1. Company Law
Unit II

2. Companies Act, 1956
• Came into force on 1st April 1956
• Consists of 658 sections and 12 schedules and
based largely on the recommendations of the
Company Law Committee (Bhabha
Committee)
• It was amended several times since 1956;
latest were effected from 2000, 2001 and
2002

3. Company
• According to Sec 3 (1) “A Company formed
and registered under this Act or an existing
company”
• Existing company means company formed and
registered under any of the previous
Companies Law

4. Company - Definition
• A Company may be defined as an
incorporated association, which is an artificial
person, having an independent legal entity,
with a perpetual succession, a common seal, a
common stock capital comprised of
transferable shares and carrying limited
liability in relation to its members

5. Characteristics of a company
• Separate Legal Entity
• Perpetual Succession
• Limited Liability
• Common Seal
• Transferability of shares
• Capacity to sue and be sued
• Company’s actions are limited
• Separate property

6. Consequences of the principle of
Separate Corporate Personality
• Shareholders shall have no insurable interest in the
property of the company
• The persons who own its capital may also be its
creditors or employees
• When shareholder dies, company continues to exist.
Shares and not assets vest with legal heir
• Property of company is not the joint property of its
shareholders
• Nationality of company does not depend on
nationality of shareholders
• Company for its wrong doings can be fined and not
imprisoned

7. Kinds of Companies
• Chartered Companies – Crown in exercise of royal
prerogative has power to create a corporation by
grant of a charter to persons assenting to be
incorporated; powers and nature of business are
defined by charter; Eg. Bank of England, East India
Company
• Statutory Companies – Companies incorporated by
means of a special Act of Parliament or any State
Legislature; also known as Public Corporations; Eg.
RBI, LIC, FCI, TNEB, TN Housing Board, TN Water
Supply and Drainage Board (TWAD), NHAI, AAI

8. Kinds of Companies
• Registered Companies – Registered under
Companies Act, 1956 and it may be
• Companies limited by shares
• Companies limited by guarantee
• Unlimited Companies

9. Registered Companies
• Companies limited by shares – most common
type; liability of members limited to amount
fixed by memorandum of company in case of
unpaid shares; no liability in case of fully paid
shares

10. Registered Companies
• Companies limited by Guarantee – liability of
members is limited to such amounts as they may
undertake as fixed by memorandum to contribute
to assets of company in the event of winding up
• Company limited by guarantee may or may not
have share capital
• If it has share capital liability is two-fold one to
pay for share amount and two the amount
guaranteed
• Eg. Madras Stock Exchange

11. Registered Companies
• Unlimited Companies – liability of members is
not limited; liability extends to whole amount
of the company’s debts and liabilities;
rateable contribution from all members
• May be converted into a limited company
either limited by shares or limited by
guarantee

12. Private Company
• It means a comp
any which has a min
up capital of one lak imum paid-
h rupees or such hig
up capital as may be her paid-
prescribed, and by it
articles, s
• Restricts the rig
ht to transfer its sha
• Minimum 2 mem res, if any;
bers and maximum
its members 50 not number of
including persons w
were in the employm ho are or
ent of the company
• Prohibits any inv ;
itation to the public
for any shares or de to subscribe
bentures
• Required to add
“Private Limited” at
name the end of its

13. Public Company
• It is not a private company and has a
minimum paid-up capital of five lakh rupees
or such higher paid-up capital, as may be
prescribed;
• Minimum 7 persons to form; no maximum
limit
• Shares of public company are dealt in a stock
exchange

14. Distinction between Public and
Private Company
• Minimum number of members – Public : 7;
Private : 2
• Maximum number of members – Public : no limit;
Private :50
• Commencement of Business - Public : not until
certificate of commencement of business is
granted; Private : immediately after incorporation
• Invitation to Public – Public : by issuing prospectus
invite public to subscribe its shares / debentures;
Private : cannot do

15. Distinction between Public and
Private Company
• Transferability of Shares – Public : Not
restricted; Private : Restricted
• Number of Directors – Public : Atleast 3;
Private : Atleast 2
• Statutory Meeting – Public : Must hold and file a
report with the Registrar; Private : no such
obligations
• Managerial remuneration – Public : cannot
exceed 11% of net profits and minimum 50,000;
Private : No restrictions

16. Distinction between Public and
Private Company
• Restrictions on appointment of directors -
Public : Registrar has to consent appointment;
shall sign the Memorandum; cannot vote or
take part in discussion on a contract in which
he is interested; two-thirds of directors must
retire by rotation; Private : No such
restrictions
• Further issue of capital – Public : must offer
them to existing members; Private : Free to
allot new issues to outsiders

17. Conversion of Private Company
into Public Company
• Conversion by Choice : by passing a special
resolution; within 30 days of becoming a
public company, it shall file a prospectus with
the Registrar
• Conversion by Default : when default made in
complying with the provisions (restriction on
transfer of shares, limitation of the number of
members to 50 and prohibition of invitation to
public to buy shares and debentures)

18. Conversion of Private Company
into Public Company
• Conversion by Operation of Law :
– Where it invites public deposits through
advertisement
– It holds 25% or more of the paid up share capital
of a public company
– It has public company as its shareholders holding
in aggregate 25% or more of its paid up share
capital

19. Conversion of Public Company into
Private Company
• Can be converted by altering the Articles of
Association;
• Alteration will be made by a special resolution
and approval of the Central Government;
• Such resolution, approval of the Central
Government and printed copy of altered
articles has to be submitted to Registrar

20. Holding Company & Subsidiary
Company
• Holding Company : Company which controls
another Company
– Controls composition of board of directors of
another company
– Holds more than half of nominal value of equity
share capital of another company
– Holds more than half of the total voting power of
another company
• Subsidiary Company : Company which is
controlled by another Company

21. Government Company
• Company in which not less than 51% share
capital is held by the Central Government, or
State Government or partly by Central and
partly by one or more State Governments
• Also includes a company which is a subsidiary
of a Government Company

22. Government Company
• Special provisions laid in the Act regarding a
Government Company
– Auditor : appointed by Central Govt. on advice of
Comptroller and Auditor General (CAG) of India
– Auditor to submit a copy of audit report to CAG; Audit
report and comments or supplementary report given by
CAG on audit report to be placed before Annual General
Meeting
– Annual report on working and affairs of the company to
be prepared and laid before houses of Parliament along
with audit report and comments in case of Central Govt
being a member; in case of State Govt being a member
should be laid before State Legislature

23. Government Company
• Ownership or Capital : Not less that 51% held
by Central or one or more State Governments
• Auditing of Accounts : Audited by auditors
appointed by Government and reports
commented by CAG of India
• Annual report : Submitted to Parliament
• Modification : Central Government with
approval of Parliament may declare certain
provisions as not applicable with certain
modifications, exceptions and adaptations.

24. Foreign Company
• Company incorporated outside India and having
a place of business in India
• Documents :
– Within 30 days of establishment of business, foreign
company shall furnish a certified copy of statute,
memorandum and articles containing the
constitution of the company if it is not in English a
certified translation
– Full address of registered or principal office
– List of directors and secretary of the company
– Names and address of any person in India authorized
to accept service of legal processes and notices

25. Foreign Company
• Accounts : File three copies of its Balance
Sheet and P&L account to Registrar
• Names : Every foreign company shall exhibit
on the outside of every office or place of
business its name and country of
incorporation in English

26. Incorporation of a Company
• Application for registration + Documents to be
filed for Registration -> Registrar of Companies of
the State in which the business office of company
is to be located
• Documents
– Memorandum of Association
– Articles of Association
– Statement of authorized capital
– Notice of address of registered office of company
– List of Directors, their consent and undertaking in writing
signed by each of them
– Declaration that all requirements of Companies Act is
complied

27. Incorporation of Company
• If Registrar is satisfied, he shall register
Memorandum and Articles
– Provisions of Act have been complied with
– Object of the Company is lawful
– Number of persons required under the Act have
subscribed and duly signed
– Memorandum and Articles comply with the
provisions of the Act
– Name of Company is acceptable
– Statutory declaration has been properly made

28. Certificate of Incorporation
• Registrar will issue Certificate of Incorporation
• From the date of incorporation, Company is a
legal person
• It is the birth certificate of the company
• Private company can commence business
immediately after receiving certificate of
incorporation

29. Certificate of Commencement of
Business
• Also known as Trading Certificate
• Issued by Registrar after
– Shares payable in cash has been allotted to extent of
minimum subscription
– Every director has paid in cash the application and
allotment money for shares taken by him
– Statutory declaration duly verified by one of the
directors or secretary in prescribed form
• Conclusive evidence that the company is entitled
• Company is bound to commence business within
a year of its incorporation

30. Promoter
• One who undertakes to form a company with
reference to a given object and to set it going
and who takes the necessary steps to accomplish
that purpose
• Work of Promoters
– Decide scope of business
– Instruct solicitors to prepare necessary documents
and secure the services of directors
– Provide registration fees and carry out other duties
involved in formation of a company
– Make arrangements for advertising and circulating
prospectus and placing the capital

31. Promoter
• He is not an agent for the company because
the company is not in existence at that time
• Liability of Promoters
– Hand over any secret profit
– For Untrue statement in prospectus to a person
who has subscribed for shares on faith of it
• Remuneration of Promoters
– No right against the company for his
remuneration unless there is a contract to that
effect

32. Preliminary or Pre-Incorporation
Contracts
• Contracts made on behalf of a company
before its incorporation
• Not binding on the company since a person
(legal or artificial) cannot enter into contract
before his/her existence
• Provisional Contracts : Contracts entered
after incorporation but before entitlement to
commence business is also provisional and are
not binding until trading certificate is issued

33. Memorandum of Association
• Document which sets out the constitution of
the company
• Foundation on which the structure of the
company is based
• Purpose : To enable the shareholders,
creditors and those who deal with the
company to know what is the permitted range
of activities of the enterprise

34. Contents of Memorandum
• Name of the Company (with ‘Limited’ in case
of public company; with ‘Private Limited’ in
case of private company)
• State in which the registered office of the
company is to be situated
• Objects of the company classified as main
objects (to be pursued by the company and
objects incidental to attainment of main
objects) and other objects not included in
main

35. Contents of Memorandum
• Liability of members is limited if company is
limited by shares or by guarantee
• Amount of share capital

36. Name Clause
• A company may be registered with any name
it likes
– Central Govt. should approve
– Cannot be identical to or resemble the name of
existing company
– Must not violate provisions of Emblems and
Names Act 1950.
• Should contain ‘Limited’ or ‘Private Limited’ at
the end of its name

37. Name Clause
• Company should display its name outside its
registered office and every place where its
carries on business
• Engrave it on a seal
• Have its name on all business letters, bill
heads, notices and other official publications
of the company

38. Registered Office Clause
• States the name of the State where the
registered office of the company is situated
• Ascertains the domicile and nationality of a
company
• Is the place where various registers relating to
the company must be kept and to which all
communications and notice must be sent

39. Objects Clause
• Purpose :
– Gives an idea to prospective shareholders the
purposes for which their money will be utilized
– Enables the persons dealing with the company to
ascertain its powers
• Main Objects
– Main objects to be pursued by the company on its
incorporation and objects incidental to attainment of
the main objects
• Other Objects
– Objects not included in main objects clause

40. Liability Clause
• States the liability of the members of the
company
• Limited by shares : liable only to the amount
unpaid on the shares taken by him
• Limited by guarantee : liable to the amount
undertaken to be contributed by them to the
assets of the company in the event of its being
wound up
• This Clause is omitted in case of unlimited
companies

41. Capital Clause
• Company limited by shares must state the
• Authorized share capital,
• Different kinds of shares and
• Nominal value of each share

42. Association or Subscription Clause
• This clause provides that those who have agreed
to subscribe to the memorandum, must signify
their willingness to associate and form a
company
• Atleast 7 persons in case of Public company and
atleast 2 persons in case of Private company are
required to sign the Memorandum in the
presence of atleast one witness who must attest
the signatures
• Number of shares taken by the person must be
written against his name

43. Alteration of Memorandum
• Company shall not alter its memorandum
except in certain cases

44. Alteration in Memorandum
• Company doesn’t have right to alter the
contents
• Change of Name
– Pass a special resolution
– Obtain approval of Central Government in writing
– No such approval is required for deleting or
including the word ‘Private’ in converting a public
company to a private company and vice versa.

45. Alteration in Memorandum
• Change of Registered Office
– Notice of change to be given to Registrar within
30 days of such change (If change is within the
same city or town)
– Pass a special resolution and only after
confirmation from Company Law Board on
petition. Notice of such change to be given to
Registrar within 30 days of the change
– These 2 changes does not involve alteration of
Memorandum

46. Alteration in Memorandum
• Change in Objects Clause
– Change is possible only if it enables
• To carry on business more economically and efficiently
• Attain main object by new or improved means
• Enlarge or change local area of operation
• Restrict or abandon any of the objects specified in the
memorandum
• Sell or dispose the whole or any part of the undertaking
of the company
• Amalgamate with any other company

47. Alteration in Memorandum
• Change in Objects Clause
– Pass a special resolution, sanctioning the alteration
– Copy shall be filed with the Registrar within 30 days of
passing
– But it takes effect only after confirmation by the
Company Law Board (CLB) on petition
– Before confirming CLB sees that notice has been given
to all interested persons; It may confirm either wholly
or in part or with some terms and conditions
– A certified copy of the order of CLB together with
printed copy of altered memorandum must be filed to
Registrar within 3 months of order

48. Alteration in Memorandum
• Change in Liability Clause
– Cannot be altered to make the liability unlimited
– But enhancing of liability if agreed by members in
writing can be changed
– A company, if authorized by its articles can by
special memorandum to make liability of directors
or managers unlimited, but it holds good for
future appointed directors or managers only

49. Alteration in Memorandum
• Change of Capital Clause
– Can alter subject to provisions of the Articles by a
resolution in general meeting.
– Confirmation from court is not required if
• Change is to increase share capital
• Consolidate shares into larger amount
• Subdivide shares to smaller amount
• Cancel its shares

50. Doctrine of Ultra Vires
• An act is said to be ultra-vires (beyond the
powers) when it is performed but not
authorized by the Objects Clause in
Memorandum of Association
• Such an act is void and cannot be ratified even
by an unanimous resolution of all the share
holders.

51. Effects of Ultra-Vires Acts
• Company is not bound by and cannot enforce an
ultra-vires contract
• Injunction : Company maybe restrained to do an
act if it is ultra-vires of its objects
• Subrogation : If the borrowed money is applied in
paying off lawful debts of the company, the
lender can claim a right of subrogation and
consequently, he will stand in the shoes of the
creditor who has paid off with his money and can
sue the company to the extent the money
advanced by him has been so applied

52. Effects of Ultra-Vires Acts
• Tracing Order : Lender can identify his money or
other property purchased with it, he is entitled to
what is known as a tracing order and can recover.
• Personal Liability of Directors : Lender can hold the
directors personally liable for an ultra-vires loan of
the company
• Ultra-vires contract cannot become intra-vires by
reason of estoppel, lapse of time, ratification or
delay.
• Company will be liable for torts or crimes
committed in the pursuit of its stated objectives.

53. Articles of Association
• The Articles of Association are the rules and
regulations of a Company framed for the
purpose of internal management of its affairs
and for carrying out the aims and objects of the
Memorandum of Association.
• It deals with the rights of the members of the
Company
• Articles of Association of a Company are
subordinate to and are controlled by the
Memorandum of Association.

54. Articles of Association
• Not Obligatory to register Articles in case of a
Public Company Limited by Shares (Model Articles
contained in Table A of Schedule 1 of the Act will
apply)
• Unlimited Company, Limited by Guarantee and
Private Company must register along with
Memorandum
• Unlimited Company : Number of Members, Share
Capital, amount with which it is to be registered
• Company Limited by Guarantee : Number of
members with which the company is to be
registered

55. Articles of Association (Contents)
• Exclusion wholly or in part • Share certificates
of Table A • Conversion of share into
• Adoption of preliminary stock
contracts • Voting rights and proxies
• Number and value of • Rules of conducting
shares Meetings
• Calls on shares • Directors, their
• Lien on shares appointment, etc.
• Transfer and Transmission • Borrowing powers
of shares • Accounts and Audit
• Forfeiture of shares • Dividends and Reserves
• Alteration of share capital • Winding up

56. Difference between share and stock
• A share in a company in one of the units into which the
capital is divided. On the other hand, a stock is an
aggregate of fully paid shares of a member merged into
one fund of equal value. This fund can be divided into
fractions of any amount and can be transferred. Only a
company limited by shares may, if authorized by Articles
by resolution passed in general meeting, convert all or any
of its fully paid up shares into stock.
• Also a share can be transferred only in its entirely or in its
multiple only. However a stock may be transferred in any
fraction. Shares are issued originally by the co. However a
co cannot make an original issue of stock. Only fully paid
shares can be converted into stock

57. Alteration of Articles
• Companies have wide powers to alter their
Articles
• Can be altered by passing a special resolution
• Is binding on the members the same way as
the original Articles
• Must file with the Registrar a copy of special
resolution within 1 month from the date of
passing

58. Alteration of Articles
• Limitations for alteration of Articles
– Must not exceed powers of Memorandum
– Must not be inconsistent with any provisions of
Companies Act or Memorandum or an order of
the Court
– Must not be illegal
– Any irregular alterations which have been made
and acted upon for many years are binding

59. Distinction between Memorandum(M)
and Articles (A)
• Contents and Scope : Defines the charter of
the company and the scope of its activities
(M); Regulates the internal management of
the company and rules made for carrying out
the objects set out in Memorandum (A)
• Relationship between company, members and
outsiders : M defines relation of company
with outside world; A deals with the rights of
the members of the company and established
the relationship of company with the
members

60. Distinction between Memorandum(M)
and Articles (A)
• Alteration : Cannot be altered except in manner
and extent provided by the Act (M); Can be
altered by a special resolution as these are just
bye-laws (A)
• Supremacy : Memorandum is supreme
document of the Company; Articles are
subordinate to Memorandum
• Adoption : Every Company must have its own
Memorandum; But a company limited by shares
need not register its Articles. Table A applies

61. Constructive Notice of Memorandum
and Articles of Association
• Registering Memorandum and Articles of
Association with the Registrar of Companies
makes the documents as public documents
and everyone dealing with the company
whether share holder or outsider is presumed
to have read the two documents. This
deemed knowledge of the two documents
and their contents is known as the
constructive notice of Memorandum and
Articles of Association.

62. Doctrine of Indoor Management
• Exception to the rule of Constructive Notice. Also
known as Turquand Rule
• Constructive notice protects the company against
Outsiders; Doctrine of Indoor Management protects
the outsiders against the company.
• While persons are contracting with the company
are presumed to know the provisions of the
contents of the Memorandum and Articles, they are
entitled to assume that the officers of the company
have observed the provisions of the Articles. It is no
part of duty of outsider to see that the company
carries out its own internal regulations

63. Exceptions to Doctrine of Indoor
Management
• Knowledge of irregularity : A person who
deals with the company and has knowledge in
its internal management cannot claim
• Negligence : In circumstances under which he
would have discovered the irregularity had he
made proper inquiries.
• In cases of Forgery

64. Prospectus - Definition
• Any document described or issued as a
Prospectus and includes any notice, circular,
advertisement or other document inviting
deposits from the public or inviting offer from
the public for the subscription or purchase of
any shares in, or debentures of, a body
corporate. Sec 2 (36)

65. Formalities in issuing a Prospectus
• Prospectus is issued by or on behalf of a
company; must be dated; that date is the date
of publication
• A copy of Prospectus signed by every director
or proposed director or by his agent must be
delivered to the Registrar on or before the
date of publication. Prospectus issued to
public should have mention that a copy has
been filed with the Registrar.

66. Formalities in issuing a Prospectus
• SEBI’s consent or authorization
• Every Application form for subscription should
be accompanied by Prospectus
• Prospectus must contain the necessary
information for the public to decide whether
to subscribe or not

67. Contents of Prospectus
• General information
– Name and Address of Registered Office
– Details of letter of intent or Industrial License
– Name of stock exchanges listed for issue
– Provisions of Sec 68 A (1) of Companies Act regarding
fictitious applications
– Declaration regarding minimum subscription and
refund of application money
– Dates of opening, closing and earliest closing of the
issue
– Names and Addresses of managers, trustees, legal
advisors, auditors, bankers to the issue and secretary

68. Contents of Prospectus
• Capital Structure of the company and issue
details
– Authorized, issued, subscribed and paid-up capital
of the company
– Reservation for preferential allotment to
promoters, financial institutions and mutual funds

69. Contents of Prospectus
• Details of the issue
– Authority for the issue and details of resolutions
passed for the issue
– Terms of payment
– Rights of Instrument holders
– Object of the issue
– Tax benefits available to the company and its
shareholders
– Justification for the premium on the issue, if any,
disclosure of net asset value on the basis of the last
audited results

70. Contents of Prospectus
• Details about the project
– Cost of project and means of financing
– Location of the project
– Plant and machinery for the project, technology
adopted and process of manufacture
– Infra structure facilities for raw materials
– Utilities like water, power, etc
– Schedule of implementation of project
– Expected date of trial production
– Expected year when the company would be able to
earn profits

71. Additional disclosures made in
Prospectus
• Disclaimer Clause : SEBI does not take any
responsibility of financial soundness of the
company
• Reservations for NRIs, Overseas Corporate Bodies
in Public Issues : Name and address of atleast one
source in India where application can be obtained
• Buy back arrangement for purchase of non-
convertible or partly convertible debentures
• Performance and promises relating to previous
issues

72. Additional disclosures made in
Prospectus
• Deployment of proceeds of issue : Avenues of
investment
• Stock market data

73. Statement in Lieu of Prospectus
• If a company is able to raise the original capital
without inviting public for subscription, ‘Statement
in Lieu of Prospectus’ has to be submitted to
Registrar atleast 3 days before first allotment of
shares; If allotment is made then it is voidable.
• It has to be signed by every director
• Fine upto Rs. 1000 for every director who has
knowledge of it.
• If an untrue statement is given then imprisonment
for 2 years and fine of Rs.5000 to every person
authorized to deliver the statement and has
knowledge of it

74. Offer for Sale
• Companies allot the whole issue of shares or
debentures to an Issuing House at a certain
price; because provisions relating to prospectus,
preparing and filing in accordance with law are a
highly time-consuming task
• Issuing company publishes an ad in the nature of
‘offer of sale’ inviting public to buy the share
• Issuing House renounces its interest after
receiving application.
• Allotment in made in favor of the applicant by
the Company

75. Shelf Prospectus
• A Public financial institution or bank whose
object is financing shall file Shelf Prospectus
• They need not file prospectus afresh at every
stage of offer within the period of validity
• Such company shall file information
memorandum on all material facts on changes
made in company after the first issue

76. Abridged form of Prospectus
• Application form for issue of shares or
debentures of a company has to be
accompanied by abridged form of Prospectus
• Features of Abridged Prospectus as per Form
2A according to Rule 4cc, Companies (Central
Government) General Rules and Forms, 1956

77. Liability for mis-statement or
omission in a prospectus
• Civil Liability
– Remedies against the Company
• Rescind the contract
• Claim damages
– Remedies against the Directors, Promoters and
Experts
• May sue every Director, every Promoter, every person
authorized to issue prospectus, every person whose name
appeared in it
• Can claim compensation under Sec.62, damages for non-
compliance with requirements of Sec.56, damages under
general law

78. Liability for mis-statement or
omission in a prospectus
• Defenses available to a Director and he can escape
liability if he proves
– Prospectus was issued without his knowledge
– Withdrew his consent and gave reasonable public
notice of withdrawal and reasons for it
– He had reasonable grounds to believe that the
statement was true
– The statement was a correct and true copy of an
official document

79. Liability for mis-statement or
omission in a prospectus
• Criminal Liability
– Every person who authorized the issue of
prospectus : Imprisonment extendable to 2 years
or fine of Rs.5000 or both
– Accused person may not be liable if he proves
• Statement was immaterial
• He had reasonable ground to believe the statement as
true
– Punishment for issuing application not
accompanied by prospectus : Fine upto Rs.5000

80. Minimum Subscription
• Company cannot allot shares until minimum
amount stated in prospectus has been
subscribed
• Minimum amount stated which is in the opinion
of directors must be raised in order to provide
for
– Purchase price of any property purchased or to be purchased
– Preliminary expenses and any underwriting commission
payable
– Repayment of money borrowed by the company
– Working capital
– Any other expenditure stating nature and purpose and the

81. Minimum Subscription
• All money received from applicant shall be
deposited and kept in a scheduled bank until
minimum subscription has been received
• If min. subscription is not received within 120
days from first issue of prospectus, all money
should be returned within 130 days of such
issue
• Amount payable on application on each share
must not be less than 5% of nominal amount
of the shares

82. Underwriting Commission
• Company wants the whole issue taken up
when it offers its shares to the public and it is
willing to pay commission on all shares
offered to public to anyone who undertakes
to take up all the shares which the public do
not take
• It is in the nature of an insurance against the
possibility of inadequate subscription

83. Underwriting Commission
• Conditions
– Payment of Commission must be authorized by Articles
of Association
– Commission to be paid only on shares issued to public
– Payment of commission must be strictly by way of
money
– Rate must not exceed 5% of the price of shares and 2.5%
of the price of debentures
– Amount paid or agreed to be paid must be disclosed in
prospectus
– Copy of contract for payment of commission must be
delivered to the Registrar along with the Prospectus

84. Government prescribed max.
ceiling rates

85. Underwriting Commission
• Commission will not be paid for securities
taken up by promoters group, employees,
directors.
• Amount paid by way of underwriting
commission shall be shown in the Balance
Sheet under the head ‘Miscellaneous
Expenditure’
• In case of non-compliance, the company and
every officer shall be liable to pay a fine upto
Rs.500