COMPANY Satyam Case

Company Company defined as a voluntary association of persons who have come together for carrying on some business like the promotion of commerce, art,science, religion, charity or any other object and sharing the profits there from. Section 3(1)(i) of the Companies Act, 1956 defines a company as: “a company formed and registered under this Act or an existing Company”. ‘Existing Company’ means a company formed and registered under any of the earlier Company Laws.

Company act 1956 The company act came into force from 1 April The act was based upon the recommendation of company law committee appointed under the chairmanship of Mr. C. H. Bhaba on The committee submitted its report in The Indian company act extends to the whole India.

Satyam Case Study The company was incorporated on 24 th June 1987 as a Private Limited Company The company was promoted by B Rama Raju and B. Ramalinga Raju On 26 th August 1991 it was converted into a Public Limited Company. Company got listed on BSE

Objective of company act Development of a company because a corporate form of business organization constitute a very important sector of economy. 2.Protect the interest of large number of share holder as they have a separate ownership from management in joint stock companies. 3.Safe guard the interest of the creditors so that they have their money on time 4.To equip the government with necessary powers so that the interest of the consumer, labors and suppliers can be protected. 5.To attain the ultimate goal of the economic policy that is establishing a socialistic pattern of society

Satyam Case Satyam’s Business and Industry scenario To provide consultancy to large corporate and to provide software solution After Satyam fiasco, Govt intervened in the matter to protect the interest of shareholders, and service economy of india

Characteristics of Companies Separate legal entity Limited liability Separate Property An Artificial Person Incorporated Association Perpetual Succession and Common Seal Transferability of shares Capacity to sue and to be sued

Separate Legal Entity It is different from its members. It works as a individual body. It can make contracts, open a bank account, can sue and be sued by others. The law has recognized that even if a person holds virtually all the shares, the right and obligations of the company shall be different from its members. Satyam case: Survival of Satyam as a company and Jail to the Director ( B. Ramalinga Raju)

Limited Liability It means that the liability of a member shall be limited to the value of the share held by him, he cannot be called upon to bear the loss from his personal property. Satyam case: Shareholders bear loss for their shares and no other losses

Artificial person A company is a purely a creation of law. It is invisible, intangible and exists only in the eyes of law. It has no soul, no body, but has a position to enter or exit into a contract, to appoint a people as its employees Satyam Case: After acquisition by Tech Mahindra, Satyam appointed new CEO and CFOs; Contracts with clients.

Perpetual existence [sec 34(2)] Section 34(2) of the act states that an incorporated company has perpetual life. The life of the company is not related to the life of the members. Law create the company and law alone can dissolve it. The existence of the company is not affected by death, insolvency, retirement or transfer of share of members. Satyam Case: Exit of Raju and yet survival of Satyam

Common seal A company being an artificial person can not work as a natural being. Therefore, it has to work through its directors, officers and other employees. Common seal used as a official signature of a company. Satyam Case: Use of Company letterhead for the official communication

Transferability of share sec(82) The share of a company are freely transferable. The shareholder can transfer his share to any person without the consent of other members. A company cannot impose absolute restrictions on the rights of member to transfer their shares Satyam Case: Share prices of Satyam, selling spree in the market

Capacity to sue and be sued When a company is incorporated it acquires a separate and independent legal personality. As a legal person it can be sue and be sued in its own name. Satyam Case: Cases on Raju and other board members

Satyam Board Violation of Company Act In approving the acquisition of 100 per cent in Maytas Properties and 51 per cent in Maytas Infrastructure, Satyam’s board had violated Section 372A of the Companies Act. No company can acquire shares in any other “body corporate” through “subscription purchase or otherwise” for an amount exceeding 60 per cent of the acquiring company’s share capital Doing so would require shareholder authorization through a special resolution passed in a general meeting. The law also states that such a resolution has to be passed only through a postal ballot and with advance intimation. All board of directors are liable for Rs fine and up to 2 years imprisonment

Advantages The shield of limited liability permits a person who invests in a venture to be assured that in any event he cannot loose more than the amount of capital he agreed to contribute. A corporation has many ways of raising capital by the issuance of share, while the partnership is restricted to loans or contribution by the individual members. The company having a legal existence apart from its shareholders, is not affected by bankruptcy, insanity or death of a shareholder or other events which would terminate a partnership. A shareholder may easily transfer his shares (except in a private company) but a partner cannot transfer his interest without the consent of all partners.

Types of Companies COMPANIES Incorporated Chartered companies Statutory companies Registered companies Liability limited liability unlimited liability Number of members private public Control holding subsidiary ownership government non government

Difference PRIVATE LTD. No. of members can be 2 to 50 Minimum paid up capital of Rs one lakh Cannot invite public to subscribe for shares or debentures Can accept deposit only from members, directors or their relatives PUBLIC LTD. No. of members can be 7 to unlimited. Minimum Paid up capital Rs five lakhs Can invite public to subscribe for shares or debentures Can accept public deposits 18

Difference PRIVATE LTD Should contain words Private Limited‘ at the end of its name Statement in lieu of prospectus not required even for first issue Directors of this company is not required to retire by rotation PUBLIC LTD. Should contain words Limited‘ at the end of its name Statement in lieu of prospectus OR prospectus required 2/3 rd of Directors of this company must retire by rotation 19

Difference PRIVATE LTD Does not require certificate to commence business after incorporation Statutory meeting and statutory report is not required Postal ballot is never required PUBLIC LTD. Requires certificate to commence business after incorporation Statutory meeting and statutory report is required There are many resolutions for which postal ballot is required 20

Difference PRIVATE LTD Directors of this company may be appointed by single resolution Annual accounts and documents can be seen by a member Can restrict transfer of shares PUBLIC LTD. Directors of this company may not be appointed by single resolution Annual accounts and documents can be seen by any person and a copy can also be obtained. Shares are freely transferable 21

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