Chapter 2 of 5

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CMA Final Corporate and Economic Laws★ Chapters 7 and 8 of ICAI Paper 2 — together roughly 14 marks. Procedurally dense and heavily examined, because a meeting question can be set on any of a dozen precise requirements and each carries its own number.

Management, Administration and Dividend

Registers and the annual return, the three kinds of general meeting and the machinery of notice, quorum, proxies and resolutions, voting by poll and postal ballot, and the law governing the declaration and payment of dividend.

⏱ 32 min readModerate difficulty✓ Free · exam-pattern aligned

Timed practiceMCQs from this chapter with instant scoring

FlashcardsFormulas & traps on spaced repetition

CMA Final PYQsSolved previous-year questions

By the end of this chapter you'll be able to…

1State the requirements for keeping, inspecting and closing the register of members, and who may inspect without fee
2Set out the contents, signing, certification and filing requirements of the annual return
3Apply the timing rules for annual general meetings, including the first meeting and the fifteen-month gap, and the limits on extension
4Handle a requisitioned extraordinary general meeting, including the requisitionists' right to call it themselves and to be reimbursed
5Compute clear notice and apply the shorter notice consents, which differ between an annual general meeting and other meetings
6Distinguish ordinary from special business and identify what the explanatory statement must disclose
7Apply the quorum rules for public and private companies and the consequences of quorum failing
8State the proxy restrictions, including the fifty-member and ten per cent cap and the forty-eight hour deposit rule
9Distinguish ordinary, special and special notice resolutions, and know when a poll must be ordered
10Determine whether a dividend may lawfully be declared, including out of free reserves in a year of inadequate profits, and trace unpaid dividend to the IEPF

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Why this chapter matters in CMA Final

A company is owned by members and run by directors, and those are different people. The members' control is exercised almost entirely at meetings, by voting on resolutions, and every rule in this chapter exists to make that control real: notice so that members know a decision is coming, quorum so that it is not taken by a handful, proxies so that absence is not disenfranchisement, resolution thresholds so that fundamental decisions need broader agreement, and the poll so that voting reflects shareholding rather than who happened to be in the room. Read the procedure as answers to that question and the days and percentages become memorable rather than arbitrary.

Before you start — revise these

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Preliminary and Incorporation of Companies

Quorum, annual return signing and postal ballot exemptions all turn on the public, private, small and one-person classifications.

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Prospectus, Share Capital and Debentures

Preference shareholders' voting rights and the variation of class rights are established there and applied at meetings here.

Management, Administration and Dividend

Weightage: Chapters 7 and 8 of ICAI's Paper 2 syllabus, together roughly 14 marks. Procedurally dense and heavily examined, because meeting questions can be set on any of a dozen precise requirements.

The idea underneath the procedure

A company is owned by members and run by directors, and those are different people. The members' control is exercised almost entirely at meetings, by voting on resolutions.

Everything in the meetings chapter exists to make that control real. Notice rules ensure members know a decision is coming and what it is. Quorum rules ensure a decision is not taken by a handful. Proxy rules ensure a member who cannot attend is not disenfranchised. Resolution thresholds ensure that more fundamental decisions need broader agreement. Poll and postal ballot rules ensure that voting reflects shareholding rather than who happened to be in the room.

Read the procedural rules as answers to that question — how is members' control made real — and they become memorable in a way a list of days and percentages never is.

Registers and the annual return

Register of members

Every company must keep a register of members for each class of equity and preference shares, and where it has debenture-holders or other security holders, a register for each.

Index. Every company having more than fifty members must maintain an index of the names in the register, unless the register is itself in the form of an index.

Foreign register. A company which has share capital or other securities and which has members or security holders resident outside India may keep a foreign register of such persons, in any country outside India, and it is deemed part of the company's principal register.

Place of keeping. The registers are kept at the registered office. They may be kept at any other place in India in which more than one-tenth of the total members entered in the register reside, if approved by a special resolution.

Inspection. The registers and the indices are open to inspection during business hours, by any member, debenture-holder or other security holder or beneficial owner without payment of any fee, and by any other person on payment of prescribed fees.

Closure of register. A company may close the register of members, of debenture-holders or of other security holders for any period not exceeding thirty days at any one time, and not exceeding forty-five days in aggregate in a year, after giving previous notice of at least seven days or such lesser period as may be specified by SEBI for listed companies.

Annual return

Every company must prepare an annual return containing the particulars as they stood on the close of the financial year, covering the registered office and principal business activities, holding, subsidiary and associate companies, shares, debentures and other securities and shareholding pattern, members and debenture-holders along with changes since the close of the previous financial year, promoters, directors and key managerial personnel along with changes, meetings of members, of the Board and its committees along with attendance details, remuneration of directors and key managerial personnel, penalties imposed, matters relating to certification of compliances and disclosures, and such other matters as may be prescribed.

Signing. The annual return is signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice. In relation to a One Person Company, a small company and such other class of companies as may be prescribed, the annual return is signed by the company secretary, or where there is no company secretary, by the director of the company.

Certification. Every company listed or having such paid-up capital and turnover as may be prescribed must have its annual return certified by a company secretary in practice.

Filing. A copy of the annual return is filed with the Registrar within sixty days from the date on which the annual general meeting is held, or where no meeting is held, within sixty days from the date on which it should have been held, together with the reasons for not holding it.

Placing on the website. Every company must place a copy of the annual return on its website, if any, and the web link must be disclosed in the Board's report.

General meetings

Annual general meeting

Every company other than a One Person Company must hold an annual general meeting each year.

Timing. The first annual general meeting must be held within nine months from the date of closing of the first financial year; and thereafter within six months from the date of closing of the financial year. Where the first annual general meeting is held within nine months of the first financial year's close, it is not necessary to hold one in the year of incorporation.

Gap. Not more than fifteen months may elapse between the date of one annual general meeting and the next.

Extension. The Registrar may, for any special reason, extend the time within which any annual general meeting other than the first annual general meeting shall be held, by a period not exceeding three months. The first annual general meeting can never be extended.

Timing and place. The meeting must be called during business hours, that is between 9 a.m. and 6 p.m., on a day that is not a National Holiday, and must be held at the registered office of the company or at some other place within the city, town or village in which the registered office is situate. An unlisted company may hold its annual general meeting at any place in India if consent is given in writing or by electronic mode by all the members in advance.

Extraordinary general meeting

Called by the Board whenever it deems fit, or on requisition.

Requisition may be made by members holding, on the date of the receipt of the requisition, not less than one-tenth of such of the paid-up share capital of the company as on that date carries the right of voting; or in the case of a company not having a share capital, by members holding not less than one-tenth of the total voting power.

Where the Board does not proceed within twenty-one days from the date of receipt of a valid requisition to call a meeting on a day not later than forty-five days from the date of receipt of the requisition, the meeting may be called and held by the requisitionists themselves within a period of three months from the date of the requisition.

Reimbursement. Any reasonable expenses incurred by the requisitionists in calling such a meeting must be reimbursed by the company to them, and the sums so paid must be deducted from the fees or other remuneration payable to such of the directors who were in default in calling the meeting.

Notice

Length. A general meeting may be called by giving not less than clear twenty-one days' notice in writing or through electronic mode.

The word clear matters and is examined: the day of service and the day of the meeting are both excluded. Where notice is sent by post, additional days for service are added under the rules.

Shorter notice. A general meeting may be called after giving shorter notice if consent is accorded, in the case of an annual general meeting by not less than ninety-five per cent of the members entitled to vote; and in the case of any other general meeting, by members holding majority in number and not less than ninety-five per cent of the paid-up share capital giving a right to vote — or, where the company has no share capital, by members holding not less than ninety-five per cent of the total voting power.

To whom. Notice is given to every member, to the legal representative of a deceased member and the assignee of an insolvent member, to the auditor or auditors, and to every director.

Accidental omission. The accidental omission to give notice to, or the non-receipt of notice by, any member or other person entitled to receive it does not invalidate the proceedings of the meeting.

Contents. The notice must state the place, date, day and hour of the meeting and contain a statement of the business to be transacted.

Explanatory statement

In the case of special business, the notice must annex a statement setting out the material facts concerning each item, including the nature of the concern or interest, financial or otherwise, of every director, manager, other key managerial personnel and their relatives, and where any item relates to or affects any other company, the extent of shareholding interest in that other company of every promoter, director, manager and key managerial personnel, if that shareholding is not less than two per cent of the paid-up share capital of that company.

Ordinary business at an annual general meeting comprises four items only: consideration of financial statements and the reports of the Board and auditors; declaration of dividend; appointment of directors in place of those retiring; and appointment of and fixing the remuneration of auditors. Everything else is special business, at an annual general meeting and at every other meeting.

Quorum

For a public company: five members personally present where the number of members as on the date of the meeting is not more than one thousand; fifteen members where it is more than one thousand but up to five thousand; and thirty members where it exceeds five thousand.

For a private company: two members personally present.

If quorum is not present within half an hour from the appointed time, the meeting stands adjourned to the same day in the next week at the same time and place, or to such other day, time and place as the Board may determine. If at the adjourned meeting quorum is not present within half an hour, the members present shall be the quorum — except where the meeting was called on requisition, in which case the meeting stands cancelled.

Chairman

Unless the articles otherwise provide, the members personally present at the meeting elect one of themselves to be the chairman on a show of hands. If a poll is demanded on the election of the chairman, it shall be taken forthwith, and the chairman elected on a show of hands exercises all the powers of the chairman until a chairman is elected on the poll.

Proxy

Any member entitled to attend and vote may appoint another person as a proxy to attend and vote instead.

Key limitations, all examinable:

a proxy has no right to speak at the meeting;
a proxy is not entitled to vote except on a poll;
a member of a company not having a share capital may not appoint a proxy unless the articles so provide;
a person may act as proxy on behalf of members not exceeding fifty and holding in aggregate not more than ten per cent of the total share capital carrying voting rights; a member holding more than ten per cent may appoint a single person as proxy who shall not act as proxy for any other person;
the instrument of proxy must be deposited with the company not less than forty-eight hours before the meeting; any longer period stipulated by the articles has effect as if forty-eight hours had been specified;
the notice of the meeting must state that a member entitled to attend and vote is entitled to appoint a proxy and that the proxy need not be a member.

Resolutions

Ordinary resolution — passed where the votes cast in favour exceed the votes cast against.

Special resolution — the intention to propose it must have been duly specified in the notice, and the votes cast in favour must be not less than three times the number of votes cast against. That is the statutory formulation, and it is different from a simple three-fourths of those present.

Resolutions requiring special notice. Where any provision of the Act or the articles requires special notice for any resolution, notice of the intention to move it must be given to the company by members holding not less than one per cent of total voting power or holding shares on which an aggregate sum of not less than five lakh rupees has been paid up, and the notice must be sent not earlier than three months but at least fourteen days before the meeting at which it is to be moved, exclusive of the day on which the notice is given and the day of the meeting.

Voting by show of hands and by poll

Show of hands is the default at a general meeting, unless a poll is demanded or voting is carried out electronically. On a show of hands every member present in person has one vote regardless of shareholding, which is why the poll exists.

Demand for poll. The chairman may order a poll of his own motion, and must order it on a demand made by:

in a company having a share capital, members present in person or by proxy having not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than five lakh rupees has been paid up;
in any other company, by any member or members present in person or by proxy having not less than one-tenth of the total voting power.

A poll demanded on the election of a chairman or on the question of adjournment must be taken forthwith; any other poll must be taken within forty-eight hours from the time the demand was made.

A demand for a poll may be withdrawn at any time by the persons who made it.

Postal ballot

The Central Government may prescribe items of business which must be transacted only by means of postal ballot, and any item other than ordinary business and any business in respect of which directors or auditors have a right to be heard may be transacted by postal ballot.

A One Person Company and companies having members up to two hundred are not required to transact any business through postal ballot.

Dividend

From what dividend may be declared

Dividend may be declared or paid for any financial year out of the profits of the company for that year arrived at after providing for depreciation, or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation and remaining undistributed, or out of both.

It may also be declared out of money provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government.

Depreciation must be provided before dividend is declared. This is mandatory and not a matter of directors' discretion.

Transfer to reserves is voluntary. A company may, before the declaration of any dividend, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company. The compulsory graduated transfer that existed under the Companies Act, 1956 has gone, and this is a point on which older material is still wrong.

Dividend out of free reserves in a year of inadequate profits

Where a company has incurred a loss or has inadequate profits in a financial year, it may declare dividend out of accumulated profits earned in previous years and transferred to free reserves, subject to conditions in the rules:

the rate of dividend must not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding;
the total amount drawn from accumulated profits must not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement;
the amount so drawn must first be used to set off the losses incurred in the financial year in which dividend is declared, before any dividend in respect of equity shares is declared;
the balance of reserves after such withdrawal must not fall below fifteen per cent of its paid-up share capital as appearing in the latest audited financial statement.

Prohibitions and restrictions

No dividend may be declared or paid by a company from its reserves other than free reserves.

A company which fails to comply with the provisions on acceptance and repayment of deposits shall not, so long as such failure continues, declare any dividend on its equity shares.

Unrealised gains, notional gains and revaluation of assets are excluded from free reserves and therefore cannot support a dividend.

Payment

Dividend must be deposited in a separate bank account within five days from the date of declaration.

Dividend must be paid within thirty days of declaration.

No dividend may be paid in cash — it must be paid by cheque, warrant, or in any electronic mode, to the shareholder entitled to it. Dividend may, however, be paid in cash to a shareholder in respect of shares that are partly paid, or capitalised as fully paid bonus shares.

Dividend on preference shares ranks ahead of equity dividend.

Interim dividend may be declared by the Board of Directors during any financial year, or at any time during the period from closure of the financial year till holding of the annual general meeting, out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared, or out of profits generated in the financial year till the quarter preceding the date of declaration. Where the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration, the interim dividend must not be declared at a rate higher than the average dividends declared during the immediately preceding three financial years.

Unpaid and unclaimed dividend

Where a dividend has been declared but has not been paid or claimed within thirty days, the company must, within seven days from the expiry of those thirty days, transfer the total amount remaining unpaid or unclaimed to a special account called the Unpaid Dividend Account opened in a scheduled bank.

The company must, within ninety days of making that transfer, prepare a statement of names, last known addresses and the unpaid dividend to be paid to each person, and place it on its website and on any other website approved by the Central Government.

If the company defaults in transferring the amount to the Unpaid Dividend Account, it must pay interest at twelve per cent per annum from the date of default, and the interest accruing enures to the benefit of the members in proportion to the amount remaining unpaid.

Any amount in the Unpaid Dividend Account remaining unpaid or unclaimed for seven years from the date of the transfer must be transferred to the Investor Education and Protection Fund, along with a statement of details.

All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more must also be transferred by the company in the name of the Investor Education and Protection Fund. A claimant may apply to the Fund for a refund of the amount and for the transfer of the shares back.

Key formulas & results

Everything to memorise for the exam hall, in one card. Screenshot this for revision.

First AGM within 9 months of the close of the first financial year; subsequent AGMs within 6 months of the close of the financial year

Gap between two AGMs not more than 15 months; Registrar may extend by up to 3 months, but never the first AGM

AGM held between 9 a.m. and 6 p.m. on a day that is not a National Holiday

EGM requisition: members holding not less than one-tenth of paid-up capital carrying voting rights; Board must act within 21 days for a meeting within 45 days, else requisitionists may call it within 3 months

Notice: not less than clear 21 days, excluding both the day of service and the day of the meeting

Shorter notice: 95% of members entitled to vote for an AGM; majority in number AND 95% of paid-up capital with voting rights for any other meeting

Quorum public company: 5 members up to 1,000 members; 15 members above 1,000 up to 5,000; 30 members above 5,000. Private company: 2 members

Proxy: no right to speak, votes only on a poll, deposited at least 48 hours before, and may act for not more than 50 members holding not more than 10% of voting share capital

Special resolution: votes in favour not less than three times the votes against, with intention specified in the notice

Special notice: members holding not less than 1% of total voting power or shares on which at least 5 lakh is paid up, given not earlier than 3 months and at least 14 days before the meeting

Poll demand: members with not less than one-tenth of total voting power or shares with at least 5 lakh paid up

Dividend out of free reserves in a lean year: rate not exceeding the average of the preceding three years, amount not exceeding one-tenth of paid-up capital plus free reserves, and residual reserves not below 15% of paid-up capital

Dividend deposited in a separate account within 5 days of declaration and paid within 30 days; unpaid amounts to the Unpaid Dividend Account within 7 days of the 30, and to the IEPF after 7 years with the shares

CMA Final test series

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Management, Administration and Dividend shows up in every CMA Final paper — sit a timed one and find out where you actually stand.

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Traps CMA Final sets — and how to dodge them

These are the exact option-traps and misreads that cost marks under negative marking.

WATCH OUT

✗ Computing twenty-one days without excluding both the day of service and the day of the meeting, when the notice must be clear

✓

WATCH OUT

✗ Applying the same shorter-notice consent to an annual general meeting and an extraordinary general meeting; the tests differ

✓

WATCH OUT

✗ Treating a special resolution as three-fourths of those present, when the test is votes in favour not less than three times the votes against

✓

WATCH OUT

✗ Saying a proxy may speak at the meeting or vote on a show of hands; a proxy may do neither

✓

WATCH OUT

✗ Forgetting that a member holding more than ten per cent may appoint a proxy who then cannot act for anyone else

✓

WATCH OUT

✗ Believing the Registrar can extend the time for the first annual general meeting; only subsequent meetings may be extended

✓

WATCH OUT

✗ Treating declaration of dividend or appointment of retiring directors as special business at an annual general meeting

✓

WATCH OUT

✗ Saying a transfer to reserves is compulsory before declaring dividend; it is voluntary under the Companies Act, 2013

✓

WATCH OUT

✗ Declaring dividend out of a revaluation reserve or other unrealised gains, which are excluded from free reserves

✓

WATCH OUT

✗ Overlooking that the shares themselves, not merely the dividend, are transferred to the IEPF after seven years

✓

WATCH OUT

✗ Cancelling an adjourned requisitioned meeting incorrectly, or applying the members-present-are-quorum rule to it

✓

Exam-pattern practice

PYQ-style questions with full solutions. Work through them as a readiness check — mark yourself honestly and get your gap report at the end.

Readiness check

Are you exam-ready for Management, Administration and Dividend?

15 problems from this chapter. Try each one, reveal the worked solution, mark yourself honestly — get your gap report at the end.

15 questions~11 min

5-minute revision

The whole chapter, distilled. Read this the night before the exam.

•Every meeting rule answers one question: how is members' control made real
•First AGM within 9 months of the first financial year's close; later ones within 6 months and never more than 15 months apart
•Only subsequent AGMs may be extended by the Registrar, and only by up to 3 months
•EGM requisition needs one-tenth of voting capital; Board has 21 days to call a meeting within 45 days, else requisitionists may call it within 3 months at the company's cost
•Notice is clear 21 days, excluding both the day of service and the day of the meeting
•Shorter notice: 95% of members entitled to vote for an AGM; majority in number and 95% of voting capital for others
•Quorum counts members personally present: 5, 15 or 30 for a public company by size; 2 for a private company
•Adjourned meeting: those present are the quorum, except a requisitioned meeting which stands cancelled
•Ordinary business is only four items; everything else, everywhere, is special business needing an explanatory statement
•A proxy cannot speak, cannot vote on a show of hands, must be deposited 48 hours before, and is capped at 50 members and 10%
•Special resolution = votes in favour at least three times votes against; abstentions are ignored
•Special notice: 1% of voting power or 5 lakh paid up, given not earlier than 3 months and at least 14 days before
•A poll must be taken forthwith on chairman's election or adjournment, otherwise within 48 hours
•Depreciation is mandatory before dividend; transfer to reserves is voluntary; no dividend from non-free reserves
•Dividend: separate account within 5 days, paid within 30 days, never in cash
•Unpaid dividend to the Unpaid Dividend Account within 7 days of the 30, 12% interest on default, and to the IEPF with the shares after 7 years

CMA Final question blueprint

How this topic is asked, tier by tier — so you can prep to the pattern.

Typical weightage: 14

Exam-hall strategy

Battle-tested tips from mentors and toppers for this topic under the sectional clock.

For notice questions, count the days explicitly, excluding both ends, and show the arithmetic
State whether the meeting is an AGM or another meeting before applying any shorter-notice or business-classification rule, since both differ
In quorum questions, say expressly that quorum requires personal presence and that proxies do not count
For special resolutions, apply the three-times-the-votes-against test in writing and say that abstentions are ignored
In dividend questions, work the four lean-year conditions in order and identify which one binds
Trace unpaid dividend through every stage — 30 days, 7 days, 90 days, 7 years — and remember the shares go to the IEPF too
Keep the meeting numbers in the running threshold table grouped by what they protect rather than by section

Beyond the exam

Where this skill shows up in the job you're competing for — and in life.

Company secretaries compute clear notice periods and quor…

Company secretaries compute clear notice periods and quorum requirements for every general meeting, and a defect in either can invalidate the resolutions passed

The requisitioned meeting machinery is how activist share…

The requisitioned meeting machinery is how activist shareholders force a company to put a matter to the members against the Board's wishes

Dividend declaration in a lean year is a live boardroom q…

Dividend declaration in a lean year is a live boardroom question for companies wanting to maintain a payout record, and the four conditions are checked line by line

The IEPF transfer of shares after seven years affects lar…

The IEPF transfer of shares after seven years affects large numbers of retail investors whose holdings pass out of their names through inaction

Where else this topic is tested

Prepare once, score in every exam that asks it.

CS Executive — Company Law, where meetings and dividend are examined in greater procedural depth

CMA Intermediate — Corporate Laws and Compliance

CA Final Self-Paced Module SET A — Corporate and Economic Laws

CA Inter Paper 1 — Advanced Accounting, where divisible profits and dividend appear as accounting questions

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Questions aspirants ask

Pulled from the Q&A community and mentor sessions.

Because the two produce different results whenever members abstain, and the Act deliberately chooses the formulation that ignores abstentions. A member who attends and abstains has declined to take a position, and counting that as opposition would let indifference defeat a resolution that nobody actually opposed. Comparing votes cast in favour with votes cast against measures the balance of opinion among those who expressed one. In practice this means a resolution can pass on a modest turnout of positive votes provided opposition is slight, and examiners set questions with a large abstention block precisely to see whether the candidate applies the statutory test or a remembered three-fourths.

Because a show of hands counts persons present, and a proxy is not a member but an agent attending on a member's behalf. Allowing proxies to raise hands would let one person hold dozens of proxies and dominate a vote that is meant to register the sense of the members physically in the room. The proxy's proper protection is the poll, where votes are counted by shareholding rather than by heads, and where the member's holding is what carries weight regardless of who casts it. That is also why the proxy has no right to speak: a proxy exists to record a member's vote, not to participate in the deliberation.

Yes. Under the Companies Act, 1956 a company declaring dividend above a specified rate had to transfer a graduated percentage of profits to reserves, and a great deal of older material and online commentary still describes that scheme as though it survived. Under the Companies Act, 2013 the company may transfer such percentage of its profits as it considers appropriate, with no prescribed minimum. What remains mandatory is providing for depreciation before declaring dividend, and the separate set of conditions governing a dividend declared out of accumulated free reserves in a year of loss or inadequate profits.

No. The quorum provisions require members to be personally present, and a proxy attending for an absent member does not make that member present. This catches candidates out because a proxy can vote on a poll and is in every other sense the member's representative, but quorum is about the meeting being properly constituted as a gathering of members, not about voting power. So a public company with 3,000 members needs fifteen members physically in the room, and a meeting attended by two members and forty proxies is inquorate.

Group them by what they protect rather than by section. The notice numbers protect information: 21 clear days, 95 per cent for shorter notice, 14 days and 3 months for special notice. The quorum numbers protect against decision by a handful: 5, 15, 30 and 2. The proxy numbers protect against aggregation of proxies: 48 hours, 50 members, 10 per cent. The poll numbers protect proportionality: one-tenth of voting power, 5 lakh paid up, 48 hours to take it. Held that way the numbers cue off the purpose, which is more reliable under pressure than a list.