Khadija Khan  

                                                                                      Section - A 
                                                                              BA.LL. B 3rd Year (5th semester)  
                                                                           Internal Assessment 1 st 
Company Law

Q 1.  Define Company. Explain the need for a company?  

Introduction: 
The word ‘company’ comes from the Latin word (Com=with or together; panis =bread), and it
originally noted an association of persons who took their meals together. within the leisurely
past, merchants took advantage of festive gatherings, to debate business matters. 
 
Nowadays, business matters became more complicated and can't be discussed at festive
gatherings. Therefore, the corporate sort of organization has assumed greater importance. It
denotes a joint-stock enterprise during which the capital is contributed by several people. Thus,
in popular parlance, a corporation denotes an association of similar temperament persons formed
for the aim of carrying on some business or undertaking. 

Definition of company  
An association or an organization which is registered or incorporated under the companies act of
2013 is called a company. It is an artificial person created by law. 
A company is a "corporation" - an artificial person created by law. A human being is a "natural"
person. A company is a "legal" person. A company thus has legal rights and obligations in the
same way that a natural person does. 
In the legal sense, a company is an association of both natural and artificial persons (and is
incorporated under the prevailing law of a country). In terms of the businesses Act, 2013 (Act
No. 18 of 2013) a “company” means a corporation incorporated under this Act or under any
previous company law [Section 2(20)]. 
A company isn't merely a legal institution. it's rather a legal device for the attainment of the
social and economic end. It is, therefore, a combined political, social, economic and legal
institution. Thus, the term company has been described in many ways. “It may be a means of
cooperation and organization within the conduct of an enterprise”. 
 
 
Need for a Company: 

The need for a company is divided into four stages: 

 Promotion  
 Registration  
 Certificate of incorporation  
  Certificate of commencement of business  
 
 Promotion – the steps which are taken to motivate a number of individuals to come
together for the achievement of a common objective through the company form is
called promotion. The person who undertake the responsibility to bring the company
into existence are called promoters. 
           

Steps which were taken in promotion of a company: 

1. Discovery of an idea  
2. Detailed investigation 
3. Assembling  
4. Financing the proposition  
 
1. Discovery of an idea - the promoters start with a plan to start out some business either in
new field which has not been commercially exploited or in some existing lines of
manufactured or business. he makes preliminary investigation to seek out out whether the
actual business is helpful and he roughly estimates income and expenditure of the proposed
business. 

2. Detailed investigation - the promoters has to make detailed investigation of his idea with
the assistants of the many experts like engineers, chemists, market analysis's , finance
experts, management consultants etc. on the idea of reports of those experts the promoters
would be in a very position to grasp the capital requirements , place of location, size of the
unit, demand condition within the market , price of the merchandise, cost of production,
written on capital etc. an in-depth investigation will help him to check the estimated income
is enough to satisfy the value of production and other expenses. 

3.  Assembling – after detailed investigation, if he satisfied with practicability and

profitability of the proposal concern, he starts assembling preposition, assembling means
getting the support and consent of other persons to act as a director or founders arranging for
patents, an acceptable site for the corporate, machinery and equipment etc. 
      
4. Financing the proposition – after assembling the proposition, the promoter prepares a         
prospectus to present to the general public and to underwriters to steer them to finance               
the proposition the promoter also takes steps to include the corporate and to secure   the               
certificate to commence the business.    
 
 Registration- The Registration of the Company is legal recognition given to the body
corporate under the Company Law. The procedure of registration has been clearly stated in
Section – 7 of The Companies Act, 2013Steps and formalities for the or registration of
the company. The following documents to be filed with the registrar: 
 
  Memorandum of Association (MOA) with at least 7 persons subscribed, each one share if
it is a public company. If it is a private company at least 2 persons  with the shares
subscribed. 
 Articles of Association (AOA) except where table ‘A’ considered a companies articles. 
 Address of the registered office. 
 A list of directions with their names, address and occupation. 
 Consent of directions in writing to act as directions. 
 An undertaking by directions to take and to pay for any qualification shares. This is not
required for private company. 
 
 Certificate of incorporation - On the registration of Memorandum of Association,
Articles of Association and other documents, the Registrar will issue a certificate
called the ‘Certificate of Incorporation ‘. the difficulty of certificate is that the
evidence of the very fact that the corporate is incorporated and therefore the
requirements of the businesses Act are complied with. certifying under his hand that
the company is incorporated and, in the case of a limited company that the company
is limited. 

 Certificate of commencement of business - After getting the certificate of

incorporation, a private company can start its business. A public company can start its
business only after getting a certificate of commencement of business after getting the
certificate of incorporation.

(i) A public company issues a prospectus of inviting the general public to buy its
share capital.

(ii) A minimum subscription is fixed and,

(iii) the corporate is required to sell a minimum number of shares mentioned within
the prospectus .

After making the sale of the specified number of shares a certificate is shipped to the
Registrar stating this fact, along-with a letter from the banks, that it's received
application money for each shares .

 
The Registrar scrutinizes the documents. If he's satisfied, then issues a certificate
called Certificate of Commencement of Business. this is often the conclusive
evidence of the commencement of the business. 
 
Q 2.  Discuss doctrine of Lifting of the Corporate Veil. 

For all purposes of law, a company is thought to be a separate entity from its shareholders. But
sometimes it's sometimes necessary to appear at the persons behind the company veil. The
separate entity of the corporate is disregarded and also the schemes and intentions of the persons
behind are exposed to full view which is understood as lifting or piercing the company veil. this
is often usually drained the subsequent cases: 
1. Determination of character – In Daimler Co Ltd. V. Continental Tyre and Rubber Co. a
company was incorporated in England for the purpose of selling tyres manufactured in
Germany by a German company. The German company held the bulk of the shares in the
English company and all the directors of the company were Germans, resident in Germany.
During the First World War the English company commenced an action to recover a trade
debt. And the question was whether the company had become an enemy company and should
therefore be barred from maintaining the action. 

The House of Lords held that though the company was registered in England it is not a       
natural person with a mind or conscience. It is neither loyal nor disloyal neither friend                  
nor enemy. But it would assume an enemy character if the persons in de fact control                     
of the company are residents of an enemy country.  
 
2. For benefit of revenge - The separate existence of an organization could also be
disregarded when the sole purpose that it appears to own been formed is that the evasion of
taxes. In Sir Dinshaw Maneckjee , Re the assesses was a wealthy person enjoying large
dividend and interest income. He formed four private companies and agreed with each to
carry a block of investment as an agent for it. Income received was credited within the
company accounts but company handed the quantity to him as pretended loan. Thus, he
divided his income in four parts to scale back his liabilities. The Court disregarded corporate
entity because it was formed only to evade taxes. 
   
  In Bacha F Guzdar v. CIT, Bombay, the Supreme Court dismissed the plea of the plaintiff
a      member of a tea company, who claimed that the dividend held by her in respect of her
shares        should be treated as agricultural income (as it was exempted from tax) and not
income from          manufacture and sale of tea. 

3. Fraud or improper conduct – in Gilford Motor Co. V. Horne,, H was appointed at the
decision maker of the plaintiff company on the condition that he shall not solicit the shoppers
of the corporate. He formed a brand-new company which undertook 
solicitation of plaintiff’s customers. the corporate was restrained by the Court.  

4. Agency or Trust or Government company - The separate existence of a corporation could

also be ignored when it's being employed as an agent or trustee. In State of UP
v. Renusagar Power Co.  it had been held that an influence generating unit created by an
organization for its exclusive supply wasn't thought to be a separate entity for the aim of
excise. 
        In Re R.G. Films Ltd. an American company produced film in India technically within
the  name of a British company, 90% of whose share was held by the President of the American  
company. Board of Trade   refused to register the film because the English company               
acted merely because the agent of the American company.     
 
     5.   To avoid welfare legislation – where it absolutely was found that the only purpose            
of formation of recent company was to use it as a tool to cut back the quantity to be paid              
by way of bonus to workmen, the SC pierced its corporate veil. The Workmen   Employed in
Associated Rubber Industries Ltd. V. The Associated Rubber  Industries Ltd, Bhavnagar.   
   
6. Under statutory provision- The Act sometimes imposes personal liability on persons behind
the veil in some instances like, where business is carried on beyond six after knowledge that the
membership of company has gone below statutory minimum (sec-45) – Mandanlal V. Himatlal
when contract is form by misdescribing the name of the company (sec-147 ) , when business is
carried only to defraud creditors (sec 542).