03-10-2012, 04:58 PM
The Companies Act, 1956
The Company Act, 1956: Definition and nature of a company, Essential characteristics of a Company, Types of Companies, Memorandum and Article of Association,
Issue of Prospectus, Allotment Transfer and kinds Shares, Purchase by a company of its own shares,
Company Management, Appointment and removal of directors, Managing Directors, Right and Liabilities of directors,
Statutory meetings, Annual General Meeting and Extraordinary Annual General Meetings,
Prevention of Oppression and Mismanagement, Winding up by Court and voluntary winding up.
Prospectus
Any document inviting subscription to share and debentures of a company from public.
A public company which decides not to invite public to subscribe to its share capital and arrange its capital privately is required to submit a statement in lieu of prospectus with Registrar of Companies at least three days before the allotment of shares.
Steps which are necessary before the issue of prospectus
Appointment of various expert agencies such as bankers, auditors, secretary etc.
Entering into underwriting and brokerage contracts: consists of an undertaking by someone that if public fails to take the issue, he will do so. He gets a commission on shares or debentures whether taken up by public or by the underwriters. A broker is a person who undertakes to place shares i.e. find persons who will buy shares in consideration for an agreed brokerage.
Making arrangement for listing of shares with stock exchanges (Sec 73)
Decision about structure of share capital and Time of Floatation
Drafting a prospectus for the purpose of issue to public
Definition of Prospectus
2(36) "prospectus" means any prospectus, notice, circular, advertisement or other document inviting offers from the public for the subscription on purchase of any shares in, or debentures of, a body corporate;
Thus a document will be called prospectus if:
It invites subscriptions to shares or debentures or invites deposits
The aforementioned invitation is made to public
An invitation to public include an invitation to any section of public
An invitation shall not be an invitation to public if it can not be calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the invitation.
Dating of prospectus: every prospectus must be dated, and that date is deemed to be the date of publication of prospectus.
Share and Share Capital
Section 2(46) defines shares “as share in the capital of the company and includes stock except where a distinction between stock and share is expressed or implied”
A share signifies following:
The interest of shareholder in the company; the right to receive dividend; attend meetings; vote at the meetings and share in surplus assets of the company, if any, in the event of company , being wound up.
The liability of the shareholder in the company to pay calls on shares until fully paid-up.
The rights of shareholders to transfer shares subject to article of association.
Binding covenants on the part of the company as well as the shareholder, as given in the article of association.
Thus a share of a company in the hands of a shareholder signifies a bundle of rights and obligations.
Types of Shares
The most common classes of shares are:
Preference shares
Equity or ordinary shares
Preference shares: is one which carries the following two rights over holders of equity shares:
A preferential right in respect of dividends at a fixed amount or at a fixed rate, and
A preferential right in regard to repayment of capital on winding up.
These shares may be participating and non-participating, cumulative and non-cumulative or redeemable and irredeemable.
Voting rights of preference shareholders
Equity Shares: means a share which is not preference share (Share 85).
Share Capital: Nominal, Authorised or Registered Capital; Issued Capital; Subscribed Capital Called-up Capital; Paid-up Capital