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CLASSIFICATION OF COMPANIES PART 3

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CLASSIFICATION OF COMPANIES PART 3

CLASSIFICATION OF COMPANIES PART 3
CLASSIFICATION OF COMPANIES PART 3

So far as the classification of companies part 3, you have taught about the initial structure and classification of companies in Posts 1 and 2 about the Companies Act related to the Classification of Companies and Formation. You have also understood in posts 1 and 2 that the Companies Act, 1956 broadly classifies companies into private and public companies and provides a regulatory environment based on such classification. The law requires taking into account the requirements of different types of companies that may exist and seeks to provide general principles that all types of companies can refer to when creating their corporate governance structure.

Manufacturer companies

CLASSIFICATION OF COMPANIES part 2
CLASSIFICATION OF COMPANIES part 3

9.1 The administration and management of user manufacturing companies are not in line with the general framework for companies with limited liabilities by shares/guarantees. User Producer Company’s shareholding has banned its transferability, preventing shareholders from exercising their exit options through a market-determined structure. It was also not possible to make this structure liable to a competitive market for corporate control.

 If it is felt that producer companies are unable to function within the framework and liability structure of limited liability companies.

classification of companies part 2
classification of companies part 3

9.2 Corporate governance applied to companies cannot be properly implemented as such. The government may consider introducing a separate act to deal with the regulation of such ‘manufacturing companies’. Part IX-A in the current Companies Act, which is rarely resorted to and is more likely to create discord of interpretation and, therefore, may be excluded from the Companies Act.

Joint venture/shareholders’ consent

CLASSIFICATION OF COMPANIES PART 3
CLASSIFICATION OF COMPANIES PART 3

10.1 In the modern world, capital and technology move into companies through joint venture opportunities. The ability to access technology, know-how, trade, trademarks, and other intellectual property or service rights is critically associated with legislation on joint ventures.

READ HERE –CLASSIFICATION OF COMPANIES PART 2

In 10.2 years, several court decisions have been delivered in India on the issue of joint venture covenant validity. According to the judicial view, recognition of such covenants through corporate action is possible only when they are made part of the articles of association of a company. However, in this form, they are subjected to the overuse effect of Section 9 of the Companies Act, 1956. Thus, while joint venture agreements may occur and provide for certain exclusions or extra-ordinary clauses related to interference by joint venture partners. , Such exclusions generally do not conform to the current Companies Act. However, they are recognized under contract law. The effect of this framework is that dispute resolution in relation to joint venture provisions becomes subject to the provisions of contract laws and is subject to lengthy arbitration. However, companies prefer that such aspects should be addressed more rapidly through corporate processes.

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READ HERE –Classification of Companies

10.3 There is an inherent inconsistency in the form of a joint venture with the provision of Section 111A of the Companies Act, 1956, which would require the facility of corporate-based redressal system to be available for joint ventures. It noted that the joint venture agreements contain several clauses relating to voting rights, additional quorum requirements, arbitration provisions excluding statutory remedies, pre-emptive rights, or restrictions on the transfer of shares.

10.4 It was represented before the Committee that there should be a suitable exception to the principle of ultra vires under Section 9 of the Companies Act and that the parties should have “autonomy of the party to the contract” in their joint venture documentation. However, this would mean that any or any third party working with any of the named shareholders would have an obligation and the right of disclosure and the fact of the contractual agreement between the joint venture partners through shareholders’ agreements before dealing with the shares And the completeness of the conditions has to be verified. . Equally the committee noted that company law should not include provisions that provide a “fly-out” opportunity to companies seeking to overturn its provisions. Nor can company law address the drawbacks of other legal systems, the costs associated with arbitration and litigation will need to be reduced to enforce contracts.

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10.5 The Committee considers after considering various aspects that in the present context, it would be appropriate to provide for a framework that would enable Indian institutions to access greater opportunities through joint ventures, while in the legal system Improvement difficulties are encountered. The administration of civil law must continue. A transparent way of recognizing agreements between joint venture partners for corporate action should be worked out in company law, keeping in mind the concern that such an arrangement would be necessary to circumvent the necessary provisions of the law. No window should be made.

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10.6 The Committee is of the view that this conflict needs to be resolved as such restrictions under company law will adversely affect the free flow of capital and technology in the country in the coming times. Therefore, an appropriate provision should be included under the new company law recognizing such arrangements between two or more shareholders or joint venture partners.

Public Financial Institution (PFI)

The amendments in 1974, a new section 4A {“Public Financial Institutions [PFIs]}” was inserted in the Companies Act, 1956.

CLASSIFICATION OF COMPANIES PART 3
CLASSIFICATION OF COMPANIES PART 3

11.1This section defined certain institutions as PFIs and the Central Government (MCA) as the time. -Timely Reported., Other Institutions PFIs. About 46 institutions have been declared PFIs under this section by the MCA. Though the term is defined under the Companies Act, 1956, the term has been used in many acts. Has been and many benefits (economic as well as) are available to such PFIs under the Companies Act and other Acts / delegated legislations.

11.2 In view of the changing economic environment and continuous improvement in the financial sector, a need has been felt to review the concept of PFI. In some quarters it is felt that this concept should be scrapped with appropriate fleeting provisions in relation to the existing PFIs. Suitable steps to take care of the provisions in other enactments / delegated legislation which are using this term should also be taken. Furthermore, the Companies Act does not appear to have any rationale for addressing such a concept (related to financial institutions). Therefore, in the Companies Bill, 1997 it was proposed to move this concept to the PFI (Indirectly Loyalty and Confidentiality) Act, 1983, which is administered by the Ministry of Finance.

They should be subject to the same regulatory provisions.

CLASSIFICATION OF COMPANIES part 2
CLASSIFICATION OF COMPANIES part 3

There is no reason that such institutions should be provided a framework in relation to corporate governance through relaxation of the provisions of company law. Such institutions should be maintained through the requirements of financial and management discretion like other financial institutions. Therefore, the committee does not see any reason why special governance should continue for public financial institutions provided under the Companies Act, 1956.

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Incorporation of Companies

CLASSIFICATION OF COMPANIES PART 3
CLASSIFICATION OF COMPANIES PART 3

12.3 The process of incorporation through registration should be based on correct information so that it can be disclosed by the promoters of the company with complete responsibility with complete accuracy. The information required for registration can be determined through rules. However, the contents of the Memorandum of Association should be part of the Basic Law and not the Rules. The registration process should be quick and in line with the e-governance initiative taken by the government.

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12.2 Companies should be required to make detailed disclosures about promoters, directors, and certified at the time of incorporation. These disclosures should be made in a manner that allows for additions/changes, keeping in mind the developments in the company.

12.3 Promoters and directors should disclose information that establishes/certifies their residence and proof of identity through supporting documents such as photographs, PAN numbers, passports, affidavits, etc. which may be prescribed.

12.4 Every company must be obliged to have a registered office and properly disclose the proof of address in such a manner that it can physically and postally access the service. Companies should also be created to enter their website and e-mail addresses.

12.5 The promoters / first directors should have primary responsibility for the veracity of the statements. If an agent or professional is empowered, it should be on the basis of the appropriate power of attorney and should not relieve the principals of their liability. Strict punishment should be made for any professional, if engaged, who does not practice due diligence at the time of incorporation.

12.6 Directions by promoters/directors in other companies should be declared at the time of incorporation. For the avoidance of any doubt, the terms ‘promoter’ and ‘control’ should be clearly defined.

12.7 Strict results should be followed if it is found that the incorporation has been made under false or misleading information.

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