Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
In view of the vastness of the
subject, the complications and listening to present a small brief as follows:
1. Most significantly, the
companies are of two kinds i.e., Private Limited Companies and Public Limited
Companies.
2. A Public Limited Company can
either opt to list its shares in any of the stock exchanges in accordance with
the SEBI Guidelines or remain unlisted.
3. If a Public Limited Company
chooses to list its shares in the Stock Exchanges and if its shares are listed,
then, it is called “Listed Public Limited Company”.
4. The basic things of
incorporation and functioning are like:
a. A company needs to be
incorporated with Memorandum and Articles with the Registrar of Companies and
upon registration, the Company is considered independent from its members and
it will be considered as a Juristic Person.
b. There should be minimal
capital, subscribers and directors to any company though capital requirements
etc. may vary depending upon the kind of the Company.
c. The Company does its business
in accordance with its objects as mentioned in Objects Clause in the
Memorandum.
d. The Board of Directors or the
Board is given certain powers to conduct day-to-day affairs of the Business.
e. Certain important powers can
only be exercised by the shareholders at the General Body Meetings.
f. After incorporation, there
will be statutory meeting, board meetings, extraordinary general body meetings
and an Annual General Body Meeting.
g. Every Company is supposed to
maintain the records, preserve the books and papers in accordance with the
provisions of the Companies Act, 1956.
h. Every Company is supposed to
file certain reports annually like Balance Sheet, Profit & Loss Account and
Annual Return with the Registrar of Companies.
i. The ultimate power in any
company rests with the shareholders or the members except on very very limited
issues like declaration of dividend.
5. It is important to note the
basic difference between private limited company and the public limited company
and the difference is as follows:
a. A Company is a Private Limited
Company if the transfer of shares is restricted and the Company is restrained
from soliciting investments from the public.
b. A Company is a Public Limited
Company when its shares are freely transferable and the company can solicit
investments from the public in accordance with the provisions of the Act and
the regulations.
c. The requirements of forming a
Private Limited Company differ from Public Limited Company. For example, the
minimum number of directorship in a Private Limited Company is two, whereas for
a Public Limited Company, it is three.
6. There will be confusion
generally as to what is the law applicable to Private Limited Companies, Public
Limited Companies and the Listed Public Companies and the brief on the law
applicable is as follows:
a. The provisions of Companies
Act, 1956 will be applicable to the private companies; however, the private
companies are allowed to have their own regulations on many issues as dealwith
under the provisions of Companies Act, 1956.
b. Apart from the provisions of
the Companies Act, 1956, the rules of the Central Government, will be
applicable to all Private Limited Companies.
c. The Private Limited Companies
and every company should follow the principles enshrined in the Accounting Standards
issued by ICAI though the requirement of necessary disclosure in the financial
statements is relaxed to Private Companies to a great extent.
d. Every Company is expected to
follow the Secretarial Standards issued by ICSI for good Corporate Governance
and in order avoid the unnecessary litigation though the application is
optional.
e. The provisions of the
Companies Act, 1956 and the central government rules are applicable to the
Public Companies apart from mandates in Accounting Standards.
f. The discretion of regulating
its own affairs through Articles is restricted to Public Companies and
provisions of the Act will be applicable to Public Companies to a great extent.
g. The Companies Act, 1956, the
rules prescribed by Central Government, the regulations framed by the SEBI, the
agreement with Stock Exchanges, the mandates in Accounting Standards, governs
the functioning of Listed Public Companies.
7. The Company Law is
always interesting and also complicated. There are many complicated areas in
Company Law and few complications and complications in practice are as follows:
a. Many Private Limited Companies
and also closely held companies do not adhere to Corporate Governance, do not
maintain the minutes, records, books and papers and, due to non-adhering to
corporate governance, the dispute resolution will be very very difficult where
there come disputes between groups or among the members in the Company.
b. The Private Limited Companies
and the closely held companies used to have understandings and agreements with
the primary motive of business expansion and profit and in the course those may
not be inconformity with the applicable Company Law and it poses many problems.
c. Despite the MCA scheme and
availability of easy e-filing, many companies and especially Private Limited
Companies, are defaulting in filing the documents with the ROC and it will have
so many implications in the course and especially when dispute comes.
d. The transactions between the
Parent Company and its subsidiaries become controversial more often and the
provisions of the Act are ignored in most cases.
e. Dispute Resolution Mechanism
is alleged to be not effective when there are disputes between two groups in a
company needing urgent relief.
f. The liquidation proceedings
are alleged to be protracted and the investors are kept in dark in getting
their lawful share during the liquidation and we need a sophisticated
liquidation mechanism and the things can certainly be speed-up.
g. The BIFR reference and the
arrangement/amalgamation provisions are criticized most often.
h. Though, a listed public
limited company is well regulated as compared to private companies and public
limited companies in view of Listing Agreement with Stock Exchanges, SEBI
regulations, disclosure requirements as per Accounting Standards, the issue of
insider trading, the take-overs, complicated stock purchase agreements
threatens the investor at times.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
