UNIT-4

INTRODUCTION TO COMPANY LAW

The concept of company law is not new. Infact it came into existence in 4 B.C. This concept
changed with time. This act came to India by British Parliament. Indians were not ready to
accept this because they were on the opinion that this will affect their economy in bad
manner but still it was established because people were governed by English Rule.

The Companies Act 1956 was an Act of the Parliament of India, enacted in 1956, which

enabled companies to be formed by registration, and set out the responsibilities of
companies, their directors and secretaries.[1] It was repealed and replaced by the Companies
Act 2013.

CORPORATE PERSONALITY

Corporate personality is the creation of law. And as per the law, a corporation is an artificial
person created by the personification of a group of individuals. The theory of corporate
personality mainly states that a company has a legal identity different from its member

● The creditors of the company can recover their money only from the company and
they cannot sue individual members. In the same way, the company is not in any
way liable for the individual debts of its shareholders/members and the property of
the company is only used for the benefit of the company.
● It enjoys certain rights and duties such as the right to hold property, right to enter
into contracts, to sue and be sued in the name of the company. The rights and
liabilities of the members are different from the company.
● In short, corporate/legal personality, which the company acquires on incorporation,
confers legal personality and independent status to the company.
 COMPANY

Meaning: We have an Indian Company Act of 2013 which defines Company as” a legal
person or a legal entity that has special features specified under the law” It mainly help the
state to meets with its economic ends and it can be considered as a social, economic and
legal entity of a state. It is basically an organisation which has great importance in today’s
economic system of India.
According to Section 2 (20) of the Company Act 2013 "Company means a company
incorporated under this Act or any previous Company Law."

In general, a company is an artificial person, created by law that has a separate legal entity,
perpetual succession, and common seal and has limited liability. It is a voluntary association
of person who together contributes in the capital of the company to do business.

Characteristics of Company-

(i) Incorporated Association : A company comes into existence through the operation of
law. Therefore, its incorporation under the Companies Act is must. Without such
registration, no company can come into existence.

(ii) Separate Legal Entity : A company has a separate legal entity, which is not affected by
changes in the ownership. Therefore being a separate entity, a company can contract, sue
and be sued in its corporate name and capacity.

(iii) Artificial Person: A company is an artificial and juristic person that is created by law.

(iv) Limited Liability : Every shareholder of a company has limited liability. His liability is
limited to the extent of the unpaid value of the shares held by him. If such shares are fully
paid up, he is subject to no further liability.

(v) Perpetual Existence : The existence of company is not affected by the death, retirement,
and insolvency of its members. That is, the life of a company remains unaffected by the life
and the tenure of its members in the company. The life of a company is infinite until it is
properly wound up as per the Companies Act.

(vi) Common Seal : The company is not a natural person and has no physical existence.
Hence, it cannot put its signature. Thus, the common seal acts as an official signature of a
company that validates the official documents.

(vii) Management and Ownership : A company is not managed by all members but by their
elected representatives called Directors. Thus, management and ownership are different.

(viii) Transferability of Shares : Shares of a company are freely transferable, except in case

of private companies. Transfer of shares of private companies is regulated by Articles of
Association.

CASE STUDY:  Salomon v A Salomon & Co Ltd [1897] AC 22

FACTS:

1. Mr.Aron Salomon was a businessman who specialized in manufacturing leather

boots. After a few years, he incorporated a limited company known as Salomon and
Co. Ltd.
2. In order to meet the requirement to incorporate a company, he needed at least
seven members/ shareholders so he decided to make his family members his
business partners by giving one share to each of them.
3. He sold his business to the limited company for $39000 out of which $10000 was a
debt to him. He was then the company’s principal shareholder and principal creditor.
4. After one year, the company went into liquidation. The assets realized were $6000
while the liability was debentures held by Salomon $10000 and unsecured creditor
$7000.
5. An unsecured creditor challenged the right of Salomon to have preference as
debenture holder over unsecured creditors.

ISSUE:

Was the formation of Salomon’s company a fraud intended to defraud the creditors?

HELD:

The court said that on incorporation, the company became an independent legal person and
not an agent of Salomon. Salomon, as a debenture holder of the company was ought to get
priority in payment over the unsecured creditor.
Companies on the Basis of Liabilities

When we look at the liabilities of members, companies can be limited by shares, limited by
guarantee or simply unlimited.

a) Companies Limited by Shares

Sometimes, shareholders of some companies might not pay the entire value of their shares
in one go. In these companies, the liabilities of members is limited to the extent of the
amount not paid by them on their shares.

This means that in case of winding up, members will be liable only until they pay the
remaining amount of their shares.

b) Companies Limited by Guarantee

In some companies, the memorandum of association mentions amounts of money that
some members guarantee to pay.In case of winding up, they will be liable only to pay only
the amount so guaranteed. The company or its creditors cannot compel them to pay any
more money.

c) Unlimited Companies
Unlimited companies have no limits on their members’ liabilities. Hence, the company can
use all personal assets of shareholders to meet its debts while winding up. Their liabilities
will extend to the company’s entire debt.
Companies on the basis of members

a) One Person Companies (OPC)

These kinds of companies have only one member as their sole shareholder. They are
separate from sole proprietorships because OPCs are legal entities distinct from their sole
members. Unlike other companies, OPCs don’t need to have any minimum share capital.

b) Private Companies
Private companies are those whose articles of association restrict free transferability of
shares. In terms of members, private companies need to have a minimum of 2 and
a maximum of 200. These members include present and former employees who also hold
shares.

c) Public Companies
In contrast to private companies, public companies allow their members to freely transfer
their shares to others. Secondly, they need to have a minimum of 7 members, but the
maximum number of members they can have is unlimited.

Companies on the basis of Control or Holding

In terms of control, there are two types of companies.

a) Holding and Subsidiary Companies

In some cases, a company’s shares might be held fully or partly by another company. Here,
the company owning these shares becomes the holding or parent company. Likewise, the
company whose shares the parent company owns becomes its subsidiary company.

Holding companies exercise control over their subsidiaries by dictating the composition of

their board of directors. Furthermore, parent companies also exercise control by owning
more than 50% of their subsidiary companies’ shares.

b) Associate Companies
Associate companies are those in which other companies have significant influence. This
“significant influence” amounts to ownership of at least 20% shares of the associate
company.

The other company’s control can exist in terms of the associate company’s business
decisions under an agreement. Associate companies can also exist under joint venture
agreements.
Other Types of Companies

a) Government Companies
Government companies are those in which more than 50% of share capital is held by either
the central government, or by one or more state government, or jointly by the central
government and one or more state government.

b) Foreign Companies
Foreign companies are incorporated outside India. They also conduct business in India using
a place of business either by themselves or with some other company.

c) Charitable Companies (Section 8)

Certain companies have charitable purposes as their objectives. These companies are called
Section 8 companies because they are registered under Section 8 of Companies Act, 2013.

Charitable companies have the promotion of arts, science, culture, religion, education,

sports, trade, commerce, etc. as their objectives. Since they do not earn profits, they also do
not pay any dividend to their members.

d) Dormant Companies
These companies are generally formed for future projects. They do not have significant
accounting transactions and do not have to carry out all compliances of regular companies.

E) Public Financial Institutions

Life Insurance Corporation, Unit Trust of India and other such companies are treated as
public financial institutions. They are essentially government companies that conduct
functions of public financing.

Formation of a Company

Formation of a company involves completion of several legal formalities and procedures.

The process of formation of the company can be divided into four stages, viz.,

`1)Promotion of a company

2)Incorporation/Registration

3) Subscription of capital

4) Commencement of business.
1.1 Promoter of a Company
Promoter is a person who conceives the idea of starting a business, plans the formation of a
company and actually brings it into existence

1.2 Functions of Promoter

The main functions of a promoter are as follow:

(i) To conceive an idea of starting a business and explore its possibilities.

(ii) To undertake detailed technical, economic and commercial feasibility of the business
propositions. Help of experts may be taken for that.

(iii) To conduct negotiations for the purchase of a business in case it is intended to purchase
an existing business.

(v) To decide the following:

(a) the nature of the company

(b) the location of its registered office
(c) the amount and form of its capital
(d) the underwriters or brokers for capital issue, if necessary
(e) the bankers
(f) the auditors
(g) the legal advisers.

(vi) To get the memorandum of association and articles of association drafted and printed.

(vii) To enter into preliminary contracts with vendors, under-writers etc.

(viii) To arrange for the preparation of prospectus, its filing, advertisement and issue of
capital.

(ix) To pay preliminary expenses.

(x) To arrange funds required by the company

egal Position of a Promoter

A promoter is a person who is actively involved in the formation of the company till
it is
formed. With the formation of the company, promotion comes to an end. Similar is the
position
of promoter. A promoter acts on behalf of the company. However, in true legal sense he
cannot
be called an agent of the company as it is not yet registered. Similarly, a promoter is acting
as a
trustee, as he is taking care of the assets acquired for the company. However, in true legal
sense
he cannot be called a trustee of the company, which has not yet come into existence.
The
promoter occupies a fiduciary position. A position full of trust and confidence. This
position
requires him to make full disclosures of the relevant facts including any profits made by him.
egal Position of a Promoter
A promoter is a person who is actively involved in the formation of the company till
it is
formed. With the formation of the company, promotion comes to an end. Similar is the
position
of promoter. A promoter acts on behalf of the company. However, in true legal sense he
cannot
be called an agent of the company as it is not yet registered. Similarly, a promoter is acting
as a
trustee, as he is taking care of the assets acquired for the company. However, in true legal
sense
he cannot be called a trustee of the company, which has not yet come into existence.
The
promoter occupies a fiduciary position. A position full of trust and confidence. This
position
requires him to make full disclosures of the relevant facts including any profits made by him.
egal Position of a Promoter
A promoter is a person who is actively involved in the formation of the company till
it is
formed. With the formation of the company, promotion comes to an end. Similar is the
position
of promoter. A promoter acts on behalf of the company. However, in true legal sense he
cannot
be called an agent of the company as it is not yet registered. Similarly, a promoter is acting
as a
trustee, as he is taking care of the assets acquired for the company. However, in true legal
sense
he cannot be called a trustee of the company, which has not yet come into existence.
The
promoter occupies a fiduciary position. A position full of trust and confidence. This
position
requires him to make full disclosures of the relevant facts including any profits made by him.

Registration of a Company

In order to get a company registered or incorporated, the following procedure is to be

adopted:
(A) Preliminary Activities:
Before a company is incorporated, the promoter has to take decision regarding the
following:
1) To decide the name of the company
 2) Licence under Industries Development and Regulation Act, 1951  

(B) Filing of Document with the Registrar:

It is the registration that gives the company a birth or existence. A company is properly
formed when it is properly registered under the Company Act. There is a procedure for the
registration process that every organization must follow. It involves the following
documents and procedures,

● Memorandum of Association: It is to be signed by the minimum member that is 7

persons for the public company and 2 in case of private company. It must be duly
stamped.

● Articles of Association: The document is signed by all those persons who all have
signed the memorandum of association.

● List of directors: A list of directors with their names, address, and occupation is
prepared and filed with the registrar of the companies.

● Written consent of the directors: A written consent of the directors that they have
agreed to act as directors has to be filed with the registrar of the company along with a
written approval to the effect that they will take the qualification shares and will pay for
them.

● Notice of the address of the registrar office: It is also customary to file the notice of the
address of the company’s registered office at the time of incorporation. It is to be
provided within 30 days after the date of incorporation.

● Statutory declaration: A statutory declaration mentioning that the requisites of the act
and the rules thereunder have been compiled. It must be signed by an advocate of the
supreme court or of a high court or an attorney or leader entitled to appear before a
high court or a practising chartered accountant in India, who engages in the company
formation or by a person indicated in the article as a director, managing director,
secretary or manager of a company. It is also to be filed with the registrar of the
company.

3] Certificate of Incorporation

The registration of the memorandum of the association, the article of association and other
documents are filed with the registrar. After getting satisfied with the application &
documents submitted, Registrar will issue the Certificate of incorporation’. A certificate of
incorporation is the ultimate proof of the existence of A COMPANY.
4] Certificate of Commencement of Business

As soon as a private company gets the certification of incorporation it can start its
business. Once the certificate of incorporation is received by the company, a public
company issues a prospectus for inviting a public to subscribe to its share capital. It fixes the
minimum subscription in the prospectus. Then it is required to sell the minimum number of
shares mentioned in the prospectus.

After completing the sale of the required number of shares, the certificate is sent to the
registrar along with the letter from the bank stating that all the money is received.

The registrar then scrutinizes the documents. If all the legal formalities are done then the
registrar issues a certificate known as ‘certificate of commencement of business’. This is the
conclusive evidence for the commencement of business for the public company.

Stage # 4. Commencement of Business Stage:

After getting the certificate of incorporation, a private company can start its business. A
public company can start its business only after getting a’ certificate of commencement of
business’.

Memorandum Of Association( MOA)

The Memorandum of Association is the charter of the company, and provides the

foundation on  which the structure of the company is built. It defines the scope of
the company’s activities as well as its  relation with the outside world.
 Section 2(28)of the Companies Act defines a Memorandum as “the memorandum of
association  of a company as originally framed or as altered from time to time in
pursuance of any previous Company  Laws or of this Act”. Section 13 of the Act
specifies the contents of the memorandum.

The Memorandum of Association must be (a) printed, (b) divided into paragraphs,

numbered  consecutively, and (c) signed by each subscriber.

Contents of the Memorandum  of Association

1. Name Clause:  The Memorandum of every company must state the name of the company
with the word  “Limited” as the last word of the name in the case of public limited company
and with “Private Limited”  as the last words of the name in the case of private limited
company.
2. Domicile (or) Situation Clause:  This clause mentions the name of the State in which the
registered office of the company will be  situated. The full address of the company should
be communicated to the Registrar within thirty days  from the date of registration.
3. Objects Clause: The objects  clause lays down the scope of activities of the company and
defines the extent of its powers. It “states  affirmatively the ambit and extent of powers
which are given to the company by law”.
4. Liability Clause:  A limited company has the liability of its members limited to the face value
of the shares held by  them.
5. Capital Clause:  In the case of a limited company having share capital, the Companies Act
requires that the  Memorandum shall state the amount of share capital with which the
company is to be registered and the  division thereof into shares of a fixed amount
[Sec.13(4)].
6. Association Clause:  Under this clause, subscribers to the Memorandum express their assent
to form a company and  signify their agreement to associate for that purpose.

Articles of Association

Articles of association form a document that specifies the regulations for a company's
operations and defines the company's purpose. The document lays out how tasks are to
be accomplished within the organization, including the process for appointing directors
and the handling of financial records.
Objectives of Articles of Association (AOA)

● The AOA of company shall contain the regulations for management of the company.
● The AOA shall also contain such matters, as may be prescribed.
● Further, it shall not prevent a company from including such additional matters in its
AOA as may be considered necessary for its management.
Content of Articles of Association (AOA)

An AOA contains the rules and regulation regarding the following matters:

● Share capital including sub-division, rights of various shareholders, the relationship

of these rights, share certificates, payment of commission.
● Lien of shares: To retain or hold the possession of shares in case the member is
unable to pay his debt to the company
● Calls on shares: Calls on shares includes the whole or part unpaid on each share
which has to be paid by the shareholders on the demand of the company.
● Transfer of shares: The AOA include the process for the transfer of shares by the
shareholder to other person (transferee).
● Transmission of shares: Transmission includes title devolution by succession, death,
marriage, insolvency, etc.
● Forfeiture of shares: The AOA provides for the forfeiture of shares if the purchase
requirements such as paying call money are not met with.
● Surrender of shares: Surrender of shares is when the shareholders voluntary gives
back or return the shares they own to the company.
● Conversion of shares in stock: In consonance with the Articles of association, the
company can convert the shares into stock by an ordinary resolution in a general
meeting.
● Share warrant: A share warrant is a bearer document relating to the title of shares
and cannot be issued by private companies; only public limited companies can issue
a share warrant.
● Alteration of capital: Increase, decrease or rearrangement of capital must be done
as the Articles of association provide.
● General meetings and proceedings: All the provisions relating to the general
meetings and the manner in which they are to be conducted are to be contained in
the Articles of association.
● Voting rights of members, voting by poll, proxies: The members right to vote on
certain company matters and the manner in which voting can be done is provided in
the Articles of association.
● Directors, their appointment, remuneration, qualifications, powers and proceedings
of the boards of directors meetings.
● Dividends and reserves: The Articles of association of a company also provide for the
distribution of dividend to the shareholders.
● Accounts and Audits: The auditing of a company shall be done subject to the
provisions of the Articles of association of the company.
● Borrowing Powers: Every company has powers to borrow. However; this must be
done according to the Articles of association of the company.
● Winding Up: Provisions relating to the winding up of the company finds mention in
Articles of association of the company and must be done accordingly.

Difference between AOA AND MOA

Parameters MOA AOA

 It contains the rules and
It defines the objectives
regulations as well as
of a company. Further, it
Objectives bye-laws for the internal
specifies the conditions of
management of the
incorporation.
company.

It defines the
It defines the relationship
relationship between
Relationship of the company with the
the members and the
external world.
company.

Only under special By passing a special

Alteration circumstances, it can be resolution, It can be
altered. altered.

Any acts beyond the Acts which are ultra-

scope of the MOA are vires the AOA can be
ultra-vires and void. ratified by a special
Furthermore, even resolution of the
Ultra-Vires
unanimous votes for the
consent of such act from shareholders. However,
all the shareholders such acts should not
cannot ratify it. ultra-vires the MOA

Prospectus

1. The prospectus is a legal document, which outlines the company’s financial securities
for sale to the investors.
2. According to the companies act 2013, there are four types of the prospectus,
abridged prospectus, deemed prospectus, red herring prospectus, and shelf
prospectus.

Prospectus Definition
The prospectus is a legal document for market participants and investors to pursue,
detailing the features, prospects, and promise of a financial product.
It is mandated by the law to be supplied to prospective customers.

Types of prospectus
According to Companies Act 2013, there are four types of prospectus.
1) Deemed Prospectus – Deemed prospectus has mentioned under Companies Act,
2013 Section 25 (1). When a company allows or agrees to allot any securities of the
company, the document is considered as a deemed prospectus via which the offer is
 made to investors. Any document which offers the sale of securities to the public is
deemed to be a prospectus by implication of law.
2) Red Herring Prospectus – Red herring prospectus does not contain all information
about the prices of securities offered and the number of securities to be issued.
According to the act, the firm should issue this prospectus to the registrar at least
three before the opening of the offer and subscription list.
3) Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies Act,
2013. Shelf prospectus is issued when a company or any public financial institution
offers one or more securities to the public. A company shall provide a validity period
of the prospectus, which should not be more than one year. The validity period
starts with the commencement of the first offer.
4) Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient
features of the prospectus as specified by SEBI. This type of prospectus includes all
the information in brief, which gives a summary to the investor to make further
decisions. A company cannot issue an application form for the purchase of securities
unless an abridged prospectus accompanies such a form.

Prospectus and its contents

The prospectus contents are specified in the Companies Act. The prospectus must touch
over the following content points:

1. Details of the company, such as name, registered office address, and objects
2. Details of signatories to the Memorandum and their shareholding particulars
3. Details of the directors
4. Details of shares offered and the class of the issue as well as voting rights
5. Minimum subscription amount
6. The amount payable on application, on allotment, and on further calls
7. Underwriters of the issue
8. Auditors of the company
9. Audited reports regarded profit and losses of the company

Meaning of a Director
Directors are the persons appointed to direct and supervise the affairs of a company. As per
section 2(34) of the Companies Act, 2013 director means a director appointed to the board
of a company.

Section 149 of the Companies Act states that every company shall have a Board of Directors
consisting of individuals as directors and shall have-

(a) A minimum number of 3 directors in the case of a public company, 2 directors in the case
of a private company, and one director in the case of a One Person Company.

(b) A maximum of 15 directors. A company may appoint more than 15 directors after
passing a special resolution.
(c) Such class or classes of companies as may be prescribed, shall have at least one woman
director.

(d) Every company shall have at least one director who has stayed in India for a total period
of not less than 182 days in a financial year.

(e) Every listed public company shall have at least one-third of the total number of directors
as independent directors and the Central Government may prescribe the minimum number
of independent directors in case of any class or classes of public companies.

Appointment of Directors
1)The articles of a company may list the names of the first directors in its articles of
association, if no names are mentioned in the articles, the subscribers of the memorandum
become the first directors.

2) Can be appointed by the initial Rembers of the company at its first general meeting. A
company may appoint an additional director if it needs.

3) An Alternate Director may be appointed by the board during the absence of a director for
a period not less than 3 months

4)Directors can be appointed by the initial members of the company at its first general
meeting.

5) A director may be appointed by a single transferable vote system or cumulative

transferable vote system

Duties of Directors

● Deciding the company’s future goals and priorities.

● Communicating with the stakeholders to inform them of the company’s growth and
ensuring their input plays a part in the company’s future.

● Checking the external market conditions to ensure that the company is headed in the
right direction.

● Monitoring the performance of employees and encouraging them to achieve their

targets is one of the primary duties of directors.

● Setting the budget for the company’s operations and keeping tabs on the profit and loss
margin.

● Reporting back to the stakeholders at the Annual General Meeting (AGM).

● Establishing rules and regulations and forming policies that everyone in the company
would follow.
● Making sure the organisation has a good system of governance and that there is no gap
in communication.

● Being in an advisory capacity to the CEO.

● Doing effective risk management assessment

Statutory Powers of Directors

● Powers must be exercised by Board of Directors in the general meeting of the

company by passing a resolution.
● . The power to make call on shares in respect of unpaid money.
● The power to authorize lack of shares
● The power to issue debentures, whether in or outside india.
● The power to invest in funds
● The power to borrow money otherwise than on debentures
● The power to make loans or give guarantee in respect of loans. But a banking
company does not require any resolution by the board
● Power to approve the financial statement and board's report.

Meaning of company meetings

This is when two or more persons (shareholders or the directors or the debenture holder or
of the contributories), get together at one place, at a specific time, for lawful purposes, to
discuss any common issue.

Types of meetings
a. Public meetings

These are the meetings that consider matters of public concern and to which all members of
the public have access, subject to physical limitations of the place where the meeting is held
or conditions imposed by any law.

b. Private meetings
These are meetings attended by people who have a specific right to attend. For example,
Committees members of a welfare group or of a registered company. Therefore, company
meetings fall under this category.

The eight main types of company meetings

1. Statutory Meeting
2. Annual General Meeting
3. Extra ordinary General Meeting
4. Class Meeting
5. Meeting of Debenture Holders
 6. Meeting of the Board of Directors
7. Meeting of Creditors
8. Meeting of Creditors and Contributories.

The following is an explanation on the above listed types of meetings;

1. Statutory meeting
Every public company limited by shares and every company limited by guarantee and having
a share capital, must within a period of not less than one month and not more than 3
months from the date at which the company is entitled to commence business. Private
companies are exempted from holding this meeting.

2. Annual General Meeting (AGM)

Every company must in each year hold, in addition to any other meeting, AGM. The notice
conveying the meeting must specify that it is a notice of the AGM. Every AGM must be held
during business hours and on working days.

There should be at least one AGM per year and as many meetings as there are years.

3. Extra ordinary general meeting

Extra ordinary meetings can be convened either by the directors whenever they think fit or
on the requisition of members of the company.

Where directors think fit to convene a meeting, they do so by resolution passed at a duly
convened and constituted meeting of the Board. Note that everything transacted at an extra
ordinary meeting shall be deemed as special.

4. Class meeting

These meetings are held by a particular class of shareholders. The purpose of this meeting is
effecting variation in the Articles in respect of their rights and privileges or for conversion of
one class into another.

The provision for variation must be contained in the Memorandum or Articles. However,
this variation must not be prohibited by the terms of issue of shares of that particular class.
Such resolutions are to be passed by three-fourth majority of the members of that class.

5.Meeting of debenture holders

Such meetings are held from time to time where the interests of debenture holders are
involved at the time of re-organization, reconstruction, amalgamation or winding-up of the
company. The rules regarding the appointment of chairman, notice of the meeting, quorum
etc. are contained in the trust deed.
 6. Meeting of the Board of Directors
The management of the company is vested on the Board of Directors. Therefore, the
directors are to meet frequently to decide both policy and routine matters

 Resolution of a company.

A resolution is a formal way in which a company can note decisions that are made at a
meeting of company members.

COMPANY RESOLUTION -One of the vital characteristics of the Company form of business
includes- Artificial person bearing a separate legal identity. Being an artificial person, the
decisions of the Company are its own and the same are passed in the form of Resolutions.

Primarily resolutions are formal document that crystallize in writing, important decisions of
the Company or Board for that matter. Resolutions are broadly classified as:

Resolutions passed by the Board Resolutions passed by the Members Board resolutions are
formal documents relating to the decisions passed at a Board Meeting. A resolution is a
formal way in which a company can note decisions that are made at a meeting of company
members.

Auditor
An auditor is a person authorized to review and verify the accuracy of financial records and
ensure that companies comply with tax laws. They protect businesses from fraud, point out
discrepancies in accounting methods and, on occasion, work on a consultancy basis, helping
organizations to spot ways to boost operational efficiency. Auditors work in various
capacities within different industries.

Rights of an auditor:
A company auditor's job is full of responsibility. The auditor has a lot of power under the
Companies Act. He has all of the rights that other business owners should have because he
is the shareholders' agent. Because the Act contains specific provisions, no one can prevent
the auditor from exercising these rights. 

According to section 227 (1) of the Companies Act, 1956, below, we have explained the
auditors' rights. 

1. Right to access book, account and vouchers

2. Right to obtain information and explanation 

3. Right to correct any wrong statement: 

4. Right to visit branches: 

5. Right to receive a notice and attend meetings:  
 6. Right to sign the audit report:

7. Right to remuneration:

8. Right to be indemnified:

9. Right to take legal and technical advice:

Duties of an Auditor
The duties of an auditor include the following tasks, which are considered the significant
duties of a company auditor. Out of the major ones, these are a few major ones

1. Providing audit report: 

2. Make a proper enquiry: 

3. Assist in branch office:

4. Compliance with auditing standards:

5. Reporting of frauds:

6. Assist in the investigation:

7. Follow Auditing principles: 

8. Fraud detection and reporting:

Appointment of Auditor

Appointment of first auditor

Every company shall appoint first auditor who hold the office till the conclusion of first
annual general meeting. This appointment is classified below for Government or Non-
Government Company:

● In Government company:The first auditor is appointed by Comptroller and Auditor

General of India (C&AG) in case of Government Company. The time-period for the
appointment of first auditor is 180 days from the commencement of every financial
year.

● In Non-Government Company:

The first auditor is appointed by Board of Directors (BOD) within 30 days of incorporation of
a company. If Board of Directors is not liable in appointment then they informs the
members about their failure and after that members shall appoint first director within 90
days from the date when BOD informs the members about their failure.
Appointment of Subsequent Auditor

Every company shall appoint subsequent auditor who hold the office from the date of first
annual general meeting till the conclusion of sixth annual general meeting. This
appointment is classified below for Government or Non- Government Company:

1. In Government Company:
The subsequent auditor is appointed by C&AG within 180 days from the
commencement of every financial year who shall hold the office till the conclusion of
sixth annual general meeting.

2. In Non- Government Company:

The appointment of subsequent auditor is done by the members of a company who
shall hold office till the conclusion of sixth annual general meeting. He shall be
appointed in first annual general meeting.

Meaning of Winding-Up
Winding-up is a process whereby the life of a company is ended & property is administered
for the benefit of shareholders & creditors.

Structure of Winding-Up

● By court ( NCLT)/ Compulsory Winding-up

● Voluntary Winding-up (provisions related to voluntary winding-up have been
repealed and has now been shifted to Insolvency & Bankruptcy code).
Voluntary Winding-Up
There are two ways by which the company declares voluntary winding-up:

1. By Ordinary Resolution: A company may wound up voluntarily if the given period

or duration of the company has expired. Such period should be mentioned in the
articles of the company or if there is any mentioning in the articles, that company
shall dissolve on the occurrence of a particular event and if such event occurs
then the company, by passing an ordinary resolution can start the process of
winding-up.
2. By Special Resolution: A company may wound up voluntarily after getting 75%
majority from its shareholders and board of directors. The process will only start
when the special resolution has been passed. After the resolution has passed the
same has to be published in the Official Gazette and in leading newspapers of that
district/city within 14 days.