Company Law and Secretarial Practice (CLSP)- Companies Act 2013

COMPANY LAW AND
SECRETARIAL
PRACTICE
Compiled By:
Mr Joswin Rodrigues
Assistant Professor,
St. Josephs College of Commerce(Autonomous)
4/25/2024
Compiled By : Joswin Rodrigues, St. Josephs College of
Commerce(Autonomous)

BBA-Module-1: Over View of Companies Act,
2013
• Overview of Company (History, types of companies) – Authorities
related to company law board – Registrar of companies and SEBI (in
brief) – Importance and functions (in brief) – Company Secretary:
Qualification, appointment and terminations - Secretarial Standard 1
and 2 - Secretarial Audit – Compliance with law –Related Party
Transactions – Definition of Related Parties–Types and Requirements
of law
4/25/2024

B.Com- Module-1: Over View of Companies
Act, 2013 6 hrs
• Overview of Company (History, types of companies) – Authorities
related to company law board – Registrar of companies and SEBI (in
brief) – Importance and functions (in brief) – Company Secretary:
Qualification, appointment and terminations - Secretarial Standard1
and 2 - Secretarial Audit – Compliance with law - Related Party
Transactions –Who are they? Types and Requirements of law
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• What are the different forms of Businesses?
• Advantages and Disadvantages of each form of business?
• Are there any acts governing the above said businesses?
• What is a Company?
Questions
4/25/2024
Compiled By : Joswin Rodrigues,
St. Josephs College of Commerce(Autonomous)

• The Companies Act, 2013 received the assent of the Hon’ble
President of India on 29th August 2013
• Section 1 came into force on 30th August 2013; 98 sections came into
force on 12th September 2013; 143 sections were enforced from 1st
April 2014 and so on
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• Changing national and international economic environment
• Exponential growth
• Changes in stakeholders’ expectations.
• To enable Indian corporate sector to adopt the best international
practices
• Nurturing a positive environment for investment and growth
• Manifold Increase in Number of Companies
1956 - 30,000 approx / 2013 - 11,00,000 approx (Year & No. of
Companies)
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Passed in Lok-sabha December 18, 2012
Passed in Rajya-Sabha August 08, 2013
President’s assent August 29, 2013
Total number of sections 470
Total number of chapters 29
Total number of schedules 7
Number of sections notifies (282) Section 1 on August 29, 2013
98 sections on September 12, 2013
183 sections on April 01, 2014
Total number of rules notified Rules under 21 chapters notified
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Applicable Non-Applicable
 Co.’s registered under this Act &
previous Acts
 Statutory companies
 Limited companies  Partnership firm
 Unlimited companies  Co-operative societies
 Foreign companies  Trusts
 Banking, insurance and electricity
companies
• Societies not engaged in trade and commerce.
 Limited Liability Partnerships
 One man company
 Government companies
 Nidhi’s and mutual benefit societies
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1. Protect the interests of investors & creditors.
2. Ensure proper performance of duties of persons
managing the company.
3. Prevent misconduct & malpractice from companies.
4. Promote healthy growth of companies.
5. To ensure activities of companies are on par with
economic and social policies of the country.
6. To empower the government to interface & investigate
into the affairs of the companies.
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Company Vs Corporation
• The term “Company” is defined under section 2(20) of the Companies
Act, 2013, “company” means a company incorporated under this Act
or under any previous company law. On the other hand, the term
“Corporation” is defined under section 2(11) of the Companies Act,
2013, “corporation” includes a company incorporated outside India
but does not include:
• a co-operative society registered under any law relating to co-
operative societies; and
• any other body corporate (not being a company as defined in this
Act), which the Central Government may by notification specify in this
behalf.
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Company
• A Company is a legal entity, allowed by legislation, which permits a
group of people, as shareholders, to apply to the regulators for an
independent organization to be created, which can then focus on
pursuing set objectives, and empowered with legal rights which are
usually only reserved for individuals, such as to sue and be sued, own
property, hire employees or loan and borrow money
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Previous Company Acts
• Indian Companies Act, 1866
• Indian Companies Act, 1882.
• Indian Companies Act, 1913.
• The Registration Of Transferred Companies Ordinance, 1942.
• The Companies Act, 1956.
• Portuguese Commercial Code,
• The Registration Of Companies (Sikkim) Act, 1961.
• The Companies Act, 2013.
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The Companies Act, 2013 has undergone
amendments four times so far:
• The Companies (Amendment) Act, 2015,
• The Insolvency and Bankruptcy Code, 2016,
• The Companies (Amendment) Act, 2017,
• The Companies (Amendment) Act, 2019 and
• The Companies (Amendment) Act, 2020 amended the Companies
Act, 2013.
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Characteristics of a Company
• Corporate Personality- Lee v Le Air Farming Co.Ltd (Air Dressing Case)
• Company is not a citizen-Rustom Cavasjee Cooper v. Union of India (1970)
(Right to equality)
• Company has Nationality and Residence-(Tutika v. Parry and Co., (1903)
• Separate Management(Salomon vs Salomon)-Leather Company
• Limited Liability(Shares/Guarantee)
• Perpetual Succession – No Death, retirement
• Separate Property
• Transferability of Shares
• Capacity to sue and be sued(Abdul Haq vs Das Mal) Das Mal- Employee
• Contractual Rights: Lee v Le Air Farming Co.Ltd (Air Dressing Case)
• Voluntary Association for Profit
• Termination of Existence(By Law it came into existence, by law it will cease)
13 Characteristics of a Company - Companies Act, 2013
(writinglaw.com)
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Corporate Veil
• Any established organization has a
legal identity of its own, and which
is separate even from the identity
of its employees. As it’s obvious
that a company itself isn’t a living
body and thus, various members
come together to work in the
name and behalf of the company,
living under a shadow/veil. This is
simply termed as “Corporate Veil”.
• The corporate veil is a legalized
concept separating the actions of
the organization from that of its
shareholders.
Factors determining the Piercing
of Corporate Veil
• Piercing the Corporate Veil:
• Court can disregard company's separate identity.
• Shareholders or directors held liable for fraud.
• Subsidiaries and Parent Companies:
• Court examines relationship in mishap cases.
• Parent company's influence on subsidiaries
assessed.
• Corporate Guidelines:
• Following rules crucial.
• Breach can remove limited liability for
shareholders.
• Identity Separation:
• Clear distinction vital.
• Avoids legal complications.
• Undercapitalization:
• Inadequate capital.
• Court checks assets for creditor fairness.
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1. Common Law Exceptions
1. Determination of a character
2. Where the company is a shame
3. Prevention of fraud or improper conduct
4. Where the company is the acting agent of shareholders
5. Protection of revenue
6. Avoidance of welfare legislation
2. Statutory Exceptions
1. Number of member below statutory minimum
2. Failure to refund application money
3. Company name not mentioned in the Bill of Exchange
4. Group Accounts
5. Investigation into related companies
6. Fraudulent trading
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Corporate Veil
Doctrine in India
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Vodafone Case
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Types of Companies
• Limited by shares;
• Limited by guarantee; (charity, social
enterprise or non-profit organization)
• Unlimited companies.
• Private Companies;
• Public Companies;
• One Person Company
• Company with charitable objects, etc. under
Section 8 of the Companies Act, 2013;
• Small Company(PC-50L and TO 2CR)
• Government companies;
• Foreign companies;
• Holding companies; and
• Subsidiary companies-(Control of at least 20%
translates to actually 20% to 50%)
• Producer Companies- farmers/agriculturalists
“things that have been produced or grown,
especially by farming”
• Nidhi Company
• NBFC
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Types of Companies
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Producer Company
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Producer Company PDF
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Comparative Analysis of Trusts, Societies & Section 8 Companies (taxguru.in)
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MOA
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Implementation
 Ministry of Corporate Affairs
 The Zonal Offices (Headed by Regional Directors)
 Field Offices (Registrar of Companies for each state)
Procedure and Legal
 *National Company Law Tribunal
 National Company Law Appellate Tribunal
 Supreme Court
*The National Company Law Tribunal has been constituted w.e.f. 1st June,2016 and by
virtue of Section 466(1) of Companies Act,2013, the Company Law Board stands dissolved.
Financial and Securities Related Issues
 SEBI
 CCI
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• The Ministry is primarily concerned with administration of the Companies Act 2013, the
Companies Act 1956, the Limited Liability Partnership Act, 2008 & other allied Acts and rules
& regulations framed there-under mainly for regulating the functioning of the corporate
sector in accordance with law.
• The Ministry is also responsible for administering the Competition Act, 2002 to prevent
practices having adverse effect on competition, to promote and sustain competition in
markets, to protect the interests of consumers through the commission set up under the
Act.
• Besides, it exercises supervision over the three professional bodies, namely, Institute of
Chartered Accountants of India(ICAI), Institute of Company Secretaries of India(ICSI) and the
Institute of Cost Accountants of India (ICAI) which are constituted under three separate Acts
of the Parliament for proper and orderly growth of the professions concerned.
• The Ministry also has the responsibility of carrying out the functions of the Central
Government relating to administration of Partnership Act, 1932, the Companies (Donations
to National Funds) Act, 1951 and Societies Registration Act, 1980.
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• The Ministry is primarily concerned with administration of the Companies Act 2013, the
Companies Act 1956, the Limited Liability Partnership Act, 2008 & other allied Acts and rules &
regulations framed there-under mainly for regulating the functioning of the corporate sector in
accordance with law.
• The Ministry is also responsible for administering the Competition Act, 2002 to prevent
practices having adverse effect on competition, to promote and sustain competition in
markets, to protect the interests of consumers through the commission set up under the Act.
• Besides, it exercises supervision over the three professional bodies, namely, Institute of
Chartered Accountants of India(ICAI), Institute of Company Secretaries of India(ICSI) and the
Institute of Cost Accountants of India (ICAI) which are constituted under three separate Acts of
the Parliament for proper and orderly growth of the professions concerned.
• The Ministry also has the responsibility of carrying out the functions of the Central
Government relating to administration of Partnership Act, 1932, the Companies (Donations to
National Funds) Act, 1951 and Societies Registration Act, 1980.
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• Central government has set up 4 regional offices with head quarters at Mumbai, Kolkata, Kanpur
and Chennai.
• Each regional office is under a regional director.
Functions of Regional Director:
1. Supervision, control & co-ordinate the activities of the offices of Registrar of Companies.
2. To advice and guide the Registrar on Technical & administration matters.
3. To report to government on important events and trends in the region.
4. To function as a link between centre and state.
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Current Regional Directors Offices in India
Regional Director (Eastern Region) Kolkata
Regional Director(Northern Region) New Delhi
Regional Director (North Western Region) Ahmedabad
Regional Director(North East Region) Guwahati
Regional Director (Southern Region) Chennai
Regional Director (Western Region) Mumbai
Regional Director (South East Region) Hyderabad
4/25/2024

Registrar of Company
Meaning
• Registrar of
Companies (ROC) is
an office appointed
under Section 609 of
the Companies Act
that administers
companies and
Limited Liability
Partnerships (LLPs) in
India
Objective
• To register companies
and Limited Liability
Partnerships (LLPs)
operational in the
respective States and
UTs.
• To ensure companies
and Limited Liability
Partnerships (LLPs) are
complying with the
statutory demands
specified under the
act.
• Incorporation
• Registration/
Cancelling
• Regulation and
Reporting
• Seize and Search
• Winding up of
Companies
Functions
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Central government has appointed a full time officer in each state to be
known as Registrar of Companies (ROC)
Functions of Registrar of Companies:
• To register companies and to issue the certificate of incorporation on providing
various documents.
• To receive documents, notices, & reports and file them as per required by the
companies Act.
• To issue the necessary notices, if default is made by any company.
• To present a petition to the Tribunal for winding up of a company under certain
circumstances.
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Registrar of Companies (Andhra Pradesh & Telangana) Hyderabad
Registrar of Companies(Kerala) Ernakulum
Registrar of Companies (Assam, Meghalaya, Manipur, Tripura,
Mizoram, Nagaland & Arunachal Pradesh)
Guwahati
Registrar of Companies (Delhi & Haryana) New Delhi
Registrar of Companies (Gujarat) Ahmedabad
Registrar of Companies (Karnataka) Bangalore
Registrar of Companies (Madhya Pradesh) Gwalior
Registrar of Companies (Maharashtra) Mumbai
Registrar of Companies (Maharashtra) Pune
Registrar of Companies (Puducherry) Puducherry
Registrar of Companies (Punjab, Chandigarh) Chandigarh
Registrar of Companies (Tamil Nadu) Chennai
Registrar of Companies (Tamil Nadu) Coimbatore
Registrar of Companies (Uttar Pradesh) Kanpur
Registrar of Companies(West Bengal) Kolkata
ROC Central Registration Centre (CRC) Manesar
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• The Commission which is a statutory body, administers
various responsibilities assigned to it under the Competition
Act, 2002. The composition of the Commission consists of a
Chairperson and not less than two and not more than six
other members.
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The National Company Law Tribunal has been constituted w.e.f. 1st
June,2016 and by virtue of Section 466(1) of Companies Act,2013, the
Company Law Board stands dissolved.
Features of NCLT:
 Relieving courts of mounting litigation.
 Faster disposal of cases
 Simpler and faster procedures and less formalities than courts
NCLT is a body composed of experts in corporate law. It consists of
president and such members of judicial and technical members not
exceeding 62, appointed by the central government.
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 Constitution of NCLT has been notified under section 408 of the
Companies Act, 2013 w.e.f 1st June, 2016. Pending proceedings
as defined in section 434 (1) (a) and 434 (1) (b) of the
Companies Act, 2013 has been transferred to this body. 11
Benches of NCLT have been notified and made operational at
New Delhi (2 Benches), and one bench each at Ahmedabad,
Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati,
Hyderabad, Kolkata and Mumbai.
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• As per the Companies, 2013, Sec.410. The Central Government
shall, by notification, constitute, with effect from such date as may
be specified therein, an Appellate Tribunal to be known as the
National Company Law Appellate Tribunal consisting of a
chairperson and such number of Judicial and Technical Members,
not exceeding eleven, as the Central Government may deem fit, to
be appointed by it by notification, for hearing appeals against the
orders of the Tribunal.
• NCLAT, which is appellate Body to NCLT has been notified under
section 410 of the Companies Act, 2013 w.e.f. 1st June, 2016.
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• An appeal against any order or diction of the NCLT will lie to the
Appellate Tribunal.
• The chairperson of the Appellate Tribunal shall be a person who has
been a Judge of the Supreme Court or Chief Justice of high court.
• Any person not satisfied by the decision of the Appellate Tribunal can
file an appeal to the Supreme Court.
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The securities and exchange board of India was set up in the year 1988, April
12th. It was set up as a non- statutory body. In 1992 it conferred statutory
powers financial institution.
Objectives of SEBI
• To protect the interest of investors so that there is steady flow of savings into
the market(capital)
• To regulate the securities market and ensure fair practices by the issue of
securities so that they can raise resources at minimum loss
• To promote efficient services by brokers, merchant bankers and other
intermediaries so that they become competitive and professional.
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Functions of SEBI
1. Regulation of stock exchange and self-regulatory orgs
2. Registration and regulation of stock brokers, sub- brokers, registrars to all
issues, merchant bankers, underwriters, etc, who are associated with
securities market.
3. Registration and regulation of collective investments schemes including
mutual funds.
4. Prohibition of insider trading in securities.
5. Regulating substantial acquisition of shares and takeover of companies
4/25/2024

Developmental Functions
1. Promote investors education
2. Conducting research and publish info useful to all market participants.
3. Promotion of fair practices and code of conduct for self-regulatory
organizations
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Powers of SEBI
1. Power to issue rules, regulations, directives, guide lines.
2. Empowered to register any agency or intermediary who may be associated with the
securities market.
3. SEBI Act lays down the civil and criminal penalties for contravention(violate) of the
Act
4. Can conduct inquiries into the working of stock exchanges which have to submit
their annual reports to the SEBI.
5. Empowered to demand explanations.
6. SEBI has also been empowered to file complaints in court.
7. Power to compel listing of securities by public companies
8. Power to make or amend bye-laws of recognized stock exchanges
9. Power to call periodical returns from stock exchange.
10. Power to grant approval to the bye-laws
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SEBI- Securities Exchange Board of India
Meaning
• SEBI Act, 1992
• Regulatory
Body- Share and
Commodities
• Objective
• Protection
• Prevention of
Malpractices
• Code of Conduct
Role
• Issuer of
Security
• Protection of
Investor
interest
• Link – Financial
intermidiaries
Function
• Protective Functions
• Prevent Fraud
• P. Insider trading
• Instruction to protect
• Regulatory Functions
• Stock exchange Regulation
• Register and Regulate
Intermediaries –MF, VCs,
CRA, Depositories etc
• Merger and Acquisition
• Development Functions
• Investors Education
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SEBI Intermediaries
4/25/2024

• Applying for Company Name reservation
• Applying for Digital Signature Certificate (DSC) of the Director
• Obtaining Director Identification Number (DIN)
• Getting approval of other authorities
• Submitting the needed documents to Registrar of Companies
(ROC)
• Drafting of MoA, AoA & other required documents and Filing
of the EMoa and EAOA to register a public limited company
• Minimum Seven Directors are required for incorporation of a
public limited company.
• Applying for PAN & TAN of the company simultaneously
along with company registration forms
• Receiving the Certificate of Incorporation of public limited
company. After receiving the certificate of Incorporation the
public limited company is set to start its function.
• Opening of Bank Account in the name of company, required
for smooth functioning of the company.
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Company Secretary: Qualification,
appointment and terminations
4/25/2024

1. Private secretaries
Duties performed-
a. Taking dictations
b. Handling mails
c. Filing and indexing
d. Keeping financial and personal records
e. Attending to callers
f. Making appointments
g. Handling the telephones
h. Collecting information
2. Secretary of an association or a club
3. Secretary of a Government department
4. Secretary of a co-operative society
5. Secretary of a local body
6. Company secretary
4/25/2024

Who is a Company Secretary?
Or
What is the role of a Company Secretary?
4/25/2024

• According to Section2(45) of the Company Secretaries Act 1980
includes any individual possessing the prescribed qualifications and
appointed to perform the duties which may be performed as
Secretary under the act and any other ministerial or administrative
duties.
• According to Section 2(1)(C) of the Company Secretaries Act
“Company Secretary means a person who is a member of the
Institute of Company Secretaries of India.”
4/25/2024

Which types of companies are required to
appoint a Company Secretary?
• Companies (Appointment and Remuneration of Managerial
Personnel) Amendment Rules, 2020
• Listed Company,
• Unlisted Public Company having paid-up share capital of INR 10 Crore or
more,
• Private Company having paid-up share capital of INR 10 Crore or more.
• Read more at: https://taxguru.in/company-law/mca-increases-cs-
appointment-limit-rs-10-crore-wef-01-04-2020.html
4/25/2024

Company having a paid-up share capital of ₹5
crore or more
• According to Section 2(45) of the Companies Act 2013, a Company
Secretary must possess the qualifications prescribed by the Central
Government from time to time. The qualifications prescribed by the
Companies Secretary’s Qualifications) Rules 1975, for the Secretary of
a Company are:
• In case of a company having a paid-up share capital of ₹10 crore or more, the
Secretary must be a member of the Institute of Company Secretaries of India
incorporated under the Companies Act, 1956, and licensed under Sec. 25 of
that Act.
• A person who is a member of the Institute of Chartered Secretaries of London
shall also be eligible for appointment as Secretary of such a company.
MCA increases CS appointment limit to Rs. 10 crore wef 01.04.2020
4/25/2024

Other Companies
• In the case of any other company, one or more of the following
qualifications shall have to be possessed by the Secretary:
• Qualifications specified in clause (a) above;
• A degree in law granted by any university.
• Membership of the Institute of Chartered Accountants of India.
• Membership of the Institute of Cost and Works Accountants of India.
4/25/2024

Appointment of Company Secretary
Appointment
Who cannot be appointed
• Auditors
• Directors
• Person who is barred
from entering
contract
• By the Promoters
• By the First board of Directors
• Appointment from within the
BOD
• Special Resolution
• Appointment Professional
Secretary
• Formation
• Who Can be Appointed
• Qualified
• Not having any charges or barred
from entering into a contract-
Contract act 1872
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Functions/ Duties of the Company Secretary
Statutory Functions or Duties
• According to Companies Act 2013
• To sign document and proceedings
requiring authentication by the company
• To maintaining share registers and register
of Directors and of contracts
• To give notice to registrar for increase in
the share capital
• To deliver share certificate of allotment
within 2 months after transfer
• To sign and send annual return
• To make a statutory declaration for
receiving certificate of commencement of
business
• To send notice of general meeting to every
member of the company
• To prepare minutes of every general
meeting and board meeting within 30 days
• To file a resolution with the registrar
• To assist in preparing the statement of
affairs in a winding up
Non-statutory Functions
• Functions as agent of directors
• Functions towards shareholders
• Functions towards office and staff
He is also Complying with Income-tax Act Minimum Wages Act, Industrial Disputes Act, Employee State Insurance Act,
Sales tax act, Foreign Exchange Regulation Act, Industries (Development and Regulation) Actetc
While the directors are the brains of the
company, the secretary is its ears, eyes and
hands. He is responsible in plenty, but he is
only an agent and cannot act for the
company without authority from the
directors
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Powers and rights of the
secretary
• Right to control and supervise
• Right as a principal officer
• Right to claim salary
• Right to issue certificate
• Right to contract on company’s
behalf
• Right to represent the company
• etc
Company secretary liabilities;
• The company secretary may be
held liable for
• Under the income tax act, the
company secretary is liable for
• Under the stamp act, the
• Under the sales tax act, the
• Under the Registration Act, the
4/25/2024

• How is the appointment of a Company Secretary conducted,
considering that while the directors serve as the intellectual force
behind the company, the secretary acts as its observant and active
representative?
4/25/2024

PROCEDURE FOR APPOINTMENT OF
COMPANY SECRETARY
• Senior Position
• Efficient
administration
• legislation and
regulation are
followed by the BOD
• Named Legal
Representatives
• Communication with
the ES, maintain
records etc
1. Appointment of a company secretary is made by convening a Board Meeting after giving notice to all
the directors of the Company as per Section 173 of Companies Act, 2013.
2. At the board meeting, place the proposal of appointment of company secretary with the details of the
person finalized. Pass a resolution of appointment of company secretary thereby approving the terms and
conditions of his appointment.
3. Once the Company Secretary is appointed, the company must file a return of ‘Appointment of Company
Secretary’ with the Registrar of Companies (ROC) in FORM DIR-12 within 30 days from the date on which
company secretary is appointed by the company.
4. FORM MGT-14 is also required to be filed along with such fees as is specified under Companies
(Registration of Offices and Fees) Rules, 2014.
5. Once a particular whole-time company secretary is appointed by the company, such Company Secretary
shall be barred from holding the office of ‘Whole Time CS’ in any other company.
Exception: The company secretary so appointed in the holding company may hold the office of CS in its
subsidiary company at the same time.
6. Make entries in the register of directors and key managerial personnel under section 170 of Companies
Act,2013
7.Inform the stock exchange where the company is listed.
4/25/2024

Grounds For Removal Of A Company
Secretary
• Procedure for the
removal
• Notice
• Board or General
Meeting
• Intimation to
Registrar of
Companies
• Resignation
• Removal by Shareholders
• Removal by the Board of
Directors
• Incompetence or
Negligence
• Breach of Confidentiality
• Non-Compliance
• Misrepresentation or
Fraud
• Conflict of Interest
• Procedure for the removal
– As per CA 2013
• Step 1: Board Meeting and
Passing of a Special
ResolutionBoard or General
Meeting
• Filing of Form DIR-12
• Intimation to the Company
Secretary
• Filing of Form MGT-14
• Updating Statutory
Registers
• Compliance with Additional
Requirements
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Fees
4/25/2024

INTRODUCTION OF SECRETARIAL AUDIT
• Companies have to comply with many acts in order to run the business
• The term “Secretarial Audit” refers to the mechanism which is connected
with the audit of the non-financial aspects of the company
• Investors, management, regulators and other stakeholders, as to the
compliance of all applicable laws
4/25/2024

• MCA Corporate Governance Voluntary Guidelines, 2009 provided for
conducting Voluntary Secretarial Audit
• by the Companies as under:- “Since the Board has the overarching
responsibility of ensuring transparent, ethical and responsible
governance of the company, it is important that the Board processes
and compliance mechanisms of the company are robust. To ensure
this, the companies may get the Secretarial Audit conducted by a
competent professional. The Board should give its comments on the
Secretarial Audit in its report to the shareholders.”
4/25/2024

SECRETARIAL AUDIT UNDER COMPANIES ACT,
2013
• Every listed company
• every public company having a paid-up share capital of fifty crore rupees or
more; or
• every public company having a turnover of two hundred fifty crore rupees or
more shall annex with its Board’s Report made in terms of sub-section
• Private Company- subsidiary of Public Company
• Every Company having outstanding loans or borrowings from banks or public
financial institutions of 100 crore rupees or more
• Read more at: https://taxguru.in/sebi/annual-secretarial-compliance-report.html
• Copyright © Taxguru.in
4/25/2024

The Objectives of Secretarial Audit
• To Check & Report on Compliances of applicable laws and Secretarial
Standards
• To point out Non-Compliances and Inadequate Compliances
• To protect the interest of various stakeholders i.e. the Customers,
employees, society etc.
• To avoid any unwarranted legal actions/penalties by law enforcing
agencies and other persons as well.
4/25/2024

NEED FOR SECRETARIAL AUDIT
• Effective mechanism to ensure that the legal and procedural requirements
are duly complied with.
• Provides a level of confidence to the directors & Key Managerial Personnel
etc.
• Directors can concentrate on important business matters as Secretarial
Audit ensures legal and procedural requirements.
• Strengthen the image and goodwill of a company in the minds of regulators
and stakeholders.
• Secretarial Audit is an effective governance and compliance risk
management tool.
• It helps the investor in analyzing the compliance level of companies,
thereby increases the reputation.
4/25/2024

The Beneficiaries
• Promoters
• Management
• Non Executive
Directors
• Investors
• Other Stakeholders
Periodicity Of Secretarial Audit-
• Periodically,
• Quarterly,
• Half-year and,
• Annually.
4/25/2024

Documents required to Kept ready
• MOA, AOA, and Statutory Registers,
• Minutes and Notices of Board and
General Meeting
• Previous year Secretarial Audit Report
and Audited financial statements,
• In case Listed entity- Filings & Intimations
with ROC, Stock Exchanges, Newspaper
Advertisements.
• Performance Reports prepared on an
annual basis, Deed, Bonds, and returns.
• In case of foreign investment, filings with
Reserve Bank of India and other statutory
departments,
• Registers maintained under Labour Laws,
• Bank account details for dividend
• Disclosure of Remuneration and Sitting
fees paid by the Company to the
directors.
• Particulars of CSR amount
• SAST Disclosures
• Particulars of External Commercial
Borrowing Returns, if any.
4/25/2024

Professional Responsibility and Penalty for
Incorrect Audit Report
• Any failure or lapse on the part of secretarial auditor may attract penalty
for incorrect report and disciplinary action for professional or other
misconduct under the provisions of the Company Secretaries Act, 1980.
• Further, section 448 of Companies Act, 2013 deals with penalty for false
• statements. The section provides that if in any return, report, certificate,
financial statement, prospectus,statement or other document required by,
or for the purposes of any of the provisions of this Act or the rules
• made thereunder, any person makes a statement,—
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material,
he shall be liable under section 447
4/25/2024

Section 447
• Section 447 deals with punishment for fraud which provides that any
person who is found to be guilty of fraud, shall be punishable with
imprisonment for a term which shall not be less than six months but
which may extend to ten years and shall also be liable to fine which
shall not be less than the amount involved in he fraud, but which may
extend to three times the amount involved in the fraud. In case, the
fraud in question involves public interest, the term of imprisonment
shall not be less than three years
4/25/2024

Company Secretaries Act, 1980- Punishments
• where found guilty of professional or other misconduct mentioned in the
First Schedule:
(a) reprimand;
(b) removal of name from the Register of members upto a period of three
months;
(c) fine which may extend to one lakh rupees.
• where found guilty of professional or other misconduct mentioned in the
Second Schedule:
(a) reprimand;
(b) (b) removal of name from the Register of members permanently or such
period as may be thought fit by the Disciplinary Committee;
(c) fine which may extend to five lakh rupees
4/25/2024

Duty to Report Fraud
• Auditor of a company in the course of the performance of his duties
as auditor, has reason to believe that an offence of fraud which
involves or is expected to involve individually an amount of rupees
one crore or above, is being or has been committed against the
company by its officers, the auditor shall report the matter to the
Central Government.
4/25/2024

Limits for the issue of Secretarial Audit
Reports for financial year 2016-17
• The Council of the Institute at its 235th meeting held on February 11,
2016 reviewed the existing limits for the issue of Secretarial Audit
Reports and decided as below
• 10 Secretarial Audits per partner/ PCS, and
• an additional limit of 5 secretarial audits per partner/PCS in case the unit is
peer reviewed
4/25/2024

SECRETARIAL STANDARDS
• The Secretarial Standards seek to integrate,
harmonize and standardize the diverse secretarial
practices being followed by various corporates
through assimilation of best practices
• Secretarial Standards Board (SSB) formulates
Secretarial Standards in taking confidence of
• in a transparent manner;
• after extensive deliberations, analysis, research; and
• after taking views of corporates, regulators and the public
at large.
SSB consists of FICCI, CII and ASSOCHAM, representatives of
regulatory authorities, such as the Ministry of Corporate Affairs,
Securities & Exchange Board of India, Reserve Bank of India,
Bombay Stock Exchange, National Stock Exchange of India Ltd.
and the sister professional bodies viz. the Institute of Chartered
Accountants of India and the Institute of Cost Accountants of
India
• Scope- Identify the
areas in which
Secretarial Standards
need to be issued
• The main functions of SSB
are:
• (i) Formulating Secretarial
Standards;
• (ii) Clarifying issues arising out
of the Secretarial Standards;
• (iii) Issuing Guidance Notes;
and
• (iv) Reviewing and updating
the Secretarial
Standards/Guidance Notes
atperiodic intervals
SCOPE AND FUNCTIONS OF THE
SECRETARIAL STANDARDS BOARD
4/25/2024

SECRETARIAL
STANDARD
• The Secretarial
Standards do not
seek to substitute
or supplant any
existing law or
the rules and
regulations framed
there under but, in
fact, seek to
supplement such
laws, rules and
regulations.
• Policy documents
relating to various
aspects of
secretarial practices
in the corporate
sector
• Principles which
companies are
expected to adopt
and adhere to, in
discharging their
responsibilities
Scope of Secretarial
Standards
NEED FOR SECRETARIAL
STANDARDS
• Companies today
follow diverse
secretarial
practices. These
practices have
evolved over a
period of time
through varied
usages and as a
response to
differing business
cultures.
4/25/2024

SECRETARIAL STANDARDS ISSUED-
• Secretarial Standard on Meetings of the Board of Directors (SS-1)
• Secretarial Standard on General Meetings (SS-2)
• Secretarial Standard on Dividend (SS-3)
• Secretarial Standard on Registers and Records (SS-4)
• Secretarial Standard on Minutes (SS-5)
• Secretarial Standard on Transmission of Shares and Debentures (SS-6)
• Secretarial Standard on Passing of Resolutions by Circulation (SS-7)
• Secretarial Standard on Affixing of Common Seal (SS-8)
• Secretarial Standard on Forfeiture of Shares (SS-9)
• Secretarial Standard on Board’s Report (SS-10)
First 2 standards are covered in the syllabus
4/25/2024

Secretarial Standard on Meetings of the
Board of Directors (SS-1)
• The objective of SS-1 is to provide guidance on the convening and
conducting of meetings of the Board of Directors of a company. It covers
the following topics:
• Notice of the meeting
• Quorum
• Chairmanship of the meeting
• Passing of resolutions
• Minutes of the meeting
• Preservation of minutes
• The scope of SS-1 includes all companies incorporated under the
Companies Act, 2013. It is mandatory for all companies to comply with the
provisions of SS-1.
4/25/2024

Continued
• The notice of a meeting must be given to all directors and members
at least 14 days before the date of the meeting.
• The quorum for a meeting of the Board of Directors is one-third of
the total number of directors.
• The chairman of the Board of Directors or a director elected by the
directors at the meeting shall preside over the meeting.
• Resolutions can be passed by a show of hands or by poll.
• The minutes of the meeting must be recorded in writing and signed
by the chairman of the meeting.
• The minutes of the meeting must be preserved for at least 8 years.
4/25/2024
SS-1 is an important guideline for companies to follow in order to ensure that their meetings are conducted in a
proper manner. By complying with these standards, companies can help to protect their interests and avoid legal
problems.

Secretarial Standard on General Meetings (SS-
2)
• SS-2 provides guidance on the convening and conducting of general
meetings of a company.
• It covers the following topics:
• Notice of the meeting
• Quorum
• Chairmanship of the meeting
• Passing of resolutions
• Minutes of the meeting
• Preservation of minutes
• Conduct of e-voting and postal ballot
4/25/2024

Here are some key provisions of SS-2:
• The notice of a meeting must be given to all members at least 21 days
before the date of the meeting.
• The quorum for a general meeting of a company is 25% of the total
number of members.
• The chairman of the Board of Directors or a director elected by the
members at the meeting shall preside over the meeting.
• Resolutions can be passed by a show of hands or by poll.
• The minutes of the meeting must be recorded in writing and signed
by the chairman of the meeting.
• The minutes of the meeting must be preserved for at least 8 years.
4/25/2024

Why related Party transaction disclosures
important?
• Significant effect on transaction or profit
• Transparency
• Not All the RPT are disadvantageous
• Transaction are not done at Arms length Concept and with the
intention of benefiting the other party
4/25/2024

Related Party
• A “related party” is a person or an entity that is related to the
reporting authority . The person includes a legal person who can be
individuals, company, firm, LLP, Co-operative society, local authority. It
also includes entities incorporated outside India.
• Related Party Transaction can be understood as a deal or
arrangement made between two parties or entities who are joined by
a pre-existing business relationship or common interest.
4/25/2024

Who are related Parties
• With any Director of Company
• With any relative of a Director
• With any KMP or relative of a KMP
• With any firm in which Director or his relative is a partner.
• With any private Company in which a Director is a member or Director)
• With a Public Company in which a Director is a member or Director and additionally
holds along with his relative(s) 2% or more paid-up share capital of a Public Company.
• With a Subsidiary Company
• With an Associate Company in which Company has more than shareholding
• With a body corporate which is significantly influenced by a Director of a company
• With a person who has control or significant influence over the Company.
4/25/2024

Related Party Transactions- Approvals
• Any transaction covered in the Section 188 should be approved by
the Board directors through an resolution
• Audit committee approval is muss(Section 177 Audit Committee
Powers)
• Approved by the members- If the threshold limit is exceeded Section
114
4/25/2024

Word Relative
4/25/2024

“Arm’s Length”
• “Arm’s Length” is an expression which is commonly used to refer to
transactions in which two or more unrelated and unaffiliated parties
agree to do business , acting independently and in their self-interest.
• As per section 188 of Companies Act,2013 arm’s length price
transaction means a transaction between two related parties that is
conducted as if they were unrelated , so that no conflict of interest.
• As per section 92F define Arm’s length price is the price applied or
proposed to be applied , when two unrelated persons enter into a
transaction is uncontrolled conditions.
4/25/2024

Regulation
• All related party transactions require approval of Audit Committee. All
contracts that are
• not in the ordinary course of business but at arm’s length
• in the ordinary of course of business but not at arm’s length or
• not in the ordinary course of business and not at arm’s length require
prior approval of board of directors or shareholders based on certain
thresholds
4/25/2024

Penalty
• Penalties: Any director or any other employee of the company , who
had entered into or authorised the contract in violation, as per
section 188 of the companies act they are punishable :-
• In case of listed companies, imprisonment upto 1 year or fine from 25,000 to
5 lakhs or both
• In case of other companies , fine from 25,000 to 5 lakhs
4/25/2024

Related Party Transactions
• https://cleartax.in/s/related-party-transactions
4/25/2024

Adani and Hindenburg
4/25/2024

Question for CIA- Written Assignment
• Select a company that is publicly listed on either the NSE (National Stock
Exchange) or BSE (Bombay Stock Exchange).
• Prepare the assignment in accordance with the provided requirements.
• Once the written assignment is completed, convert it into a PDF format for
submission on the Linways platform.
• Include page numbers specifically for the answers derived from the annual
report.
• Ensure that each page of the assignment displays a visible page number.
• Be prepared to present the assignment on the selected company during
the presentation session.
• Last date for the submission is 30 July 2023
4/25/2024

Assignment Questions
• When was the company established, and what is its vision, mission, and objectives?
• What are the main products or services offered by the company that contribute to its
profitability?
• How many directors serve(Executive and Non Executive) on the company's board, and could you
provide a list of directors along with their compensation and any share options they hold?
• What is the authorized capital limit of the company, and what is the current number of
outstanding shares and market capitalization? When did the company go public?
• Can you provide details of some of the company's CSR activities and the amount allocated for
these initiatives?
• Has a secretarial audit been conducted, and if so, what were the observations made by the
secretarial auditor? Who is the secretarial auditor?
• Could you provide a list of related party transactions that have taken place within the company?
Is there an audit committee in place to oversee these transactions?
• Who are the promoters of the company, and what is their shareholding percentage?
4/25/2024

Module–2: Company Formation 16 Hrs
• Promotion: Functions and Position of Promoters, steps in promotion, Pre
incorporation contracts and Provisional contract, Law with regard to start ups
• Documents to Commence Business:
• Memorandum of Association: Meaning and Definition, contents, Doctrine
of ultra– vires and Alteration of Memorandum
• Articles of Association: Meaning, contents, alteration constructive
notice and indoor management
• Prospectus: Meaning, definition, importance, contents, Prospectus by
implication, Shelf Prospectus, Red Herring Prospectus, Liability for
misstatements and statement in lieu of prospects.
• Certificate for commencement of business
4/25/2024

Who are the promoters?
• Promoters play a crucial role in establishing a company right from its
inception stage. An individual or a group of people who come up with
the concept of starting a business are the promoters of a company.
They carry out the required processes to establish the firm
• The company’s promoters shape the company and thus are moulding
blocks of the company. However, a promoter is not the owner of a
company.
4/25/2024

Who Are The Promoters of a Company?
As per Section 2(69) of the Companies Act, 2013, promoter means any
of the following persons:
• A person named as a promoter in the prospectus or identified by the
company in its annual return in Section 92.
• A person who controls the company affairs, indirectly or directly,
whether as a director, shareholder or otherwise.
• A person in accordance with whose directions, advice or instructions
the Board of Directors of a company are accustomed to act.
Promoters of the company (caclubindia.com)
Promoters of the company (caclubindia.com)
4/25/2024

• Further, according to SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009, “promoter” includes: (i) the person
or persons who are in control of the issuer; (ii) the person or persons
who are instrumental in the formulation of a plan or program
pursuant to which specified securities are offered to public; (iii) the
person or persons named in the offer document as promoters.
4/25/2024

Types of Promoter
• A promoter is a person/entity who conceives the idea of company formation. An
individual, firm, association of person or company can be a promoter. A promoter
of a company can be any of the following types
• Professional promoter: A professional promoter is an expert in promoting the
business during its formation or inception. They transfer the ownership of the
business to shareholders when it is established in the market.
• Financial promoter: A financial promoter is a promoter who invests capital or
money and has a sizable company share. They promote banks or financial
institutions. They aim to assess the market's financial situation and start a
company at the right moment.
• Managing promoter: A managing promoter helps in company formation. They
also get the managing rights in the company after it is formed.
• Occasional promoter: An occasional promoter is a promoter whose main job is to
float the company. They do not promote the business routinely since they are in
charge of two to three enterprises, and they get involved only in the crucial
matters of the business.
4/25/2024

Functions of a Promoter
• A promoter needs to comprehend/conceive the idea of company formation.
• A promoter looks into the feasibility and viability of the business idea. He/she
assesses whether the company formation will be practicable or profitable.
• Once the idea is conceived, the promoter organises and collects the available
resources to convert the business idea into a reality.
• The promoter decides the company name and settles the contents of the
company’s Memorandum of Association and Articles of Association.
• The promoter decides the location of the company’s head office.
• The promoter nominates associations or people for vital company posts, such as
appointing the auditors, bankers and the company’s first directors.
• The promoter prepares all the necessary documents required to incorporate a
company.
• The promoter decides the company’s funding sources and capital requirements.
4/25/2024

Requirement
• Persons who form the company are known as promoters. It is they, who conceive the
idea of forming the company. They take all necessary steps for its registration
• Section 3 of the Companies Act, 2013 deals with the basic requirement with respect to
the constitution of the company.
• Public Company: In the case of a public company with or without limited liability any 7 or
morepersons can form a company for any lawful purpose by subscribing their names to
memorandum and complying with the requirements of this Act in respect of registration.
• Private Company: In exactly the same way, 2 or more persons can form a private
company.
• One person company (OPC): One person, where the company to be formed is to be One
Person Company.
• If number of members reduce below above stipulation and the company carries on
business for more than six months, every member severally shall be liable to pay debts of
the company
4/25/2024

Company Registration Checklist
• Minimum number of Two Directors: To form a company you need to have
at least two directors that can maximize to 15. While in OPC you just need
one director and one nominee. At least one of the former directors needs
to be resident of India.
• Minimum Capital Contributions: There is no minimum capital amount to
form a company.
• Unique Company Name: Make sure your company has a unique name that
does not match any of the registered company's names.
• Company's office: It is not at all important that the registered office of the
company should be a commercial place. You can even register your
company with an office in rented home so as long you have a No Objection
Certificate from the owner.
4/25/2024

Documents Required to Register a Company
• PAN Card
• Passport
• Voter's ID/Passport/Driver's License
• Latest bank statement/telephone or mobile bill/electricity or gas bill
• Passport-sized photograph with specimen signature.
4/25/2024

Residential Proof
• It is bit obvious to have a registered office for the formation of
company. To prove its admittance, you need to provide scanned
copies of below given documents:
• Notarized rental agreement in English
• No-objection certificate from the owner of the property.
• In case of owned property, sale deed/property deed in English.
• Any latest utility bill
4/25/2024

FORMATION OF COMPANY
• Promotion Stage,
• Incorporation or Registration Stage,
• Capital Subscription Stage,
• Commencement of Business Stage
Palmer has defined company promoter as “a person who originates a scheme for the formation of the company,
has the Memorandum and the Articles prepared, executed and registered, and finds the first directors, settles the
terms of preliminary contracts and prospects (if any) and makes arrangements for advertising and circulating the
prospectus and placing the capital.”
4/25/2024

PROMOTION
PROMOTION involves
• discovery of idea business opportunity
• investigation of the feasibility of the idea
• assembling of business elements i.e organising funds,property, and managerial ability into a
business concern
Person who does all this preliminary work is called PROMOTER. Sec.2(69) of Companies Act 2013
defines promoter. According to the definition, a promoter means a person
• has been named as such in the Prospectus or in the Annual Return
• Who has control over the affairs of the company directly or indirectly, whether as shareholder or
director or otherwise
• on whose advice, directions or instructions the BOD is accustomed to act.
The proviso to this section says that the persons assisting the promoter in professional capacity
,e.g.as solicitors, accountants, counsels, experts ..are not promoters. A promoter may be
individual, a firm , an association of persons or even a company.
4/25/2024

Steps in Promotion
• Identify a viable business opportunity through market research and
analysis.
• Conduct feasibility studies including financial, technical, and marketing
assessments.
• Choose a unique and available company name, and seek name approval
from the Registrar of Companies.
• Appoint professionals like lawyers, accountants, and bankers for assistance.
• Prepare legal documents: Memorandum of Association (MoA), Articles of
Association (AoA), Promoters' Agreement, Directors' Consent.
• File for company incorporation with the Registrar of Companies.
• Upon approval, receive a certificate of incorporation.
4/25/2024

LEGAL POSITION OF A PROMOTER
• *neither trustee nor agent of the company as there is no trust or
principal in existence during promotional stage
• *stands in your a fiduciary position( position of trust and confidence)
towards the company and original allotee of shares.Therefore A
PROMOTER MUST MAKE FULL DISCLOSURE OF ALL MATERIAL FACTS
TO AN INDEPENDENT BODY OF DIRECTORS OR SHAREHOLDERS i.e.-
must not make SECRET PROFITS (law doesnot prohibit making of
profits, it prohibits nondisclosure of it) and the disclosure should be
made to independent board of directorsshareholders.Case-
Gluckstein vs. Barnes
4/25/2024

Promoters’ Activities
• A promoter does a range of activities comprising the following:
• Conceiving the scheme of forming co./suitable company for the business
• Assembling the required number of subscribers;
• Applying for Corporate Identity Number (CIN), Global Location Number (GLN) & PAN/TAN
to relevant authorities;
• Getting documents of company i.e Articles and Memorandum prepared, executed and
registered;
• Finding bankers, brokers and legal advisors;
• Preparation and circulation of prospectus;
• Raising capital via Initial Public Offering (IPO), private placement, debenture or public
deposits or external commercial borrowing;
• Vetting and due compliance of laws and regulations relating to corporate financing and
disclosures via annual and periodic returns to Registrar of Companies, Regional Directors,
SEBI, Ministry of Corporate Affairs, Foreign Investment Promotion Board, Serious Fraud
Investigation Office and Reserve Bank of India.
• Settling the terms and conditions of pre-incorporation agreements.
4/25/2024

Promoters Liability
1. If secret profit is made by promoter, then the company can
• *recover it from promoter along with interest, or,
• * the company can set aside that transaction, restore the property back to the promoter and recover its money
• *company can sue him for damages for his fraud or breach of fiduciary duties
2.Liability on Preliminary Contracts
• *the promoter is personally held liable on preliminary contractspre incorporation contracts
3.Fraud in formation of the company.
• * liable for fraud us 447- If at the time of promotion of a company, the promoter furnishes any false incorrect information
suppresses any material information knowingly
• * liable for misfeasance or breach of duty us 340-.If in the course of winding up,on an application made by liquidators ,it appears to
Tribunal that the promoters had misappliedembezzled any property or money , the Tribunal can make him liable and take necessary
action( i.e.it may order them to repayrestore such money property along with interests compensate for it)
• *public examination us 300 - the promoter may be subject to public examination by Tribunal if during the winding up of the
company ,the liquidator alleges him for fraud at the time of promotion formation conduct business of the company
4.Misrepresentation in Prospectus
• *he is liable to original allotees of shares for misstatementsmisrepresentations in prospectus.(civil as well as criminal liability us 35
and 34 respectively ) Accordingly he would be liable to penalty in the form of damages or imprisonment or fine.
5. Joint and Several Liability
• *liability of promoters is joint and several . If one of them pays damages, he can recover contribution from other copromoters. In
jointly- means that the aggrieved party can make all the promoters party to the dispute . Severally means the aggrieved party can sue
any of them. In that case if that promoter who was sued, pays damages, he can recover the contribution from other copromoters. In
case of death his estate is liable and incase of insolvency, company can prove its claim from official assignee.
4/25/2024

Promoters Remuneration .
A promoter puts in lot of efforts and incurs the initial expenses in the process of formation of company .Therefore he
deserves the reimbursement of preliminary expenses incurred as well as remuneration for the work done by him.
• 1.Ways of remunerating promoters. The remuneration may be paid for his services in
lumpsum in cash, or partly in cash and partly in shares debentures of the company.*He
could also be remunerated by way of commission on purchase price of business taken
over by the company. He may sell his own property to company at a profit provided he
discloses it to an independent body of directors or shareholders.
• 2. However, there is no contractual obligation on the part of the company to pay him
for these unless the co. has expressly agreed to pay after its formation for the services
rendered by him.
• 3. A promoter cannot file a suit in court for recovery of his remuneration and other
preliminary expenses incurred by him because he acted for a person who is yet to take
birth.
• 4.The claim for expenses should be supported by vouchers and should be placed
before the directors of the company when formed.
• 5.The remuneration paid to promoters should be disclosed in the prospectus issued by
the company.
4/25/2024

Preliminary or Pre-incorporation Contracts
These are contracts entered in to by promoters with third parties to acquire some
property or right for the company before its incorporation.
• 1.Such contracts are not legally binding on the company i.e. company can neither sue other party nor
be sued by the other party on such contracts.So, promoters will continue to be personally liable for pre-
incorporation contracts This is because before incorporation , a company is a non-entity and for a valid
contract two consenting competent parties are must.
• 2.The company cannot even ratify the preincorporation contracts after its incorporation because the
doctrine of ratification requires existence of principal ,competent to contract at the time of entering
into the contract whereas company was non-existant during that time.
• 3. The only way of adopting preliminary contract is by novation i.e. entering into new contracts with
third parties on same terms as were embodied in the original contract. So, generally promoters simply
agree to draft contract to be finally entered into by vendor and the company after the incorporation.
Thus a new contract embodying the terms of the old one is made afresh by the company after its
incorporation. Case. Natal Land &Colonisation Co. Ltd. vs. Pauline Colliery Syndicate Ltd.
• 4. However, if contracts are covered under Sec.15(h) and 19(e) of Special Relief Act,1963, they may be
specifically enforced by or against the company. Thus, if a contract is for the purposes of the company
(is with in the object clause) )and is warranted by the terms of incorporation (necessary for
incorporation) and the company has accepted the contract and communicated its acceptance to the
other party, then only such contracts will be binding .Case Imperial Ice Manufacturing Co. vs.
Manchershaw
4/25/2024

IMPERIAL ICE MANUFACTURING CO. VS MANCHERSHAW
• The promoters of an ice manufacturing company entered into a
contract with M for purchase of ice manufacturing machinery for the
company. The company on its formation, subsequently adopted the
contract and sent the communication of its acceptance to M. It was
held that the contract was “ for the purposes of the company”and
therefore ,enforceable by and against the company.
4/25/2024

IInd Stage: INCORPORATION OR REGISTRATION
• Incorporation means registration of the company with the ROC. To get
registration, the promotor , takes the following preparatory steps -
• ascertains from the ROC, the availability of proposed name of the new
company
• obtains Letter of Intent (Industrial Licence) , if business comes within the
purview of Industries(Development and Regulation)Act,1951
• to fix up with auditors, bankers, solicitors, underwriters, signatories to
MOA etc.
• to get MOA and AOA prepared and printed
Section 7 of the Companies Act ,2013 is on incorporation. Its various
subsections cover the entire procedure of incorporation and the related
aspects .
4/25/2024

Registration of a company
As per Section7(1) ,The promoter is required to submit with the ROC of the State , where the registered office of the
company is to be situated, the prescribed fees and the following documents information
• application for the registration of the proposed company
• MOA of the proposed company signed by all subscribers
• AOA of the proposed company signed by all the subscribers
• Compliance Declaration made by advocateCACSCWA involved in company's formation and by a person named as
directormgrsecretary stating that all requirements of the Act and related Rules wrt registration have been complied
with
• Subscribers Declaration made by each of the subscribers and also from all first directors that they are not guilty of
any company related offencefraudmisfeasancebreach of duty during the preceding 5 years and that all the
information provided to ROC is correct and complete
• Address for correspondence till its registered office is established and address finalised
• Subscribers particulars i.e their names, addresses, nationality, ID proofs and other particulars
• Directors particulars i.e. their names, addresses, nationality,ID proofs, DIN and other particulars
• Written Consent of directors of the proposed company to act in that capacity
• Particulars of directors' interest in other companies, firms and body corporates
Now, application for incorporating a company shall be made online in (SPICE plus i.e. Simplified Proforma for
Incorporating Companies Electronically) along with e- MOA in Form No. INC-33 and e-AOA in Form No.34. SPICE form is
an integrated web form in which application for allotment of DIN upto 3 directors, reservation of name of company,
appointment of Directors of the proposed company and application for registration can all be made together and there
is no need to apply separately for any of these matters.
4/25/2024

• As per section7(2), the ROC, will then register the above documents and will
issue the Certificate of Incorporation in prescribed form. This is the birth
certificate of the company which bears the name, date of incorporation, CIN
number and seal of that ROC.Now, Certificate of Incorporation can be issued
electronically under the digital signatures of the ROC.
• As per section7(3), the ROC will also allot to the company a corporate identity
number ,which shall be a distinct identity for the company and is also mentioned
in Certificate of Incorporation.
• As per section 7(4), the company is required to maintain and preserve at its
registered office copies of all the documents originally filed with the ROC for
registration , until dissolution.
• As per section 7(5), if any person furnishes any falseincorrect
informationsuppresses any material information in any of the documents filed
with the ROC , then he shall be liable for fraud us 447 and be punished.
4/25/2024

• As per section 7(6), if a company got incorporated on the basis of documents which contained
any falseincorrectinsufficient information etc., then the promoters, the directors and the
persons who made compliance declaration will be liable for fraud us 447 and punished.
• As per section 7(7), in case the company got incorporated on the basis of falseincorrect
information etc. and the case goes to NCLT, then the tribunal can also pass the following orders
• order any change in MOA or AOA keeping in view interest of co., members and public
• direct that the liability of the members be unlimited
• direct the removal of name of the company from Register of companies
• pass an order for winding up of the company
• pass such order as it thinks fit
EFFECT OF CERTIFICATE OF REGISTRATION -As per section 9 of Companies Act,2013 , from the
date of incorporation mentioned in the Certificate of Incorporation
• subscribers to memorandum become members of the co.
• it gets status of a body corporate known by the name contained in Certificate of incorporation
and gets power to holdbuy sell assets enter into contracts sue and be sued in its own
name
• shall have perpetual succession
4/25/2024

CONCLUSIVENESS OF CERTIFICATE OF
INCORPORATION
Under judicial interpretations , it had been well recognised that the Certificate of
Incorporation once issued is conclusive evidence that the company has been duly
registered. Case -Jubilee Cotton Mills Ltd. vs. Lewis. The validity of the Certificate
of Incorporation could not be disputed on any grounds whatever. So, once the
Certificate of Incorporation had been issued , it was presumed that all the
requirements of that Act had been complied with . No one could challenge the
incorporation of the company even if irregularities prior to registration are
subsequently discovered(e.g. it was found that the signatures in the registration
documents were forged, or signatories were incompetent to contract ,
unauthorised alterations were made in documents by promoters , subscribers of
MOA were not even seven in number etc.).This concept was also established in
cases such as Moosa Gulam Ariff vs Ebrahim Gulam Ariff .
4/25/2024

Certificate of Incorporation
• However, The Companies Act, 2013 doesn't contain any provisions with respect
to 'Conclusiveness of Certificate of Incorporation'. Once a company got
registered, and subsequently it comes to the knowledge of authorities that the
company had furnished false incorrect insufficient information in the
documents filed at the time of incorporation , then as per sec. 7(6) of the
Companies Act,2013, the promotersfirst directors of the company shall be
liable for fraud us 447 and be punished with imprisonment and fine. Similarly
us sec. 7(7) of the Act, the TRIBUNAL is empowered in that case, to order
winding up of the company or order the striking off of the name of the
company from the register of companies etc.
• SO, THE CONCEPT OF CONCLUSIVENESS OF CERTIFICATE OF INCORPORATION
HAS LOST ITS RELEVANCE UNDER COMPANIES ACT 2013. IF IT IS PROVED THAT
THE COMPANY GOT INCORPORATED ON THE BASIS OF DOCUMENTS
CONTAINING FALSE OR INCORRECT INFORMATION OR IN ANY FRAUDULANT
MANNER, THEN SECTION 7(7) , ALLOWS THE REGISTRAR TO QUESTION THE
VALIDITY OF PROCEEDINGS PRIOR TO INCORPORATION AND TAKE NECESSARY
ACTIONS.
4/25/2024

IIIrd Stage: CAPITAL SUBSCRIPTION
• In this stage, the company arranges capital for its activities. Since a private
company is prohibited from inviting public for subscription of its securities, such
companies offer securities to a select group of persons through private
placements.Thus, a private company need not pass through this stage of capital
subscription.
• A public company ,on the other hand, can arrange capital either through private
placement or through public issue.When the amount of capital required is huge
and the company decides to raise capital from public issue, it is required to fulfill
the requirements of not just the Companies Act but also SEBI.
• SEBI is empowered to make rules and regulations to regulate the issue of capital
to public and to protect the interest of the investors.In this regard, it has
formulated SEBI (Issue of capital and Disclosure Requirements) Regulations,2009
to be complied by public companies making a public offer of its securities.
4/25/2024

Accordingly, the public companies have to follow the prescribed procedure-
• an offer to public can be made only through prospectus
• the directors have to carefully prepare prospectus and file its copy with the ROC
• thereafter, prospectus is put in circulation and public is invited
• on the basis of prospectus , applications for securites are received from public
and the application money is kept in a separate bank account
• if prescribed minimum subscription is not received within the stipulated time
period, all the application money received will be refunded forthwith to the
applicants and no allotment can be done.
• if prescribed minimum subscription is received within the stipulated time period
and other conditions of valid allotment are fulfilled, the directors pass formal
resolution of allotment. Allotment letters are posted, Return of Allotment is filed
with ROC, and share certificates are issued to allottees in exchange of allotment
letters
IIIrd Stage: CAPITAL SUBSCRIPTION
4/25/2024

IVth Stage: COMMENCEMENT OF BUSINESS-
• The Companies (Amendment) Ordinance,2018 has reintroduced the requirement
on part of companies ( whether public or private) to fulfill certain formalities
before commencing its businesses. Accordingly, a company will not be entitled to
commence its operations or exercise borrowing powers unless it has filed with
the ROC- a declaration (within 180 days of its incorporation )stating that the
subscribers to that MOA have all paid up on their shares and - a verification (
within 30 days of its incorporation)of its registered office address. If the company
fails to comply with this requirement, then it shall be liable to penalty and in
extreme cases, it could lead to removal of the companies' name from the
Register of Companies. Borrowing powers mean power to borrow on loans,
debentures etc.
4/25/2024

PROVISIONAL CONTRACTS
Provisional Contracts - These are the contracts entered into by a company after
obtaining Certificate of Incorporation but before becoming eligible to commence
business. Such contracts are not legally binding upon the company until it becomes
eligible for the commencement of business. After a company fulfills the
requirements such as- filing the declaration of subscribers and verification of office
address within the stipulated time-as are necessary for being eligible to
commence operations, these contracts become automatically binding on the
company. Difference in preliminary contracts and provisional contracts-
PRELIMINARY CONTRACTS PROVISIONAL CONTRACTS
These contracts are made before the registration of the company These contracts are made after registration but before fulfilling requirements u/s
10A
The company can neither sue nor be sued to enforce the preincorporation
contracts
The company cannot be sued for enforcing a provisional contract till it becomes
eligible for commencement of business.
Preliminary contracts can be made binding by ratification if covered us 15h and
19e of Special Relief Act, 1963
Provisional contracts become binding as soon as company becomes eligible for
commencing business and do not require any ratification.
Special Relief Act,1963 governs preincorporation contracts Companies Act,2013 governs provisional contracts by inserting sec.10A
Promoters are liable on preincorporation contracts unless covered under Special
Relief Act.
Company is liable on provisional contracts but only after getting eligibility for
commencement.
4/25/2024

ON LINE REGISTRATION OF COMPANY (Using SPICE +)
1. Web Form SPICE + has two parts-Part A (for name reservation of new companies) and Part B offering bouquet
of services viz. Incorporation ; DIN allotment; Mandatory issue of PAN; Mandatory issue of TAN; GSTIN; ESIC
registration; EPFO registration ; Professional Tax Registration ;Opening of Bank account
2. File Part A of Web Form SPICE+ for name reservation. Two names can be proposed in it. However ,if filling Part
A and Part B simultaneously, then propose only 1 name.
3. File Web Form SPICE+ for OPC/ Private/ Public co. within 20 days of name approval
4. Apply for DIN for upto 3 directors in the SPICE+. Also application for PAN and TAN can be made through SPICE +
only.
5. Prepare e- MOA in Form No.INC-33 and e-AOA in Form No.INC- 34. Sign and witness them digitally and file
along with SPICE+
6. Attach Web Form AGILE PRO ( INC-35) containing Application for registration for GSTIN,ESIC, EPFO, Professional
Tax, Opening of Bank Account
7. Attach To SPICE+ --Form No. INC-8( Compliance Declaration), INC-9 ( Subscribers Declaration), DIR-2 ( Directors
consent) ,Compliance Declaration by first directors
8. The particulars of subscribers like their names, addresess,ID proofs etc. and particulars of directors like their
names, addresses, IDs, interest in other companies etc. will be filled up in the relevant sections of SPICE +.
9. For verification of office address, file Form NO. INC-22 within 30 days of incorporation
10. ROC will examine the form and if finds it defective, inform the applicant and ask him to resubmit within 15
days. If again on resubmission not satisfied, applicant must remove defects and resubmit again in 15 days. If
ROC finds everything in order, then Certificate of Incorporation in Form No. INC-11 is generated which will
contain Name of the Co., CIN, PAN, TAN and Date of Incorporation.
4/25/2024

ON LINE REGISTRATION OF COMPANY (Using SPICE +)
ABBREVIATIONS USED
SPICE + - Simplified Proforma for Incorporating the Company Electronically
CIN- Corporate Identity Number
PAN- Permanent Account Number
TAN- Tax deduction Account Number
EPFO – Employees Provident Fund Organisation registration number
ESIC- Employees State Insurance Corporation registration number
DIN- Director Identification Number
GSTIN- Goods and Services Tax Identification number
4/25/2024

Promotion
• activities designed to
bring into being an
enterprise to operate
a business
• Participate in the
building of the
enterprise up to the
organization
• Idea and What Type of
Company to start
Incorporation
• Incorporation or
registration is the
second stage in the
formation of a
company
• duly registered under
the Act and a
Certificate
• Legal status of the
company
Procedure to Get a
Company Registered
• Preliminary Activities:
• To decide the name of
the company
• License under the
Industries
Development and
Regulation Act, 1951
• Filing of Document
with the Registrar
• Memorandum of
Association
• Articles of Association
• List of directors d.
Written consent of
directors
• Statutory declaration
4/25/2024

Procedural aspects of incorporation of
company
• Application to obtain DSC
• Application to obtain DIN
• Submit an application for Name Availability
• Filling of MOA and AOA
• Submit the company incorporation application
• Issuance of Certificate of Incorporation
• Opening a Bank account on the Name of Company
Company Formation in India - Type, Checklist, Documents and
Process (caclubindia.com)
4/25/2024

Registration vs Incorporation
Company registration is a simple and
straightforward process that gives your
business a legal identity, while company
incorporation creates a separate legal
entity with limited liability protection and
other benefits
4/25/2024

Pre-incorporation contracts
• Pre incorporation contracts are those contracts that are necessary to
run a business or incorporation. When promoters make pre-
incorporation contracts, the company is just an artificial entity which
means at that time, the company does not exist.
• So basically, it cannot be executed at the time of incorporation.
• Lease agreement, employment agreement, founder’s agreement,
shareholder agreement, etc
• Importance
• Roles, functions, and liabilities of any company before its incorporation
• who will be directors, financial head, legal head, etc., and what are their
liabilities
Case Studies
• Kelner v. Baxter – Wine
• Phonogram Ltd v. Lane- Pop Music Record
4/25/2024

Some Statistics
4/25/2024

Definition
• Keebel (1976): A startup is the creation of an entirely new enterprise
which did not formerly exist as an organization
• Anamaria Diana(2017): Startups can be defined as newly established,
innovative companies with a service life upto 2 years and a maximum
of 10 employees
• Paoloni, P., & Modaffari, G. (2018): A startup that has been
established for no more than 60 months as well as having as an object
social and prevalent innovative products and/or services with high
technological value, is considered “innovative”
4/25/2024

• Startup Success Guide - A guide to growing your business (kpmg.com)
Startup Success Guide - A guide to growing your business
(kpmg.com)
4/25/2024

Definition(Indian)
• the GoI’s Startup India program defines a “startup” as a company (PIB
2017) that is:
• Headquartered in India with not more than ten years since incorporation or
registration
• Having an annual turnover of less than INR 1 billion (roughly $14 million) (Startup
India 2019)
• Govt of India
As per the revised notification GSR 364 (E) published on 11th April 2018, an entity shall be considered as
a startup
• “If it is incorporated as a private limited (as defined in the Companies Act 2013) or
registered as a partnership firm registered under Sec. 5a of the partnership Act 1932) or
a limited liability partnership under the Limited Liability Partnership Act (2008) in India.
• Up to 7 years from the date of its registration incorporation: however in the case of
start-ups in the biotechnology sector, the period shall be up to 10 years from the date of
its incorporation or registration. If its turn over for any financial year since incorporation
or registration has not exceeded ₹ 25 crores.
• If it is working towards innovation development or improvement of products or
processes or services or if it has a scalable business model with a high potential of
employment generation or wealth creation.
4/25/2024

Under the Startup India Action
Plan, startups that meet the
definition
• The Startup should be incorporated as a private limited company or
registered as a partnership firm or a limited liability partnership
• Turnover should be less than INR 100 Crores in any of the previous
financial years
• An entity shall be considered as a startup up to 10 years from the
date of its incorporation
• The Startup should be working towards innovation/ improvement of
existing products, services and processes and should have the
potential to generate employment/ create wealth. An entity formed by
splitting up or reconsutrctuon of an existing business shall not be
considered a "Startup"
Eligibility Criteria for Startup Recognition
4/25/2024

Notification from the Department for Promotion of Industry and Internal Trade,
on January 16, 2019, gives another the statutory definition of startup which is
defined as
• Upto a period of ten years from the date of incorporation/ registration, if it is
incorporated as a private limited company (as defined in the Companies Act,
2013) or registered as a partnership firm (registered under section 59 of the
Partnership Act, 1932) or a limited liability partnership (under the Limited
Liability Partnership Act, 2008) in India.
• Turnover of the entity for any of the financial years since incorporation/
registration has not exceeded one hundred crore rupees
• Entity is working towards innovation, development or improvement of
products or processes or services, or if it is a scalable business model with a
high potential of employment generation or wealth creation. Provided that an
entity formed by splitting up or reconstruction of an existing business shall not
be considered a ‘Startup
4/25/2024

Some terminologies
• Incubator firm
Incubator firm is an organization that fosters early-stage companies through
their various support mechanisms such as capital, physical workspace,
mentoring, networking and other services.
• Venture Capital
Venture capital is a form of private equity along with technical or managerial
expertise provided by investor
• Angel Investor
An angel investor is usually a high net worth individual who provides
financial backing for small startups or entrepreneurs, usually in exchange for
ownership equity.
• Bootstrapping
Bootstrapping is launching a business with little or no cash investment or
other suppor
4/25/2024

*OP#210-new text
(orfonline.org)
4/25/2024

Accelerator and incubation programs span
the following formats
• Corporate accelerator programs by multinational companies (MNCs) such as
Google and Microsoft, etc. and Indian groups such as Reliance, etc.
• Public–private partnerships (PPPs) such as T-Hub, T-Labs, Startup Village, etc.
• Department of Science and Technology (DST)-approved technology business
incubators (TBIs), often in universities
• College/university-based incubators in the nation’s premier institutions such as
IIMs and IITs
• Industry-led incubator/accelerator programs such as NASSCOM 10,000 Startups
• Private accelerator programs, often led by VCs, such as Axilor Ventures, Sequoia
Capital’s Surge, and others
• Government-sponsored programs such as iStart Rajasthan and Kerala Startup
Mission
4/25/2024

Start Up Laws
• The startup should be entitled as a private limited company,
partnership firm or a limited liability partnership.
• It should not be more than 10 years of age.
• Turnover to be less than 100 crores in any of the previous financial
years.
• The Startup should have services that are capable of generating
wealth and employment.
• The entity shouldn’t have come into existence because of splitting up
or reconstruction of a business.
4/25/2024

Continuation
• Registering the startup
• Signing Co-Founders agreement
• Obtaining the necessary licenses
• Have a non-disclosure agreement ready
• Protect your intellectual property
• Know your taxation and accounting laws(40Lakhs and 20 Lakhs)
• Consider the labour laws
• ESIC 1948
• EPFS- 1952
• Maternity Benefit 1961
• Mention your privacy policy and terms and conditions
• Liquidation process
4/25/2024

Legal Basics that Every Indian Startup
Should Know
4/25/2024

Tesla
4/25/2024

Startup related Questions
• What are the start up initiative by the Government of India?
• What is Startup India? How is Helping the startups in India?
• What is DPIT registration and how is Beneficial to startups?
• What are the tax exemptions under Startup India Scheme?
• What are the labor law exemption under Startup India Scheme?
• How is the registration of start up done?
4/25/2024

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