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Unit 8: Formation of Company

Winding up by the Court Notes

Winding up by the Court, also called compulsory winding up, may be ordered in cases mentioned
in Sec.433. The Court will make an order for winding up on an application by any of the persons
enlisted in Sec.439.

Voluntary Winding up

Winding up by the creditors or members without any intervention of the Court is called ‘voluntary
winding up’, In voluntary winding up, the company and its creditors are left to settle their affairs
without going to the Tribunal for directions or orders if and when necessary. Winding up should
not be confused with insolvency. Company may be solvent and running a prosperous business
yet it may decide to be wound up voluntarily, e.g., in pursuance of a scheme of reconstruction
or amalgamation.

A company may be wound up voluntarily: (1) if the company in general meeting passes an

ordinary resolution for voluntary winding up where the period fixed by the Articles for the
duration of the company has expired or the event has occurred on which under the Articles
the company is to be dissolved; (2) if the company resolves by special resolution that it shall be
wound up voluntarily (s.484).

Members’ Voluntary Winding up
Members’ Voluntary winding up is possible only when the company is solvent and is able to
pay its liabilities in full. Following are the important provisions regarding members’ voluntary
winding up.

The procedure in a creditors’ voluntary winding up is based upon the assumption that the
company is insolvent. From the beginning, meetings of creditors are held in addition to those of
the members.

8.3 Memorandum of Association

8.3.1 Meaning and Purpose

The Memorandum of Association of a company is its charter which contains the fundamental
conditions upon which alone the company can be incorporated. It tells us the objects of the
company’s formation and the utmost possible scope of its operations beyond which its actions

cannot go. Thus, it defines as well as confines the powers of the company. If anything is done

beyond these powers, that will be ultra vires (beyond powers of) the company and so void.
The memorandum serves a two-fold purpose. It enables shareholders, creditors and all those
who deal with the company to know what its powers are and what is the range of its activities.

Thus, the intending shareholder can find out the field in, or the purpose for which his money
is going to be used by the company and what risk he is taking in making the investment. Also,
any one dealing with the company, say, a supplier of goods or money, will know whether the
transaction he intends to make with the company is within the objects of the company and not
ultra vires its objects.

8.3.2 Form and Contents

Section 14 requires that the memorandum of a company shall be in such one of the Forms in
Tables B, C, D and E in Schedule I to the Act, as may be applicable in the case of the company,
or in Forms as near thereto as circumstances admit. Section 15 requires the memorandum to be

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