Report of Law
Report of Law
Report of Law
EXPLORER
DATE OF SUBMISSION:23.05.2011
Submitted To
Mohammad Badruzzaman Bhuiyan Lceturer Tourism & Hospitality Management Deptt. University of Dhaka
Submitted By
Explorer B.B.A 15th Batch THM 2nd Batch University of Dhaka
EXPLORER
Name Waci Ahmmed Bapon Cahndra Kuri Biplab Roy Al Mamun Misbah Uddin Ratan Mia ID Number 42 14 54 31 67 57
Letter of Transmission
Mohammad Badruzzaman Bhuiyan Lecturer Department of THM University of Dhaka Dear Sir, It gives me immense pleasure to submit my report on company law This report was assigned to me as a partial requirement of the business law course(311) course in fifth semester. While making the report we come across many hurdles and pleasant experiences. But the valuable experiences we have gained during the period will undoubtedly benefit me in the years ahead. This report gave us an opportunity to apply our theoretical expertise, sharpen our views, ideas, and communication skills, and bridge them with the real world of practical experience, which will be a good head start for our future professional career. We realize that certain information enclosed in this report is not imaginary but real and should attach academic interest. We hope you would find the report in appropriate manner. We appreciate your cooperation and we hope you will call upon us with any queries occasioned by this report. We have tried sincerely to comprehend and translate my knowledge in writing this report. we enjoyed this project work and gladly attend any of your calls to clarify on my point, if necessary.
Acknowledgement
We are thankful and grateful to almighty God who has given me the strength and ability to complete the report on company law we are also grateful to our Course Instructor to prepare this very important report. He has given all sorts of help required to complete this. We are also grateful to those who have given us suggestion and interaction. To analyze the data have gathered some valuable information which are importantly discussed and play important role in establishing the my task. we also do sincerely declare that this term paper has been submitted, in partial fulfillment of the requirement for the business law course. we understand that the term paper may be cancelled if subsequently it is discovered that this term paper is not our primeval work that it consists of materials copied or plagiarized or borrowed without proper acknowledgement. we, at last, express special thanks from the bottom of my heart to all who help us directly & indirectly to complete this report.
Table of contents
Section 1 2 3 4 5 6 7 8 9 10 11 Content Executive summery ESSENTIAL STEPS PROCEDURE OF REGISTRATION AND INCORPORATION THE CERTIFICATE OF INCORPORATION PROMOTERS PROSPECTUS Form and Contents of the Prospectus THE LEGAL REQUIREMENTS OF PROSPECTUS STATEMENT IN LIEU OF PROSPECTUS ALLOTMENT OF SHARES
Restrictions
Effects of an irregular allotment COMMENCEMENT OF BUSINESS conclusion
12 13 14
EXECUTIVE SUMMARY
The formation of a company is one of the complicated tasks. Some steps must be taken. The Memo and the Articles must be prepared. If it is proposed to have a paid up capital or more than Rs.3 crores, sanction of the Central Government must be obtained under the Capital Issues (Control) Act, 1956 and etc etc. If the company to be formed intends to participate in an industry which is included in the Schedule annexed to the Industries (Development and Regulation) Act, 1951, a license must be obtained under that Act. For the registration of a company, the following documents, together with the necessary fees, must be submitted to the Registrar of Companies of the State in which the registered office of the company will be situated.-Sec. 33.
ESSENTIAL STEPS
Before a company can be formed the following steps must be taken: 1. The Memo and the Articles must be prepared. These two documents must be filed when application is made for the registration and incorporation of the company. The Companies Act lays down rules regarding the preparation of the memorandum. Schedule I to the Act of 1956 contains four model forms for use in different cases. 2. If it is proposed to have a paid up capital or more than Rs.3 crores, sanction of the Central Government must be obtained under the Capital Issues (Control) Act, 1956. Formerly, sanction was required up to Rs. 1 crore or more. The exemption limit was raised to Rs.3 crores by an order of the Central Government on 31st March, 1978. The exemption is not available to monopoly companies subject to the Monopolies and Restrictive Trade Practices Act (MRTPA) of 1969 and companies with foreign shareholding of more than 40%. 3. If the company to be formed intends to participate in an industry which is included in the Schedule annexed to the Industries (Development and Regulation) Act, 1951, a license must be obtained under that Act. 4. The company must be registered in accordance with the provisions of the Companies Act, 1956 and the Certificate of Incorporation must be obtained. In the case of a public company, the following further steps are required to be taken before it can commence business. 5. The Prospectus or the Statement in lieu of Prospectus must be issued and registered with the Registrar. 6. The minimum subscription must be raised and thereafter the allotment of shares must be made. 7. The Certificate for the Commencement of Business must be obtained from the Registrar.
Case Law
Incorporation was upheld in the `following cases. (a) Memo materially altered after signature but before registration. Peels case. (b) Signatories to the memo all infants. Moosa v. Ebrahim. (c) The shares of the company were, allotted before the issue of certificate of incorporation. Jubilee Cotton Mills Lid v. Lewis. (d)The objects of a company were all found to be illegal. Bowman v. Secular Society Ltd.
PROMOTERS
The term Promoter is not defined in the Act. Promoter, is a word which is used to describe the, persons who Initially plan the formation of a company and bring it into existence "a person who originates a scheme for the formation of the company, has the memo and the Articles prepared, executed- and i ' registered, and finds the first directors, settles the terms of the preliminary contracts an4 prospectus (if any) and makes arrangements for advertising, and circulating the prospectus and placing the capital is a Promoter .'Palmer, "Company Precedents' "A person who has not done all these things but has done a substantial part of them so that he may be regarded as having an effective hand in the formation or floatation of the company is also a promoter".-Sengupta, "Indian Company Manual". Bowen L.J., in Whaley Bridge Printing Co. v. Green,' stated that the term promoter is not a term of law, but of business "usefully summing up in single word, a number of business operations familiar to the commercial world by which a company is generally brought into existence." Sometimes company promotion is undertaken by promoting companies or syndicates formed for the purpose. The rights and liabilities of such companies or syndicates are the same as those of individual promoters. The directors of such companies and members of such syndicates are personally responsible if any ~ breach of trust or fraud is committed.
Promoters Remuneration
But for any contract a promoter has no right to get any. Remuneration for the services rendered by him in promoting the company. In practice, however,-he takes remuneration for his work. The usual methods of taking remuneration are as follow5: (i) Selling to the company at a profit some property purchased by the promoter before he became one; (ii) Taking a commission on the shares sold ; (iii) Taking a grant of some shares of the company, (iv) Lump Sum from the company. The amount of remuneration and the mode of securing it is settled by the promoters themselves and are expressed in the prospectus or the memo or the articles.
(i) is liable to pay compensation to any person who buys shares on basis of the erroneous prospectus, or statement in, lieu of prospectus and suffers damage ; and (ii) He may be prosecuted w the criminal courts according to the provisions of the Companies Act. PROMOTERS AND PREINCORPORAT1iON CONTRACTS Before a company is formed & registered the promoters of the company have to enter into contracts for drafting the necessary documents, transfer of goods and property etc. Such contracts may be called preliminary or reincorporation contracts. They are entered into before a company comes into existence the question arises whether contract by the promoters with a non-existing company are enforceable or not. The rules regarding the subject are summarized below. 1.A company is not bound by any pre incorporation contract '6efore its incorporation even where it enjoys the benefit of the reincorporation contract entered into on its behalf. The company cannot enforce preliminary contract 2.the other party to the contract is not bound by the reincorporation contract. 3. A company after it is formed cannot ratify a reincorporation contract. Because by the Contract Act, a non-existing principal cannot ratify a previous contract. 4. The promoters and the agents who had formed the company may incur personal liability for a preincorporation contract made on behalf of company not yet in existence, such a contract is considered to have been entered into personally by the promoters. 5. Specific Performance: Sections 15 and 19 of the Specific Relief Act, 1872; ptvvide that if the promoters and agents of a company enter into a preincorporation contract and such a contract is .within the terms of incorporation, specific performance may be obtained by or enforced against the company, if the company has accepted contract and has communicated such acceptance to the other parties. Comment: A company can, after its incorporation, enter into a new contract with the other parties. In this case the liability. Of the promoters and the agents comes to an end. The obligation and rights of the company and the other parties wall depend on the new contract. Examples: (a) X. Co., a firm of solicitors, was appointed by Y. a promoter of E. Ltd. (which was to be incorporated later) to prepare the Memorandum and Articles of the company. X & Co: incurred costs of registration of the company. Held that they,-were not entitled to recover these costs from the company. Re English and Colonial Produce Co. Lid.
(b) N made a contract with S. Ltd. for and on behalf of N. Ltd. for selling tinned ham to S. Ltd. The contract was signed by him as "N". The said N. ltd. was not incorporated on the date of the contract but it became so afterwards. Thereafter market price of ham fell and S. Ltd. refused to take delivery of tinned ham. On an action brought by N. Ltd. it was held neither this company nor N himself could enforce it on the defendants S. Ltd. on the grounds that contract by a nonexistent company is a nullity. Newborrte v. Sensolid (Great Britain) Ltd. (c) A, a promoter of X. Co. Ltd. made a -contract in his own name. on behalf of X Co. Ltd. with K for the purchase of wine costing 900. The Company was registered afterwards. The company obtained delivery of the wine from K and consumed it. Before payment X Co. Ltd. went into liquidation. It was held that the promoter A was personally liable on- the contract. Kelner v. baxtier
PROSPECTUS
The prospectus is the basis on which the inve4ors at large get an idea about the prospectus of the company
Definition
A prospectus has been defined in the Act as. -'any document d(scribed or issued as a prospectus and includes any notice, circular, advertisement, or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any share in, or debentures of a body corporate. Sec. 2(36). The words, "inviting deposits from the public or" were added by the Companies (Amendment) Act, 1974.
Characteristics
The essential characteristics and the features of the prospectus are the following 1. It is a document described or issued as a prospectus. 2. It includes any notice, circular, advertisement inviting deposits from the public or other document. 3. It is an invitation to the members of the public. 4. The public is invited to subscribe the shares or debenture of the company 5. The term public does not mean an invitation of very large number of people. It is enough if the invitation is to a section .of the public. From the examples, stated below, if follows that there must be some degree of publicity even though it may be -" of a small scale. Examples: (a) Three thousand copies of prospectus were distributed among the members of this company. Re South of England Natural Gas Co. Ltd.
(b) An invitation to a few friends and relatives or to the customers of the promoter does not institute a prospectus. Shorwel! v.Combined Incandescent Mantles. 6. Prospectus is the document through which the company secures the capital needed for carrying on its business. Any document having this object, comes within the definition of prospectus. But an, advertisement for securing business or trade, is not a prospectus.
(14) Whether the prospectus is issued at the time of the formation of the company or subsequently; (15) The nature and extent of restrictions upon members at company meetings; (16) Restrictions upon the powers of the directors; (17) Voting rights, capitalization of reserves and surplus of revaluation; (18) Inspection of balance sheet and profit and loss account; (19) The following reports are to be annexed to the prospectus (i) Report by auditors and (ii) Report by the accountant.
6. Statement by expert A statement, relating to the company, by an expert, can b included in the prospectus only if the expert concerned is n engaged or interested in the formation, promotion, or the management of the company. (Sec. 57). The statement of an expert can be included only if he has, in writing, authorized it issue. (Sec. 58). The term expert includes an engineer, value accountant and any other person whose profession gives authority to a statement made by him. 7. Deposits
,
Deposits are not to be invited without issuing a advertisement. The Central Government may, in consultation with the Reserve Bank of India prescribe the limits, the manner an the conditions subject to which deposit may be invited o accepted by a company either from the public or the member The advertisement must include a statement showing the company's financial position, issued by the company and in such form, or in such manner, as may be prescribed. The Rules shall prescribe how the deposit is to be continued or repaid. The company and the officer who contravene the above rules shall be punishable. These rules are not applicable to banking company and such other company as the Scent ' Government after consultation with the Reserve Bank of India specify in this behalf.-Sec. 58A. Companies (Amendment) A 1974. Such rules are valid. D.C & G. M. Co. Ltd. v. Union India. The provisions of this Act relating to prospectus shall, s far as may be, apply to an advertisement referred above. Se S8B, Companies (Amendment) Act, 1974. Section 58A of the Companies Act has been amended 1988. The amended provision states. "(3A) every deposit accepted, by a~-Company after to commencement of the Companies (Amendment) Act, 1988, shall unless renewed in accordance with the rules made under sub section (1), be repaid in accordance with the terms and conditions of such deposit". Section (9): If a Company has failed to repay any deposit, in accordance with the terms and conditions of such deposit, the Company Law Board may, direct by order, the Company to make repayment of such deposit within such time and subject to such conditions as may be specified in the order. One who fails to comply with any order made by the Company Law Board under sub-Section (9) shall be punishable with imprisonment and fine. 8. Registration Before a prospectus is issued, it -must be registered with the Registrar of Companies. Copies of relevant documents (e.g., consent of directors and experts to the issue of the prospectus And copies of contracts) have to be filed when application is made for registration. If the relevant documents are not filed or if the prospectus does not comply with, with the provisions of
the Act. Registration will be refused. No prospectus can be issued more than 90 days after a copy of it is filed for registration.-Sec. 60: 9. Terms of contracts The terms of any contract, mentioned in the prospectus, cannot be varied after registration of the prospectus except with the approval of the members in a general meeting.-Sec. 61. 10. Prospectus by a foreign company A prospectus issued by a foreign company, with a view to selling shares in India, must include certain additional particulars. (Sec p.559) 11. Penalty for non-compliance If the aforesaid rules, relating to the matters to be included in the prospectus, are not complied with, any person who is knowingly a party to the issue thereof, shall be punishable with a fine which may extend to Rs. 5000.-Sec. 59. 12. Defense A person charged with non-compliance of the aforesaid rules will be excused in the following cases: [Sec. 56(4).) (a) As regards any matter not disclosed, if he proves that he had no knowledge thereof; or (b) if he proves that the non-compliance or contravention arose from an honest mistake of fact on his part; or (c) if the non-compliance or contravention was in respect of matters which, in the opinion of, the Court dealing with the case, was immaterial or was otherwise such as ought (having regard to all the circumstances in the case) reasonably to be excused.
Liability for untrue statement The authors of the prospectus have to see that the prospectus contains no untrue statement likely to mislead the public. Section 65 of the Companies Act lies down that the term "untrue statement" in connection with a prospectus shall be deemed to include: (a) a statement which is misleading in the form and context in which it is included, and (b) an omission (of any matter) which is calculated to mislead. Thus, the term untrue statement or misstatement is used in a wide sense. It includes not only false statements but also statements which produce a wrong impression of actual facts. Concealment of a material fact also comes within the category of misstatement. Example: Lord Keelson, the managing director of Royal Mail Steam Packet Company, issued a prospectus inviting subscription to debentures of the company. In the prospectus it was stated that the company was in a good position and that dividends were regularly paid. But the prospectus omitted to state that there were large losses in several years and that in "those years dividends were paid out of reserves. It is apparent that the prospectus tried to create a false notion of company's soundness. It was held by the House of Lords that Lord Kylsant willfully issued a false prospectus and he was convicted under the criminal law. Rex v. Kylsant.
Shall be punishable with imprisonment for a term which may extend to five years, of with fine which may extend to ten thousand rupees, or with both.-Sec. 68. In Sec. 68 the word 'recklessly' is used. A `reckless' statement or promise is one which is made without any real fact or heedless of its base. R. v. Grunwald
6. True statement: As regards statements other than those of experts or those contained in official documents, the person charged can escape liability if he can prove that he had reasonable grounds to believe, and did, up to the time of the allotment of shares or debentures, believe that the statement was true. B. Defenses available to an expert: An expert whose opinion was included in the prospectus, can use the following defenses.-Sec. 62(4). I. Withdrawal of consent: Having given his consent to the issue of the prospectus, he withdrew it in writing before delivery of a copy of the prospectus for registration. 2. Knowledge of untrue statement: After delivery of a copy of the prospectus for registration and before allotment there under, he, on becoming aware of the untrue statement, withdrew his consent in writing and gave reasonable public, notice of the withdrawal, and of the reason thereof. 3. Trite statement: He was competent to make the statement and he had reasonable ground to believe, and did, up to the time of the allotment of the shares or debentures, believe that the statement was true. C. Defenses against criminal liability: A person charged in a criminal court under Section 63(1) will be acquitted if he can prove either of the following: (a) That the statement was immaterial, or (b) That he had reasonable ground to believe, and did, up to the time of the issue of the prospectus, believe that the statement was true.
3. Confirmation: If the shareholder does any act which amounts to confirmation of the purchase (e.g., if he accepts dividends) the right to rescind the contract or get damages is lost 4. Laces : The shareholder must bring his action without undue delay, otherwise he loses his right.
PROSPECTUS BY IMPLICATION
Section 64 provides that certain documents are to be include, within the term Prospectus by implication of law. Where company allots or agrees to allot any shares in or debenture of the company with a view to all or any of those shares o debentures being offered for sale to the public, any document by which the offer for sale to the public is made, is deemed to be a prospectus issued by the company. Subject to the modifications stated below; all the rules laid down in the Act, regarding prospectuses, (contents, liability for misstatements etc.) apply also to a prospectus by implication l. The following additional matters must be stated in it the net amount of consideration to be received by the company in respect of the shares or debentures : and the place and time at which the contract (under which the shares or debentures are to be allotted) may be inspected. 2. The persons making _the offer of sale to the public are to be deemed directors of the company for the purpose of registration of the prospectus. 3. Where the person making the offer is a company, the prospectus may be signed by any two directors; where the offer is made by a firm, it may be signed by not less than one-half of the partners. Unless the contrary is shown, an allotment or agreement to allot shares or debentures will be deemed to have been made with a view to sale to public, under the following circumstances: 1. When the offer for sale was made within six months after the allotment or agreement to allot.
2. When at the date of the offer for sale, the whole consideration to be received by the company for the shares or debentures had not been received by it.
MINIMUM SUBSCRIPTION
Where shares are offered to the public for subscription, the prospectus must mention the minimum amount which must be raised by the issue of shares before the company can commence business.-Schedule V, clause S. The minimum subscription is to be fixed by the directors or by the persons who have signed the memorandum. Its amount is to be determined by taking into account the following expenses : (1) The purchase price of any necessary property: (2) The preliminary expenses, including commissions payable for the sale of shares; (3) Repayment of any moneys borrowed by the company for the above two purposes (4) Working capital; (5) Any other necessary expenditure. The information regarding each of the above items must be stated under each head. The amount stated in the prospectus as minimum subscription, is to be reckoned exclusively of any amount payable otherwise than in money. Shares cannot be allotted until applications have been received sufficiently to cover the minimum subscription.
ALLOTMENT OF SHARES
Definition
"Allotment means the appropriation to ail applicant by a resolution of the directors of a certain number of shares in response to an application. Shares so allotted are not, in general specific shares identified by number; the numbering is left till later."-Palmer's Company Law, 19th ed. p. 104.
1. Application Form The prospectus is an invitation to the public to purchase shares. Persons intending to purchase shares have to apply in a form prescribed in the prospectus for the purpose and called the "application farm." The prospectus also fixes the time when the applications will be opened and the allotment of shares to the applicants will be made. The time is known as "the time of opening of the subscription lists." Applicants to whom shares have been allotted are informed by a letter. This letter is called, "the notice of allotment." As per SEB( guidelines, application money cannot be less than Rs. 2,000 and that issue must be kept open for at least 3 working days. 2. Result of a contract Membership of a company by purchase of shares is the result of a contract. The application by the intending shareholder is the "offer" for the purchase of shares. Allotment by the directors is the "acceptance of the offer". The notice of allotment is the "communication of the acceptance". Each of these stages in the formation of the contract must conform to the rules laid down in the Contract Act. 3. Conditional offers and acceptance of shares Conditions are usually printed on the application form. very common condition is that in case of over-subscription, number of shares' allotted to each subscriber will be proportionately less than the' number of shares applied for.
But conditional acceptance is usually invalid. No condition should be attached to the acceptance of the offer to purchaseshares. If the acceptance introduces a new term it will be a new offer by the company and it shall not be effective unless it is accepted. Jackson v. Turquand 4. by the proper authority The allotment of shares is to be done by the board of directors of the company. Allotment can be delegated to some persons or a Committee, provided there is a provision in the Articles of the company. Allotment made by any other than the proper authority is void. 5. within a reasonable time The allotment must be made within a reasonable time; otherwise the applicant is not bound to take the shares. The offer to buy the shares is deemed to be revoked if there is an unreasonable delay in accepting the offer. Ramsgate P71cloria Hotel Co. v. Montefiore.2 ; Indian Co-operative Navigation v. Padamsey. As per SEBI guidelines, if allotment is not made within 30 days from close of issue, interest @15% must be paid. 6. Application in a fictitious name
Restrictions
The Companies Act prescribes the following restrictions on the allotment of shares: 1. Opening of subscription list No allotment can be made until the beginning of the 5th day after the publication of the prospectus or such later time as may be prescribed for the purpose in the prospectus, (Sec- 72). The 5th day is to be counted from the date when the prospectus was published in a newspaper or was otherwise notified to the public. The object of this rule is to provide sufficient time to tile public to send the applications. 2. Revocation of the application An application for shares cannot be revoked until after the expiration of the 5th day after the time of opening of the subscription lists, except in one case. If any of the persons responsible for the issue of the prospectus, gives public notice ol' withdrawal of his consent to the issue of the
prospectus, any of the applicants can revoke his application, whereupon no shares can be allotted to him. 3. Punishment An allotment of shares prior to the time prescribed under this rule is not void. But the directors making such allotment ' are liable to punishment. 4. Minimum subscription No allotment can be made until the amount fixed as the minimum subscription has been received.-Sec. 69(1). 5. Application money The amount payable on each share, with the application form, %hall not be less than 5 per cent of the nominal value of the share.-Sec. 69(3). 6. Deposit in a Scheduled Bank All moneys received from the applications must be kept in deposit in a scheduled bank until the certificate to commence business has been obtained, or, (where such certificate has already been obtained) until the entire amount payable on applications for shares in respect of the minimum subscription has been received by the company.--Sec. 69(4). 7. Return of Money If the minimum subscription is not raised or if, for any other reason, allotment could not be made within 120 days from the date of publication of the prospectus, the directors must forthwith return the moneys received from the applicants. No interest is payable if the money is refunded within 130 days. Thereafter, the directors are, jointly, and severally, liable to pay interest at 6 per cent per annum from the 130th day to the day of repayment. But a director shall not be so liable if he proves that the default in the repayment of the money was not due to misconduct or negligence on his part.-Sec. 69(5). 8. Statement in lieu of Prospectus A public company which has not issued any prospectus must, at least 3 days before the first allotment of shares, deliver to the Registrar for registration, a Statement in lieu of Prospectus, signed by every director or proposed director or his agent in the form prescribed in Schedule III of the Act.-Sec. 70. 9. Stock Exchange recognition Where the prospectus states that application has been made or will be made for the shares (or debentures) being dealt with in a stock exchange, the application necessary for securing
permission of the authorities of the stock exchange must be made before the 10th day after the first issue of the prospectus. The name of stock exchange must be stated Any allotment, made on an application based on such a prospectus, becomes void if stock exchange permission is not applied for or if such permission is not granted within 10 weeks from the date of the closing of the subscription list. The company must thereupon return all moneys received from the applicants of shares. 1`o interest is payable if the moneys are returned within 8 days. Thereafter, interest is payable at 12%-Sec. 73. Companies (Amendment) Act, 1974. Section 73 of the Companies Act has been amended and the amended section provides that all pub-tic issues of every Company must be listed with recognized stock exchanges. If a Stock Exchange refuses to list the shares of a public company, the company can appeal to the Central Government. Sec. 22 of Securities Contracts (Regulation) Act_.. 1956. Section 73(2A) provides that where "the moneys received from applications for shares or debentures are in excess of the aggregate of the application moneys relating to the shares or debentures in respect of which allotments have been made , the Company shall repay the moneys to the extent -of such excess' ,within eighth day. The Company and every director of the Company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than- four per cent, and not more than fifteen per cent, as may be prescribed;
I. Option: The allotment becomes voidable at the option of the shareholder. The option, to
avoid the contract, must be exercised within 2 months of the holding of the statutory meeting or, where no statutory -meeting is required to be held or where the allotment is made after the holding of the statutory meeting, within 2 months after the date of allotment. The option to avoid can be exercised even if the company is in course of liquidation.Sec. 71(1) and (2).
COMMENCEMENT OF BUSINESS
A public company, having a share capital and issuing a prospectus, cannot commence business until the Registrar issues a certificate known as the certificate of Commencement of Business. The certificate is issued after the following formalities have been complied with.-Sec. 149(l) :) (a) The minimum subscription has been raised. (b) Every director has paid the moneys payable, on application and an allotment, for the shares taken up by him. (c) No money is repayable for failure to obtain stock exchange recognition for the shares, where such recognition was promised. (d) A duly verified declaration by a director or the secretary has been filed with the Registrar stating that the above requirements have been complied with. A public company having a share capital but not issuing a prospectus, will get the commencement certificate if the following conditions are satisfied.-Sec. 149(2) filed with (a) A statement in lieu of prospectus has been the Registrar.. (b) The directors have paid the moneys due from them on {account of shares. . (c) A declaration by a director or the secretary has been filed: with the Registrar stating that condition (b) has been satisfied. The amending Act of 1965. Adds a new sub-section (2A) to Section 149 which places certain further restrictions on the commencement of business in certain cases. Section 13 of the Act, as amended by the Act of 1965, provides that the, Memorandum of Association of a company; formed after the commencement of the Act of 1965 must state separately (a) The main objects of the company together with objects incidental and ancillary to them and (b) Other objects, if any. (Sec p.567). The new subsection (2A) of Sec. 149' provides that
(1) In the case of such a company, if it starts any business coming under (b) above, viz., other objects and (2) In the case of a company already existing at the date of commencement of the amending Act of 1965, if it starts a new business not germane to the business it is carrying on, on that date, the following conditions must first be fulfilled. 1. The company has approved of the commencement of any such business by a special resolution passed on that behalf by it in general meeting. 2. There has been filed with the Registrar a duly verified declaration by one of the directors or the secretary that the above provision or the exception noted below has been complied with. The new sub-section (2B) provides for one exceptional case. The Central Government may, on an application made to it by the Board of Directors, permit such new business in cases where no special resolution has been passed but where in the general meeting the votes cast in favor of commencing such business is more than the votes cast against it. Contravention of the provisions relating to commencement of business a punishable by fine which may extend to Rs. 500 per day. The restrictions on the commencement of business, as provided in Sec. 149, apply to all public companies having a share capital, whether-issuing a prospectus or not. A company may enter into contracts before the date of commencement of business but such contracts remain provisional up to the commencement date and become binding on that date
Conclusion:
At the end of the discussion I can say that there are some rules for forming a Company.