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Corporate Structure & Administration CORPORATE STRUCTUER AND ADMINISTRATION Unit 1: FORMATION OF A JOINT STOCK COMPANY Promotion Stage-Meaning of Promoter, Position of Promoter and Functions of Promoter; Incorporation Stage – meaning and contents of Memorandum of Association and Articles of Association, Difference between Memorandum of Association and Articles of Association, Certificate of Incorporation; Subscription Stage – meaning and contents of Prospectus, Statement in lieu of Prospects and Book Building; Commencement Stage – Documents to be filed, e-filing, Registrar of Companies, Certificate of Commencement of Business. Unit 3: ADMINISTRATION OF A COMPANY Key Managerial Personnel – Managing Director, Whole Time Directors, Company Secretary, Chief Financial Officer, Resident Director, Independent Director; Auditors–Appointment, Powers, Duties and Responsibilities; Managing Director–Appointment, Powers, Duties and Responsibilities; Audit Committee; CSR Committee; Company Secretary - Meaning, Types, Qualification, Appointment, Position, Rights, Duties, Liabilities and Removal or dismissal. Unit 4: CORPORATE MEETINGS Corporate Meetings - Types of Meetings, Annual General Meeting, Extraordinary General Meetings, Board Meeting; Requisites of a valid meeting; resolutions and kinds of resolution; preparation Agenda and minutes. Page 1 CHAPTER 1: FORMATION OF A JOINT STOCK COMPANY INTRODUCTION Modern day business requires large amount of money, due to increasing competition and fast changing technological environment, the element of risk is increasing. As a result the company form of organisation is being preferred by more and more business firms. Formation of a company is the term for the process of incorporation of a business. it is also referred to as company registration. Formation of a company is a complex activity involving completion of a lot of legal formalities and procedures. STAGES IN FORMATION OF COMPANY The steps which are required from the time of business idea originates to the time, a company is legally ready to commence business are referred to as stages in the formation of company. To fully understand the process the formalities can divide into four distinct stages. They are; 1. Promotion 2. Incorporation 3. Capital subscription 4. Commencement of Business It may be noted that for private limited company only first two stages i.e. promotion & incorporation are appropriate. Private company can start its business immediately after obtaining the certificate of incorporation. On the other hand, a public company goes through the capital subscription and then receives the certificate of business commencement. Therefore public company undergoes all the four stages. PROMOTION OF A COMPANY Promotion is the discovery of business opportunity and organisation of funds, property and skills and ability to run the business for the purpose of making profits/earning profits. It starts with conceiving an idea of business or discovers an opportunity for doing a business, assess its feasibility and then take the necessary steps to launch the business unit. Promotion is always made through the promoters. The promoters are persons those who take the steps and associate risks for promoting and proceed to form a company. ROLES AND FUNCTIONS OF PROMOTERS 1. Discovering the idea for establishing a company. 2. Make detailed investigation about the demand for the product, availability of power, labour, raw material, etc., 3. Find out suitable person who are willing to act as first directors of the company and are redy too sign on the Memorandum of Association. 4. Selecting of bank, legal advisor, auditors and underwriters for the company. Page 2 5. To prepare essential documents of the company. 6. To prepare the draft of Memorandum of Association, Articles of Association, Prospectus of the company. 7. To submit all the documents, required for incorporation with the registrar. 8. To meet all the preliminary expenses for floating of a company 9. To make contracts with vendor, underwriters and managing directors of the company 10. To raise the required finance and get the company going RIGHTS OF PROMOTERS 1. Right to receive preliminary expenses 2. Right to receive remuneration for their services 3. Right to receive the proportionate money from co-promoters. LIABILITY OF THE PROMOTERS 1. To disclose the liability and pay the secret profits if promoters have earned. 2. Liability is upto the completion of contracts 3. Liability on statutory mistakes or fraud in the prospectus 4. Property becomes liable for payment even after his death. TYPES OF PROMOTERS The task of business promotion may be carried out by an individual, a firm, a body corporate or a banker. Based on the nature of their operation the promoters can be classified into; (a) Professional promoters: these promoters are whole time profession or occupation, specialists in promoting new business ventures. They initiate all the steps in establishing new enterprises. After completing all the formalities they pass on the management to their owners or shareholders and then move to another new venture. (b) Financial promoters: these promoters have the financial capacity and look forward to opportunities for new investments. (c) Technical promoters: these promoters are technical experts in different fields. They make use of their specialized knowledge, experience and training in promoting new business. (d) Entrepreneurial promoters: they are the people who conceive new idea of business, take necessary steps to set up the business unit to give it a shape and ultimately control and manage it. (e) Specialized institutions: there are certain financial institutions which provide financial assistance and guidance in launching new venture and often collaborate with new entrepreneurs to promote new business. (f) Government: both central and state governments also act as promoters in most cases where the new business is floated either in public sector or joint sector which involves huge amount of capital and risk. Page 3 STEPS INVOLVED IN PROMOTION OF A COMPANY Following are the steps involved in the stage of promotion; 1. Discovery of a Business idea The first and foremost activity of a promoter is to identify a business opportunity. The opportunity may be in respect of producing a new product or service or making some product available through a different channel. 2. Investigation and verification After deciding the nature of business, promoters undertake detailed feasibility studies to investigate all aspects of the business. Depending upon the nature of the project, the following feasibility studies may be undertaken with the help of specialists like engineers, chartered accountants, etc., a) Technical feasibility b) Financial feasibility c) Economic feasibility 3. Name approval Having decided to launch a company, the promoters have to select a name for it and submit an application to the registrar of companies of the state for its approval. 4. Fixing up signatories to the memorandum of association Promoters have to decide about the members who will be signing the memorandum of association of the proposed company. Usually the people signing memorandum of association are also the first directors of the company. 5. Appointment of professionals Certain professionals such as mercantile bankers, auditors, etc., are appointed by the promoters to assist them in the preparation of necessary documents which are required to be with the registrar of companies. 6. Preparation of necessary documents The promoter takes up steps to prepare certain legal documents, which have to be submitted under the law, to the registrar of the companies for getting the company registered. Those documents are; a) Memorandum of Association b) Articles of Association c) Consent of proposed directors d) Agreement e) Statutory declaration f) Payment of fee Page 4 INCORPORATION A sole proprietorship or partnership firm can be formed to carry out its business even without any registration. But a joint stock company cannot be formed or permitted to run its business without registration. In fact, a company comes into existence only when it is registered with the registrar of companies. STEPS IN INCORPORATION OF A COMPANY The promoter has to take up the following steps for incorporation; 1. Approval of Name The promoter has to fill in a ―Name Availability Form‖ and submit it to the registrar of companies along with necessary fees. The name must include the words ‗Limited‘ or ‗Private limited‘ at the end. 2. Filing of Documents After getting the name approved the promoter makes an application to the registrar of companies of the state for registration of the company. The application for registration must be accompanied by the following documents; (i) Memorandum of Association (MOA): it defines the objectives of the company and incorporation, approval of name, filing of documents and payment of filing and registration fees. It must be duly stamped, signed and witnessed. (ii) Articles of Association (AOA): it contains the rules and regulations regarding the internal management of the company. It must be properly stamped, duly signed by the signatories to the memorandum of association and witnessed. (iii) Written consent of the proposed directors to act as directors. (iv) The notice about the exact address of the registered office of the company. (v) A copy of the name approval letter received from the Registrar of companies. (vi) A statutory declaration that all the legal requirements of the companies act. 3. Payment of Filing and Registration fees Along with the
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