Company law:

 The separate personality of a company is a statutory privilege and it must be used for
legal business purpose only.
 When a fraudulent and dishonest use is made of the legal entity the individuals
concerned will not be allowed to take shelter behind the corporate personality.
 Therefore the Court will break through the corporate shell and apply the doctrine of
lifting off or piercing of the corporate will.
 The Court will look behind the corporate entity and take action as though no entity
separate from the members existed and make the members liable for debts and
obligations of the company.
 When the Corporate will is used for commission of fraud or improper conduct
 When the conduct conflicts with public policy then we need to lift the corporate will.
 Where it was found that the sole purpose for which the company was formed was to
evade taxes then the court will ignore the concept of individual entity.
 Where the company is formed to cheat creditors and not paying them debts, not paying
statutory dues
 Whenever the act is done beyond the power of the company. This is known as
uktravires therefore corporate veil is lifted and members are caught.

Public company is a company (s2.71) which:

 Is not a private company
 Has a minimum paid up share capital as maybe prescribed
 Minimum number of members: 7, max: no limit.

 Holding Company: In relation to one or more other companies(this includes body

corporates) means a company of which such companies area bunch of subsidiary
companies ie a holding company.
 Subsidiary company: (sec 2.87) In relation to any other company(that is to say holding
company) means a company in which the holding company controls the composition of
BOD. Exercises or controls more than one half of total voting power either on its own or
together wit one or more of it s subsidiary companies.

Registration/Incorporation of Company
1. Application for availability of names:
 The name chosen should be in accordance with the rule 8 of companies
incorporation rules 2014.
 No name which is considered as undesirable under the law should be taken.
 The proposed name should not be identical or to nearly resemble the name of
other company or any registered trademark.
2. Directors identification number (aka DIN)
 Din is a unique number of 8 digits which has a lifetime validity and it is to be
allotted by the Central Government to any person intending to be a director.
 Details of the director are maintained in a database.
 There is a prescribed form which needs to be filled up to obtain the DIN and this
number is to be quoted in the registration process of the company.
 Obtaining digital signature is an important step which needs to be complied prior
to application for registration of company.
3. To incorporate the company following documents shall be filed with the registrar of
companies within whose jurisdiction the registered office of the proposed company is
situated:
  Memorandum of Association (MoA) and Article of Association (AoA) shall be filed
with RoC with necessary stamp duty and filing fees.
 Declaration by an advocate of Supreme Court or High Court or Attorney or a
pleader or a practising CA/CS that all requirements of this act and rules have been
complied with respect to registration.
 A declaration from each of the subscribers to the MoA and from persons named as
first directors if any.
a. He is not convicted of any offence in connection with the promotion,
formation of the company.
b. He has not been found guilty of any fraud or any breach of duty to any
company under this act or any previous company law during the last five
years.
c. That all the documents filed with the registrar for registration of company
contain information that is correct and true to the best of his knowledge and
belief.
d. The address for correspondence till registered office is established.
4. If the registrar is satisfied that all the requirements under the act for the purpose of
registration of a company are complied with he shall register the company and issue
certificate of incorporation under his hand and seal.
5. The registrar then issues the CIN to the name. The CIN is written on the certificate of
incorporation and also serves as a distinct identity of the company.

Effects of registration
On registration a certificate of incorporation is issued by RoC, the company gets its separate
existence only on getting the Certificate of Incorporation (CoI). This registration results in
separate legal entity. Both public limited and private limited company can start their
business activities on receiving CoI. In the companies act 1956 for public limited company
Certificate of commencement was also essential.

Section 8 companies
Formation of company with charitable object.

MoA
As per section 2(56) of Companies Act 2013 defines 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.
 This is the base document of the foundation of the Company.
 MOA is the fundamental charter of the company and defines the reason for the
company’s existence.
 If the acts of the company are beyond the scope of activities stated in the
memorandum, such acts are treated as ultra vires and cannot be rectified in order to be
binding on the company.

Clauses of MOA:
i. Name clause
ii. Object clause
iii. Registered office clause
iv. Capital clause
v. Liability clause
vi. Nomination clause
vii. Association clause/Subscription clause
i. Name clause:
 Applying for the name of the company and the name stated in MoA shall not be
identical or resemble too closely the name of the existing company.
 It should not be an undesirable one in the opinion of the Central Government.
 A person may make an application in such form and manner and accompanied by such
fees as may be prescribed to the RoC.

ii. Registered office clause:

 This clause specifies the state in which the registered office of the company is situated.
 Complete address of the registered office is not mandatory to be mentioned in the
clause at the time of registration.
 The company shall from the day it commences business or within 30 days of
incorporation file with the RoC.
 The address of the registered office of the company is the address at which all
communication and notices will be addressed.

iii. Object clause (imp):

 The purpose for which the company is incorporated is mentioned in the object clause. It
defines the scope of the company in terms of carrying out business activities.
 It contains the object for which the company is formed and therefore identifies the
possible scope of the operations beyond which the actions cannot go.
 It enables shareholders, creditors and all those who deal with the company to know
what powers are given to them and in which activities they are engaged in.
 A memorandum is a public document under section 399 of the Companies Act, 2013.
Consequently, every person entering in the contract with the CO is presumed to have
the knowledge of the conditions contained therein.
Note: A company cannot depart from the provisions contained in the MoA. It cannot enter in
contract or engage in any trade or business which is beyond the power conferred on it by
the MoA therefore if it does so, it would be ultra vires of the company and void.

iv. Capital clause

 This clause states the amount of share capital of the company (authorise capital- to be
raised by issue of share)
 The division of the total capital into shares of fixed amount and value per share to be
mentioned in this clause.

v. Liability clause
 This clause covers details on the liability of the members of the company.
 In case of a company limited by shares that the liability of its members is limited to the
amount unpaid if any on the shares held by them.
 In case of a company limited by guarantee the amount upto which each member
undertakes to contribute.

vi. Nomination clause:

 This clause is applicable only to OPC.
 In case of OPC the person who in the event of death of the subscriber shall become the
member of the company.

vii. Subscription clause

 This clause contains a declaration by the members or subscribers that they are forming
a company as specified in MoA, the name, the address, the number of shares taken by
each of them along with the signature of the subscribers is given in this clause.
 Filed with the registrar within whose jurisdiction the registered office of a company is
proposed to be situated.

Doctrine of ultra vires

 Ultra means beyond our outside and vires means powers or authority. When a company
acts beyond its powers or authority, it is said to have acted ultra vires the object clause.
 Doctrine of ultra vires deals with a situation where a company has acted outside the
object clause.
 Ultra vires act by a company is invalid and void ab initio and therefore such an act
cannot be ratified even by members of the company.
 Case: Aishwary railway carriage and wagons company limited v. Riche.
Facts: The company entered into a contract with riche to finance the construction of
railway line in Belgium. Subsequently the company repudiated the contract on the
ground that contract to finance was ultra vires of its object clause. The object MoA
stated as follows:
1. To manufacture and sell railway carriage.
2. To act as mechanical engineer and general contractors.
Riche brought an action for the breach of contract of the company on the ground that
the contract was within the object clause as the word general contractor includes
contract to finance the construction of the railway line also.
Held: The court held that the contract is ultra vires of the object clause as the term
general contractors could not be interpreted as generally contracting any business and
financing for construction. Therefore the case was absurd.

Doctrine of Indoor Management

The doctrine of indoor management is opposite to doctrine of constructive notice.
Doctrine of indoor management acts in favour of the outsiders. It states that a person
dealing with the company first inspect the public documents and verify for himself
whether his contract with the company is in conformity with the contents of these
public docs. If the acts are intra vires they can enter into a contract. An outsider
entering into a contract with a company is not expected to enquire into the internal
proceedings and hence can assure its compliance by the company. Failure on the part of
the company makes the company liable on internal liability.
Case law: Royal British Bank vs Truquant.
Contents of the case: the directors of the company were empowered by the articles of
association to borrow money provided the shareholders first authorize them to do so
by passing an OR(ordinary resolution) at a GM(general meeting). Turquant inspected
these documents and was assured by the directors that the shareholders had passed
the necessary OR and on being satisfied Turquant advanced loan to the bank. At the
time of repayment shareholders claimed that the bank as not liable to pay as no OR was
passed at any meeting and that the directors have acted in absence of authority and
therefore the bank would not be held liable for such act.
Decision of the case: The company is liable on the following reasons:
i. OR is not a public document and therefore it was not filed with the registrar.
ii. Before giving loan Turquant inspected the public documents the public document
and therefore was assured by the directors that necessary resolution has been
passed.
 iii. Whether it was actually passed or not was something that was indoors of the
company. (Internal procedure which turquant could not possibly know)
iv. He had to rely on directors who represented that the internal management was
done regularly. In these circumstances, turquant was protected inspite of the fact
that directors failed to pass a resolution.
Indoor management is also known as Turquant’s rule or the doctrine of internal
management.
Exceptions to the Turquant’s rule:
 Knowledge of irregularity.
 Suspicion of irregularity
 Ultra vires act
 Act outside the scope of apparent authority.

Certificate of incorporation
All the documents after being filed with the RoC, will issue CoI. This document serves as the
proof of existence of the company and certificate of incorporation if issued, the company
cannot cease its existence unless it is dissolved or wound up in accordance with the
provisions of the act.

Module 2

Prospectus and allotment of securities

Various mode of issue of security by a public or a private company

Public Company Prospectus/Public offer

Private Placement

Right Issue

Bonus issue

Private Company Private Placement

Right Issue

Bonus issue

 Securities: Sec(2)81 Securities mean shares, scripts, stocks, bonds, debentures,

marketable securities, derivatives.
 Prospectus:
a) As per definition given u/s 2(70) means any document described or issued as a
prospectus and includes a red herring prospectus, or shelf prospectus.
b) Prospectus can be any notice
c) Can be any circular
d) Can be any kind of advertisement or other document.
 Used for inviting offers from the public for the subscription or purchase of securities of a
body corporate. It includes red herring prospectus any document prescribed as prospectus

Prospectus

Red herring prospectus Shelf prospectus Any document prescribed Notice/circular/

as prospectus advertisements, others
inviting offers from the
public