Collective Membership Rights

Dissenting Members

Rights attached to the shares of any class can be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of the class.

Dividend

It is the share of the company's profits distributed among the members.

The Board may declare interim dividend during any financial year out of the surplus in the Profit and Loss Account at any time during the two AGMs.

Final dividend means a dividend which declared at the AGM of a commpany.

Investor Education and Protection Fund

The amount remaining unpaid along with interest accrued thereon for 7 years shall be transferred to Investor Education and Protection Fund.

Section 125(3) provides the fund shall be utilized for the following:-

• The refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon.
• Promotion of investor's education, awareness and protection.
• Reimbursement of legal expenses incurred in the pursuing class action suits against sections 37 and 245 by members, debenture holders or depositors as may be sanctioned by the tribunal.  

Corporate Social Responsibility

As per section 135 of the companies act, 2013, the CSR provision is applicable to companies which fulfills any of the following criteria during the any of the preceding financial year:-

1. Companies having net worth of rupees 500 crore, or
2. Companies having annual turnover of rupees 1000 crore, or
3. Companies having net profit of rupees five crores or more.

Functions of CSR Committee

1. To formulate and recommend the Board, a CSR policy which would indicate the activities to be undertaken in areas or subjects specified in schedule VII of the Act.
2. To recommend the amount of the expenditure to be incurred on the activities undertaken in pursuance of the CSR policy.
3. To institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.
4. To monitor the CSR policy of the company time to time.

List of CSR activities

1. Eradicating hunger, poverty and  malnutrition, promoting healthcare including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the central government for the promotion of sanitation and making available safe drinking water.
2. Measures for the benefits of the armed forces veteran, war widows and their dependents.
3. Training to promote rural sports, nationally recognised sports, paralympic and olympic sports.
4. Rural Development projects.

CSR Expenditure

1. The Board of every company shall ensure that every company spends, in every financial year, at least two percent of the average net profits of the company made during the three  immediately preceding the financial years, in pursuance of its CSR policy. This amount will be its CSR expenditure.
2. If the company fails to spend such amount, the board shall, in its report specify the reason for not spending the amount.
3. The company shall preference to local areas and areas around it where it operates for spending the amount earmarked for the CSR activities.
4. Expenditure incurred on specified activities that are carried out in India only will qualify as CSR expenditure. Such expenditure includes contribution to the corpus or on projects or programs relating to CSR activities.
5. Any surplus arising out of CSR activities will not be considered as business profit for the spending company.

Annual Report

It is a comprehensive report provided by most public companies to disclose their corporate activities over the past year. The report is typically issued to its shareholders and other stakeholders whose use is to evaluate the firm's performance including the both operating and financial highlights.

Board's Report

It is the most important means of communication by the Board of Directors of a company with its shareholders. It is a comprehensive document which serves to inform the shareholders about the performance and various other aspects of the company, its major policies, relevant changes in management, future programs of expansion, modernization and diversification, capitalization and reserves etc.

It is mandatory for the Board of Directors of every company to present financial statement to the shareholders along with its report, known as the 'Board's Report' at every AGM.

Equity & Preference Share Capital

Equity Share Capital:-

With reference to any company limited by shares, means all share capital which is not preference share capital is known as Equity Share Capital.

Preference Share Capital:-

With reference to any company limited by share, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to - 

• payment of dividend.
• repayment in case of a winding up.

Paid-Up Share Capital

As per section 2(64) of the companies act, 2013, such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called.

Called-Up Capital

As per section 2(15) of the companies act, 2013, such part of the capital, which has been called for payment. It is that part of the subscribed capital which has been called up or demanded on the shares by the company.

Subscribed Capital

As per section 2(86) of the companies Act, 2013, such part of the capital which is for the time being subscribed by the members of a company. It is that portion of the issued capital at face value which has been subscribed for or taken up by the subscribers of shares in the company.

Issued Capital

As per section 2(50) of the companies act, 2013, such capital as the company issues from time to time for subscription. It is that part of the authorized or nominal capital which the company issues for the time being  for public subscription and allotment. This is computed at the face or nominal value.

Nominal/Authorised/Registered Capital

As per section 2(8) of the companies act, 2013, such capital as is authorised by MoA of a company to be the maximum amount of share capital of the company.

Abridged Prospectus

According to section 2(1) of the Act "abridged prospectus" means a memorandum containing such salient features of a prospectus as may be specified by SEBI by making regulations in this behalf.

Red - Herring Prospectus

Under explanation to section 32 has been referred to mean a prospectus which does not include complete particulars of the quantum or price of the securities included therein.

It contains most of the information pertaining to the company's operations and prospects, but does not include any key details of the issue such as its price and the number of shares offered.

Shelf Prospectus

Under explanation to section 31 has been referred to mean a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus.

It is a single prospectus for multiple public. Issuer is permitted to offer and sell securities to the public without a separate prospectus for each act of offering for a certain period.

An information memorandum is required to be filed by a company filing a shelf prospectus which shall contain all material facts relating to:-

• new charges created.
• changes in the financial position of the company as have occurred between the first offer of securities and the succeeding offer of securities and
• such other changes as may be prescribed.
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Prospectus

It refers to an information booklet or offer document on the basis of which an investor invests in the securities of an issuer company. It has been defined under section 2(70) so as to mean any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body.

Offer For Sale

Any document by which the offer or sale of shares or debentures to public is made shall for all purposes be treated as prospectus. It is an invitation to the general public to purchase the share of a company through an intermediary, such as an issuing house or a merchant bank. 

Following additional information to the matters required to be stated in a prospectus:-

• The net amount of the consideration received or to be received by the company in respect of the securities to which the offer relates; and
• The time and place at which the contract where under the said securities have been or are to be allotted may be inspected.

In order to construe "offer for sale" either of the following conditions needs to be fulfilled:-

• "offer for sale" to the 'public' was made within six months after the allotment or agreement to allot; or
• at the date when the offer was made, the whole consideration to be received by the company in respect of the securities had not been received by it.

Private Placement

It means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in section 42.

Issue of shares at Premium

Section 52(1) states that when a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received those shares shall be transferred to a "securities premium account" and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company.

Where a company issues at a premium, even though the consideration may be other than cash, a sum equal to the amount or value of the premium must be transferred to the securities premium. [Head(Henry) & Co. Ltd v. Ropner Holding Ltd. (1951) 2 All ER 994:(152) Ch 124 (ChD)]. 

Allotment of Securities

It means that the act of appropriation by the Board of Directors of the Company out of the previously un-appropriated capital of a company of a certain number of the securities to persons who have made applications for securities.

Share Certificate

A share certificate issued by to the members by the company under its common seal specifying the number of shares held by him and the amount paid on each share.

Call

It is a demand by the company upon its shareholders to pay the whole or part of the balance still due on each class of shares allotted, made at any time during the life of the company.

Split Certificate

A split certificate means a separate certificate claimed by a shareholder for a portion of his holding.

Employee Stock Option Scheme

As per the Section 2(37) of the Companies Act, 2013, according to which ESOP means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.

Bonus Share

When a company is prosperous and accumulates large distributable profits, it converts these accumulated profits into capital and divides the capital among the existing members in proportion to their entitlements. Members do not have to pay any amount for such shares. A company may, if its Articles provide, capitalize its profits by issuing fully-paid bonus shares.

The advantages of issuing Bonus Shares are as follows:-

• Fund flow is not affected adversely.
• Market value of the company's shares come down to their nominal value by issue of number of shares.
• Market of the member's shareholdings increases with the increase in number of shares in the company.
• 'Bonus Shares' is not an income. Hence, it is not a taxable income.
• Paid-up share capital increases with the issue of bonus share.

Sweat Equity Shares

It means equity shares issued by a company to its employees or directors at a discount or for consideration, other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Buy-Back of Shares

As per section 68(1) of the companies act 2013, the repurchase of shares by a company i order to reduce the number of shares on the market. It will buy back shares either to increase the value of shares still available or to eliminate any threats by shareholders who may be looking for a controlling stake. 

Reduction of Capital

As per section 66 of the Companies Act, 2013, it means reduction of issued, subscribed or paid-up share capital of the company. Various model have been give in the Companies Act,2013.

Surrender of Shares

It means surrender to the company on part of shareholder of shares voluntarily. It amount to reduction of capital.

Forfeiture of Shares

A company may authorised  by its articles, forfeit shares for non-payment of calls and the same will not require confirmation of the Tribunal and amounts to reduction of capital.

Diminution of Capital

It is the cancellation of the unsubscribed part of the issued capital. It can be affected by an ordinary resolution provided articles of the company authorize to do so. It does not need any confirmation of Tribunal.

Transfer of Securities

As per section 56(1) of the Companies act, 2013 a company cannot register the transfer of securities unless a proper instrument of transfer duly stamped, dated and executed by or on behalf of the transferor and the transferee has been delivered to the company along with the certificate relating to the securities in question.

Lien on Shares

It is the right to retain possession of a thing until a claim is satisfied. In the case of a company lien on a share means that the member would not be permitted to transfer his shares unless he pays his debt to the company.

Stamp Duty

The tax placed on legal documents usually in the transfer of assets or property. The transfer of documents in locations where this law exists, is only legally enforceable once they are stamped, which shows the amount of tax paid.

Fungibility

A good or asset's interchangeability with other individual goods/assets of the same type. Assets possessing this property simplify the exchange/trade process, as interchangeability assumes that everyone  values all goods of that class as the same.

Depository System

It reduces the cost of issue and transfer of securities by eliminating stamp duty, it entitles the transference to all the rights associated with the securities immediately on settlement of purchase transaction.

Blank Transfer

When a shareholder signs the transfer form without filling in the name of the transferee and the date of execution and hands it over with the share certificate to the transferee thereby thereby enabling the transferee to deal with the shares,he is said to have made a transfer 'in blank' or 'a blank transfer'.

Forged Transfer

A forged transfer is a nullity and therefore, the original owner of the shares continues to be the shareholder and the company is bound to restore name on the register of members [People's Ins. Co. v. Wood and Co., 1961(31) Com Cases 61].

A forged document never has any legal effect. It can never move ownership from one person to another, however, genuine it may appear.

Dematerialisation of Shares

It means holding of securities in electronic form in lieu of physical certificates. It is comparable to keeping one's money in a bank account.

In Demat form, physical share certificates are replaced by electronic book entries, purchase of shares are reflected as credits in demat account and sales are reflected as debits.

The risk associated with physical share certificates such as loss, replacement, theft, damage etc. are overcome in the share certificates held in dematerialised form which are totally risk free.

Company: Definition & Its Characteristics

A company is a legal entity formed by a group of individuals to engage in and operate a business-commercial or industrial-enterprise. A company may be organised in various ways  for tax and financial liability purposes depending upon the corporate law of its jurisdiction.

It is an association of both natural and artificial persons incorporated under the existing laws of the country. It has a separate legal entity from the persons constituting it.

Following are the characteristics of a company:-

• It bears its own name, acts under name, has a seal of its own and its assets are separate and distinct from those of its members. A corporate personality in fact, stated by the law that a company is recognized as a legal entity distinct from its members. A company with such personality is an independent legal existence separate from its shareholders, directors, officers and creators. The entity acts like a natural person but only through a designated person, whose acts are processed within the ambit of law [Shiromani Gurudwara Prabandhak Committee v. Shri Sam Nath Dass AIR 2000 SCW 139].
• It is considered as a legal person which an enter into a contracts, possess properties in its own name, sue and can be sued by others etc. This means that a company is treated as a separate person from its participants. It is owned by at least one shareholder and managed by at least one director.
• A company is not a citizen under the Citizenship Act, 1955 or the Constitution of India. As per the definition of 'person' as given in section 2(1)(f) of the Citizenship Act,1955, a 'person' does not include any company or association or body of individuals, whether incorporated or not. As per part 2 of the Constitution (Article 5 to 11), it can be clearly noticed that the Constitution talks about the grant of Citizenship only to the persons (that is natural persons). There is no grant of citizenship to any company or body of association (i.e juristic association).
• It is established through judicial decisions that a company can not be a citizen, yet it has nationality, domicile and residence. The nationality of a company depends on the country where it is incorporated and registered under the laws. All companies incorporated under India have Indian nationality. Resident status of a company is decided under the Income Tax Act for assessment of income and determination of tax purposes.
• The company being a separate person, is the owner of its assets and bound by its liabilities. The liability of a member as a shareholder, extends to the contribution to the company upto the nominal value of the share hold by him and not paid by him. It is a legal status where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in the company or partnership. If a company with a limited liability is sued, then the claimants are suing the company, not its owners or investors.
• A company, being a separate legal entity is unaffected by death or departure of any member and it remains the same entity, despite total change in the membership.
• A company being a legal person and entirely distinct from its members, is capable of owning, enjoying and disposing of property in its own name. The company is the real person person in which all its property is vested, and by which it is controlled, managed and disposed off. Although its capital and assets are contributed by its shareholders, they are not the private or joint owners of the property.
• The shares are said to be movable property and is subject to certain conditions, freely transferable, so that no shareholder is permanently or necessarily wedded to a company.
• A company being a body corporate, can sue and be sued in its own name.
• A company, being a legal entity different from its members, can enter into contracts for the conduct of the business in its own name.
• A company can not go beyond the power, stated in  its MoA. It regulates the powers and fixes the objects of the company and provides the edifice upon which the entire structure of the company rests.
• The company is administered and managed by its managerial personnel.
• A company is voluntary association of profit.
• A company, being an artificial person, does not die a natural death.

Lifting of Corporate Veil

The separate personality of a company is a statutory privilege and it must be used for legitimate business purposes only. Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality. The court will break through the corporate shell and apply the principle/doctrine of what is called the lifting of corporate veil. The court will look behind the corporate entity and take actions as though no entity separate from the members existed and make the members or the controlling persons liable for debts and obligations of the company.

The corporate veil is lifted when in defence proceedings, such as for the evasion of tax, an entity relies on its corporate personality as a shield to cover its wrong doings. [BSN(UK)Ltd. v. Janardan Mohandas Rajan Pillai[1996]n86 Com Cases 371 (Bom)].

Limited Liability Partnership

LLP is a body corporate and a legal entity separate from its partners, having perpetual succession. It is a form of the business model which:-

• is organised and operates on the basis of an agreement.
• provides flexibility without imposing detailed legal and procedural requirements.
• enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner.