Corporate and Economic Laws: formula sheet

Key formulas

Buyback source of funds

Buyback only out of: free reserves, securities premium account, or proceeds of an earlier issue of shares or other specified securities (not the same kind of shares being bought back)

A buyback cannot be funded from the proceeds of an earlier issue of the same kind of shares or the same kind of other specified securities.

Buyback size limit

Two tests, both to be met: (1) total buyback ≤ 25% of (total paid-up capital + free reserves); (2) equity-share buyback in a financial year ≤ 25% of total paid-up equity capital

The total test uses a base that includes free reserves. The equity-share test uses paid-up equity capital only. Free reserves are not part of the equity base. Board resolution is enough for a buyback up to 10% of the aggregate of total paid-up capital and free reserves, provided the AOA authorises it; above that, a special resolution is required.

Post-buyback debt-equity ratio

Debt ÷ (paid-up capital + free reserves) ≤ 2 ÷ 1 after the buyback

A different ratio can be notified for certain classes of companies.

Buyback cooling period

No further offer of buyback within one year from the date of closure of the preceding offer

Also, no issue of the same kind of shares or other specified securities is allowed within 6 months of the buyback, except bonus shares or shares issued in discharge of subsisting obligations, such as conversion of warrants, stock options, sweat equity or conversion of preference shares or debentures into equity.

Completion of buyback

Buyback must be completed within one year from the date of passing the special resolution or board resolution

After completion, the bought-back shares must be extinguished and physically destroyed within the prescribed time.

Private placement limit

Offer or invitation to not more than 200 persons in aggregate in a financial year (excluding qualified institutional buyers and employees under ESOP)

Offers of different kinds of securities in the same financial year are counted together, not separately. Payment must come through banking channels from the subscriber's own account.

Minimum and maximum members

Private company: minimum 2, maximum 200 members. Public company: minimum 7 members. One Person Company: 1 member

The 200 limit excludes present employees who are members and former employees who were members while employed and continue to be members. Joint holders are treated as a single member.

Preference share redemption period

Preference shares must be redeemed within a maximum of 20 years from issue; for infrastructure projects, longer terms are allowed, with at least 10% redeemed annually from the 21st year on a proportionate basis, as per the rules

Preference shares can be redeemed only out of profits available for dividend or the proceeds of a fresh issue made for redemption.

True and fair view

Financial statements must give a true and fair view and comply with the notified accounting standards and Schedule III

Sets the standard for what the Board signs and what the auditor reports on.

First auditor

Board appoints within 30 days of registration; if the Board fails, members appoint at an EGM within 90 days

The first auditor holds office until the conclusion of the first AGM.

Subsequent auditor term

Appointed at an AGM for five consecutive years, up to the conclusion of the sixth AGM

Annual ratification is no longer required.

Mandatory rotation

Individual: maximum one term of 5 years. Firm: maximum two terms of 5 years each (10 years in all). Cooling-off: 5 years

Applies to listed companies and the prescribed unlisted classes: public companies with paid-up capital of ₹10 crore or more, private companies with paid-up capital of ₹50 crore or more, and companies with public-financial-institution, bank or public-deposit borrowings of ₹50 crore or more.

Casual vacancy of auditor

Vacancy for a reason other than resignation: the Board fills it within 30 days. Vacancy caused by resignation: the Board fills it within 30 days and the appointment must also be approved by members at a general meeting held within 3 months of the Board's recommendation

Members approve only where the vacancy is caused by resignation. The resigning auditor files a statement of reasons with the company and the Registrar within 30 days of resignation.

Removal of auditor

Special resolution of members, after previous approval of the Central Government, before the term ends

The auditor must be given a reasonable chance to be heard.

Ceiling on audits

A person can be auditor of at most 20 companies

The limit applies to each person. For a firm, it is applied to its partners individually, not to the firm as one unit. The count of 20 excludes one person companies, dormant companies, small companies and private companies with paid-up capital below ₹100 crore. Count every other company, including all public companies and private companies with paid-up capital of ₹100 crore or more.

Sources of dividend

Current year profit after depreciation, or accumulated profits of earlier years, or money provided by the Central or a State Government in pursuance of its guarantee of payment of dividend by the company

Dividend is paid only in cash, to the registered holder, by the prescribed modes. Issue of bonus shares is capitalisation of profits, not dividend. Dividend out of free reserves when profits are inadequate is covered in the next row.

Dividend out of free reserves when profits are inadequate

Rate ≤ average rate of the last 3 years; amount drawn from free reserves ≤ 10% × (paid-up capital + free reserves); free reserves left ≥ 15% of paid-up capital

Rule applies when the company has inadequate or no profit in the year. The 10% limit applies to the amount drawn from free reserves, not to the whole dividend if part is paid from current profit. Free reserves exclude revaluation reserves, so leave them out when you compute the limit. Check all three conditions.

Payment and unclaimed dividend

Pay within 30 days of declaration; unpaid or unclaimed sum goes to the Unpaid Dividend Account within 7 days after the 30 days expire; after 7 years from the date of transfer to the Unpaid Dividend Account, the amount is transferred to the IEPF

The 7 years run from the date of transfer to the Unpaid Dividend Account, not from declaration. Shares on which dividend is unclaimed for seven consecutive years are also transferred to the IEPF.

Interim dividend

Declared by the Board during the financial year, out of the permitted sources

Final dividend is declared by members at the AGM and cannot exceed the amount the Board recommended.

Winding up by Tribunal: grounds

All of these are grounds in s.271(1): inability to pay debts; special resolution of the company; acts against sovereignty, integrity or public order; fraudulent conduct of affairs; default in filing financial statements or annual returns for the five consecutive financial years immediately preceding; Tribunal's view that it is just and equitable

Learn these as a list. Answers are marked per ground. Insolvency-based winding up, including inability to pay debts, is dealt with under the IBC. Section 271 operates for the non-insolvency grounds. Read the case facts for which law applies.

Voluntary winding up: solvency

Directors' declaration of solvency: the company will pay its debts in full from the proceeds of assets sold in liquidation within a period not exceeding 12 months from the start of liquidation (IBC s.59). Then: special resolution of members within four weeks of the declaration, and approval of creditors representing two-thirds in value where the company has debts

The declaration is verified by an affidavit and supported by audited accounts and a valuation report. Voluntary liquidation is governed by the Insolvency and Bankruptcy Code, not by a separate Chapter of the Companies Act, 2013.

SAST initial trigger

Acquirer + PACs ≥ 25% of voting rights → open offer

Applies when shares or voting rights, taken together with PACs, would entitle the acquirer to 25% or more. Acquiring control, irrespective of shareholding, also triggers an open offer.

SAST creeping acquisition

Holding 25% to less than 75% → may acquire up to 5% in a financial year without an open offer

The holder must already have 25% or more but not exceed the maximum permissible non-public shareholding. Acquisition beyond 5% in a year triggers an open offer.

SAST minimum offer size

Open offer size ≥ 26% of the total shares of the target company

The offer must be for at least 26% of the total shares of the target company, measured as of the 10th working day from the closure of the tendering period.

SAST disclosure thresholds

Acquirer (with PACs) acquires 5% or more → disclose; thereafter disclose on every change of 2% or more

An acquirer who, together with PACs, acquires shares or voting rights of 5% or more must disclose, and must disclose again on every change of 2% or more. The disclosure goes to the stock exchanges and the target company within 2 working days. Promoters also make annual disclosures of their holdings.

PIT definition of UPSI

UPSI = information not generally available which, on becoming available, is likely to materially affect the price of securities

Examples listed in the Regulations include financial results, dividends, change in capital structure, mergers, demergers, acquisitions, delisting, disposals and changes in key managerial personnel.

PIT trading window

Trading window closed when the compliance officer determines that designated persons may have UPSI

Designated persons cannot trade while the window is closed. The Regulations do not fix one period. The usual practice is to close the window from the end of each quarter until 48 hours after results are declared.

PIT continual disclosure

Trade value above ₹10 lakh in a calendar quarter → disclosure to the company within 2 trading days

Under Reg 7(2), this applies to promoters, members of the promoter group, directors and designated persons. The company then informs the exchanges within 2 trading days of receipt. The trading window and pre-clearance requirements are separate: they are part of the code of conduct, and pre-clearance applies to trades above a threshold set by the company.

LODR board composition

At least one-half of the board non-executive. Independent directors: at least one-third if the chairperson is non-executive; at least one-half if the chairperson is executive, or is a promoter or related to a promoter. At least one woman director.

Apply the independent director proportion by first identifying the chairperson's status. Some board requirements apply only to specified classes of listed entities, so check the applicability given in the facts.

LODR audit committee

Minimum three directors; two-thirds independent directors; chairperson independent

Applies to listed entities that must constitute it. Quorum is two members or one-third of members, whichever is higher, with at least two independent directors.

LODR results timeline

Quarterly results within 45 days of quarter end; annual audited results within 60 days of financial year end

The Q4 results are the annual audited results, filed within 60 days of year end. The board meeting outcome is intimated to the exchanges.

Residence test under FEMA

Person resident in India (Section 2(v)) = (a) person who resided in India for more than 182 days during the preceding financial year, excluding a person who has gone out of India or stays outside India for employment, business or vocation, or any other purpose indicating an intention to stay outside India for an uncertain period; and (b) person who has come to or stays in India for employment, business or vocation, or any other purpose indicating an intention to stay in India for an uncertain period

The 182-day count in the preceding financial year is the starting point, read with both limbs: the exclusion for persons who have gone abroad, and the inclusion for persons who have come to India for those purposes. It is not the same as the Income-tax Act test, and citizenship does not decide it.

Current vs capital account

Current account = trade, services, remittances for living. Capital account = changes in assets or liabilities (investment, borrowing, lending)

Current account is free unless restricted. Capital account is restricted unless permitted.

FDI route test

Automatic route = no prior approval but conditions apply. Government route = prior approval required. Prohibited = not allowed

Even in the automatic route you must comply with sector cap, pricing and reporting.

FDI instruments

Equity instruments under the NDI Rules = equity shares, compulsorily convertible preference shares, compulsorily convertible debentures, partly paid equity shares and warrants (the last two subject to conditions). Debt instruments = other instruments, such as non-convertible, optionally convertible and partly convertible debentures and preference shares

Only equity instruments count as equity FDI. Debt instruments are not equity FDI and are governed by the debt framework, such as the ECB regulations where applicable. Check the facts for the exact instrument and conditions.

Pricing of foreign investment

Issue to non-resident: price not less than fair value by a recognised valuation method. Transfer from resident to non-resident: not less than fair value. Transfer from non-resident to resident: not more than fair value. All of this is subject to the exceptions in the NDI Rules, for example deferred payment, escrow and indemnity provisions

Remember the direction: floor on entry, cap on exit. Then check whether the facts bring in deferred consideration, escrow or indemnity, which the NDI Rules treat as exceptions.

ODI limit

Under the Overseas Investment Rules, 2022, the financial commitment of the Indian entity is linked to its net worth, with a prescribed limit and prior RBI approval needed above it

State the limit only if the question supplies it. Cite the net-worth link and the conditions.

Compounding

Contravention is compoundable by the RBI or the authority specified, on application, on payment of the sum fixed

Compounding is available for civil contraventions and is not available for certain matters, for example those under investigation by specified agencies.

IBC: who can start CIRP

Financial creditor / Operational creditor / Corporate debtor → application to NCLT on default

Default must be of the minimum amount notified under the Code. Check the current threshold in the text supplied for your attempt.

CIRP sequence

Application → Admission by NCLT → Moratorium + IRP → Public announcement and claims → IRP verifies claims and forms CoC → Resolution applicants submit plans → RP verifies plans and places them before CoC → CoC vote → NCLT approval, else liquidation

Write the stages in this order in every descriptive answer.

Moratorium effect

No suits, no recovery, no transfer or encumbrance of assets, no termination or suspension of essential supplies during CIRP, subject to the exceptions in Section 14

State the effect, not just the word. Mention that exceptions exist, for example transactions notified by the regulator and guarantee sureties.

Competition Act: three pillars

Anti-competitive agreements + Abuse of dominant position + Combinations

Agreements and abuse are prohibited conduct. Combinations are regulated by prior approval.

Horizontal agreements

Price fixing, output limits, market or customer allocation, bid rigging → presumed appreciable adverse effect on competition

Presumption applies to agreements between enterprises engaged in identical or similar trade. It is a presumption of adverse effect, not of illegality, and it can be rebutted.

Combination test

Acquisition / merger / amalgamation that crosses the notified asset or turnover thresholds → notify CCI

Use the thresholds given in the question or supplied text. They are revised by notification, so do not rely on memory.

PMLA offence

Proceeds of crime from a scheduled offence + dealing with them (conceal, possess, acquire, use, project as untainted) = money laundering

No scheduled offence and no proceeds means no PMLA case.

Quick revision

• Always state the rule with its condition before applying it to the facts.
• Separate laws by purpose: Companies Act for company matters, SEBI for listed securities, FEMA for cross-border transactions.
• For a listed company, check both the Companies Act and SEBI rules before concluding.
• In meeting questions, check notice, quorum, majority and type of resolution.
• In related party questions, check who is related, the nature of the transaction and the approval needed.
• In audit and accounts questions, link the Act's duties to the auditor's role and report.
• In foreign investment cases, check the sector, the investor type and any limits or conditions.
• In insolvency cases, identify the type of creditor and the trigger before the process.
• In competition cases, identify whether the issue is an agreement, dominance or a combination.
• Give a firm conclusion in every answer; never leave it open.
• Answer every MCQ because wrong answers carry no penalty.

Common mistakes

• Using the wrong base for the 25% buyback limit, such as leaving free reserves out of the total limit or the 10% board limit, or adding free reserves to the equity-share limit. Fix: Total limit: 25% of (total paid-up capital + free reserves). Equity-share limit: 25% of paid-up equity capital. Write each base on its own line and check both. The 10% board limit uses the total base, which includes free reserves, and a buyback above it needs a special resolution.
• Treating private placement and a public offer as the same, counting each kind of security separately, or counting 200 persons across all years. Fix: Remember: the public offer uses a prospectus to the public; private placement is to a select group, with an overall limit of 200 persons in a financial year across all offers and kinds of security, and a private placement offer letter.
• Applying rotation to every company Fix: Check the company type and its paid-up capital or borrowings first. If it falls outside the classes, rotation does not apply by law, although the five-year appointment term still does.
• Treating the five-year limit as the same for individuals and firms Fix: Write individual as one term and firm as two terms, each of five consecutive years, with a five-year cooling-off.
• Treating the 25% trigger as applying to the acquirer alone. Fix: Always add the holdings of PACs before comparing with the trigger.
• Saying an open offer is needed only when 25% is crossed. Fix: Remember that acquiring control, even with a small holding, also triggers an open offer.
• Treating residence under FEMA like residence under the Income-tax Act Fix: Under FEMA, start with more than 182 days in the preceding financial year, then apply the statutory exclusion for a person who has gone abroad for employment, business or an uncertain stay. Also remember the converse limb: a person who has come to India for employment, business or an uncertain stay is treated as resident. Do not borrow the Income-tax Act conditions.
• Saying automatic route means no conditions Fix: State that sector caps, pricing, entry conditions and reporting still apply in the automatic route.
• Saying the board continues to manage the company during CIRP. Fix: Link admission to two effects: moratorium and IRP taking over. Write both.
• Giving the committee of creditors operational creditors as voting members. Fix: The CoC is made only of financial creditors, and only they vote. Operational creditors have no vote. They may attend meetings without voting if their aggregate dues are not less than 10% of the debt. Representatives of workmen and employees may also attend, without a vote.

Exam tips

• Case scenarios hide the breach in one detail, such as the source of funds, the resolution type or the count of persons. Underline numbers as you read.
• Always compute the limit with the right base. Write the base on its own line so the marker sees the logic.
• Write answers in rule, fact, conclusion form. Do not copy section numbers unless you are certain of them.
• In the IBS paper, link the company law answer to related areas, such as the accounting entry for buyback or the tax effect on the company, in one line each.
• Since the paper is open book for IBS, use the Act and rules to confirm limits, but prepare a one-page summary so you do not lose time searching.
• In the written answer, give provision, facts and conclusion in that order. Even a short answer scores better in this form.
• Learn the numbers as a pair with the event they belong to, for example 30 days and Board appointment of the first auditor, 90 days and the EGM.
• In MCQs, look for the company type in the case. A large number of options are built on rotation applying or not applying.