted to transfer his hares, he
must inform the directors of his intention and the directors must “take the refused to take the shares and argued that
the Articles did not impose any liability upon them. Held, the directors were obliged to take the shares. The Articles
imposed an obligation on them not as directors but as members of the company (i.e. in their capacity as members and it
was not necessary for the company to be a party to that action.
4) Company to the outsiders. The Articles do not constitute any binding contract between the company and an outsider. An
outsider cannot take advantage of the Articles to found a claim thereon against the company. This is based on the general
rule of law that a stranger to a contract cannot acquire any rights and liabilities under a contract. If the Articles provide
that the company on incorporation shall purchase vendor, on becoming a shareholder, cannot sue the company on the basis of
the Articles [Pritchard’s Case, (1873) L.R. 8 Ch. App.956].
Alteration of Articles
Companies have been given very wide powers to alter there Articles. It is a statutory power if for example, the Articles
of a company contains any restriction that the company shall not alter its Articles, it will be contrary to the companies
act and therefore inoperative.
According to sec 31, a company may, by passing a special resolution, alter regulations contained in its Articles anytime.
Again any new regulations in the Articles may be adopted which could have been lawfully included in the original Articles.
A copy of every special resolution altering the Articles shall be filled with the Registrar within 30 days of its purring.
Limitations to alteration:-
1) Must not be inconsistent with the act. The alteration of Articles must not be inconsistent with. Or go beyond the
provision of the companies Act.
2) Must not conflict with the memorandum:- The alteration of the articles must not conflict with the provisions of memorandum
if it does, it will be ultra nires and wholly void and inoperative.
3) Must not sanction anything illegal.
4) Must be for the benefit of the company:- The alteration must be made bona fide for the benefit of the company. It must be
exercised not only in the manner required by law, but also bona fide for the benefit of the company as a whole.
5) Must not increase liability of members:- the alteration must not in any way increase the liability of the existing members.
6) Alteration by special resolution only:- Even clerical errors in the articles should be set right by a special resolution.
7) Approval of central government when a public company is concerted into a private company.
8) No power of the count to amend articles.
An important advantage of the formation of a public company is that the capital in bull can be raised from the general public.
But for this pursuer it is necessary that an information to the public out.
What is a propitious ? what are its contents ? who are liable for miens statement in prospectus ?
A public company, but not a private company, is entitled, by issuing a prospectus to invite applications for its
shares or debentures or other securities. A prospectus can be issued only by a listed public company. “A listed public
company means a public company which has any of its has to be supplied when securities histed in any recognized stock
Definition:- section 2(36) of the companies Act 1956, defines prospective as a document described or issued
as prospectus, notice circular advertisement or other document inviting offers from the public for the subscription or
purchase of any shares in or debentures of a company or inviting deposits from the publish.
Application forms. Section 56
Application forms. For shares or debentures cannot be issued unless they are accompanied by a memorandum containing such
salient features of a prospectus as may be prescribed.
The provisions of the Act relating to prospectus and the penal provisions are attracted only when the prospector has been
issued. “Issued” means issued to the public. “Public” includes any section of the public.
Contents of prospectus:-
1) General information:- Section 55 Every prospectus must be dated general information about the company must be stated in
the prospectus i.e. address, and occupation of the signatories to the memorandum and shares taken by them.
2) The number and class of shares and the interest of the holders in the property and profits of the company.
3) The number of redeemable shares and the date of redemption.
4) The qualification shares of a dissector and their remuneration
5) Names and address and occupations of the directors, managing directors managing agents, secretaries and treasures and the
manager if any.
6) The minimum subscription, time of opening of the subscription lists
7) The amount payable on application allotment.
8) Particulars of interest of directors.
9) The right of voting at meeting of company and the restriction if any.
10) The name and addresses of the auditors.
11) Outstanding litigations and particulars of defaults in respect of statutory compliance.
12) Management perception of risk factors with regard to the successful implementation of the proposed project.
13) Section 56 requires every prospectors to disclose the matter specified in schedule II of the Act
Beside the above maters, following two reports are also given in the
1) A report by the auditors in respect of profits and losses and assets and liabilities of the company and the rates of
dividend, if any, paid by the company.
2) A report by accountants to be named in the prospectus in respect of profits or losses of the business for each of the five
financial years immediately preceding the issue of prospectus and assets and liabilities of the company at last date up to
which the account were made up.
Remedies Against misrepresentation in prospectus.
According to section 65. an untrue statement or mis-statement is one, which is misleading, in form and content in which it
has been included in the prospectus. Section 63 where a prospectus includes any untrue statement, every person who
authorized the issue of the prospectus is punishable with imprisonment for a term which may extent to two years, or with
fine which may extend to five thousand requests or with both.