Reduction of Number of Members below statutory minimums

1. Reduction of Number of Members below statutory minimums (Sec. 45). If at any time the number of members of a company is reduced below seven (in


case of a public company) or below two (in case of a private company) and the company carries on business for more than 6 months while the number is
so reduced, every person who is a member of the company during that time (i.e., after that 6 months) and is aware of this fact shall be severally liable for
the repayment of the whole debts of the company contracted during that time and may be severally sued therefor.
2. Section 147 requires that the name of the company met be fully and properly mentioned in all documents issued by it. If an
officer of the company, or any person on its behalf, enters into any contract or Accepts any bill of exchange or orders for goods, etc. without mentioning
the name of the company as per the requirements of Sec. 147 lofter's Ac., or without an indication that he is making the contract on behalf of the company,
such a person will be personally liable for such an act, contract," etc., unless it is duly paid by the company.
3. To Establish the Relationship of Holding and Subsidiary Company. Where one company controls the management of another company. the formers
called a 'holding company' and the latter a 'subsidiary company'. Legally, they are considered .to be separate entities. In certain cases, however, a
subsidiary company may lose its separate entity. At the end of the financial year, a holding company is required to present its final accounts, together with
the final accounts of its subsidiaries, to its shareholders in accordance with provisions of Sees. 212 and 214 of the Companies Act, 1956. Thus, for
purposes of accounts, a holding company and its subsidiaries are treated as one entity. Similarly, the court may refuse the separate entity of the
subsidiary company where profits of the subsidiary company are treated as those of the holding company or where the business of the subsidiary
company is controlled by the nominees of the holding company.
4. For Investigation of Ownership of Company. Sec. 239 and Sec. 247 authorities the Central Government to appoint one or more inspectors to investigate


and report on the membership of any company for the purpose of determining the time persons who are financially interested in the company and who
control or materially influence its policy.
5. Fraudulent Trading. (Sec. 542). If in the course of winding up of a company, it appears that any business of the company has been carried on with intent
to defraud creditors of the company or any other persons or for any fraudulent purpose, those who are knowingly parties to such conduct of business may


be held responsible for all or any of the debts of the company.
6. Failure to Refund Application MO Iiey. Where the company fails to allotthe shares to the shareholders within 120 days of the issue of prospectus, it must
refund the application money to the unsuccessful applicants within the next 10 days or within 130 days of the issue of prospectus. If the company fails to
refund the application money within 130 days of the issue of prospectus, the directors of the company shall be jointly and severally liable for such refund.
7. Mis-statement in the Prospectus [Sec. 62]. The prospectus of a
company must represent to the public the true facts relating to the affairs of the company. In the case of any misrepresentations (untrue statement) in the
prospectus, then every director, promoter of the company and every other person who is responsible for such mis-statement and who authorized the
issue of prospectus shall be liable to pay compensation to the subscribers who purchased the shares on the faith of such untrue statement contained in
the prospectus. .
8. Non,.payment of Income Tax [Sec. 179 of the Income Tax Act]. When a private company is wound up and the income tax assessed on the
company whether before, or in the course of or after liquidation, in respect of any income of any previous year is unpaid, then every person who was
director
of that company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax.
9. Liability of Promoters for Pre-incorporated Contracts. Promoters of the company are persoJ1jJly liable for all those pre-incorporated contracts which are


not adapted by the company after incorporation.
10. Ultra-vireos Acts. Ultra vireos acts are those acts which are not authorized or are beyond h powers of the company. The directors of the company are
personally liable for all ultra vires acts even if they are done on behalf of the company. The ultra vires acts may be
(a) VIta-vires.the company, (b) ultra-vires the directors, if the company does not adopt those acts, and (c) if such acts are in the nature of costs.