• COMPANY LAW

• Companies Act 2013

• contains-

• 29 chapters

• 470 sections

• 7 schedules

• replace the Companies Act, 1956

• received the assent of the President on August 29, 2013 and

• was notified in the Gazette of India on 30.08.2013

• applicability of the Act (Sec-1)

• Company

• insurance companies

• banking companies

• Electricity company

• company governed by any special Act

• Notified company.

• MEANING OF COMPANY

• Derived from Latin word -Com=with or together; panis =bread

• an association of persons who took their meals together

• The word ‘corporation’ is derived from the Latin term ‘corpus’ which means ‘body’.

• The Companies Act, 2013 contains 470 sections and seven schedules.

• The entire Act has been divided into 29 chapters.

• Definition Section 2(20)

• Definition Section 2(20)

• Company means a company incorporated under this Act or under any previous company law.

• professor Haney “A company is an incorporated association, which is an artificial person created

by law, having a separate entity, with a perpetual succession and a common seal.”

• Separate Legal Entity

• NATURE & CHARACTERISTICS OF A COMPANY

• (i) Separate Legal Entity:-A company is a separate and distinct legal entity from its
subscribers/members and Board of directors.

• It has its own legal existence independent of its members and directors.

• It has its own name.

• It can enter into contracts and sue and be sued by its members as well as outsiders.

• it can acquire assets or open bank account in its own name.

• Salomon v. Salomon and Co. Ltd., (1897)

• Lee v. Lee’s Air Farming Ltd. (1961)

• Macaura v. Northern Assurance Co. Limited (1925):

• NATURE & CHARACTERISTICS OF A COMPANY

• (ii) Limited Liability:- The liability of each member is limited to the unpaid nominal value of
shares held by him.

• company limited by guarantee, the members are liable only to the extent of the amount
guaranteed by them and that too only when the company goes into liquidation.

• if it is an unlimited company, the liability of its members is unlimited

• NATURE & CHARACTERISTICS OF A COMPANY

• (iii) Perpetual Succession:-An incorporated company never dies except when it is wound up as
per law.

• A company’s life is determined by the terms of its Memorandum of Association.

• Perpetual succession, means the membership of a company may keep changing from time to
time, but that does not affect its continuity.

• Professor L.C.B. Gower rightly mentions, “Members may come and go, but the company can go
on for ever. During the war all the members of one private company, while in general meeting,
were killed by a bomb, but the company survived — not even a hydrogen bomb could have
destroyed it

• NATURE & CHARACTERISTICS OF A COMPANY

• (iv) Artificial Legal Person:

• It is legal or judicial person as it is created by law.

• members can contract with company, acquire right against it or incur liability to it. It can sue and
be sued in its own name.
• It can do everything which any natural person can do

• As the company is an artificial person,it can act only through some human agency, viz.,
directors.

• NATURE & CHARACTERISTICS OF A COMPANY

• (v) Common Seal: It is the official signature of a company, which is affixed by the officers and
employees of the company on its every document.

• In case a company does not have a common seal, the authorization shall be made by two
directors or by a director and the Company Secretary, wherever the company has appointed a
Company Secretary.

• Concept of Corporate Veil

• a legal concept whereby the company is identified separately from the members of the
company.

• The term Corporate Veil refers to the concept that members of a company are shielded from
liability connected to the company’s actions.

• The shareholders are protected from the acts of the company.

• Lifting of or piercing through the corporate veil

• Lifting of or piercing through the corporate veil

• The separate personality of a company is a statutory privilege and it must be used for legitimate
business purposes only.

• Where a fraudulent and dishonest use is made of the legal entity, Court will break through the
corporate personality/shell

• Lifting of corporate veil means disregarding the separate legal entity of a company and
identifying the realities which exist behind the legal facade.

• Lifting of or piercing through the corporate veil

• 1. To determine the character of the company Daimler Co. Ltd. vs. Continental
Tyre & Rubber Co.,

• 2. To protect revenue/tax: Dinshaw Maneckjee Petit

• 3. To avoid a legal obligation: workmen of ARIL vs ARIL

• 4. Formation of subsidiaries to act as agents

• Merchandise Transport Limited vs. British Transport Commission

• 5. Company formed for fraud/improper conduct

• Gilford Motor Co. vs. Horne

• Company limited by shares: Section 2(22)

• A company limited by shares means a company having the liability of its member limited to the
amount if any, unpaid on the shares held by them.

• shareholder is a co-owner of the company, he is not a coowner of the company’s assets

• Company limited by guarantee: Section 2(21)

• a company the liability of whose members is limited to such amount as the members have
undertaken to contribute to the assets of the company in the event of its being wound up.

• the liability of its members is limited to a fixed sum guaranteed by them and beyond which they
can never be called upon to pay.

• Distinction

• (i) In a company limited by shares, share capital is a must but in a company limited by
guarantee share capital may or may not be.

• (ii) A company limited by shares can call the unpaid amount on shares at any time but a
company limited by guarantee can call the guaranteed amount only in the event of its being
wound up.

• (iii) A company limited by shares is usually formed for business purposes whereas a company
limited by guarantee is generally formed for charitable purposes or for promotion of arts,
commerce, science, sports, education, religion etc.

• Unlimited company: Section 2(92)

• An unlimited company means a company not having any limit on the liability of its members.

• An unlimited company may be with or without share capital.

• Creditors cannot directly sue against the individual members.

• Creditors have to file a petition for winding up of the company and the company liquidator shall
call upon the members to contribute to the company the amount necessary to discharge the
debts and liabilities of the company

• Private Company [Section 2(68)]

• a company having a minimum paid-up share capital as may be prescribed, and which by its
articles,—

• (i) restricts the right to transfer its shares;

• (ii) Limits the number of its members to two hundred

• (iii) prohibits any invitation to the public to subscribe for any securities of the company

• Minimum number of members – 2

• Maximum number of members – 200

• Small company and OPC is a private company

• Public company [Section 2(71)]

• a company which—

• (i) is not a private company; and

• (ii) has a minimum paid-up share capital, as may be prescribed

• Subsidiary of a public company is deemed to be a public company

• Minimum number of members – 7

• Maximum numbers of members – No limit

• Small company [section 2(85)]

• (i) paid-up share capital of which does not exceed 2 crore rupees or such higher amount as may
be prescribed which shall not be more than 10 crore rupees; and

• (ii) turnover of which as per profit and loss account for immediately preceeding year does not
exceed 20 crore rupees or such higher amount as may be prescribed which shall not be more
than 100 crore rupees

• Exceptions; this clause shall not be

• (A) a holding company or a subsidiary company;

• (B) a company registered under section 8; or

• (C) a company or body corporate governed by any special Act;

• Holding Company section 2(46)

• a company of which such companies are subsidiary companies and the expression “company”
includes any body corporate

• Subsidiary Companies section 2(87)

• a company in which the holding company—

• (i) controls the composition of the Board of Directors; or

• (ii) 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
• shall not have layers of subsidiaries beyond such numbers as may be prescribed.

• Subsidiary Companies section 2(87)

• Associate company [Section 2(6)]

• a company in which that other company has a significant influence, but which is not a subsidiary
company and includes a joint venture company

• “significant influence” means control of at least 20% of total voting power, or control of or
participation in business decisions under an agreement

• Listed company section 2(52)

• company which has any of its securities listed on any recognised stock exchange

• Unlisted company: means company other than listed company

• Government company [Section 2(45)]

• any company in which not less than 51% of the paid-up share capital is held by-

• (i) CG or

• (ii) SG or

• (iii) partly by CG and partly by SG, and

• the section includes a company which is a subsidiary company of such a Government company.

• Foreign Company [Section 2(42)]

• company or body corporate incorporated outside India which—

• (i) has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and

• (ii) conducts any business activity in India in any other manner

• Formation of companies with charitable objects [sec-8]

• Formation of companies with charitable objects [sec-8]

• 1. Object of formation of Section 8 Company : formed to promote the charitable objects of

commerce, art, science, sports, education, research, social welfare, religion, charity, protection
of environment etc. Such company intends to apply its profit in promoting its objects and
prohibiting the payment of any dividend to its members. Not use words "Ltd." or "Pvt Ltd after
name

• 2. Power of Central government to issue the license :

• 3. Privileges of limited Company : enjoy privileges and obligations as of a limited company.

• 4. A firm may be a member of the company registered under section 8.

• 5. Alteration of Memorandum and Articles : shall not alter the provisions of its memorandum or
articles except with the previous approval of the Central Government.

• 6. Conversion into any other kind of Company

• Formation of companies with charitable objects [sec-8]

• 7. Revocation of license: contravenes this sections or where the affairs of the company are
conducted fraudulently, or violation of the objects of the company or prejudicial to public
interest

• in the public interest, direct that the company be wound up under this Act or amalgamated with
another company registered under this section.

• 8. Penalty/ punishment in contravention: company shall, be punishable with fine varying from
10 lakh rupees to one crore rupees

• directors and every imprisonment for a term which may extend to 3 years or with fine varying
from 25,000 rupees to 25 lakh rupees, or with both.

• Formation of companies with charitable objects [sec-8]

• 9. Exceptions:

• (i) Can call its general meeting by giving a clear 14 days notice instead of 21 days.

• (ii) Requirement of minimum number of directors, independent directors etc. does not apply.

• (iii) Need not constitute Nomination and Remuneration Committee and Shareholders
Relationship Committee

• Dormant company (Section 455)

• a 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 in such
manner as may be prescribed for obtaining the status of a dormant company

• 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

• “Significant accounting transaction”

• any transaction other than-

• (i) payment of fees by a company to the Registrar;

• (ii) payments made by it to fulfil the requirements of this Act or any other law;

• (iii) allotment of shares to fulfil the requirements of this Act; and

• (iv) payments for maintenance of its office and records

• Nidhi Companies

• A nidhi company is a type of company in the Indian non-banking finance sector, recognized
under section 406 of the Companies Act, 2013

• their core business is borrowing and lending money between their members.

• They are also known as Permanent Fund, Benefit Funds,Mutual Benefit Funds and Mutual
Benefit Company

• Public Financial Institutions (PFI) Section 2(72)

• (i) LIC

• (ii) IDFC

• (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal)
Act, 2002;

• (iv) institutions notified by the CG

• (v) such other institution as may be notified by the Central Government in consultation with the
Reserve Bank of India

• Conditions for an institution to be notified as PFI

• established or constituted by or under any Central or State Act

• not less than fifty-one per cent of the paid-up share capital is held or controlled by CG or SG or
Both

• Promoter section 2(69)

• Named:

• Control:

• Advice, directions or instructions:

• Formation of Company [Section 3]

• (1) A company may be formed for any lawful purpose by—

• (a) 7 or more persons- public company;

• (b) 2 or more persons- private company; or

• (c) 1 person- One Person Company

• by subscribing their names to a memorandum and complying with the requirements of this Act
in respect of registration

• INCORPORATION OF COMPANY: Section 7

• (1) Filing of the documents and information with the registrar

• (a) Signed by subscribers:-

• (b) Declaration:-

• (c) Affidavit of subscriber:

• (d) Address

• (e) Particulars of subscriber

• (f) Particulars of the interests of the persons

• INCORPORATION OF COMPANY: Section 7

• (2) Issue of certificate of incorporation on registration

• (3) Allotment of Corporate Identity Number (CIN)

• (4) Maintenance of copies of all documents and information

• (5) Furnishing of false or incorrect information or suppression of material fact

• (6) Company already incorporated by furnishing any false or incorrect information

• INCORPORATION OF COMPANY: Section 7

• (7) Order of the Tribunal

• (a) pass such orders for regulation of the management

• (b) direct that liability of the members shall be unlimited; or

• (c) direct removal of the name of the company from the register of companies;

• (d) pass an order for the winding up of the company; or

• (e) pass such other orders as it may deem fit:

• Effect of memorandum and articles Section-10.

• Memorandum and articles bind:

• (a) The memorandum and articles constitute a contract binding the members of the company
[Boreland’s Trustee v. Steel Brother and Co. Ltd. (1901)]
• (b) Memorandum and articles constitute a contract binding the company to its members in their
capacity as members, a member can bring an action against the company for infringement by it
of the memorandum or articles.

• (c) members inter se each member is bound by the articles to the other members but a member
of a company has no right to bring a suit to enforce the articles in his own name against any
other member

• (d) neither the memorandum nor the articles would give any contractual rights to outsiders
against the company or its members even though the names of outsiders are mentioned in
those documents [Eley v. Positive Life Insurance Co., (1876)

• Classification of capital

• Nominal or authorised or registered capital: [section 2(8)] capital authorised by the

memorandum of a company to be the maximum amount of share capital of the company upon
which it pays the stamp duty

• Issued capital: Section 2(50) which means such capital as the company issues from time to time
for subscription

• Subscribed capital: Section 2(86) part of the capital which is for the time being subscribed by the
members of a company

• Called-up capital: Section 2(15) part of the capital, which has been called for payment. It is the
total amount called up on the shares issued.

• Paid-up capital: total amount paid or credited as paid up on shares issued.

• Share Section 2(84)

• a share in the share capital of a company and includes stock.

• The share capital of a company is divided into small units having a certain face value. Each such
unit is termed as share

• Shares are a movable property

• Shares shall be numbered

• Kinds of share capital

• Deemed preference capital

• it has a right to participate in respect of dividends in addition to the preferential rights

• it has a right to participate in respect of capital in any surplus which may remain after the entire
capital has been repaid.

• Memorandum of association sec-4

• Means the memorandum of association (MOA) of a company as

• originally framed or

• as altered from time to time in pursuance of any previous company law or of this Act; [section
2(56)]

• Object of registering a memorandum of association

• Cotman v. Brougham 1918

• 1. object and scope of its operations beyond which its actions cannot go.

• 2. It enables shareholders, creditors and all those who deal with company to know what its
powers are and what activities it can engage in.

• 3. The shareholders must know the purposes for which his money can be used by the company
and what risks he is taking in making the investment.

• Contents of memorandum

• 1. The name of the company or the name clause.

• 2. The State in which the registered office of the company is to be situated or the
registered office clause.

• 3. Objects of the company or the object clause.

• 4. Liability of the members of the company or the liability clause.

• 5. Capital of the company or the capital clause.

• 6. The subscribers, clause. This clause contains names and other particulars of subscribers
to the memorandum.

• 7. Nomination clause. This clause is applicable only in case of OPC.

• Forms and schedule related to MOA and AOA Schedule I

• Tables A -company limited by shares

• Tables B- company limited by guarantee and not having a share capital

• Tables C-company limited by guarantee and having a share capital

• Tables D- Unlimited company and not having a share capital

• Tables E- Unlimited company and having a share capital

• Tables F -company limited by shares

• Tables G- company limited by guarantee and not having a share capital

• Tables H-company limited by guarantee and having a share capital

• Tables I- Unlimited company and not having a share capital

• Tables J- Unlimited company and having a share capital

• DOCTRINE OF ULTRA VIRES

• The phrase ultra vires consists of two Latin words ultra and vires. Ultra means beyond and vires
means powers.

• ultra vires means the acts beyond the legal powers or objects of the company.

• A company has powers to do acts or make contracts permitted expressly or implied by its
memorandum.

• any act done or contract made by a company beyond the express or implied limites of its
memorandum is ultra vires company. An ultra vires act or contract is null and void.

• it cannot be ratified even by unanimous consent of the members of the company.

• Neither the company nor the other contracting party can sue on it.

• [Ashburry Railway Carriage and Iron Co. Ltd. v. Riche, (1875)

• articles of association section 2(5)

• Means the articles of association (AOA) of a company as

• originally framed or

• as altered from time to time in pursuance of any previous company law or of this Act; [section
2(5)]

• articles of association section 2(5)

• (1) Contains regulations

• (2) Inclusion of matters

• (3) Entrenchment provisions

• articles of association section 2(5)

• (4) Forms of articles

• (5) Model articles

• (6) Company registered after the commencement of this Act: do not exclude or modify the
regulations contained in the model articles

• 7) Section not apply on company registered under any previous company law

• DOCTRINE OF CONSTRUCTIVE NOTICE

• The memorandum and articles, when registered with the Registrar, become public documents.

• doctrine of constructive notice' states that every person dealing with a company is deemed to
have notice of the contents of memorandum and articles of the company.

• a person enters into a contract which is beyond the powers of the company or its directors, he
cannot acquire any rights under the contract against the company.

• [Mohony v. East Holyfrod Mining Co., (1875) articles provide that a bill of exchange to be
effective must be signed by two directors, a person dealing with the company must see that it is
so signed

• [Kotla Venkataswamy v. Rammurthy, AIR 1934]

• Doctrine of Indoor Management

• Doctrine of Indoor Management

• Royal British Bank v. Turquand

• The doctrine of indoor management' is an important exception or limitation on the doctrine of

constructive notice.

• doctrine of constructive notice protects the company against the outsiders whereas the doctrine
of indoor management protects outsiders against the company, who act in good faith.

• persons dealing with the company are not bound to enquire into the regularity of internal
procedure of the company. They are entitled to assume that everything has been done in
accordance with the procedure prescribed by the company's articles.

• Exceptions

• 1. knowledge of irregularity (Howard v. Patent Ivory Co)

• 2. No knowledge of memorandum and articles [Rama Corporation v. Proved Tin & General
Investment Co. (1952)]

• 3. Forgery [Rouben v. Great Fingal Consolidated (1906)].

• 4. Negligence [Underwood v. Bank of Liverpool (1924)]

• 5. Acts outside the scope of apparent authority [Anand Behari Lal v. Dinshaw & Co. (Bankers) Ltd.
AIR 1942]