Distinguish between a floating charge and a fixed charge. When does a floating charge crystallize?

A fixed charge is one which creates legal interest of a specific property of the company or all the properties of the company. Thus a fixed charge is equivalent to mortgage. The company can sell, lease etc. of the property, subject to the right of the charge holder.

The floating charge does not amount to mortgage. The owner of such a property can deal with it and the transferee gets it, free of the charge.

The floating charge crystallize on happening of the following events-

1. Inability of the company to pay interest for 3 months.

2. When the court issues warrant for confiscation properties for 7 days

3. When the receiver of the company is appointed on application of debenture holders.

4. When the liquidation process of the company commences.

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Discuss the power to alter the Articles of Association of a company. Mention the restrictions/ limitations, if any, on the nature and extent of the alterations that can be made.

Subject to the provisions of this Act and to the conditions contained in its memorandum, a company may by special resolution alter, exclude from or add to its articles: and any alteration, exclusion or addition so made shall be as valid as if originally contained in the articles, and be subject in like manner to alteration, exclusion or addition by special resolution.

Notwithstanding anything in the memorandum or articles of a company, no member of the company shall be bound by an alteration made in the memorandum or articles after the due on which he becomes, member, if and so far as the alteration requires him to take or subscribe for more shares than the number held by him at the date on which the alteration is made, or in any way increases his liability is at that date to contribute to the share capital of, or otherwise to pay money to the company.

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How far contracts entered into by a company before the commencement of business are binding on the company?

A company cannot be bound by a contract which was made on its behalf by any Person (including a
promoter) before the company itself had been formed. At the time when the contract is made, the company is non-existent, it cannot after its formation ratify a contract to which it could not have been a party when the contract was made [Kenner v Baxter (1866)].

In Kenner's case goods had been ordered for the company's business before the company was formed.
But the company is not bound by a contract merely because it later performs it, e. g. by accepting the
goods or services. The company will, of course be liable if it makes a fresh contract after the company is formed; but there must be clear evidence that it intended to do so.

ln the circumstances, the simplest and safest course for a promoter is to bring the negotiations to the
point of agreement but to postpone any binding contract until the company is formed and can enter
into the contract for itself. However, if it is essential to some formula of assignment or notation to be
made after incorporation and when it does so, or if it does not do so within a specified time, he is then
to be released.

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What conditions are to be fulfilled before a company commences business?

A public company, having a share capital and issuing a prospectus, cannot commence business until the Registrar issues a certificate known as the "Certificate of Commencement of Business". This certificate is issued after the following formalities have been complied with:

i. The minimum subscription has been raised.
ii. Every director has paid the money payable on application and an allotment for the shares taken
up by him.
iii. No money is repayable for failure to obtain stock exchange recognition for the shares, where
such recognition was promised.
iv. A duly verified declaration by a director or the secretary has been filed with the Registrar that
the above requirements have been complied with.
However, a public company having share capital but not issuing a prospectus will get the
commencement certificate if the following conditions are fulfilled:
i. A statement in lieu of prospectus has been filed with the Registrar.
ii. The directors have paid the money due from them on account of shares.
iii. A declaration by a director or the secretary has been filed with the registrar stating that
condition (b) has been satisfied.

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What do you understand by certificate of incorporation of a company? What are the principal documents to be filed for the purpose of incorporation of a company?

The certificate issued by the registrar after a company is registered is called the Certificate of
incorporation. Section 25 of the Act states that the Certificate about the following matters:
1. All the requirements of the Act have been complied with respect of registration and matters
precedent and incident thereto;
2. The association is a company authorized to be registered and duly registered under the Act; and
3. The legal existence of the company begins from the date of issue of the certificate.
To obtain a certificate of incorporation the following documents need to submit:
1. Memorandum of association signed by each subscriber and dated.
2. The signature must be witnessed by a third party.
3. Articles of association signed, dated and witnessed as same subscribers.
4. A statutory declaration that all the legal formalities have been complied.
5. Notice of situation of registered office.
6. Particulars of directors, managing agent and Manager
7. A list of persons who have consented to become directors.
8. A written consent of the directors to act as such.
9. Thereafter, the proper stamp duty for registration has to be paid and the register shall enter the
name of the company on the register of the companies and issue a certificate of incorporation.

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