OMTEX CLASSES: What are the provision and rules of companies Act1956 with respect to Invitation of Public deposits?

What are the provision and rules of companies Act1956 with respect to Invitation of Public deposits?



Meaning: -Deposits is a loan received by the company from an investor on certain terms and conditions about repayment of principal amount wit interest. Deposits are accepted only by public companies. Private companies are restricted to accept the deposits from general public.

Definition: -According to Companies Act 1956 the term deposits means 'Any deposit of money with the company and any amount borrowed by the company'.

Company can invite deposits according to the provisions which are laid down by Companies (Amendment) Act 1988 and Companies rules 1975 which are as follows: -

1.       A company whose capital is less than Rs 1 crore as their own fund is prohibited from inviting public deposits.
2.       A company who has made default in repayment of any deposit or interest on such amount can't invite deposits.
3.       A company can invite or accept deposits from the public only after the publication of an advertisement.
4.       Company must issue an advertisement specifying the financial conditions, management structure and other specified
Details.
5.       Advertisement inviting deposits must be published in one leading English newspaper and one regional newspaper in the area or state in which the registered office of the company is situated.
6.       Advertisement inviting   deposits is a prospectus and hence all provisions of companies Act 1956 applicable to prospectus are applicable to such advertisements.

7.       The advertisement must be issued in the name of Board of Directors of the company. The advertisement contains the following:-
a.       Name of the company
b.       Date of incorporation of the company
c.        The nature of business carried on by the company.
d.       Brief particular of management of the company
e.        Names, occupations of the directors and addresses
f.        Profits and dividend declared in last 3 years by the company.
g.       Declaration that the company has complied with provisions of the rules.

8.       An advertisement must be signed by the majority of directors of the company and is valid for a period of 6 months.


9.       A copy of the advertisement should be filed with the Registrar of Companies. In case, a company intends to raise without issuing an advertisement, it is required to file a 'statement in lieu of Advertisement' with the Registrar of Companies.