Category: Company law

This article has been written by Yash Mittal who’s pursuing LLB-1year from Mewar Law Institute. This article gives insights about FCRA, Its objectives, its previous and recent amendments. A Finance Bill is a Bill that, as the name suggests, concerns the country’s finances — it could be about taxes, government expenditures, government borrowings, revenues, etc. Since the Union Budget deals with these things, it is passed as a Finance Bill. The foreign contribution regulation act (FCRA) is also discussed in the finance bill. FCRA regulates foreign donations and ensures that such contribution does not affect internal security. FCRA was first enacted in 1976, it was amended in 2010 when new measures were adopted to regulate foreign donations. As defined in Section 2(1)(h) of FCRA, 2010, “foreign contribution” means the donation, delivery or transfer made by any foreign source, ─ (i) of any article, not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift is not more than such sum as may be specified from time to time by the Central Government by rules made by it in this behalf; (ii) of any currency, whether Indian or foreign; (iii) of any security as defined in clause (h) of section 2 of the Securities Contracts(Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of Section 2 of the Foreign Exchange Management Act, 1999. It was enacted to regulate the utilization and acceptance of foreign contribution to secure national interest from any activities which threaten national interest. Debate on the bill, Minister of State for Home Nityanand Rai said the legislation was not against any NGO and is an effort to maintain transparency. This amendment is in the interest of good NGOs that want to do good work in the country. He also said, “This is certainly a bill to bring transparency. It is not against NGOs in any case. But only those NGOs which do not adhere to transparency may feel bad. This bill is in the interest of NGOs and transparency.” According to the home ministry, the annual inflow of foreign contribution or foreign hospitality has almost doubled between 2010 and 2019. And according to the government many recipients of foreign funding have not utilized it for the purpose for which they have registered themselves in FCRA. The central government cancelled the certificates of registration of more than 19,000 voluntary organizations between 2011 and 2019. The Lok Sabha passed the foreign contribution regulation act (FCRA) Bill, 2020 on September 21 and on 23 September 2020 passes by the Rajya Sabha. The FCRA 2010 has already been amended twice. The first amendment was made by section 236 of the finance act, 2016, and the second by section 220 of the finance act, 2018. Reasons for Amendment in FCRA 1) To tightens the regulations related to civil society, NGOs, and organizations. 2) It is also noted that the foreign contribution can be reaching the wrong hands. 3) To put strict rules and regulations on organizations, educational, and research institutions that are in partnership with foreign entities. Features of the Amendment 1) Aadhar number for registration – If any person wants to register, to seek permission, or wants to renew the registration to receive foreign contribution must have to provide their Aadhar numbers. Aadhar number of all its office bearers, directors are also required as an identification document. In case of foreigner they have to provide a copy of the passport or the overseas citizen of India card for identification. 2) Persons prohibited to accept foreign assistance – The 2020 amendment cleared by the Union cabinet states, amendment of clause (c) of sub-section (1) of section 3 to include public servant within its ambit to provide that no foreign contribution shall be accepted by any public servant. Public servant includes any person who is in service or pay of the government or remunerated by the government for the performance of any public duty. Election candidates, judges, government servants, editors, or publishers of the newspaper, member of any legislature, and political parties were prohibited for receiving foreign donations. 3) Transfer of foreign contribution – Foreign donations can not be transferred to any other person. The term person under the act includes an individual, an association, or a registered company. 4) Restriction in the utilization of foreign contribution – Violating any provision of the act, the unutilized or unrecieved foreign contribution may be utilized or received only with the prior approval of the central government. 5) FCRA account – A person registered with a foreign contribution regulation act have to accept foreign contribution only in a single branch of a scheduled bank specified by them. However, they may open more accounts in other banks for the utilization of the contribution. 6) Foreign contribution reduced in administrative purposes – Foreign contribution or foreign hospitality should be used only for the purpose for which the contribution is received. Earlier they can use the 50% of the contribution for meeting administrative expenses but now the bill reduces the limit to 20% Conclusion Organisations receiving funds from the abroad will no longer be able to transfer them to small NGO’s who were working at the grass root level of the country in rural areas. As the NGO’s unable to give money to the third party for the research work in rural areas. It will also have negative impacts on the workers working in the small NGO’s and workers themselves don’t want to work there. It is important to regulate the NGOs which were not using the foreign contribution for the purpose they receive. But it’s more important to recognize the NGOs who were working for the society and wants to help the people because of the dubious NGOs some well-recognized organizations had to suffer. Latest Posts

This article has been written by Navneet Chandra, a student of Central University of South Bihar, Gaya Introduction Mergers and acquisitions, or M&A for short, involves the process of combining two companies into one. The goal of combining two or more businesses is to try and achieve synergy – where the whole (new company) is greater than the sum of its parts (the former two separate entities). Mergers and acquisitions, or M&A for short, involves the process of combining two companies into one. The goal of combining two or more businesses is to try and achieve synergy – where the whole (new company) is greater than the sum of its parts (the former two separate entities). What are Mergers and Acquisitions? Mergers occur when two companies join forces. Such transactions typically happen between two businesses that are about the same size and which recognize advantages the other offers in terms of increasing sales, efficiencies, and capabilities. The terms of the merger are often fairly friendly and mutually agreed to and the two companies become equal partners in the new venture. Acquisitions occur when one company buys another company and folds it into its operations. Sometimes the purchase is friendly and sometimes it is hostile, depending on whether the company being acquired believes it is better off as an operating unit of a larger venture. The end result of both processes is the same, but the relationship between the two companies differs based on whether a merger or acquisition occurred. Forms of Acquisition There are two basic forms of mergers and acquisitions (M&A): 1. Stock purchase In a stock purchase, the acquirer pays the target firm’s shareholders cash and/or shares in exchange for shares of the target company. Here, the target’s shareholders receive compensation and not the target. There are certain aspects to be considered in a stock purchase: The acquirer absorbs all the assets and liabilities of the target – even those that are not on the balance sheet. To receive the compensation by the acquirer, the target’s shareholders must approve the transaction through a majority vote, which can be a long process. Shareholders bear the tax liability as they receive the compensation directly. 2. Asset purchase In an asset purchase, the acquirer purchases the target’s assets and pays the target directly. There are certain aspects to be considered in an asset purchase, such as: Since the acquirer purchases only the assets, it will avoid assuming any of the target’s liabilities. As the payment is made directly to the target, generally, no shareholder approval is required unless the assets are significant (e.g., greater than 50% of the company). The compensation received is taxed at the corporate level as capital gains by the target. Types of Mergers and Acquisitions Merger or amalgamation may take two forms: merger through absorption or merger through consolidation. Mergers can also be classified into three types from an economic perspective depending on the business combinations, whether in the same industry or not, into horizontal (two firms are in the same industry), vertical (at different production stages or value chain) and conglomerate (unrelated industries). From a legal perspective, there are different types of mergers like short form merger, statutory merger, subsidiary merger and merger of equals. Benefits of Combining Forces Some of the benefits of M&A deals have to do with efficiencies and others have to do with capabilities, such as: Improved economies of scale. By being able to purchase raw materials in greater quantities, for example, costs can be reduced. Increased market share. Assuming the two companies are in the same industry, bringing their resources together may result in larger market share. Increased distribution capabilities. By expanding geographically, companies may be able to add to their distribution network or expand its geographic service area. Reduced labour costs. Eliminating staffing redundancies can help reduce costs. Improved labour talent. Expanding the labour pool from which the new, larger company can draw can aid in growth and development. Enhanced financial resources. The financial wherewithal of two companies is generally greater than one alone, making new investments possible. Potential Drawbacks Although mergers and acquisitions are expensive undertakings, there are potential rewards. And there are disadvantages, or reasons not to purchase an acquisition, including: Large expenses associated with buying a company, especially if it does not want to be acquired. (If an investor has a controlling interest in another company, however, it may not have a choice regarding whether it is acquired.) Higher legal costs, which can be exorbitant if a company does not want to be acquired. The opportunity cost of having to forego other deals in order to focus on bringing two companies together. The possibility of a negative reaction to a merger or acquisition, which drives the company’s stock price lower. M&A is a growth strategy corporation often use to quickly increase its size, service area, talent pool, customer base, and resources in one fell swoop. The process is costly, however, so the businesses need to be sure the advantage to be gained is substantial. Steps Involved in M & A Transactions Phase 1: Pre-acquisition review: this would include self-assessment of the acquiring company with regards to the need for M&A, ascertain the valuation (undervalued is the key) and chalk out the growth plan through the target. Phase 2: Search and screen targets: This would include searching for the possible apt takeover candidates. This process is mainly to scan for a good strategic fit for the acquiring company. Phase 3: Investigate and valuation of the target: Once the appropriate company is shortlisted through primary screening, detailed analysis of the target company has to be done. This is also referred to as due diligence. Phase 4: Acquire the target through negotiations: Once the target company is selected, the next step is to start negotiations to come to consensus for a negotiated merger or a bear hug. This brings both the companies to agree mutually to the deal for the long term working of the M&A. Phase 5: PostRead More

This article has been written by Prithiv Raj Sahu, a student of KIIT School of Law, Bhubaneswar (4th year). Picture credits to Wikipedia There are largely two types of Companies –   Public Limited Company  Private Limited Company Public Limited Company – A public limited company is a joint stock company. It is governed under the provisions of the Indian Companies Act, 2013. While there is no limit on the number of members, it is formed by the association of persons voluntarily with a minimum paid up capital of 5 lakh rupees. Transferability of shares has no restriction. The company can invite public for subscription of shares and debentures. The term public limited is added to its name at the time of incorporation. Private Limited Company – the private limited company is a joint stock company. However, it is governed under the ambit of the Indian Companies Act, 2013. It is formed by voluntary association of persons with a minimum paid up capital of 1 lakh rupees. While the maximum number of members is 200, it does not include the current employees or ex-employees who were members during their employment terms. Employees may continue to be the member after their termination of employment in the company. Transfer of shares is restricted. It prohibits the entry of public through subscription of shares and debentures. The term private limited is used at the end of its name. Companies Act, 1956 Section 31 plays an important role during conversion of a public company into a private company. As conversion of a public company into a private company involves alteration of article of association of public company which cannot be done under section 31 of the Companies Act, 1956. Companies Act, 2013 The legal provisions related to conversion are given in section 14 of the Companies Act, 2013 read with rule 41 of Companies (Incorporation) Rules, 2014, as amended. As per section 14 of the Companies Act, 2013 a public company may convert itself into a private company by taking approval of members by way of passing special resolution in the General Meeting and by taking the approval of Central Government on an application made in such form and manner as may be prescribed. Section 13 -Tells for the alteration of memorandum of articles (Moa) of company. The conversion of public company into private company can be done if the memorandum allows for the conversion. Hence, to convert the company into private company, the alteration of moa is necessary. Section 14 – Tells for alteration of articles of association (Aoa) for conversion of public company into private company. The conversion is subject to the approval of tribunal. Section 18 – Tells for conversion of companies which are already registered. Section 18 provides for converting of any class of company into another class by doing alteration in moa and Aoa of the company.   The companies’ incorporation (fourth amendment) rules, 2014, the conversion of public company into private company are explained. The central government has wide powers to amend the said rules.    Advantages of the Process The members of Private Company cannot issue their shares publicly. The shareholders need to discuss and take prior consent of the other shareholders for the transfer of shares. By putting a restriction on transfer in Private Company, the membership of undesirable persons can be prevented. The control of Company is in the hand of the owners of capital which is not so in the Public Company. The Private Company can grant Loans to Directors without the prior approval or consent of the Central Government. There is no requirement to hold a Statutory Meeting in Company as no outsider is a shareholder of the Private Company. Procedure for Conversion Convene a Meeting of Board of Directors Convene General Meeting Filing of Form INC-27 with ROC Filing of forms with ROC  File an Application for Conversion of Public Company into Private Company Publication of an Advertisement Submit the further information as required by Regional Director Submit the Copy of Objection with Regional Director Approve the Application of the Conversion   File Form INC-28 with ROC  New Certificate of Incorporation  Checklists for other legal provisions Inspection of Documents – List of Creditors shall be submitted with Registrar of Companies and such creditors can any time inspect documents of the company during business hours. Objection if Any Received – Where any objection of any person whose interest is likely to be affected by the proposed application has been received by the applicant, it shall serve a copy thereof to the Central Government on or before the date of hearing. Where No Objection Is Received – Where no objection received from any person in response to the advertisement or notice under sub-rule (5) or otherwise, the application may be put up for orders without hearing and the order either approving or rejecting the application shall be passed within 30 days of receipt of the application. Where Objection Is Received – After checking of application with Annexures the hearing will take place at the Regional Director office and it should be represented by the company or practicing professional or advocate. The Regional Director will make an order confirming the alteration on such terms and conditions, if any, as it thinks fit, and may make such order as to costs as it thinks proper Conclusion Conversion of Public Company into Private Company is time taking and needs to adhere to the various formalities prescribed in Companies Act, 2013. The Private Company has a benefit of less compliance over Public Company. Sometimes, there are controversies regarding the Conversion, but if the consensus of all the shareholders is obtained the process of Conversion would go smoothly and efficiently. The process of Conversion is long-lasting and lengthy. Latest Posts

This article has been written by Prithiv Raj Sahu, a student of KIIT School of Law, Bhubaneswar. Picture credits to moneymorning.com.au Issue of Shares is the process in which companies allot new shares to shareholders. Shareholders can be either individuals or corporates. The company follows the rules prescribed by Companies Act 2013 while issuing the shares. Issue of Prospectus, Receiving Applications, and Allotment of Shares are three basic steps of the procedure of issuing the shares. The process of creating new shares is known as Allocation or allotment.  The types of shares of a company and the procedure for issue of shares that a company must follow Types of Shares 1. Equity share capital and preference share capital 2. Shares with differential voting rights 3. Sweat equity shares 4. Issue of securities at a premium 5. Prohibition to issue the shares at discount 6. Issue of shares on preferential basis 7. Further issue of shares 8. Bonus shares 9. Employee stock option scheme Difference between Equity Shares and Preference Shares EQUITY SHARES – when you hear the word shares, people almost always refer to equity shares or ordinary shares. With equity shares, a company offers you partial ownership and thus, involves a lot of business risk. The members, who own equity shares, also acquire the right to vote for critical decisions in the company. These decisions may include electing a new leader, acquisition, merger, etc. And they play a crucial role in raising capital for the company. Equity capital forms the basic foundation of the company and its credit worthiness. The dividends or pay-outs to equity shareholders predominantly depend on the earnings of the company. Once the company has settled all other claims and expenses, it will pay its equity shareholders. PREFERENCE SHARES – Between equity shares and preference shares, it is the latter that offers a certain source of income. With preference shares, a company promises its shareholders a fixed amount as dividend. And the preference shares take precedence over ordinary shares or equity shares. They also have an edge over equity shareholders when it comes to repaying of capital. Since the rate of dividends is fixed, it is usually compared with debentures. RIGHTS ISSUE (SEC 62) – A Company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to— Existing shareholders. Employees under a scheme of employees’ stock option, subject to special resolution passed by company. Any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b). Approve in Board Meeting File PAS-3 within 15 days from the date of allotment. BONUS ISSUE (SEC 63) – A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of – Free Reserves; Securities Premium; Capital Redemption Reserve: No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares, unless Authorised by Articles; on the recommendation of the Board, been authorised in the General Meeting. Not defaulted in payment of interest or principal of   fixed deposits or debt securities; Not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus; Partly paid-up shares are made fully paid-up; The company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same. The bonus shares shall not be issued in lieu of dividend. Approve in Board meeting File PAS-3 within 15 days from the date of allotment. PRIVATE PLACEMENT (SEC 42) – Any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer- cum-application, which satisfies the conditions specified in this section To selected group of persons which has been identified by Board. On the recommendation of the Board, been authorized in the General Meeting File MGT-14 within 30 days from the date passing of special resolution with the Registrar and application letter shall be in the form of an application in Form PAS-4. Allot securities within 60 days from the date of receipt of the application money. Company shall maintain a complete record of private placement offers in Form PAS-5. Return of allotment of securities shall be filed with the Registrar within 15 days of allotment in Form PAS-3. Procedure of Issue of New Shares Issue of Prospectus – Before the issue of shares, comes the issue of the prospectus. The prospectus is like an invitation to the public to subscribe to shares of the company. A prospectus contains all the information of the company, its financial structure, previous year balance sheets and profit and Loss statements etc. Receiving Applications – When the prospectus is issued, prospective investors can now apply for shares. They must fill out an application and deposit the requisite application money in the schedule bank mentioned in the prospectus. The application process can stay open a maximum of 120 days. If in these 120 days minimum subscription has not been reached, then this issue of shares will be cancelled. The application money must be refunded to the investors within 130 days since issuing of the prospectus. Allotment of Shares – Once the minimum subscription has been reached, the shares can be allotted. Generally, there is always oversubscription of shares, so the allotment is done on pro-rata bases. Letters of Allotment are sent to those who have been allotted their shares. This results in a valid contract between the company and the applicant, who will now be a part owner of the company. Conclusion Even though the existing shareholders have a pre-emptive right to the new stock of shares, the scope of such interference in the director’s discretion is limited; it is only in exceptional situations where the further issue of shares is restrained.  Latest Posts

This article has been written by Shubham currently currently pursuing BBA.LLB from FIM, IP University. In the below-given article, you’ll all get to know the necessary information about “Companies Act, 2013. Its introduction and types with few relevant cases. On the basis of incorporation Statutory Companies These organizations are established by an uncommon Act of Parliament or State Legislature. These organizations are framed fundamentally with an expectation to offer the public types of assistance. In spite of the fact that basically they are administered under that Special Act, still the CA, 2013 will be relevant to them aside from where the said arrangements are conflicting with the arrangements of the Act making them (as Special Act beats General Act). Instances of these kinds of organizations are Reserve Bank of India, Life Insurance Corporation of India, and so on. Registered Companies Organizations enlisted under the Companies Act, 2013 or under any past Company Law are called enrolled organizations. Such organizations appear when they are enlisted under the Companies Act and an endorsement of joining is allowed to it by the Registrar. 2. On the basis of Liability Companies limited by Shares An organization that has the obligation of its individuals restricted by the update to the sum, assuming any, unpaid on the offers separately held by them is named as an organization restricted by shares. The obligation can be upheld during presence of the organization just as during the twisting up. Where the offers are completely settled up, no further risk lays on them. For instance, an investor who has paid 75 on a portion of assumed worth 100 can be called upon to pay the equalization of 25 as it were. Organizations restricted by shares are by a wide margin the most well-known and might be either open or private. Companies limited by Guarantee Organization restricted by ensure is an organization that has the obligation of its individuals restricted to such sum as the individuals may separately attempt, by the update, to add to the advantages of the organization in case of its being twisted up. If there should be an occurrence of such organizations the risk of its individuals is restricted to the measure of assurance attempted by them. The individuals from such organization are put in the situation of underwriters of the organization’s obligations up to the concurred sum. Clubs, exchange affiliations, research affiliations and social orders for advancing different items are different instances of assurance organizations. Boundless Liability Companies: An organization not having a cut-off on the obligation of its individuals is named as boundless organization. Here the individuals are obligated for the organization’s obligations in relation to their particular advantages in the organization and their risk is boundless. Such organizations might possibly have share capital. They might be either a public organization or a privately owned business. 3. On the basis of Members Private Company According to Section 2(68) of the Companies Act, 2013, “privately owned business” signifies an organization having a base settled up share capital as might be endorsed, and which by its articles,– confines the option to move its offers; aside from in the event of One Person Company, restricts the quantity of its individuals to 200: Given that where at least two people hold at least one offers in an organization mutually, they will, forthe reasons for this provision, be treated as a solitary part Given further that the accompanying people will not be remembered for the quantity of individuals;– people who are in the work of the organization; and people who, having been once in the past in the work of the organization, were individuals from the organization while in that business and have kept on being individuals after the business stopped, will not be remembered for the quantity of individuals; and precludes any solicitation to the general population to buy in for any protections of the organization; It must be noticed that it is just the quantity of individuals that is restricted to 200. A privately owned business may give debentures to quite a few people, the main condition being that a solicitation to the general population to buy in for debentures is restricted. The aforementioned meaning of private restricted organization determines the limitations, constraints and preclusions, which must be explicitly given in the articles of relationship of a private restricted organization. Public company Given that an organization which is an auxiliary of an organization, not being a privately owned business, will be regarded to be public organization for the motivations behind this Act even where such auxiliary organization keeps on being a privately owned business in its articles. According to area 3(1)(a), a public organization might be shaped for any legal reason by at least seven people, by buying in their names or his name to a notice and following the prerequisites of this demonstration in regard of enrolment. A public organization might be supposed to be an affiliation comprising of at the very least 7 individuals, which is enlisted under the Act. On a fundamental level, any individual from the public who is eager to address the cost may procure shares in or debentures of it. The protections of a public organization might be cited on a Stock Exchange. The quantity of individuals isn’t restricted to 200. According to area 58(2), the protections or other enthusiasm of any part in a public organization will be openly adaptable. Be that as it may, any agreement or game plan between at least two people in regard of move of protections will be enforceable as an agreement. The Companies Act, makes an away from concerning the adaptability of offers identifying with private and public organizations. By definition, a “privately owned business” is an organization which confines the option to move its offers. On account of a public organization, the Act gives that the offers or debentures and any intrigue in that, of an organization, will be unreservedly adaptable. The arrangement contained in the law for the free adaptability of offersRead More

This article has been written by Nikhat Fatima pursuing law from Rizvi Law College. Picture credits to mjccs.pk Corporate Law, also inferred as Company Law or Business law is a body that regulates the rights and code of companies organizations and businessmen. any advertisement offering shares or debentures of the company for sale to the public is a prospectus. The law is aimed at easing the process of doing business in India and improving corporate governance by making companies more accountable. Section 2(70) of the Companies Act 2013 defines Prospectus as “any document issued for advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate”. A Prospectus is an invitation issued to the public to offer for purchase/subscribe shares or debentures of the company. In other words, any advertisement offering shares or debentures of the company Private limited companies are strictly prohibited from issuing a prospectus and they cannot invite the public to subscribe to their shares. A prospectus can only be issued by public limited institutions. Making it an open invitation prolonged to the public at large. Advertisement of the Prospectus Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement of the prospectus. In any manner where an advertisement of any prospectus of a company is published, it shall be necessary to specify therein the contents of its memorandum as regards the objects, the liability of members and the amount of share capital of the company, and the names of the signatories to the memorandum and the number of shares subscribed for by them, and its capital structure. Types of Prospectus Red Herring Prospectus Shelf Prospectus Abridged prospectus Deemed Prospectus Red Herring Prospectus Specified under Art 31 of the Companies Act 2013 a red herring prospectus is issued prior to the prospectus when a company is proposing to make an offer. It shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer. A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus. Shelf Prospectus A prospectus that has been issued by any public financial institution, company, or bank for one or more issues of securities or class of securities as mentioned in the prospectus is known as Shelf prospectus. When a shelf prospectus is issued then the issuer does not need to issue a separate prospectus for each offering he can offer or sell securities without issuing any further prospectus. The provisions related to shelf prospectus have been discussed under section 31 of the Companies Act, 2013. Abridged prospectus A summary of a prospectus filed before the registrar. It contains all the features of a prospectus known as Abridged prospectus. An abridged prospectus contains all the information of the prospectus in brief so that it should be convenient and quick for an investor to know all the useful information in short. Section33(1) of the Companies Act, 2013 also states that when any form for the purchase of securities of a company is issued, it must be accompanied by an abridged prospectus. Deemed Prospectus A deemed prospectus has been stated under section 25(1) of the Companies Act, 2013. A document will be considered as a deemed prospectus through which the offer is made to the public for sale when any company offers securities for sale to the public, allots or agrees to allot securities. The document is deemed to be a prospectus of a company for all purposes and all the provision of content and liabilities of a prospectus will be applied upon it. Objectives of Issuing the Prospectus To bring to the notice of the public that a new company has been formed.  To preserve an authentic record of the terms and allotment on which the public have been invited to buy its shares or debentures.  To secure that the directors of the company accept responsibility for the statements in the prospectus. Contents of Prospectus The contents of the prospectus have been specified in Schedule II of the Companies Act. The important contents in the prospectus include the following. Name and address of the company Objects of the company Full particulars of the signatories to the Memorandum and number of shares taken by them. The names, addresses, and occupations of the directors, managing directors or managers, etc. The number and classes of shares. The minimum subscription The qualification shares of a director and the remuneration of the directors. The amount payable on application, on the allotment, and on calls. The names of the underwriters. The estimated amount of preliminary expenses. The names and addresses of the auditors of the company Particulars about reserves and surplus Voting rights of the different classes of shares. Reports of the auditors regarding profits and losses of the company. A similar report by the Chartered Accountant regarding the Profits and Losses and Assets and Liabilities of the Company. Consequences of Misstatement in Prospectus Civil and Criminal liabilities shall be faced by any person who provides with misstatement in a prospectus.  Civil liability In case, misleading prospectus amounts to misrepresentation, the aggrieved persons can repudiate the contract. They can claim a refund of their money. Damages can also be claimed by the persons found guilty. Criminal liability In case any deliberate concealment is made, directors will be punished with a fine of Rs. 5,000 or imprisonment up to two years or both. If it is a fraud the fine will extend to Rs. 10,000 or 5 years imprisonment or both. Statement in Lieu of Prospectus When the prospectus is not issued by the company a statement in lieu of a prospectus must be filed with the Registrar at least three days before the allotment of shares. The contents of the statement in lieu of prospectus are very much similar to the prospectus. The statementRead More

This article has written by Prithiv Raj Sahu, a student of KIIT School of Law, Bhubaneswar (4th year) Introduction In India, a non-profit organisation can be registered as Trust by executing a Trust deed or as a Society under the Registrar of Societies, or as a private limited non-profit company under Section 8 Company under the Companies Act, 2013. A Section 8 Company is the same as the popular Section 25 company under the old Companies Act, 1956, which was one of the most popular forms of Non- Profit Organisations in India. But, as per the new Companies Act 2013, Section 25 (as per the old act) has now become Section 8. As per Section 8(1a, 1b, 1c) of the new Companies Act, 2013, a person can establish Section 8 company for “promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object”, provided it intends to apply its profits, if any, or other income in promoting its objects and intends to prohibit the payment of any dividend to its members. To register a section 8 company in India, the process is similar to the incorporation of other companies (except requires an additional license). The applicant looking to start a section 8 company has to file Form INC-1 for name availability. On approval of the name, there is a further requirement of obtaining a license for a Section 8 Company, for which file the Form RD-1 in order to obtain a license for such company. After obtaining the license number, the applicant can proceed further to incorporate a company by filing e forms INC-7, INC-22 and DIR-12 or e-forms INC-7 and DIR-12. Eligibility for forming a Section 8 Company A person or an association of persons intending to be registered under Section 8 of the Companies Act, 2013 as a limited company has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object; intends to apply its profits, if any, or other income in promoting its objects; and intends to prohibit the payment of any dividend to its members. Exception for Section 8 Companies Company Secretaries are not mandatory There is no requirement for minimum share capital Prior and short notice period of 14 days for Annual General Meetings The recording of the MOM is not required unless needed Number of Directors (2) is required A director can take up more than 20 Section 8 company positions in various other companies. There is no requirement for any committees Meeting are called only for some specific decisions Characteristics of Section 8 Companies 1.     Incorporate for social welfare 2.     No minimum capital 3.     Licensed by government 4.     Limited liability 5.     No dividend distribution Advantages Members have limited liability. No minimum capital requirements. They get several tax exemptions. Stamp duties and high fees are not payable for registration. They have perpetual existence and separate legal status. Exemptions from carrying out several procedural compliances. More credibility than compared to NGOs, societies, and trusts because they are recognized by the Central Government’s license. Disadvantages Members of the company cannot get any dividend. Officers and directors do not get benefits and allowances. Can only use the profits for furthering charitable aims and objectives. Amendment of memorandum and articles requires Central Government’s permission. The license is revocable on several grounds. Winding Up Section 8 companies can wind-up or dissolve themselves either voluntarily or under orders given by the Central Government. If any assets remain after satisfaction of debts and liabilities upon such winding-up, the National Company Law Tribunal can order the transfer of these assets to a similar company. It can also order that they must be sold and the proceeds of this sale should be credited to the Insolvency and Bankruptcy Fund. Punishment for Contravention Any company that contravenes provisions of Section 8 is punishable with a fine ranging from Rs. 10 lakhs to Rs. 1 crore. Further, directors and officers of the company are liable to punishment with imprisonment up to 3 years and a fine between Rs. 25,000 to Rs. 25 lakhs. Such officers can also face prosecution under stringent provisions of Section 447 (dealing with fraud) if they conduct any affairs with fraudulent motives. Procedure for Incorporation of Section 8 Companies To register a company under Section 8 you need to just follow these steps: Obtain a DSC of the proposed Directors of the Section 8 Company. Once a DSC is received file Form DIR-3 with the ROC for getting a DIN. Once the DIR-3 is approved Draft MOA and AOA File Form RUN for reservation/availability of company name. After approval, file Form INC-12 with the ROC Once the Form is approved by Central Government, a license under section 8 will be issued in Form INC-16. After obtaining the license, file SPICE Form 32 with the ROC for incorporation Relevant Case Laws In N.C. Bakshi v. Union of India An association had been given a licence under section 25 (now section 8) by the Central Government and as per licence condition, no alteration could be made in Articles of Association unless alteration had been approved by Central Government. Alteration made to Articles of Association of respondent had been approved but according to petitioner members their representation was not considered. Petitioner sought for quashing of approval and mandamus to grant fair hearing to petitioner. Delhi high court held that since petitioner’s representation was not considered while granting impugned approval, competent authority was to be directed to provide a post decisional hearing to petitioners on representation and to pass a speaking order while returning a positive finding as to whether alterations in articles of association impugned were in contravention of provisions of act.  Conclusion Section 8 companies primarily operate for charitable and non-profit objectives which are for the well-being of our society. Also it has got several exemptions in terms of tax and others. These companies are registered under ministry of corporateRead More

This article has been written by Prithiv Raj Sahu, a student of KIIT School of Law, Bhubaneswar (4th year). He can be reached on his LinkedIn account (https://www.linkedin.com/in/prithiv-raj-sahu-4b6994192) or mobile phone (8249588448) Public Policy Public policy is the principled guide to action taken by the administrative executive branches of the state with regard to a class of issues, in a manner consistent with law and institutional customs. Features of Public Policy Policy is solution to issue or problem (policy demands) that is brought on agenda of government and requires attention Policy may be in form of law, or regulation, plan, program, schemes, guidelines, codes or combinations of these Policy what government actually does, not just what it intend to do Policy is sustained course of actions taken over time not discrete decisions Policy output vs. outcome Output – measurable physically results of policy Outcome – policy’s consequences on target group/society Who makes Public Policy? Legislature, executives (govt.),and judiciary make policies Legislature policy – Energy conservation Act 2001; reservation quota for disadvantaged groups, Aadhar Act, etc. Executive policies – MANREGA, Ayushman Bharat Mission, Mid-Day Meal, DBT, etc. Policies emanating from judiciary – creamy layer policy in reservation, policy of judges appointment, auction of natural resources. Types of Public Policy Arena of policy making – legislative vs. administrative vs. judicial Substantive vs. procedural – Ex: substantive: reservation quota in jobs; Procedural: Administrative reforms Policy issues – education, foreign, defence, economic, environmental, etc. Distributive and re-distributive – Ex: distributive: universal basic income; re distributive: land reforms Regulatory and self-regulatory – Ex: regulatory: RERA, pollution control acts; self-regulation: press council, medical council Material vs. symbolic – Ex: farm loan waiver; symbolic: national anthem in cinema hall Policies involving public goods vs. private goods – Ex: public good: nationalization of banks; private good: privatization policies. Corporate Veil A company has a separate district legal entity from the persons who constitute it. Thus, a company in legal terms is a totally different person called as an artificial or legal person. Thus, it a concept which segregates the liability of company from its makers and protects them from being personally liable. Origin of Corporate Veil Doctrine The doctrine of Lifting the Corporate Veil owes its origin to the concepts of Separate Legal Entity and Limited Liability. The company is an entity different from its shareholders. Therefore, the shareholders’ liability is limited to their contribution in the shares of the company. But when the corporate veil is lifted the shareholders become personally liable, and the liability of the shareholders becomes unlimited for the liabilities of the company. The concept of Limited Liability was developed in the 17th century in England. Before that, people were afraid of investing in companies as they believed that it may land them into unlimited liabilities for the acts of their partners as well. With the passage of time investment requirements increased but people were reluctant to invest due to high risk. So, to boost the investment the concept of limited liability was introduced. With the inception of the principle of limited liability and separate legal entity the position of the investors became safer but the risk for creditors increased. The creditors could recover their loan amount from the assets of the company only, and they could not hold the shareholders liable for their debts. This has the probable effect of covering the shareholder’s risk while, consequently, their chance for gain is unconditional. Evidently, corporations exist mainly to protect their shareholders from personal liabilities for the debts of the company. The shareholders widely misused this advantage. To protect the creditors from fraudulent activities of the shareholders the doctrine of Lifting the Corporate Veil was developed. Concept of Lifting the Corporate Veil One of the main characteristic features of a company is that the company is a separate legal entity distinct from its members. The most illustrative case in this regard is the case decided by House of Lords Salomon v Salomon FACTS: Salomon transferred his business of boot making, initially run as a sole proprietorship, to a company (Salomon Ltd.), incorporated with members comprising of himself and his family. The price for such transfer was paid to Salomon by way of shares, and debentures having a floating charge (security against debt) on the assets of the company. Later, when the company’s business failed and it went into liquidation, Salomon’s right of recovery (secured through floating charge) against the debentures stood a prior to the claims of unsecured creditors, who would, thus, have recovered nothing from the liquidation proceeds. The liquidator sought to overlook the separate personality of Salomon Ltd., distinct from its member Salomon, so as to make Salomon personally liable for the company’s debt as if he continued to conduct the business as a sole trader. ISSUE: Whether, regardless of the separate legal identity of a company, a shareholder/controller could be held liable for its debt, over and above the capital contribution, so as to expose such member to unlimited personal liability? JUDGMENT:  A company is a separate legal entity distinct from its members and so insulating Mr Salomon, the founder of A. Salomon and Company, Ltd., from personal liability to the creditors of the company he founded. The court also upheld firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the company’s shareholders to pay up outstanding debts. The court has been extremely protective of the Salomon principle, and it is only in extreme circumstances that they will consider the veil. Further inLee v. Lee’s Air Farming Ltd, it was held that there was a valid contract of service between Lee and the Company, and Lee was therefore a worker within the meaning of the Act. It was a logical consequence of the decision in Salomon’s case that one person may function in the dual capacity both as director and employee of the same company. The circumstances under which corporate veil may be lifted can be categorized broadly into two following heads Judicial Provisions FraudRead More

This article has been written by Prithiv Raj Sahu, a student of KIIT School of Law, Bhubaneswar (4th year). The article enumerates the concept of corporate governance and its history in India. Corporate Governance Corporate governance is not a law it’s a mechanism. Corporate Governance refers to the set of system, principles and processes by which a company is governed. Corporate Governance is based on principles such as Conducting the business with all integrity & fairness, Being transparent with regard to all the transactions, making all necessary disclosures, Complying with applicable Law, Accountability & responsibility towers the stakeholder. History of Corporate Governance in India The concept of good governance is very old in India dating back to third century B.C. where Chanakya (Vazir of Parliputra) elaborated fourfold duties of a king viz. Raksha, Vriddhi, Palana and Yogakshema. Substituting the king of the State with the Company CEO or Board of Directors the principles of Corporate Governance refers to protecting shareholders wealth (Raksha), enhancing the wealth by proper utilization of assets (Vriddhi), maintenance of wealth through profitable ventures (Palana) and above all safeguarding the interests of the shareholders (Yogakshema or safeguard). Corporate Governance was not in agenda of Indian Companies until early 1990s and no one would find much reference to this subject in book of law till then. In India, weakness in the system such as undesirable stock market practices, boards of directors without adequate fiduciary responsibilities, poor disclosure practices, lack of transparency and chronic capitalism were all crying for reforms and improved governance. The most important initiative of 1992 was the reform of Securities and Exchange Board of India (SEBI). The main objective of SEBI was to supervise and standardize stock trading, but it gradually formed many corporate governance rules and regulations. The initiative in India was initially driven by an industry association, the confederation of Indian industry. In December 1995, CII set up a task force to design a voluntary code of corporate governance. The final draft of this code was widely circulated in 1997. In April 1998, the code was released. It was called Desirable Corporate Governance – A Code. Between 1998 and 2000, over 25 leading companies voluntarily followed the code – Bajaj Auto, Infosys, BSES, HDFC, ICICI and many others. In India, the CII took the lead in framing a desirable code of corporate governance in April 1998. This was followed by the recommendations of the Kumar Mangalam Birla Committee on corporate governance. This committee was appointed by SEBI. The recommendations were accepted by SEBI in December 1999 and now enshrined in Clause 49 of the listing agreement of every Indian Stock Exchange. Clause 49 of listing agreement Listing agreement deals with the complete guidelines for corporate governance. Following are the provisions, a company, must comply to implement effective corporate governance. Board Independence: Boards of directors of listed companies must have a minimum number of independent directors. Audit Committees: Listed companies must have audit committees of the board with a minimum of three directors, two-thirds of whom must be independent. Disclosure: Listed companies must periodically make various disclosures regarding financial and other matters to ensure transparency. We can compare the Sarbanes-Oxley Act of 2002 and Clause 49. Clause 49 was based on the principles of Sarbanes-Oxley Act of 2002. It was developed for the companies listed on the US stock exchanges. As far as the responsibilities of management and number of directors were concerned, they are both the same. They also have same rules regarding insider trading, refusal of loans to directors and so on. The important difference between the two is under Sarbanes-Oxley legislation if fraud or annihilation of reports takes place up to 20 years of imprisonment can be charged, but in case of Clause 49, there is no such condition. Being the controller of the market SEBI can commence a criminal proceeding. If in case SEBI decides to give a severe punishment then it can commence a criminal proceeding or raise the fine for not agreeing with Clause 49, which automatically delists the company. Amendments to the Companies Act, 1956 India took up its economic reforms programme in 1990s. Again a need was felt for a comprehensive review of the Companies Act, 1956 which has become the bulkiest and archaic with 781 sections and 25 schedules by this time. Three unsuccessful attempts were made in 1993, 1997 and then in 2003 to rewrite the company law. Companies (Amendment) Bill, 2003 which contained several important provisions relating to corporate governance was withdrawn by the Government in anticipation of another comprehensive review of the law. As many as 24 amendments to this Act were made since 1956, of which the 52 amendments pertaining to corporate governance and corporate sector development through the Companies (Amendments) Act, 1999, the Companies (Amendment) Act, 2000 and the Companies (Amendment) Act, 2001. Corporate Governance provisions in the Companies Act, 2013  The enactment of the companies Act 2013 was major development in corporate governance in 2013. The new Act replaces the Companies Act, 1956 and aims to improve corporate governance standards simplify regulations and enhance the interests of minority shareholders. Board of Directors (Clause 166) Independent Director (Clause 149) Related Party Transactions (RPT) (Clause 188) Corporate Social Responsibility (CSR) (Clause 135) Auditors (Clause 139) Disclosure and Reporting (Clause 92) Class action suits (Clause 245) Importance of Corporate Governance Creation of wealth Protecting the interest of shareholders and all other stakeholder Shapes the growth and future of capital market and economy Contributes to the efficiency of the business enterprise Conclusion The concept of corporate governance once there is a brand image, there is greater loyalty, once there is greater loyalty, there is greater commitment to the employees, and when there is a commitment to employees, the employees will become more creative. In the current competitive environment, creativity is vital to get a competitive edge. Corporate Governance in the Public Sector cannot be avoided and for this reason it must be embraced. But Corporate Governance should be embraced because it has muchRead More

This article is written by Tulip Das, currently pursuing BBA L.L.B(H) from Amity University Kolkata. INTRODUCTION An audit is an “independent examination of financial information of any entity, whether profit-oriented or not, irrespective of its size or legal nature when such an examination is conducted with a view to express an opinion thereon”. It even attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditing is the process of examining the financial statement and information of the entity. In this process, we examine whether the company is making a profit or not. It is a systematic method in which we analyse the economic condition and actions. Let us learn in more detail about it. The International Federation of Accountants has given the following definition of an audit, “audit is an independent inspection of the financial information of any organization, whether profit-oriented or not profit-oriented, irrespective of its legal form, status or size when such examination is conducted with a way to express an opinion thereof”. The one important thing to remember is that an audit is a close inspection of the books of accounts, but it does not absolutely guarantee error-free books. The auditor only expresses his opinion on the accuracy of the books, he does not give his opinion on the financial status of the company or predict its future. Auditing in India- Origin and Development in India In India, the Companies Act 1913 made an audit of company accounts compulsory. With the increase in the size and the number of the companies and the volume of transactions, the objective of audit shifted and the audit was expected to ascertain whether the accounts were loyal and fair rather than detective of errors and frauds. Henceforth, the emphasis was not only on mathematical accuracy but also on a fair representation of the financial efforts the Indian Companies Act 1913 also prescribed for the first time the eligibility of auditors. The previous developments in auditing pertain to the use of computers in accounting and auditing. In conclusion, it can be said that auditing has come a long way from hearing of accounts to seeking the help of computers to examine digital accounts. Features of an Audit Auditing is a systematic process. It is a logical and scientific procedure to examine the accounts of an organization for its accuracy. There are rules and procedures to follow. The audit is always done by an independent authority or a group of persons with the necessary qualifications. They have to be independent so their views and opinions can be completely unbiased. There should not be presence of any third-party in the process of auditing. An audit is the examination of all the books of accounts and financial information of the company. So, it is essentially a verification of the final accounts of the organization, i.e. the profit and loss statement and the balance sheet at the end of the financial year. Auditing is not only a review of the books of accounts but also the internal systems and internal control of the organization. To conduct the audit, one needs the help of various sources of information. This includes vouchers, documents, certificates, questionnaires, explanations, and all other required evidence. One may scrutinize any other documents he deems fit like Memorandum of Association, Articles of Associations, vouchers, minute books, shareholders register etc. The auditor must fully satisfy himself with the accuracy and authenticity of the financial statements. Only then can he arrive at the conclusion that they are true and fair statements. His opinion about his own self should never be questioned. Classification of Types of Audits in India There are many audit types in India, and all of them can be categorized into the following: Statutory audit: Statutory audits are conducted by the Indian government to check the financial state of the company/business. Qualified auditors, working as external or independent parties, take up the task of statutory audit. The Statutory audit report is made as per the directions and forms provided by the government. Internal audit: A company/business conducts an internal audit to check up on the financial health of the company. Internal audit is conducted by the internal staff or an independent contractor. Statutory Audits in India There are two common types of statutory audits that a company has to conduct each financial (fiscal year). They are as follows: Tax audits: Required under the Section 44AM of India’s Tax Act 1967, the tax audit is mandatory for every business with an annual turnover of over INR 1 Crore and for every professional who is earning more than INR 50 lakhs per year. Tax audit report has to be filed in the prescribed format by September 30 after the end of the previous financial year. If the required person or the business fails to file that report, they have to face a penalty equal to 0.5 percent of turnover. Company audits: The details and provisions of company audits are explained in detail in the Companies Act, 2013. They state that every company, irrespective of its annual turnover or business type, has to get its financial accounts audited by a qualified professional (auditor).  As per the company laws, you can appoint an auditor for the duration of 6 annual general meetings. If you are a partnership/sole proprietorship, you can’t have the same auditor for more than two terms. Internal Audits in India There are several types of internal audits. So many in fact, that picking the most important among them is difficult. Therefore, let us give a brief introduction of some of the most common audit types of internal audit: Operational Audit: Operational audit is conducted to evaluate the efficiency of a particular aspect, function or department of a business. It doesn’t always require financial data, but the information about whether the department/function/aspect is performing its tasks properly or not. Compliance audit: There are many types of compliances that a company or any other type of business has to follow to stay inRead More