July 5, 2022

05 July 2022 09:07

Nature of the Company -

Personality and Various Aspects of Personality -

In Legal Sense,
- Sue/be sued
- Consciousness/ Decision Making
- Have Rights and Obligations
- Treatment of Individuals under Law
- Acceptance by others.

"We have one entity - which has one Legal recognition - which have recognition in
the eyes of the law.

Definition of Company - Section 2(20) of the Companies Act - A company is an

entity incorporated under the Companies Act.

Legal Recognition as to Natural Person and Legal Persons -

Natural Persons - Recognition through Voter Ids, Birth Certificate - recognition to

an individual.

The earliest import of the term personality was based on the vertical relationship
between sovereign and Natural persons. It means different level of powers i.e.,
one - governing authority and second, - govern.

Approaches as to define Personality -

1. Triangular Approach - - It discussed about the capacity aspect. 1. Economic
Interest, 2. Legal Interest. Legal personality has two branch, 1. Economic
Interest or Right and, 2. to protect economic interest - Legal Interest.
Until and Unless your economic interest is with legal interest - it means.
If you have certain rights - it means to have corresponding obligations. If you have
substantive legal interest in the form of substantive law to protect economic rights,
then you will be considered legal personality.

Interest theory came from -

1. Legal Capacity Approach - It said that if you are someone who can execute
legal documents in your own name, then you would be considered legal
persons. Legal persons would include natural and Juristic persons.
These approaches came in a legal sense.

In response to the Legal capacity theory, triangular approach came into fore
because what was legal documents and what does the capacity mean was not clear.

Read Salmon v. Salmon - first case that gave the idea of Juridical persons - Juridical
personality as well as corporate personality evolved from this case.
July 6, 2022
06 July 2022 09:04

After Industrial revolution, people started to form associations known as Guilds -

they started to culminate interest of the Individuals.
1. Corpus - talks about the cumulative Part (essentially the sum of all parts).
2. Animus - talks about the individual element

For e.g., Batch of 2025 will have two identities - corpus identity - is of batch.
Animus identity - an individual of that batch.

Every single person will have an individual entity of his own. Previously, we were
talking about animus, but once these Guilds formed, we started to look "Corpus"
too.

When these associations represent individual interest, can these associations be

grant the same legal personality as individuals?
Principle of Triangular Approach applied to these associations - yes, they can be
granted as they can protect economic interest of individuals.

Two distinct category of Legal Personality -

1. Legal personality of Natural Person
2. Juridical personality

Though they have legal personality, whether they can be called as real persons or
artificial persons?
Two school of approaches are there -
1. Artificial persons - Identity came from legal recognition, not society one.
Does not have any existence of its own - so, it won't be considered separate
from its part of the associations(Animus). If you take away the individuals, the
association will no longer exist.
2. Realist School - say that even if it is Juridical persons, it is real persons
because it has his rights, duties, obligations and liabilities.
Can an association have mental faculties of its own? No, because the
associations' actions will be reflective of its member's thought process.
Therefore, these theory was Rejected.

Therefore, even now we considered associations and Juridical persons as Artificial

persons.

Juridical persons - It doesn't have its own existence. It has been accorded legal
personality to protect economic interest of its members. It is an abstract entity. It
derive its existence from natural persons.

Distinction between Juridical Personality and Corporate Personality.

There are essentially four theories about Artificial Person - (Why Juridical
personality will be considered legal personality)
 1. Legal Fiction theory - Import of the Analytical school (which talks about law
being derivative from the state for the betterment of people i.e., Bentham and
Salmond. Basic idea - You are creating a fictitious identity - to protect your
individual interest - in combined aspect. Association made by group of
individuals - created out of figment of imagination which was later accorded
legal status.
2. Concession Theory - there is fictious identity - to protect the interests of its
constitutent members.
Why they are different though?
The difference is the Source from which its legal personality is coming from. In
concession, legal personality is derived from the state. In Legal fiction theory, no
permission required from the State. Legal personality here is derived from your
own.

3. Symbolic theory/Bracket Theory

4. Purpose -

Read Salomon Case

July 7, 2022
07 July 2022 08:57

Legal Fiction Theory - Individuals create a fictitious entity to achieve common

goal/objective which was then accorded legal personality. State will plays role in
determining liability part, not in formation. This theory represents current
situations.
Legal Fiction theory - i.e., about Lassez-faire - Minimum State Intervention.

Concession Theory - Again these individuals will create the fictitious entity.
Without state, you can't create fictitious identity. State plays a role in both
formation and liability. E.g. - Government Joint Venture, Establish a Public Sector
Undertaking (PSU's).
Concession Theory i.e., about Closed Economy

Symbolic Theory/Bracket Theory - It is part of sociological school of

thought. Whenever an artificial person/association is created, all the natural
person will become part of the association. A bracket will be created - you become
part of that bracket knowingly - only for that common goals, that association will
be Juridical entity.
After that goal/interest is achieved, that bracket will be discarded - again, you will
be known as individual entities and you will not be connected with this bracket.

It will have legal personality concerning only particular goals and interest. As soon
as you move away from those goals, that legal personality accorded will not be
there.

Purpose Theory - You can create a bracket for sometimes specific purpose -
bracket will give structural form - a common goal can be represented by Juridical
entity.
We can create bracket known as common goals, the nature of goals though can
change over time (which will be interpret them as Purposes) - which we can
change according to demand.
Note: Goals should be common for all the members in the Purpose theory. They
can be dynamic. All the people must be agree to the Goals and Objective earlier -
however, now it is changed - 75% of the majority required (Special Resolution).
Note: Juridical entity cannot face criminal charges. The person constituting those
entity can be charged Criminally.

https://lawtimesjournal.in/theories-of-corporate-personality/

990411_1615125045.docx
Case - Salomon v. Salomon - Landmark Case

We had idea that Juridical entity - is Artificial Legal Persons. By this stage,
Company Law/Incorporation Laws already evolved in UK. Now, we have Guilds,
Partnership and Company.
There were other forms as well. But, in 1897, where the case of A. Salomon v.
Salomon Co. Pvt. Ltd..
Facts: A. Salomon was sole proprietor previously then he sold the business to
Private Limited Company for total of 20,000 Pound/each share being 1 Pound.
99% of the shares were held by Salomon and 1% by others. While he was running
sole proprietorship, he taken a Loan and before the default happen, the business
was converted into company.

Salomon argued that when default happen, it was company - which have its own
Juridical personality.

Halsbury Court and Court of Appeals did not differentiate - Even if it's company,
you hold 99% shares of the company stating that company and you essentially
does not have any difference - we can't differentiate individual natural person and
legal person.

Court of Appeals upheld the High Court decision and also said that - even if it's
Juridical entity, we are talking about liability - the Juridical entity can't pay fines,
you are the one who has to pay fines.
There are not much difference between Juridical entity and Natural entity.
 Appeal in House of Lords - They devised the concept of Corporate Legal
Personality - they created another category of Juridical personality i.e., Body
Corporate. There is difference between Corporate Body and Body Corporate. We
cannot says that Natural person forming Body Corporate and Body Corporate are
same -
Reason - they said that whenever you are forming body corporate, you effective
give your conciousness to body corporate for the reason so that body corporate
can act to your interest. For the purpose of protection of your interest, you are
creating body corporate to which you are lending your consciousness. This
conciousness is culmination of what natural person thinks. Body corporate will be
regarded as different persons which is separate from Natural persons.
Mr. Solamon and Company is completely two different entities. Body corporate is
also not a strict entity. ;

Can the protect of corporate legal personality will be accorded to natural

persons in every stage?
No, but they said that As an extension of corporate legal personality, we came to
the concept of "Corporate Veil" which protects the natural persons from body
corporate.
This Veil differentiates natural entity from Juridical entity. Further, this veil
is not absolute in nature and can be done away with.

Difference between Body Corporate and Corporate Body -

• Legal Status: A company has a separate entity from its owners; but in certain cases
like frauds, members or partners might be held liable; whereas a corporate has
totally separate legal entity from its owners/shareholders.

https://www.quora.com/What-is-the-difference-between-a-company-and-a-body-
corporate
July 8, 2022
08 July 2022 09:02

Body Corporate - has its own separate Legal existence

Anything other than Body Corporate which have association of natural persons -
will also be Juridical Personality.

Corporate Legal Personality - is the principle

Entity - Body Corporate.

From the principle of Corporate Legal Personality - we came up with corporate

veil - it is the protection arising from the separate legal existence.

Corporate Legal Personality - combination of Realist School and Artificial School

of thought.
July 11, 2022
11 July 2022 09:06

When we are talking about entirety of body corporate -

First we have Juridical entity, then we have body corporate - it is the
combination of all the theories (Artifical + Realism)

Differentiation of Body corporate from other Juridical existence. If we satisfy

below mentioned tests, then a Juridical entity will be known as body corporate.
1. Separate Legal Existence - It exists plane different from the members
constituting it. In Law, this entity (body corporate) will be treated differently in
comparison to natural members. In such case, body corporate will be held
responsible.
Society will be the body corporate but Trust would be not - Trust is not
different from its Trustees - It acts in the manner in which the Trustee desires
to do.
Ask - Sir, what would be the case in partnership? Is it distinct personality
from its partners?
Corporate Veil - that creates the difference between corporate persons and
Natural Persons.
Is the corporate veil absolute? - the Answer is no.

2. Perpetual Succession - Differentiation between office as an institution and

Natural persons. The institution may be distinctly different from office. If
you do not follow the dissolution process or winding up process and
remove the company from Registrar's broadcaster, company would remain
in existence. Company being an artificial person cannot be incapacitated by
illness and it does not have an allotted span of life. Even in cases the
constituting members of the company died, the legal heirs of the deceased
shareholders will become the members. "King is Dead, Long Live The
King" - First term "king" refers to an individual monarch and the second
"King" refers to the office of King i.e., the institution of monarchy.

3. To sue/be sued - Can the entity in its own name can institute the legal
proceedings or can the legal proceedings initiated against you without
making natural persons parties? If yes, then it is the body corporate. A
company's right to sue arises when some loss is caused to the company i.e.,
to the property of the personality of the company. The company can sue
even one of its own members for libel. The right to institute suit on its own
name valid only till the companies' name has not been struck down from
Registrar of companies.
If the company is the aggrieved party - aggrieved by some wrong done to
it - then it must sue or contrarily be sued in the name of company.
4. Common Seal - indication or identity of an entity - can be logo, seal, etc. In
Indian scenario, this requirement was removed post - 2017 amendment
law. In SICAL - CWT Distriparks Ltd. V. Besser Concrete Systems Ltd. - it
is not necessary that the agreement executed on behalf of the company
should bear seal of company but question of whether agreement is valid or
not depend on the facts of each case.
Use of common seal - made optional under the Companies (Amendment)
Act, 2015. As per Section 22 of the Amendment Act, 2015, a company,
may by common seal, empower any person to execute deeds on its behalf
in any place either in or outside India.

If you are body corporate - resultant - the creation of Corporate Veil - the
demarcation of body corporate from Natural persons.
The problem arises - when there is liability. The question arises - Does the
company have mind of its own

Case - Cotton Corporation India Ltd. V. G.C. Odusumathd

First case where the issue of lifting the corporate veil comes into question.
Karnataka High Court held that the lifting of the corporate veil of a company as
a rule is not permissible in law unless otherwise provided by clear words of the
statute or by very compelling reasons such as where fraud is needed to be
prevented or trading with enemy company is sought to be defeated".

First of all, they sad corporate veil is not absolute - it can be pierced. But, this
piercing of corporate veil is not a rule but exceptions -so, how do you interpret
this exception in which you pierce the corporate veil.

Only and only when you have compelling basis - can the Court to go for pierce
the veil.
What do you mean by compelling reasons - there can be two things -
1. This compelling reasons already provided by the statute - Legally
prescribed - if for a default, the statute prescribes individual liability than
corporate liability - those specific provisions would be given effect to
pierce the corporate veil.
2. Public Interest - If it violate public interest, then the individual liability will
be set up.

GK Kapoor -

Meaning and Nature of a Company -

What is a Company?
General Meaning - an association of persons for some common object or
objects.
However, Company, for our purpose, is an association made to fulfil some
economic objective i.e., to carry on a business for gain.

Definition - "A company is a voluntary association of persons who have come

together for carrying on some business and sharing the profits thereon".
Note: Ad Valorem Tax - Tax
Body Corporate - More elaborate Organization - have a corporate legal based on the value of
personality that it constitutes a distinct legal person subject to legal duties and transactions or of the
entitled to the legal rights separate from its members. property. Generally, in case
In Companies Act, 2013, companies can be formed for fulfilment of non- of real estate or personal
property.
economic purposes too.

Prof Haney defined Companies as the "Artificial person created by law, having
separate entity, with a perpetual succession and common seal".

On Registration of the company under the Companies Act, 2013, A company

became a body corporate - acquires a legal personality of its own, separate and
distinct from its members. It is created by law and law alone can regulate,
modify and dissolve it.

Features of the Company/Body Corporate (How it can be distinct from

Juridical entity).

- The Company must be incorporated and Registered under the Companies

Act, 2013. - No. of members in case of public company (7) differs from
number of members in Private company (2) - required to get incorporate.
 One person company is also permitted - under Section 3 of the Companies
Act.
- Separate Legal entity from its members - have its own rights and subjected
to some duties which are not same as rights and duties of its members.
Lord Macnaughten in the A. Salomon's case puts that "The company is at
law a different person altogether from the subscribers……; and though it
may be that after incorporation, the business would precisely remain the
same. But the subscribers as members would not be liable for the
companies' function, the company as a whole would be liable".
Case - Kondoli Tea Co. Ltd. Case (1886)
Calcutta High Court decision - the company is a separate person, a separate
body altogether from the shareholders and the transfer was as much a
conveyance, a transfer of property, as if the shareholders had been totally
different persons".

Read the case of Salomon - once.

Case - Memtec Ltd. V. Lunarmech - Delhi High Court - This above principle
even applies in one person company.

Madras High Court Judgment in case of S.A.E (India) Ltd. V. E.I.D Parry - held
that "the Separate Legal personality of the company is the bedrock of the
Company Law and piercing the "veil" of the company is permissible only in
exceptional circumstances.

Until and unless all liabilities of the company discharged, the members of those
company cannot claim its assets at the time of its dissolution.

The company also have fundamental rights same as natural persons - if the
fundamental rights of the company get infringed - then It is the company who
must filed the suit to challenge such infringement.
July 12, 2022
12 July 2022 09:03

When would the exception came into place for lifting the corporate veil -

- Existence of compelling reasons - either they have to be prescribed in the

statute.
If the statute provides the liability of individual nature - to ensure actual
person who committing the fraud will be held responsible. You don't hold
the company liable.

Public Interest - One can’t define public interest. The purpose to define
"interest" will change in each situation. If I have right, I have corresponding
duty that such rights does nor affect others. Corporate structure and
Corporate Transactions - very
Case - Gotan Limestone Pvt. Ltd. V. Rajasthan Khanij Udhyog important for our purpose.
This case talked about the Corporate structure.

We have a partnership firm - A, that have mining license - if the mining license
transferred to any other company, the directors will remain the same. Now, the
firm A transferred the license to X, the company. No relation between A and X.
Now, if firm wanted to transfer mining license to X, would it be possible?

A direct transfer was not possible since the mining license requires that in case
of transfer, the directors should remain the same.

What they did - they floated Pvt. Ltd. Company D and partners of the firm
vacate the firm and became the directors of the Pvt. Ltd. Company. After that,
there were two transactions -
The firm transferred the mining license to D - Transaction No. 1
X bought D now - Transaction No. 2

By virtue of D being takeover by X, The license went to X.

Company A can initiate transactions on its own.

Now, Judgment - the Court held that transaction 2 was a transfer portrayed as a
takeover. We cannot consider the D and A - two different entities. So, we will
consider these two entities as one entity - this is not the takeover but transfer.
The state argued that -
- Company with its directors and firm is one single entity - if they will be
regarded as two entity, there will be two kinds of transfer. If we regard
them as one entity, Transaction 1 ceases to exist.
If we does not regard them as single entity, we have to look at intent -
- Intent for issuing the mining license - we can't allow random person to do
mining. Permission of sovereign is required for the same. It Kind of
nullifies the power of sovereign to set off the mining license. Private
individual can't do that - we can't take defense of corporate veil. Here,
corporate veil will be pierced which is not the case.

Takeover - all the assets, liabilities, shares, documents - automatically will be in

your own name.

1.
July 13, 2022
13 July 2022 09:10

Company - we have

Holding Company and Subsidiary company - A company will have uplink Player
i.e., Holding company and, Downlink Player i.e., Subsidiary company.

How to determine HC and SC -

HC will have 50% or more shares in another company. Similarly subsidiary

HC, C and SC - together will be called as Corporate Group - Simplest form.

There is a common link between all three entities - Shareholding. It means

directors of the all three will be wholly same or partly same.

We can consider this three entities as one, if need arises.

Our primary transaction - transfer of binding license

- Lease between F & A in lieu of Rs. 1 Lakh - Only Asset of A.

- This is in the nature of Takeover - Price of the takeover was exact same
amount of this particular lease.
- Whether this takeover is correct?

The Argument by A - It should be allowed because they are different entities - the
transfer was done using lease as instrument between F and A. Further, A argued
that - Once the takeover happened, there were few effects -
1. X buys out A.
2. A's existence comes to hand - now, it is part of X.

New X - is before Takeover. After X is the combination of previous assets +

Assets of A.

The Government argued that -

1. Public Interest - Why license was issued? To regulate the mining in the
country. If we allow loophole in the legal process, then it will set as precedent.
2. Intent - The intent of the party was not takeover, the intent of the party was
transferring the license anyhow - it will be Prejudicial to the Public in General.
To bypass the law, you are finding legal ways - to make it happen.

Read Section 230(5) of the Companies Act

July 14, 2022
14 July 2022 09:05

Case - State of U.P v. Renusagar Power Corporation

Case involving state instrumentality and public feel.

Facts - There was a company Hindalco - they want to establish power generation
project - for the purpose of this project, it had floated the company i.e., Renusagar
Power Corporation Private Limited. Renusagar was the Holding owned subsidiary
meaning Hindalco had 100% shares of the Renusagar. The requirements to
establish this project as well as all expenses, negotiations with the State was done
by Hindalco. Now, because, Renusagar was different company - A power purchase
agreement between Hindalco and Renusagar i.e., agreement which discusses the
terms & conditions at which the electricity will be transmitted. It discusses about
two things -
1. Price - decided by arms length or market price. Arms length price concerning
related party transactions. Related party can be any party who have some
control over company. If it does not in Arms control, then the agreement
would be illegal (2013 Guidelines of companies Act).
2. Quantity - Variable quantity clause. In case of quantity, the quantity will be
determined by keeping the mind the financial aims of Renusagar - decided in
accordance to the financial aims of Renusagar - To allow Renusagar to
achieve Break Even Point. There is no restrictions regarding the quantity.
Essentially, Hindalco will also determine the financial aims as well as quantity
needed since directors is same in both.

In the case of subsidiary, Holding company have influence over it by shareholder,

etc., - so, the price can be decided by holding company which even can be
detrimental to subsidiary company but beneficial to holding company. So, to
ensure the price is mutually beneficial, we go for arms length price when two
entities are related.

There are two parameters to determine Variable Quantity clause -

1. Need of Hindalco
2. Need of Renusagar' s financial aims - we chose this in this case.

After this all happened, power generation was started - there are two things at the
time of power generation -
1. Transmission - only possible when you have transmission license. Two things
to have for transmission i.e., Tariff duty and transmission license.
2. Transmission License - by Hindalco

When transmission started, State of UP demanded tariff duty from Renusagar -

Renusagar said there is no requirement since there is no third party transmission
from Renusagar.
July 15, 2022
15 July 2022 09:06

To imposing tariff duty, there are two requirements -

1. Transmission to third party.
2. For the purpose of profit - even if there is no actual profit, the purpose
should always be profit making.

So, now, there are two questions -

- State demanded tariff duty from Renusagar - response was that the either
these two requirements to impose tariff duty was not fulfilled.

Arguments of being subsidiary and wholly owned subsidiary - The state said that
Hindalco and Renusagar - two different entities - so, there is third party
transmission.
In case of subsidiary, there can be third party because other shareholders will be
there. However, since Hindalco is the only shareholder, as far as the functionality is
concerned, Renusagar cannot function.
There should be third party - here, there is no third party in this case - no third
party transaction - it is Just a normal transaction between corporate Group and
entity - these both should be considered one entity. For practical purposes, wholly
owned subsidiary should be considered one entity.

Profit purpose - if we do not consider them third party, it's still for the purpose of
profit - the state said.
If you are transmitting the power, what's the purpose? The state said that it's for
the profit purpose only.
Renusagar said that - profit is not there. We are on Break Even point.

Observation of the Court -

The Court said that -
Will Renusagar can generate its power of own without help from Hindalco since
the state's argument that there are two corporate entities?
No, the license is with Hindalco.

Does Renusagar has any of its assets in question, any liability which can be
ascribed to it?
No, Hindalco has born the expenses - capital Injunction was borne by Hindalco.

Renusagar does not have license of its own, they are not in position to own the
license - to generate the power to defeat the entire purpose. Renusagar essentially
would have the autonomy to transmit the power or not? No, because the only
reason Renusagar was able to generate electricity because of Hindalco.

There are three types of interpretation -

1. Literal interpretation
2. Harmonious Interpretation
3. Purposive Interpretation - interpret the law in such manner which facts does
 Justify. Functionally speaking, Renusagar cannot exist without Hindalco -
when these two entities can acted separately, then they will be considered as
two entities only then. The Court considered them one entity. We can't say
that it is profit oriented transaction. It was merely done for convenience.

Corporate Veil - there will be two separate entities.

Go through 2(26) & 2(60)

July 16, 2022
16 July 2022 09:08

Section 2(60) - Officer - in - default = Inclusive definition which includes -

- Whole time Director
- Key Managerial Person
- Person authorized by Board
- Directors authorized by Board
- Any person under whose direction Board is accustomed to work.

Common between them - Decision Making.

What if corporate veil pierced - the court can hold the individual liable - you will
check whether that person has say in decision making.
Hence, came the question of control -
How do you define the control?
Control is any influence being exercised by any particular person or group of
person in terms of the influence to determine the terms of company. When we
determine individual liability, we will look the control.

Why to held liable that individual - because if the individual's decision was not
there, the company could have acted different.

If you go through 1956 act, it did not talk about control. So, whenever 1956 deals
with individual liability, it merely concerned with the individual who participates in
decision making i.e., directors- narrow understanding of the control under 1956
Act.
At the managerial level, the decision making is primarily by directors.

How to find those person who can actually be responsible other than directors?
1956 Act Understanding - Any person having more than 25% shareholding

Why 25% Threshold was decided? - Because it will give him right to manipulate,
the right to make things happen

What are the area where entire of the shareholders can be affected by the decision
of company -
1. Any resolution having a special Majority requirement.

There are two types of resolutions -

- Ordinary resolution - regarded to the day to day affairs of company - the
obligations of it are produced in the act itself.
- Special Resolution - Decisions which are significant to the development of
company and they are substantial to the economic development of the
company. It can affect the shareholders of the company. for example, Buy
Back securities
All the people who can prevent the company from taking such decisions - those
who can control. Special Resolution is to passed by 75% of the board of company.
If any person who has more than 25% - he can stall the decision. So, this was
regarded as Negative control - you can't make thing happen but you can prevent
things happen.

1992 - that SEBI was established - now we have regulator to regulate market.
Only in special resolutions - we are taking negative control.
There was need of more inclusive definition and at this point, there was a case -
Case - Shubhkam Ventures v. SEBI
This case discussed the problem of Negative control. In this case, we shifted from
Negative control to Positive control.

Positive control - Someone who can make decisions happen - Now, only those
person who have positive control - will make you in control.
Who were the decision makers - people having more than 50% shares - Ordinary
resolution
Positive Control - Those who can make decision and can also stall the decision -
Requirement - of having more than 50% of shares

2006 - J. J. Irani Committee Report - Report was about to improve Corporate

Governance -
Recommendation of Commitee Report is -
- Revise the understanding of control
which gave Companies Bill, 2009 - but Parliament dissolved that time.
Later, Companies Bill, 2011 came - which ultimately became Companies Act, 2013.
We can't have shareholding as the only basis of defining control - it has to be even
broaden.
Now, previously, where we are taking objective outlook - it was based on
shareholding - when we more than 50% Shares - because you make things happen.
Now, we added another aspect to it i.e., Qualitative/Subjective outlook - in this,
we have two things - if we are making directors liable, who are appointing them.
1. Ability to appoint directors
2. Taking policy decisions - the idea of taking policy direction may not be direct.

Promoters of Company -

Affirmative Veto - Those decisions cannot came into effect until and unless that
decision has been discussed with you.
July 18, 2022
18 July 2022 09:01

Influence with respect to decision-making -

The control aspect is determine who is the person-in-default. Then, by virtue of
being involved in decision making, how the company will go forward.

Under whose advise the board is accustomed to work?

Negative Control - anyone having more than 25% Shareholding.

Why only special resolution - because, those decisions passed by the resolution will
directly affect the stakeholders. They can play a major role in the expansion of
company - can negatively affect the shareholding too.

Critique - Purpose of control - we have to find other than directors because they
may be liable and may not be liable. Person other than directors can be equally
responsible.
The problem was still there.

Case - Shubhkam Ventures v. SEBI

They had a debate regarding negative control and other form of control . What can
be the other forms of control then the Court looked into the functioning of
company.
They went into these Assessment to ordinary resolution - now, we are not only
concerned with the person who prevent the decision from happening but also to
who can make the decisions happen.
The idea was that - if you are someone who can ensure that the resolution can be
prevented from being passed and can passed single handily Ordinary Resolution.
We need to shift positive control - they will be regarded as person-in-control.
Directors will be regarded as person-in-control always.

Officer-in-default -
- Directors
- Authorized Officer
- Any other officer
- Control

Affirmative Veto - where the decisions are passed only after your confirmation. It
is regarded for certain category of decisions.

Two recommendations of JJ Irani committee report -

1. Appointment of directors - if you are someone who can appoint majority of
directors - you can still be regarded as person-in-control because of the
vicarious influence you have. Influence means the power to manipulate the
board decisions.
2. Policy Decisions - something which are happening - not defined until now.
Policy and Managerial Decisions - interpreted according to cases. Say in the
 decisions either in alteration, modification and altogether cancellation.
Affirmative Veto

Now, we have Qualitative aspect -

Affirmative Veto - Veto enables the power/exerciser of these veto to pass the
decisions.
July 19, 2022
19 July 2022 09:04

Module 3: Kinds of Companies - There will be various facets related to the Kinds
of Companies.

- These companies are not mutually exclusive, for example, Holding Company
and Public Company will not be mutually exclusive - Holding company can
be public company.
Attributes of a Company -
1. Nature of the Company
2. Control of the Company
3. In relation to which company is seen - relation with other entities.
4. Source of the Financing

Nature of the Company/On the basis of ownership - Nature refers to the

restrictions imposed or degree of scrutiny to which company is subjected to.
Essentially, there are two types of company -
1. Public Company - In case of Public company, they will subjected to higher
scrutiny through SEBI Regulations. will have minimum of 7 members
2. Private Company (defined by Section 2(68) - The decree of scrutiny will be
quite less in case of Private company. They have lower threshold as
concerned to compliance to SEBI Regulations to ensure Company Act
remains a principal act for private companies.
Should have minimum of two members because if there is one member - that
will be one member company. They are more closed unit - minimum
requirement of two members and maximum requirement of 200 members at
the time of incorporation. Once the registration is complete, the nature of
company will not be changed .

Note: Company Law have lower threshold than SEBI Regulations as statutory
requirements is concerned.

There are distinction in case of private companies -

- One Person Company under Section 2(62) - introduced by the Companies
Act, 2013 - it was introduced because corporate sole concept was there - but
1956 Act mandates minimum requirement of two members. In 2013,
corporate sole became the one-person company - all the functions will remain
of private company. You can't add more members in the one person
company. Only one person will run the business.
- Small Company Section 2(85) - Private company - can have one or two and
more than two member - However, on the basis of revenue requirement, it
will be designated as small company. For small company, some protection will
be given to them in form of exemption from taxes.
Revenue requirement - 20 Crore of Maximum Turnover/ 2 Crore or less of
paid-up shares.
Private Companies -
- Restrictions on the Transferability of Shares, if any. - Ask Sir
- Limitation on number of people - Maximum 200 members.
- Restrictions on inviting public to subscribe for securities
- Should at least two persons to form a company as per Section 3 of the Act.

Certain Exemptions and Privileges to Private company -

Why? - No public money involved - hence, no public accountability - therefore, no
need of rigorous surveillance. However, Private companies must abide by
restrictive clauses of Section 2(68) to continue enjoying these privileges.

- Minimum of two members required as against seven in case of public

company - Section 3.
- Private company does not need to have more than two directors as opposed
to minimum requirement of three directors in case of public company -
Section 149
- All directors of private company can be non-rotational directors, thereby, no
cooling off period - Section 152.
- No need to have an independent director - Section 149
- Relaxation of ceiling on company Audits?? - ceiling will not include
private companies having a paid up share capital of less than Rs. 100 crore??

Who is an interested director in case of private companies?

Who is promoter?

One person company -

- Section 3(1)(c) of the Companies Act, 2013 - allowed formation of Limited
Liability company by one person.
- The J.J. Irani Expert Committee recommended the formation of one person
company.
- To continue as one person company - the requirement of having paid up
share capital below 50 Lakh and its average annual turnover can exceed Rs. 2
Crore - then it will cease to be one person company.
- In case the members increased, that company will be Public company - by
following the due process of conversion

Whether in one person company, can there be more members after the time
of incorporation?
If yes, then what's the difference between Private company and one person
company because even in private company, the requirement of two
members is illusory - because subscribers can be nominees of one single
person in private company and even in case of one person company, the
requirement of having nominee is there.

If suppose one person company breach the limit of share capital, then it had
to be converted into private company but since it is one member only, how
can it be incorporated as one member company?
Small Company - Section 2(85) of the Companies Act. It will be a company -
- Having a paid-up share capital less than or of 50 Lakh Rupee or such higher
amount as may be prescribed which shall not be more than 10 crores.
- Turnover does not exceed two crore rupee.
July 20, 2022
20 July 2022 09:08

At the outset, Public Company can be directly incorporated or Private company

can convert into public company. Public Company have two categories based on
Listing Requirements -
1. Public Unlisted - Incorporation is Just like a public company but they don't go
for distinct procedure, they don't register with Stock exchange, will not be
regulated by SEBI.
2. Public Listed - Regulated by the SEBI. In Public listed, General Public is
investing - the degree of scrutiny is much higher in public listed companies.

How the Public Unlisted Companies and Private companies can get investment? -
1. Private Placement Mechanism - At one point, you can go for more than 50
placements (number of people), maximum 200 placements in a years.
If you breach this limit and you are public company - then, you have to go for
public issue.
These public issue process is not going to affect your nature - it will make you
listed. Public company nature will remain intact.
For Private companies, if you breach the limit, then the nature of the
company will change to public listed company.

Note: Even Public Listed Company can go for private placement mechanism.

Relations - Corporate Group -

A cumulation of various entities having with some inter-relation with each other
and Generally, we determine these inter-relationship by control.

Associate Company - usually has a horizontal relationship. It means it may not be

directly connected with the company. If you look at the definition part, any
company where entity has 20% or more shareholding, those entities can be
regarded as associate companies.
Any inter-relations which can be described in terms of control but it lacks a
vertical relations - can be described as associate companies.

Quantifiable control - More than 50% stake.

Why Control other than 20% Stake shareholder -

For Example, Tata Trust - Have Majority stake in all Tata Companies - Tata
Power, Tata Motors, Tata Steel, TCS. Then, Tata Powers has subsidiary 1 and then
that subsidiary 1 have whole owned subsidiary - so vertical relationship.
TCS have now subsidiary 5 -
Relation between Subsidiary 1 and Subsidiary 5? - Associate Company because
Tata Trust have control over both.

When you are forming different entities under one single group - control will
always be there - will be called as Associate company until and unless they are in
vertical relationship.
In a vertical relationship - there will be directly control
In a Horizontal relationship - Indirect control

We have to determine is there any common controlling entity - and is it able to

exert influence on both entities.
July 21, 2022
21 July 2022 09:08

Associate Company -
- Firstly, to see 20% Stake of one entity in other entity - associate company.
- The other element of control - because it may not be possible to have 20%
stake in other entity even if it is directly controlled by corporate group.

Note: Trust cannot be the body corporate - so it cannot be the holding company.

Based on the ownership, you can have three companies -

- Domestic Company
- Foreign Company
- Government Company
- Limited Liability Company and Unlimited Liability company - based on the
liability of the shareholders.
July 22, 2022
22 July 2022 09:09

These Assessment is for -

- Companies be held by Private Individuals
- Public Listed Company
- Not for Government Company

Promoters (Section 2(69))

Assignment - CA 1
- Max. 2000 word document exclusive of footnotes
- Focus should be on Analysis - Minimum 1000 words
- Formatting Requirements - will be included in the document
- Soft Copy Submission and Hard Copy Submissin
- Plagiarism check - threshold - 20%
July 25, 2022
25 July 2022 09:04

Based on the ownership -

1. Government Company - Government has majority stake above 50%.
2. Domestic Company - either a domestic resident investor or domestic
shareholder has majority stake.
Resident - According to the Income Tax Act, ordinary resident is any person
who has resided for consecutive 182 days in the last 1 year in India.
3. Foreign Company - (Section 2(42) - if it has a Majority stake or complete
ownership which is owned/hold by non-resident meaning thereby someone
who is not having citizenship of the country and does not fall under the
category of "resident".

Classification of Domestic Company and Foreign Company - done because

different mechanism to regulate taxes.

If someone has visa which ordinarily allows the person to reside in the country -
then, that will be "resident".

There are two ways to determine foreign company -

- Place of Incorporation where the company has been incorporated.
- If the management, decision-making body, lies outside the India. For
example, subsidiary company in India of Foreign company - would not be
called as foreign company since the decision-making of the subsidiary
company will be in India.

Take for example,

Company A registered in X and its wholly owned subsidiary B incorporated in Y.
Let's take B's BOD is same as A's BOD. Place of meeting and resolutions - if taken
in X- then the status of B will be the foreign company.
However, if the place of meeting and resolutions in Y - that will be the domestic
company.
The place from where effective decisions are taken took in Y. BOD is same will
not matter as long as place is different.

PLACE OF EFFECTIVE MANAGMENT - If you take out the management,

the company won't function.

AGM and EGM Meeting > Board Resolutions

Section 2(42) - defines the foreign company.

Tax Havens - Tax always calculated on the turnover. those place where the rate of
taxes are very low.
In India, the corporate tax % is 30% of the total annual turnover.

DTAA - Double Tax Avoidance Agreement - Principle of retribution - now, we

are not considering amount in entirety. Two taxes to be paid -
- Tax at Home Country
- Tax on amount generated at operating country.

Section 9 of the Income Tax - The place where the income is accrued. If the place
of accrual is India, then the Indian authorities have charge tax on the income
accrued.

We will see -
- Turnover Generated in India excluding the amount went to the parent
company. - Tax on that particular amount as per Indian Law - amount
generated from the virtue of operations in India.

Loophole - DTAA - if you don't have agreement with the countries, then you can't
divide the amount.
July 27, 2022
27 July 2022 09:11

DTAA - to avoid Double Taxation on the same income - here, it is based on the
principle of Attribution.

DTAA - You can't have absolute Tax but you will have limited right - determined
by the principle of Attribution.

There are two Kinds of companies on the basis of liability -

1. Unlimited Liability
2. Limited Liability

Liability of the individual shareholders - if someone holds 2% shares, his liability

will be proportionate to his shareholding.

Directly liability - firstly will be on the company, we will liquidate the assets - now,
if additional liability remains - then shareholders will be liable. But to what extent?

Limited Liability - Liability can be limited by shareholding or guarantee of shares.

Guarantee is like contract of Guarantee. In case of shares, if the person has 10
shareholders - in case of shareholding - limited by share percentage. In case of
guarantee - we will have contribution percentage.

Liability will be only of limited nature - ownership is of particular extent/limit -

anything beyond that - you will not be responsible. The idea is that it will be of
limited Nature.

Unlimited Liability - even after the assets fully liquidated, the liability of the
shareholders and Guarantors will be liable to the entire debt.

Public Company usually listing company - whether the public company is listed or
not - depends on the listing procedure.

Incorporation of Company - Fourth Module

July 28, 2022
28 July 2022 09:13

Guarantee - How much Guarantee You Have Given - Shareholders and

Guarantors will be the last resort in case of default.
Guarantors' contribution to default is - only will be as per his stake to share capital,
not of the outstanding capital.

Module 4 - Incorporation Process - How a company became corporate body from

Body Corporate?
This entire process Known as Incorporation of Company - A set of people will be
the following the particular process, which will be known as incorporate process -
which will ascribe separate legal entity to body corporate.
There are three essential process in case of incorporation -
1. Promotion - At this stage, you only have an idea. The question arises - if you
have promotion, what does it entails - i.e., floating an idea, thereafter -
investigate the feasibility, third, financing and fourth is fulfilling the legal
requirements. This stage comes before the legal process of registration. It is
inclusive of both commercial and legal process.
Floating of an idea - if you form a company, the idea is why do you want to
form the company. Once the idea is floated, can this idea is something which
can be converted into business?
Investigate the feasibility - how far cited one is as a founder - three
different feasibilities, i.e.,
Technical - whether we have adequate technical assistance, Technical abilities
of your team and Technical abilities of the country at large.
Economic Feasibility - is something which allows you to ascertain how
company can go with prospective losses. Loss is something which has to be
assumed - how many years in business will cancel out the economic loss and
to start registering profit. The company will go down if you don't have future
economic recovery path.
Logistical Feasibility - allows you to understand in the long run, whether this
business is sustainable.
If you are failing the logical feasibility - the business will be dead in the long
run.
Financing - At this stage, these are the categories of people who will invest
the money in nascent stage.
Angel Investors - who initiate in the company at nascent stage. They are not
worried about control.
Venture Capitalists - who invests in mid-size or big size company or any
company who is running into losses. VC came with the controlling the
business altogether. They came at the point of series financing.
Investment Bankers -
Seed Financing - Founders of the company- with this finance, the company
atleast gets to run in the start. Here, you can create for area for your own -
then you can take investment from angel investors later on.

First set of fundamental Finance - All Four

 First set of financing company will always be regarded as seed financing.

Angel Investors and VC - have expertise to control the company.

Drafting the documents - you are talking about -

1. MoA - Memorandum of Association
2. AoA - Article of Association
August 1, 2022
01 August 2022 09:16

The Stage of Promotion -

Investors - Generally Regarded as Angel Investors, Venture Capitalists and
Investment Bankers.

Fourth Stage -
Drafting of the documents -
1. Memorandum of Association
2. Article of Association
These documents deal with different aspects of the company and necessary. Both
the affairs of the company i.e., internal and external, should have some regulation.
The MoA acts as a broad framework -

Incorporation of business - should be done within 12 months of the registration -

otherwise, the company will be dormant.

Clauses of Memorandum - it provides the broad framework within which the

company functions.
Whenever is company is functioning, what is its objective?
To earn profits - MoA is providing the framework of how the company will
operate and function - deal with interrelations of a company and regulates the
relation between company and outsider.

How would the transaction take place between the company and outsider?
Administration and Shareholders - now, to make the abovementioned transactions,
they have to go through with the whole process -

MoA and AoA - which have to be drafted along with application while going for
incorporation.

The structure of MoA should be same - name clause, place of registration,

shareholder clause, liability clause and _

AoA deals with internal affairs of the company - corporate autonomy will be
applicable - no uniform structure can be provided.
- No Standardization provided for Article - the article should be drafted in the
manner which should not go against ethos of the company.

Promoter - Section 2(69) - read with Section 2(68) and Section 2(27).
2(27) - Control
2(68) - Officer in Charge
August 3, 2022
03 August 2022 09:08

Section 2(69) defines the Promoter -

- Prospectus/annual report
- Control over the affairs of the company
- Advice under which BoD is accustomed to act.

These requirements are "or" requirements - if you are falling under any one
category, then you can classify as promoter

Section 2(60)(v) defines officer-in-default - Promoter can be held liable if the

corporate veil lifted.

Section 2(27) of the Act - If you are the promoter - any shareholding you have -
even if it is miniscule shareholding - will have assumed to have control.
This distinction has been made - Promoter shareholding would amount to Control.
If you are transferring promoter shareholding to someone, the control will always
shifts.

Section 2(69) has to be interpreted with Section 2(60) and Section 2(27) of the Act.

Because of the control aspect, many classify them as Non-promoters - you will
have non-promoter shareholding - you won't be someone who will have control.

Promoter Less Company - You don't have promoter - professionally run

companies. Reason being - no one apart from director is in position to make
decisions.
Professionally Run Companies - Board of Directors - will be regarded as owners of
the company. There will be no promoters.
Directors - are anyway getting liable

Promoter Shareholding - Person-in-control

Control Group -

- Promoters
- Directors
- Key Managerial Personnel
- Majority Shareholders
Together, they will form control of the company - Control Rule.

Who has the public group, who has the promoter shareholding - all these shares
will be assumed to have control.

The idea of promoter - you will not held liability - you will enjoy the benefits.

Officer-in-default and Person-in-control - only come into question when corporate

veil will be lifted.

Person-in-control - defined under Section 2(27)

Promoter shareholding - you will have control - Presumption

If you don't have promoter shareholding - it will be seen that whether you will
have control or not.
August 4, 2022
04 August 2022 09:09

- Read the Registration process.

Pre-Incorporation Contracts -
Contracts before Incorporation of the company.
These contracts are to be entered by the founders or promoters.

If there is an agreement, there are two issues -

1. What is the nature of the agreement? - Beneficial Contracts will be regarded as
valid until and unless financial obligation arise out of it.
In this case, Entities not having legal eligibility and legal existence - the idea is
of Beneficial contracts. The issue with beneficial contracts (Pre-1963) -
Promoters were entering into the contracts without any liability arising out of
it. If at all any liability is there, it has to be imposed through
Beneficial contract has two aspects -
• Benefits derived from it.
• Any financial liability arising on who is deriving the benefits - will be void.
Response has to be through Section 127 of the Contract - Contract of
Guarantee. - Pre-incorporation contract is a valid contract since it is Contract
of Guarantee - B is the beneficiary which is the company. C is the Guarantor
or Promoter .
The nature changed from Beneficial contract to Contract of Guarantee.
Now, Promoters were having an issue - they had to pay. Because the company
had to enter into agreement, the company derive the benefits - if default,
Promoter as Guarantor had to pay. Now, Promoters argue that we should be
the last resort as the company is now in existence - company had to pay.
Otherwise, Company argue that "I was not in existence at the time of
formation of the contract, liability will be on the promoters only".
Strangers' Right to Sue - A fundamental principle of Contract Law - Privity of
Contracts - right to sue to the person who is deriving the benefits - even if
both the parties are strangers to it.
2. What is liability aspect -
There are two provisions in Specific Relief Act as to the right of Strangers -
Section 15(h) - talked about pre-incorporation contracts. In case of these
contracts, the promoters may be held liable for the pre-incorporation
contracts in case of default by a company warranted by the terms of
incorporation Now, the issue was that - if we
Section 19(e) - talked about pre-incorporation contracts. If there is
subsequent title - subsequent title when you novated the contract - replace A
by C - Contract should be within the terms of incorporation.
The qualifying aspect is that - warranted by the terms of incorporation. If
the agreement is not followed in the MoA, then the agreement would be
regarded as personal agreement between the promoters and third party.
If the contract is covered within the objective of the memorandum, then the
company would be held liable.
Finally, the position of liability was more or less settled.
Now, the conclusion is - Companies go for novation (Section 19(e)). Novation
means any subsequent change in the contract after the contract came into force.
When you replace one party by other - By Novation, you can make company the
party.

"First Directors"
August 5, 2022
05 August 2022 09:12

Registration Process -

First step of Registration -

- Decide Name of the Company
- Check the database - to avoid similarly deceptive names
- Then Application - in which you select up to two names -

Second Step of Registration -

- Within twenty weeks, under this, you have to file Part B i.e., MoA/AoA. MoA
contains five different clauses - 1. Name clause; 2. Registered Office Clause; 3.
Shareholding clause; 4. Object Clause; and, 5. Liability Clause. (Every Single
Clause can be amended)
Section 13 - provides for alteration of MoA.
- Provide details of the individuals.
- By RoC - Approval of the documents - Verification of documents

Third Step of Registration -

- Pre-2015, there were two certificates required i.e., Certificate of Incorporation
+ Certificate for Commencement of Business.
- In 2015, an amendment came - cancelled out the requirement for two
certificates. This was an amendment - to keep in mind the ease of doing
business. Post-2015, once you get certificate of incorporation - then you can
directly start the business.

Forms -

Previously, there were different forms, one for the name, one for the registration
process, one for incorporation, one for commencement of business.
Now came SPICE - Combined all the forms into one.
Two Parts of SPICE FORMS-
PART A - to fill the forms of PART A. PART A is the name.
PART B - Within twenty days from the date of filing of PART A, you have to file
PART B for everything else.

This entire process - has to be completed within sixty days.

Note: Under Trademark Act, both logo and your name is protected.

Now,
Directors -
They have separate appointment procedure -
DIN - Directors Identification Number - Every filing has to be done through
Registrar of Companies. for example,
DIN is a pre-requisite for being a director.

First Directors - Promoters will be the people who will appoint first directors. First
directors - result in hierarchical process in the company.
First directors - is a process of selection and not election. Selection of some person
who will become first directors.
They have to subscribe to the Memorandum - some shares will be allotted to First
Directors.
Then, we allot some shares to promoters.

Public Company - can choose to go for listing outrightly.

August 17, 2022
17 August 2022 09:15

Object Clause -
Doctrine of Ultra Vires - Majority of cases in this doctrine arises from object
clause.
There are two things while forming object clause -
1. Public Interest
2. Principles of Morality

Anything that is illegal and barred by the law - cannot be selected as object of the
company.

For example, Business in drugs is neither for public interests and nor in accordance
with public morality.

Even in pharma sector where drugs can be used for medicinal purpose, the object
of the company can't be - "Production/Manufacturing/Procurement of drugs".

Object clause considers both bracket theory and purpose theory - you can't amend
it at your will.
If for a pharma company, the objective is to procure chemical salt - since salt is a
very generic term - so we can use ancillary object

- Any other related/ancillary object - this consists general clauses - will be

limited by the specific clauses - will be interpreted accordingly.

How to alter the object clause?

Special Resolution + Board of Director Approval + Permission from Central
Government as a specific requirement.
Exception - when object clause can't be altered - when you have unpaid dues - if
you are public listed company and you raised money through listing clause i.e.,
either through IPO or FPO
Now, there's some unutilized amount out of the money you raised, in such case,
you cannot alter the object clause.

In case of disclosures of amount and the company want to change the object - the
exit mechanism provides chance to shareholders to leave the company -
August 18, 2022
18 August 2022 09:10

Share capital Clause - It will provide all the details related to certain specific points.
1. Authorized share capital - this is the maximum amount the company can
raise.
How to determine Authorized share capital - Determined by prices -
- Market Price - Price which is current value of the share - it will determine
Market Capitalization Ratio i.e., All the shares cumulatively if they sold today -
their market value will be market capitalization.
- Face Value of the shares - when you say face value is Rs. 10 - it indicates that
the particular individual share represents the amount of liability or ownership.
So, authorized share capital directly represents by face value.
Face value is directly related to determining the ownership a person has in
company. The determination of it - autonomy of the company.
- Listing Price - the price at which you list yourself (the company). Demand of
the shares - if the demand remains high, the listing price will be high. If
demand is low - price crashes. This is the price once the issue process is
completed. The very first instance when you have market price - it will be
listing price.
Issue price- will come at the primary market. It is a different price altogether -
will not affect the company's financial standard.

Market Price, Listed Price and Issue Price - will be only in the Public company.
How would the market price, listed price - will come into picture in case of public
unlisted company

Issue price - the amount you need to pay to get these shares.
Face value - shows your position in the company.

Face Value and Issue Price - can be similar but generally, they are not - The
company wants to have face value as low as it can be - so, they can have more
divided shares to achieve authorized share capital.
August 19, 2022
19 August 2022 09:10

Issue Price and Listing Price - only come at stage of public issue. There are two
ways to go about it -
- The price at which shares are issued - are issue price. The issue price is
mentioned in the prospectus itself.
Once we get the prospective shareholder - then we have public shareholder - in a
public listed company -
The demand of the shares - will directly impact the opening price - first opening
price at which newly public listed company gets listed is the listing price.

Thereafter, the trading continues - the price we get on daily basis is the market
price.

2. Issued Share Capital - This is the actual amount raised through the issuance of
shares.
Suppose, the actual amount raised - Rs. 5 Lakh - Now, you want to issue new
shares. So you went with issuance in 2nd issues shared for 10 Lakhs.
What is the total issued capital - Rs. 15 Lakhs
Now, you will inform RoC about -
1. Details of shares issued.
2. Details of shareholders
3. Effect that 2nd round of issuance - Once RoC updates the change, the
company can make relevant change in the shareholders clause without going
for alteration in MoA

Exception to the alteration of shareholder clause -

Section 61 - If a transaction affecting share capital clause and falling under section
61 - then, all a company need - ordinary resolution for that transaction.

Registered Office -
We have to mention the place and address of the company. Now, the problem
arises when company want to shift its registered office -
Application 1 to the ROC 1 - That we seek permission to move to another State.
Application 2 to the ROC 2 - For re-registration process (process is similar to the
Registration process, only ROC 2 will seek documents from ROC 1). Once this
verification is done, the name will be included in the roaster.
August 20, 2022
20 August 2022 09:08

Novation - Any Kind of change brought upon in contract post-which amended

terms

Addendum - Here, instead of altering or changing the original terms, merely you
supply supplementary terms which will have primacy over original terms.
August 22, 202
22 August 2022 09:07

Articles of Association - All the rights, limitation of the company - need further
clarification - provided by AoA - deals with internal management of the company.
It deals with intricacies - like how to exercise such rights, rules regarding
clarification - something like delegated legislation. How the company is going to
function, How the internal management of the company is going to run - It will
provides the final regulations to govern the company.

Section 5 - Foundation
Section 5(1) - Articles shall contain the regulations for management of the
company -
Shall - mandatory
Compulsory to draft articles in such manner to include clause intended for
management of the company.

Section 5(2) - The articles shall also contain such matter, as may be prescribed -
Articles is a clarificatory document has to be read in furtherance of
Memorandum - Under Rule 11 - only those matter which is in Memorandum of
Association i.e., five clause - so, the matter which falls under those five clause can
only be included in AoA.
Provided - nothing in the provision means that no construction of any words must
implies that Rule 11 is binding for the articles - you can add other matter under
Rule 11 and even other matter which is not mentioned there - you can include
them as long as they are in consonance with Section 5(1). These proviso has to be
interpreted in terms of the management of the company.
Section 14 - Alteration

What Articles incorporates -

1. Powers of the offices of company
2. Talks about the Inter relationship existing between members
3. Provides for Right/Restrictions in addition to the Regulatory framework

These are three essential necessities for which company need Articles of
Association.

Example - Section 56 of the Companies Act - talks about transfer of shares - to

any individual whoever it likes.
However, the Articles said about Right of first offer and Right of first refusal - it
put some restrictions on Section 56.
The shares have to be transferred in accordance to the article.

Note: Memorandum provides within broad legal framework under which company
has to act - Dos and Don't s of the company. It is like legislation - which provides
the rights and liabilities.
The larger framework is to be provided by the Companies Act. Memorandum is
created under Companies Act to create the company's own niche.
August 23, 2022
23 August 2022 09:08

Section 5(3) - Entrenchment Provisions -

Entrenchment provision is introducing/including more restrictive provisions
within its articles in comparison to the Companies Act.
For example,
Private Company with following shareholding - A has 51%, B has 20%, C has
10%, D has 10%, E has 4.5%, F has 4.5%.
For example, if a special resolution threshold - is 75%. Then through
Entrenchment provision, we can increase threshold.

Can we reduce the threshold under entrenchment provision?

Section 6 suggests that companies Act will override both MoA and Articles of
Association. If you are including any clause in either of them which goes against
fundamental principle of the Companies Act, then it will trigger Section 6.
Therefore, we can't reduce the threshold.
Any change cannot be made which is contrary to the Companies Act.

Section 5(4) - When and how entrenchment provision can be included?

These entrenchment provision are for the management of the company, it
cannot affect the rights of the shareholder.
you include the entrenchment provision either at the time of incorporation of
the company or you have to pass resolution for inclusion.
For a private company to add entrenchment provision - you have to pass 100%
resolution (Unanimous resolution) - you have to balance the interests of all.
Public Company - Special Resolution of 75% -

Section 5(5) - because the amendment has happened, you have to notified the
Registrar of Companies.
MGT Form 14 (for both private and public company) - to the Registrar of
companies along with Copy of Resolution.
August 24, 2022
24 August 2022 09:08

Write Issues -

Then Go with Argument of each issue

Note: Entrenchment provision with ordinary resolution is not allowed.

Entrenchment provision is allowed only in case of special resolution.

Focus on Relation being established between topics.

August 25, 2022
25 August 2022 09:10

Related Party Transactions -

Alteration - limited to internal management of the company.

1. More restrictive nature - provided under Companies Act - Entrenchment
Provisions (Section 5(3))
Limitation of Entrenchment Provision - It can be only with respect to the
Special Resolution. Every single managerial decision that requires special
resolution can be brought under purview of Section 5(3).

2. General Nature - any other alteration which is not in restrictive nature - will
fall under Section 14.
General Nature can be anything - but it should not be more restrictive.
Alteration which is generic in nature and provides for normal change in
process.
- The alteration is having the effect of conversion - conversion from either
from private to public and vice versa. It means if you change the articles, the
company will be changed to public from private.
For example, in private company - there is restriction on transferability of shares. It
essential means to whom you can transfer shares. In public company, you have
freedom to transfer shares to anyone you like. In private company, you can't
transfer shares who is not part of company. Now, if we change the article in this
case and say, from "transfer between existing shareholders" to "transfer of shares
to anyone".
- Normal Alteration/Any other alteration - Anything you need to change for
better management of company. If there is normal alteration, you just have to
pass resolution and to file it with Registrar of Companies.

There are two categories of alteration under Section 14 -

If alteration is impacting the things outside the company - then you need to take
special resolution and approval of central government, once these two are done,
you file alteration with Registrar of companies.

Positive Control - more than 50%.

August 26, 2022
26 August 2022 09:17

There are three essential category of Alteration -

1. Alteration in nature of entrenchment (Section 5(3) read with Section 5(4).
2. General Alteration
3. Alteration having effect of conversion

For conversion, first limitation is MoA and second is companies Act.