COMPANY LAW

UNIT.1
Companies Act, 2013 – Company Definition - Characteristics - Kinds - Differences between
Public Company and Private Company - Corporate Veil and its Exceptions

Company Definition
The Companies Act, 2013, endeavors to make the corporate regulations in India more
contemporary. In this article, we will focus on the meaning and features of a Company.
Meaning of a Company
There are many definitions of a Company by various legal experts. However, Section 2(20)
of the Companies Act, 2013, defines the term ‘Company’ as follows: “Company means a company
incorporated under this Act or under any previous company law.”
Features of a Company (OR) Characteristic of a Company
Corporate Body: A company needs to be registered under the Companies Act, 2013. Any other
organisation incorporated with the Registrar of Companies, and subsequently not registered
cannot be considered as a company. 
Separate Legal Entity: A company exists as a separate legal entity which is different from its
shareholders and members. Due to this feature, shareholders can enter into a contract with the
company and can also sue the company and be sued by the company.
Limited Liability: As the company exists as a separate entity, members of the company are not
liable for the debts of the company. Liability of members of a company is limited to the extent of
the shares that are held by them or by the extent of the guarantee amount
Transferability of Shares: Shareholders of a public limited company can transfer their shares as
per the rules laid down in the articles of association. However, in case of a private limited
company, there might be some restrictions on the transfer of shares.
Common Seal: The firm is an artificial entity or a person, and therefore cannot sign its name by
itself. It creates the necessity of a common seal that can be used for representing the decisions
made on behalf of the company.
Perpetual Succession: The Company being an artificial person established by law perpetuates to
exist regardless of the differences in its membership. In simple words, a company is an artificial
person. Therefore, it does not have any restrictions on age. The factors like death, insolvency,
retirement or the insanity of one or all of the members do not impact the company status. 
Number of Members: As per the Companies Act, 2013, the minimum number of members
required to start a public limited company is seven while for a private limited company, it is two.
The maximum number of members for a public limited company can be unlimited while it is
restricted to 200 for a private limited company.
Types of Company on the basis of Incorporation
1. Statutory Companies:
These companies are constituted by a special Act of Parliament or State Legislature. These
companies are formed mainly with an intention to provide the public services.
Though primarily they are governed under that Special Act, still the CA, 2013 will be applicable
to them except where the said provisions are inconsistent with the provisions of the Act creating
them (as Special Act prevails over General Act).
Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of
India, etc.
2. Registered Companies:
Companies registered under the CA, 2013 or under any previous Company Law are called
registered companies.
Such companies comes into existence when they are registered under the Companies Act and a
certificate of incorporation is granted to it by the Registrar.
B. Types of Company on the basis of Liability
1. Companies limited by shares:
A company that has the liability of its members limited by the memorandum to the amount, if
any, unpaid on the shares respectively held by them is termed as a company limited by shares.
The liability can be enforced during existence of the company as well as during the winding up.
Where the shares are fully paid up, no further liability rests on them.
For example, a shareholder who has paid 75 on a share of face value 100 can be called upon to
pay the balance of 25 only. Companies limited by shares are by far the most common and may
be either public or private.
2. Companies limited by guarantee:
Company limited by guarantee is a company that has the liability of its members limited to such
amount as the members may respectively undertake, by the memorandum, to contribute to the
assets of the company in the event of its being wound-up. In case of such companies the liability
of its members is limited to the amount of guarantee undertaken by them.
The members of such company are placed in the position of guarantors of the company’s debts
up to the agreed amount.
Clubs, trade associations, research associations and societies for promoting various objects are
various examples of guarantee companies.
3. Unlimited Liability Companies:
A company not having a limit on the liability of its members is termed as unlimited company.
Here the members are liable for the company’s debts in proportion to their respective interests in
the company and their liability is unlimited.
Such companies may or may not have share capital. They may be either a public company or a
private company.
C. Types of Company on the basis of number of members
1. Public Company:
Defined u/s 2(71) of the CA, 2013  – A public company means a company which is not a private
company.
Section 3(1) of the CA, 2013– Public company may be formed for any lawful purpose by 7 or
more persons.
Section 149(1) of the CA, 2013 – Every public company shall have minimum 3 director in its
Board.
Section 4(1)(a) of the CA, 2013 – A public company is required to add the words “Limited” at
the end of its name.
It is the essence of a public company that its shares and debentures can be transferable freely to
the public unlike private company. Only the shares of a public company are capable of being
dealt in on a stock exchange.
A private company that is a subsidiary of a public company, will be considered a public
company.
 
2. Private company:
Defined u/s 2(68) of the CA, 2013 –
A private company means a company which by its articles—
a. Restricts the right to transfer its shares;
b. Limits the number of its members to 200 hundred (except in case of OPC)
Note:
Persons who are in the employment of the company; and persons who, having been formerly in
the employment of the company, were members of the company while in that employment and
have continued to be members after the employment ceased, shall be excluded.
Where 2 or more persons hold 1 or more shares in a company jointly they shall be treated as a
single member.
Prohibits any invitation to the public to subscribe for any securities of the company;
Section 3(1) of the CA, 2013 – Private Company may be formed for any lawful purpose by 2 or
more persons.
Section 149(1) of the CA, 2013  – Every Private company shall have minimum 2 director in its
Board.
Section 4(1)(a) of the CA, 2013 – A private company is required to add the words “Private Ltd”
at the end of its name.
Special privileges – Private Companies enjoys several privileges and exemptions under the
Companies Act.
3. One Person Company (OPC):
With the enactment of the Companies Act, 2013 several new concepts was introduced that was
not in existence in Companies Act, 1956 which completely revolutionized corporate laws in
India. One of such was the introduction of OPC concept.
This led to the avenue for starting businesses giving flexibility which a company form of entity
can offer, while also offering limited liability that sole proprietorship or partnerships does not
offers.
Defined u/s 2(62) of the CA, 2013 – One Person Company means a company which has only one
person as a member.
Section 3(1) of the CA, 2013 –  OPC (as private company) may be formed for any lawful
purpose by 1 persons.
Section 149(1) of the CA, 2013 – OPC shall have minimum 1 director in its Board, its sole
member can also be director of such OPC.
Some Feature explained! –
Single-member: OPCs can have only 1 member or shareholder, unlike other private companies.
Nominee: A unique feature of OPCs that separates it from other kinds of companies is that the
sole member of the company has to mention a nominee while registering the company. Since
there is only one member in an OPC, his death will result in the nominee choosing or rejecting to
become its sole member. This does not happen in other companies as they follow the concept of
perpetual succession.
Special privileges: OPCs enjoys several privileges and exemptions under the Companies Act.
D. Types of Company on the basis of Domicile
1. Foreign company:
Defined u/s 2(42) of the CA, 2013 –  “foreign company” means any company or body corporate
incorporated outside India which,—has a place of business in India whether by itself or through
an agent, physically or through electronic mode; andconducts any business activity in India in
any other manner.Section 379 to Section 393 of the CA, 2013 prescribes the provisions which
are applicable on such companies.
2. Indian Company:
A company formed and registered in India is known as an Indian Company.
E. Other Types of Company:
1. Section 8 Company:
A section 8 company is registered as a limited company under section 8 of the CA, 2013 and
holds the licence from Central Government (CG) and
1. has in its objects the promotion of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment or any such other object;
2. intends to apply its profits, if any, or other income in promoting its objects; and
3. intends to prohibit the payment of any dividend to its members.
Proviso to Section 4(1)(a) of the CA, 2013  – Section 8 Company is exempted from clause (a) of
Section 4(1) which means Section 8 Company is neither required to add the word “Ltd” nor
words “Private Ltd” at the end of its name.
Section 8 of the CA, 2013 also laid down the provision related to Incorporation, application for
licence as section 8 company, grant of licence by CG and revocation of licence by CG.
Special privileges: Section 8 Company enjoys several privileges and exemptions under the
Companies Act.
2. Government Company:
Defined u/s 2(45) of the CA, 2013 –  “Government company” means any company in which not
less than 51 % of the paid-up share capital is held by the Central Government, or by any State
Government or Governments, or partly by the Central Government and partly by one or more
State Governments, and includes a company which is a subsidiary company of such a
Government company. Explanation – “paid-up share capital” shall be construed as “total voting
power”, where shares with differential voting rights have been issued.
Special privileges: Government Company enjoys several privileges and exemptions under the
Companies Act.
3. Small Company:
Defined u/s 2(85) of the CA, 2013 – “small company” means a company, other than a public
company,—
1. paid-up share capital of which does not exceed 50 lakh rupees or such higher amount as may
be prescribed which shall not be more than 10 crore rupees; and
2. turnover of which as per profit and loss account for the immediately preceding financial year
does not exceed 2 crore rupees or such higher amount as may be prescribed which shall not be
more than 100 crore rupees
Provided that nothing in this clause shall apply to—
a holding company or a subsidiary company;
a company registered under section 8; or
a company or body corporate governed by any special Act;
Special privileges: Small Company enjoys several privileges and exemptions under the
Companies Act.
4. Subsidiary Company:
Defined u/s 2(87) of the CA, 2013  –   “subsidiary company” or “subsidiary”, in relation to any
other company (that is to say the holding company), means a company in which the holding
company—
1. controls the composition of the Board of Directors; or
2. exercises or controls more than one-half of the total voting power either at its own or together
with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have
layers of subsidiaries beyond such numbers as may be prescribed.
Explanation: For the purposes of this clause-
1. a company shall be deemed to be a subsidiary company of the holding company even if the
control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the
holding company;
2. the composition of a company’s Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the directors;
3. the expression “company” includes any body corporate;
4. “layer” in relation to a holding company means its subsidiary or subsidiaries.
5. Holding Company:
Defined u/s 2(46) of the CA, 2013 –“holding company”, in relation to one or more other
companies, means a company of which such companies are subsidiary companies;
Explanation: For the purposes of this clause, the expression “company” includes any body
corporate.
6. Associate Company:
Defined u/s 2(6) of the CA, 2013 – “associate company”, in relation to another company, means
a company in which that other company has a significant influence, but which is not a subsidiary
company of the company having such influence and includes a joint venture company.
Explanation: For the purpose of this clause:
1. the expression “significant influence” means control of at least 20% of total voting power, or
control of or participation in business decisions under an agreement;
2. the expression “joint venture” means a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement;
7. Producer Company:
Common parlance- A producer company can be defined as a legally recognized body of farmers/
agriculturists with the aim to improve the standard of their living, and ensure a good status of
their available support, incomes and profitability.
Definition- “Producer Company” means a body corporate having objects or activities specified in
section 581B and registered as Producer Company under the Companies Act, 1956.
Proviso to section 465(1) of the CA, 2013 prescribes – that the provision of Part IX A of
the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a
manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for
Producer Companies.
Note: Recently the Companies (Amendment) Bill, 2020 was introduced in LokSabha i.e. on
March 17, 2020. Thus with this bill aims to remove these provisions and adds a new chapter in
the Act with similar provisions on producer companies.
Some Conditions for Producer Company explained! :
Only persons engaged in an activity connected with, or related to, primary produce can
participate in the ownership.
The members have necessarily to be primary producers.
Name of the company shall end with the words “Producer Company Limited“.
On registration, the Producer Company shall become as if it is a private limited company for the
purpose of application of law and administration of the company, However it shall comply with
the specific provisions of part IXA until a special Act is enacted for Producer Companies.
To incorporate Producer Company any of the following combination of producers is required:
10 or more producers (individuals); or
2 or more producer institutions; or
Combination of the above 2.
Every Producer Company shall have at least 5 director but not more than 15. (Provided that in
the case of an inter-State co-operative society incorporated as a Producer Company, such
Company may have more than 15 directors for a period of one year from the date of its
incorporation as a Producer Company.)
PART IXA of Companies Act 1956 comprises of XII Chapters which prescribes different
provisions to be complied by Producer Company.
8. Dormant Company:
In case of company is formed and registered under this Act for a future project or to hold an asset
or intellectual property and has no significant accounting transaction, such a company or an
inactive company may make an application to the Registrar for obtaining the status of a dormant
company.
Thereafter Registrar on consideration of the application shall allow the status of a dormant
company to the applicant and issue a certificate.
“Inactive company” means a company which has not been carrying on any business or operation,
or has not made any significant accounting transaction during the last two financial years, or has
not filed financial statements and annual returns during the last two financial years.
In case of a company which has not filed financial statements or annual returns for two financial
years consecutively, the Registrar shall issue a notice to that company and enter the name of such
company in the register maintained for dormant companies.
Registrar have power to strike off the name of a dormant company from the register of dormant
companies, which has failed to comply with the requirements of this section.
Differences between Public Company and Private Company

S. Section Brief Private Limited Public Limited

No. Description Company Company

1 2 Meaning Minimum Capital : Rs. Minimum Capital : Rs.

100000Right to transfer 500000Subsidiary of a
the shares: Restricted Public Co. is deemed to
be a public Co.

2 2 Small Company If Paid-up Share Capital Not Applicable

does not exceed Rs. 50
Lakhs and Turnover as
per Last Audited
accounts does not exceed
Rs. 2 Crore

2 3 Minimum 2 (Two),Maximum 200 7 (Seven)

 Members (Two Hundred)
Required

3 4 Name of the “Private Limited” as Last “Public Limited” as Last

Company Word Word

4 5 Provision of To be agreed and To be agreed and

entrenchment in approved by all the approved through a
the Articles members Special Resolution

5 23 Issue of Securities By way of Right Issue or To Public through

Bonus IssueThrough Prospectus (“Public
Private Placement Offer”)By way of Right
Issue or Bonus
IssueThrough Private
Placement

6 29 Public Offer to be Not Applicable In case of public offer of

in Dematerialised securities, the securities
Form have to be in
Dematerialised Form

7 40 Securities in Not Applicable Securities offered in

Public Offer to be Public Offer, to be listed
listed in Stock in Recognised Stock
exchanges Exchanges

8 67 Purchase / Loan Not allowed to Purchase Not allowed to Purchase

for Purchase of its own Shares its own Shares;No
Own Shares Financial assistance to be
given to purchase its own
shares

9 73 Acceptance of Not allowed to accept Allowed if Paid up share

Deposits deposit capital is Rs. 100 Crore
 or more orTurnover of
Rs. 500 Crore or more

10 103 Quorum of Two members personally Five in case of Members

Meetings present upto 1000;Fifteen in case
of Members more than
1000, upto 5000;Thirty
in case of Members
exceed 5000.

11 138 Internal Audit Applicable in case of : Applicable in case of :

1.      Turnover >= Rs. 1.      Paid Up Capital >=
200 Crore in preceding Rs. 50 Crore in the
financial year,OR2.      preceding financial year,
Loans from bank or OR2.      Turnover >=
NBFCs >= Rs. 100 Crore Rs. 200 Crore in
in preceding financial preceding financial
year year,OR
3.      Loans from bank or
NBFCs >= Rs. 100 Crore
in preceding financial
year, OR
4.      Public Deposit >=
Rs. 25 Crore in
preceding financial year

12 134 (3) Annual Not Applicable If Paid up share capital is

(p) Evaluation in the Rs. 25 Crore or more, the
Board’s Report details of annual
evaluation in the Board’s
Report

13 139 (2) Rotation of Applicable in case of Applicable in case of

 Auditor Paid up Capital is Rs. 20 Paid up Capital is Rs. 10
Crore or more Crore or more

14 149 No. of Directors 2 (Two);Not required to 3 (Three); andIn case of

and Independent appoint independent Listed Companies, at
Directors director least One-Third as
independent directors

15 152 Retirement by Not Applicable At least two-third of total

rotation – no. of directors be liable
Appointment of to retire by rotation and
Director eligible of being re-
appointed in AGM

16 190 Contract of Not Required (Optional) Compulsorily Required

Employment with
Managing
Director / Whole
Time Director

17 197 Restriction on No restriction on amount Managerial

Managerial of managerial Remuneration
Remuneration remuneration is:Restricted to 11% of
Net profit (subject to
conditions); ORat least
Rs. 30 lakh p.a.
depending upon paid up
capital

Corporate Veil and its Exceptions

Introduction
Before dealing with the lifting of corporate veil it is pertinent to define corporate veil it is
pertinent to define what the meaning of a company is. A company has no particular definition
but section 3(1) (i) of the Companies Act attempts to provide the meaning of the word in context
of the provisions and for the use of this act. It states ‘a company means a company formed and
registered under this Act or an existing company as defined in Section 3(1) (ii).
A legal concept that separates the personality of a corporation from the personalities of its
shareholders, and protects them from being personally liable for the company’s debts and other
obligations.
Lifting of Corporate Veil
At times it may happen that the corporate personality of the company is used to commit frauds
and improper or illegal acts. Since an artificial person is not capable of doing anything illegal or
fraudulent, the façade of corporate personality might have to be removed to identify the persons
who are really guilty. This is known as ‘lifting of corporate veil’.
It refers to the situation where a shareholder is held liable for its corporation’s debts despite the
rule of limited liability and separate personality. The veil doctrine is invoked when shareholders
blur the distinction between the corporation and the shareholders. A company or corporation can
only act through human agents that compose it. There are two existing theories for the lifting of
the corporate veil. The first is the “alter- ego” or other self theory and the other is the
“instrumentality” theory.
The alter ego theory considers if there is in distinctive nature of boundaries between the
corporation and its shareholders.
The instrumentality theory on the other hand examines the use of a corporation by its owners in
ways that benefit the owners in ways that benefit the owner rather than the corporation. It is up to
the court to decide on which theory to apply or make a combination of the two doctrines.
Statutory Provisions
Section 5 of the Companies Act defines the individual person committing a wrong or an illegal
act to be held liable in respect of offences as ‘officer who is in default’. This section gives a list
of officers who shall be liable to punishment or penalty under the expression ‘officer who is in
default’ which includes a managing director or a whole-time director.
Section 45 – Reduction of membership below statutory minimum: This section provides that if
the members of a company are reduced below seven in the case of a public company and the
company continues to carry on business for more than six months.
Misstatements in Prospectus(Section 34-35)
In case of misrepresentation in a prospectus, the company and every director, promoter, expert
and every other person, who authorised such issue of prospectus shall be liable to compensate the
loss or damage to every person who subscribed for shares on the faith of untrue statement.
Besides, these persons may be punished with imprisonment for a term which shall not be less
than six months but it may extend to ten years and shall also be liable to fine which shall not be
less than the amount involved in the fraud, but which may extend to three times the amount
involved in the fraud .
Failure to Return the Application Money (Section 39):
 In case of issue of shares by a company to the public, if minimum subscription, as stated in the
prospectus has not been received within 30 days of the issue of prospectus or such other
period[iv] the application money shall be repaid within a period of fifteen days from the closure
of the issue and if any such money is not so repaid within such period, the directors of the
company who are officers shall jointly and severally be liable to pay that money with fifteen
percent per annum. In addition, the company and its officer who is in default shall be liable to
penalty of one thousand rupees for each day during which such default continue or one lakh
rupees, whichever is less.
Misdescription of Name (Section. 121):
As per section 12, a company shall have its name printed on hundis, promissory notes, bills of
exchange and such other documents as may be prescribed. Thus, where an officer of a company
signs on behalf of the company any contract, bill of exchange, hundi, promissory note or cheque
or order for money, such person shall be personally liable to the holder if  the name of the
company is cither not mentioned or is not properly mentioned.
For Example; where on a cheque, the name of a company was stated as “LR Agencies Limited”
whereas the real name of the company, was “L&R Agencies Ltd”, the signatory directors were
held personally liable[v].
Fraudulent Conduct (Section 339)
Where in the case of winding up of a company it appears that any business of the company has
been carried on with intent to defraud the creditors or any other person, or for any fraudulent
purpose, if the Tribunal thinks it proper so to do, be made personally liable without limitation to
liability for all or any debts or other liabilities of the company. Liability under this section may
be imposed only if it is proved that the business of the company has been carried on with view to
defraud the creditors.[vi]
Ultra-Virus Acts:
Directors and other officers of a company will be personally liable for all those acts which they
have done on behalf of a company if the same are ultra vires the company. 
Prevention of Fraud and Improper Conduct:
Where the medium of a company has been used for committing fraud or improper conduct,
courts have lifted the veil and looked at the realities of the situation.
Formation of Subsidiary to act as Agents:
If Company A forms a subsidiary Company B for carrying out its functions there exists no
difference between the two companies as both perform the same functions in such case, the court
can pierce the corporate veil and penalise the entities.
Protection of Revenue:
Many a time, a company is formulated in to get an ostensible benefit in the garb of loans and
revenue. To tackle such problems, the court may pierce the corporate veil.
Economic Offences
In case of economic offences a court is entitled to lift the veil of corporate entity and pay regard
to the economic realities behind the legal facade.

Company Avoiding Welfare Legislations:

Welfare Legislations especially in country like India hold a profound role and importance since
the working class are often subjected to exploitation at the hands of the corporations. Thus any
attempt to evade and escape the responsibility entrusted by the statute is a gross violation of law
and must be punished with the strictest of the hand of the court.
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