Examine with reference to the provisions of the Companies Act, 1956

(i) A company incorporated outside India having a share registration office at

· Mumbai.

(ii) Indian citizens incorporated a company in Singapore for the purpose of

“ carrying on business there. [CA. (Final) Nov., 1996]

.9Lns. ‘Foreign Company’ as per Section 591 of the Companies Act, 1956, means a company incorporated outside India but having a place of business in India. Accordingly, to qualify as a ‘foreign company’, a company must have both the following features:

(a) it should be a company incorporated outside India; and

(b) it should have a place of business in India.

As to what amounts to having a place of business in India, Section 602© provides

that the expression ‘place of business’ includes a share transfer or share registration office.

. Define a Government company. Summarise the provisions of the Companies Act, 1956, relating to Government companies. State a few exemptions granted to such companies.

J2Lns .

Meaning of Government Company

Section 617 defines a government company to mean any company in which not less

than 51 % of the paid-up share capital is held by

(i) the Central Government; or

(ii) any State Government or Governments; or (iU) partly by the Central Government and partly by one or more State Govern ments.

A subsidiary of a government company shall also be treated as a government

company.

Share certificate must be signed by two directors and countersigned

by the secretary or any other person authorised by the board of directors. One. of the directors should be the managing director or whole time director (if

any) .Where securitis are dealt with in a Depository, the company shall intimate the details of allotment to the Depository immediately on allotment of

such securities. No share certificate is issued in such a case. [Sec. 113 (4)).

Only one share certificate shall be issued to each member for the entire holding without any payment. Ifhe requires more than one certificate for his

holding; be will have to pay Re. I for every additional certificate. Where shares and held jointly by two or more persons, the company shall issue only one

share certificate and deliver it to the person first named in the Registrar of Members.

Limihation of Time for Issue of Share Certificate. Every company making an allotment of shares is obliged to deliver to the allottee a certificate of shares

within three months after the allotment and in case of transfer of shares, the certificate has to be delivered within two months. The Companies

Amendment Act, 1988 has empowered the Company Law Board to extend this period for not n’o than nine months. The company shall have to make an

application to the C6mpany Law Board for seeking this extension of time stating the reason for’extension [Sec. 113 (I)].

In case of default in issuing shares within the prescribed time limit, the company as well as every officer who is in default is punishable with fine not

exceeding Rs. 5,000 per day, till the default continues. In case of default, the CLB can order the company to make goOd the defimlt and to pay all cost

Damages for Feud. Under the general law, an allotted of shares

hold persons responsible for the issue of Prospectus (Directors, Promoters, etc.) liable for damages for any fraudulent misrepresentation or mis-8tatement in the Prospectus, if he was deceived by reason of acting on the faith of such Prospectus. But the directors (or promoters, etc.) will not be liable for the tort or deceit if they honestly believed the statements to be true (Derry Vs. Peek).

2. Damages for Misrepresentation (Section 62). An allotted of shares or debentures is entitled to claim compensation from directors, promoters and any other persons who authorized the issue of a Prospectus, for damages sustained by reason of any untrue statement in it, whether made fraudulently or innocently.

In order to recover damages or compensation under this section thesubscriber (allotted) wiII have to prove:

(i) that the prospectus contained untrue statements of material is not required to prove fraud or intent to deceive); and (ii) that he has actually sustained loss or damage by reason of untrue statements.This action can also be taken after the company goes into liquidation. The true measure of damage is the difference. between amount paid, and the market value of shares on the date of allotment (Adams vs. Thrift)

Defenses available to Directors, etc The true measure of damage is the difference between the amount paid and the market value of shares on the date of allotment (Adams vs. Thrift).However, the person other than expert sought to be made liable mayescape his liability, if he proves [Section 62(2)] :

(0) Withdrawal of Consent. That he withdrew his consent to acting’s director before the issue of the prospectus, and that it was issued without his consent.

.(b) buyout Knowledge. That the prospectus was issued without his knowledge or consent and that on becoming aware of its issue, he forthwith gave

public notice that it was issued without his knowledge or consent.© Ignorance of Untrue Nature of the Statement. That he believedon reasonable groundthat the statement was true.

(d) Official Documents. That the statement was a correct and fairrepresentation of a public official document or was based on ,the authorityof an official person.

(e) Statement of EXIJert. That, the statement was in fact made onthe authority of a competent expert and the expert had given his consent as required by

Section 58 and had not withdrawn it.

Re-enragement of Share Capital. A company may also reorganize its share capital

Re-enragement of Share Capital. A company may also reorganize its share capital by the consolidation of shares of different classes, or by division
of shares into different classes. or by both these methods Section 390 (b)].
Where reorganization of share capital is proposed between (0) a company and its creditors or any class of them. or (b) between a company
and its members or any class of them, the court may order a meeting of creditors or members on an application by the company, or members, or
creditors, or liquidate (in case the company is being wound up). The reorganization of capital shall be binding if the scheme is approved by a majority of
three-fourths in value of the creditors or members present and voting in person or by proxy. The scheme should also be sanctioned by the court. (See
Chapter 21 for details)
It should be noted here that where any alteration is made in the Memorandum, every copy of the Memorandum issued thereafter must incorporate the
alteration. For non-compliance with the provision, the company and every officer thereof who is in default shall be punishable with fine which may extend to

Rs. 100 for each copy so issued (Sec. 40).

enterprise into existence are known as Promoters. Promotion of a company

This process begins with the conceiving of a business idea and ends when that idea is translated into action. The persons who perform the work
promotion and bring an enterprise into existence are known as Promoters. Promotion of a company involves:
(i) discovery of an opportunity of profitable business,
ersatz number of persons to form a company,
(ii)acquisition of necessary assets including buildings, machinery. etc. (vi) recommitment of staff. and (vii) incorporation of the company.
2. INCORPORATION OR REGISTRATION
Incorporation is the second stage in the formation of a company. It is effected by registration with the Registrar of Companies. After completing the
promotional work and before getting the proposed company actually registered the promoter takes the following preparatory steps:
I. Preliminaries (0) Ascertaining t !1"lIihll)ility of proposed name of the company. It should be ascribed from the Registrar whether the name by
which the new company is to be started is available or not.
(b).Io obtain a letter of intent (to be converted later on into an
Industrial License) under Industries (Development and Regulation) Act. 1951. if the company's business comes within the purview of this Act.
(c) LO fix up underwriters. brokers, bankers, solicitors. auditors and
signatories of the memorandum.
(d),A written consent vf the - ejectors to act in that Capac. d1Ily nun by each director along with a written undertaking by them to take’s the necessary
qualification shares, if any, as provided in the articles Section 266 (J)]. This document is, however, not to be filed in the case of (i) a company without
share capital, (ii) a private company, and (iii) a company which was a private company prior to its becoming a public company
(e) statutory declaration stating that all the legal requirements C?f the precedent to incorporation have been complied with. It must be signed by an
advocate of the Supreme Court or of a High Court, or by an attorney or a pleader entitled to appear before a High Court. or by a secretary, or a chartered
accountant, in whole-time practice in India, who is engaged in the formation of the company or by a person named in the articles as a director, managing
director, manager or secretary of the company Section 33 (2)].
(j) Within 30 days of incorporation of the company, a note...cue-of situation of registered office of th company shall be given to the Regist4lr
Section 146 (2)]. .