Section 2(26) of the Companies Act, 1956 defines a managing director as, “a director who, by virtue of an agreement with the company, or of a resolution passed by the company in general meeting, or by its Board of Directors, or by virtue of its Memorandum or Articles of Association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called.” From the above definition it is clear that a managing director is also a director, but he enjoys substantial powers to act as the chief executive under the control and supervision of the Board. Thus, he is both a director and manager. As a director he takes a seat in the Board meeting and participates in the policy-making function. As a manager or chief executive, he is responsible for the Continue reading
Mercantile Law
Doctrine of Constructive Notice and Indoor Management
Doctrine of Constructive Notice The Memorandum and Articles, on registration, assume the character of public documents. The office of the Registrar is a public office and documents registered there are open and accessible to the public at large. Therefore, every outsider dealing with the company is deemed to have notice of the contents of the Memorandum and Articles. This is known as Constructive Notice of Memorandum and Articles. Under the doctrine of ‘constructive notice’, every person dealing or proposing to enter into a contract with the company is deemed to have constructive notice of the contents of its Memorandum and Articles. Whether he actually reads them or not, it is presumed that he has read these documents and has ascertained the exact powers of the company to enter into contract, the extent to which these powers have been delegated to the directors and the limitations to such powers. He is Continue reading
Articles of Association of a Company
The rules and regulations which are framed for the internal management of a company are set out in a document known as the Articles of Association. The articles are framed to enable the company to carry out the aims and objects of the company set out in the Memorandum of Association. Contents of Articles of Association The regulations and bylaws laid down in the Articles relate to the following: Share capital and its subdivision into different classes of shares, rights of shareholders and their variation; The procedure for making allotment, calls on shares and transfer, transmission, forfeiture and surrender of shares, including lien on shares; Alteration and reduction of capital; Borrowing powers; Appointment of Manager, Managing Director, Secretary; Declaration of dividend; Procedure for convening, holding and conducting different kinds of meetings, voting rights and methods; Maintenance of books of account and their audit; Share Certificates and Share Warrants, conversion Continue reading
Doctrine of Ultra Vires
‘Ultra’ means beyond and ‘vires’ means powers. The term ultra vires a company means that the doing of the act is beyond the legal power and authority of the company. The doctrine of ultra vires is important in defining the limits of the powers conferred on the company by its Memorandum of Association. According to this doctrine, the vires (power) of a company to enter into a contract or transaction is limited by the ambit of the Objects Clause of the Memorandum and the provisions of the Companies Act. Whatever is not permitted by the Objects Clause and the Act, is prohibited by the doctrine of ultra vires. If a company engages in any activity or enters into any contract which is ultra vires (outside the power conferred by) the Memorandum or Act, it will be null and void so far as the company is concerned and it cannot be Continue reading
Memorandum of Association of a Company
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 importance of the Memorandum is that it lays down the ambit of the powers of the company, the area within which the company can operate and beyond which it cannot go. The purpose of the Memorandum is to enable the shareholders, creditors and those who deal with the company to know what is its permitted range of enterprise. The Memorandum of Continue reading
The Corporate Personality and Piercing the Corporate Veil
Concept of Corporate Personality A company is a legal person, since in the eyes of law it is capable of having legal rights and obligations just like a natural person. Like any other person it can acquire and own property, transfer property, enter into contracts and sue and be sued in its own name. Being a legal person, a company has a separate legal entity, a personality distinct from its members or shareholders. The concept of separate entity of a company was established in the celebrated case of Salomon Vs Salomon & Co. Ltd. The facts of the case are that one Salomon, a boot manufacturer, formed a company with himself, his wife, and daughter and four sons as the sole shareholders. Salomon took 20,000 shares of £1 each, debentures worth £10,000 secured by the assets of the company and the balance in cash. His wife, daughter and four sons Continue reading