Definition of a company

 Company” is derived from two latin words: “com”- group and “panies”-
bread. Therefore, it means group that eat their bread together.
 Originally, it referred to a group of persons who took their meals together
 . A company is also called a 'corporate ‘of persons meaning “body
 ” A company is nothing but a group of persons who have come together
or who have contributed money for some common purpose and who have
incorporated themselves into a distinct legal entity in the form of a
company for that purpose.

Characteristic of a company
1. Incorporate Association (2 marks): A company is formed through a
process of incorporation under the relevant company law of a country.
This process involves registering the company with the appropriate
government authority.
Company can be formed as:
 Company limited by shares
 Company limited by guarantee
 Unlimited company
any company mentioned above can be public as well as private company
For example, a group of individuals may register a company under the
Companies Act in the UK to establish a business entity.

2. Artifical Legal Person (2 marks): A company is recognized as a separate

legal entity distinct from its shareholders and members. It means it’s given
more or less the same status of an individual. This means it can enter into
contracts, own assets, and sue or be sued in its own name.For instance, if
a customer sues a company for breach of contract, the lawsuit is against
the company itself, not its individual shareholders.
3. Independent Corporate Personality (2 marks): The corporate personality
of a company refers to its distinct identity in the eyes of the law. It allows
the company to have rights and obligations similar to those of a natural
person.
 For example: Salomon v/s Salomon: Salomon had a business in leather
and shoe manufacturing. Due to some circumstances, he created his own
company and sells his previous business of shoe manufacturing to this
company.
 Salomon gave one share each to his wife, daughter, sons, and the rest of
the company’s shares were held by him.
 After few years, the company was wound up and had some existing
liabilities but did not have enough assets to pay off the liabilities.
 Unsecured creditors sued Salomon for repayment of their money, but the
court held that the company was not an agent or a trustee for Salomon.
 The company is entirely different from the individual, and hence the
contentions of the creditors could not be upheld. 3 Nature, Features of
Companies

4. Liability (2 marks): One of the key characteristics of a company is limited

liability, where the shareholders' liability is limited to the amount of
capital they have invested in the company. This means that shareholders
are not personally liable for the company's debts and obligations.
For instance, if a company goes bankrupt, the shareholders will not be
required to use their personal assets to settle the company's debts
beyond their investment in the company
5. Perpetual Succession (2 marks): A company has perpetual succession,
meaning it continues to exist even if its members change due to death,
resignation, or transfer of shares. This ensures continuity of the
company's existence and operations. It can only be ended by law
For example, even if the original founders of a company retire or pass
away, the company can continue to operate under new ownership.
6. Hold and Dispose Property (1 mark): A company has the capacity to own,
hold, and dispose of property in its own name. This includes tangible
assets such as land, buildings, and equipment, as well as intangible assets
such as intellectual property rights.
For example, a company may purchase office space to conduct its
business activities or sell a portion of its assets to raise capital.
 7. Transfer of Shares (1 mark): Shareholders of a company have the right to
transfer their ownership shares in the company to others. This facilitates
liquidity and investment in the company's shares
. For example, if a shareholder decides to sell their shares in a publicly
traded company, they can do so through a stock exchange, allowing other
investors to buy those shares.
8. Seal (1 mark): Historically, companies used seals as a formal mark to
authenticate documents and contracts. While the use of seals has become
less common in modern business practices, some companies may still
choose to use a corporate seal for ceremonial or traditional purposes.
9. Sue and Be Sued: As a legal person, a company has the capacity to initiate
legal proceedings (sue) against others or be subject to legal action (be
sued) in its own name.
For example, if a company believes that a supplier has breached a
contract, it can file a lawsuit against the supplier to seek damages.

Corporate veil
The corporate veil is the legal separation between a company and its owners,
shielding shareholders from personal liability for the company's debts. It allows
the company to operate as a distinct entity, but courts may pierce the veil in
cases of fraud or misconduct, holding individuals accountable for the
company's actions.

Under statutory provisions

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1. Misrepresentation in the Prospectus and Fraud:

 If a company makes false or misleading statements in its prospectus or
engages in fraudulent activities, the corporate veil may be pierced to
hold the company's directors or officers personally liable.
 For instance, if a company's directors knowingly misrepresent the
company's financial status in the prospectus to attract investors, they
may be held personally liable for the misrepresentation.
2. Failure to Return Application Money:
 If a company fails to return the application money to investors within
the specified time frame or under the terms of the prospectus, the
corporate veil may be lifted to hold the company and its officers liable
for breach of contract or fraudulent conduct.
3. Failure to Deliver Share Certificate:
 If a company fails to deliver share certificates to shareholders as
required by law, shareholders may seek to pierce the corporate veil to
hold the company accountable for its failure to fulfill its obligations.
4. Misdescription of Name:
 If a company misdescribes its name or engages in deceptive practices
related to its corporate identity, the corporate veil may be lifted to
hold the company and its officers liable for misrepresentation.
5. Holding Subsidiary Company:
 If a parent company exercises excessive control over its subsidiary to
the extent that the subsidiary's separate legal identity is disregarded,
the corporate veil may be pierced to hold the parent company liable
for the subsidiary's actions.
6. Investigation of Ownership of a Company:
 In cases where the ownership structure of a company is unclear or
there are suspicions of hidden ownership, the corporate veil may be
lifted to investigate the true ownership of the company.
7. Prevention of Fraud:
 The corporate veil may be pierced to prevent or uncover fraudulent
activities perpetrated by the company or its officers.
8. Conversion of OPC to Private or Public Company Liability:
 If a One Person Company (OPC) fails to comply with the requirements
for conversion into a private or public company, the corporate veil may
be pierced to hold the company and its officers liable for non-
compliance

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Under judicial interpretations
1. Protection of Revenue:
 If a company engages in tax evasion or other fraudulent activities to
avoid paying taxes, the corporate veil may be lifted to hold the
company and its officers personally liable for tax liabilities
 . This is done to protect the revenue interests of the government.
2. Determination of Enemy Character of a Company:
 During times of war or national security concerns, the government
may seek to determine whether a company has enemy character or is
acting against national interests.
 The corporate veil may be lifted to investigate the ownership and
activities of the company to make such determinations.
3. Economic Offences:
 In cases involving economic offenses such as money laundering,
insider trading, or securities fraud,
 the corporate veil may be pierced to hold the company and its officers
accountable for their involvement in illegal activities.

4. Avoidance of Welfare Legislation:

 If a company structures its operations in a way that circumvents or
avoids welfare legislation intended to protect workers' rights, health,
safety, or environmental standards, the corporate veil may be lifted to
ensure compliance with the law and prevent exploitation of workers
or resources.

5. Punishment for Contempt of Court:

 If a company fails to comply with court orders or engages in actions
that undermine the administration of justice,
 Such as disobeying court injunctions or manipulating legal
proceedings, the corporate veil may be lifted to hold the company and
its officers liable for contempt of court.
TYPES OF COMPANY
1. Chartered Company:
 Established through royal charter for special privileges in trade or
governance, historically significant in colonial expansion, e.g.,
British East India Company.
2. Statutory Company:
 Created by specific legislation for public welfare sectors like
transportation or utilities, governed by laws, e.g., national
railways or public broadcasting corporations.
3. Registered Company:
 Formed through standard registration under company law, enjoys
legal personality and limited liability, includes modern business
entities like private and public limited companies.
 It is further divided into basis of : constitution , liability ,control
and other
1. Associate Company:
 An associate company is one in which another company, known as the
holding company, has a significant influence, usually through ownership of
shares.
 The holding company typically owns between 20% to 50% of the voting
shares of the associate company and both are joint venture company.
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2. Dormant Company:
 Also called AAS “asset shielding concept”.it is formed to hold asset or
future projects
 A dormant company is one that is registered with the relevant government
authority, but is not actively trading or generating any income.
 Dormant companies typically have no significant accounting transactions
during a financial year. ex- young Line jewellery Company
3. One Person Company (OPC):
 An OPC is a type of company that can be formed by a single individual as
its sole shareholder and director
 To become a private company, it requires paid up share capital exceeds
50,00,00 or average turnover exceeds two crore in preceding three years
 One person company has minimum one director and shall have minimum
paid up capital of one lakh.
4. Private Company:
 A private company is owned by private individuals or entities, and its
shares are not available for purchase by the general public. Private
companies often have restrictions on the transfer of shares and a limited
number of shareholders.
5. Public Company:
 A public company is one whose shares are listed on a stock exchange and
can be bought and sold by members of the public. Public companies are
subject to strict regulatory requirements and disclosure obligations to
protect investors' interests.
6. Small Company:
 Small companies a private company is requires no company secretary no
auditor rotation only to board meetings in a year are required. A small
company need not remain so every year. It is on the base of capital or
turnover
 A company other than public company, where paid up shares does not
exceed 50 lakhs.
7. Guarantee Company:
 A guarantee company is a type of company where the members' liability is
limited to the amount they agree to contribute in the event of the
company being wound up. Guarantee companies are often used by non-
profit organizations, charities, or social enterprises.

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8. Limited Company:
 A limited company is a type of company where the liability of its members
is limited to the amount unpaid on their shares. This means that
shareholders' personal assets are protected from the company's liabilities.
9. Unlimited Company:
 An unlimited company is a type of company where the liability of its
members is not limited. This means that members may be personally liable
for the company's debts and obligations, even beyond the amount of their
investment in the company.

10.Foreign Company:
 A foreign company is a company incorporated outside the jurisdiction in
which it operates but conducts business within that jurisdiction. Foreign
companies are often subject to registration and compliance requirements
in the countries where they operate.
11.Government Company:
 A government company is a company in which a government entity holds
a significant ownership stake or control. Government companies are often
involved in providing public services or infrastructure projects.
12.Holding Company:
 A holding company is a company that owns the majority of shares in
another company, known as the subsidiary company. Holding companies
typically do not engage in active business operations but exist to control
and manage the operations of their subsidiaries.

13.Investment Company:
 An investment company is a company whose primary business is investing
in securities, such as stocks, bonds, or real estate, on behalf of its
shareholders. Investment companies may operate mutual funds, hedge
funds, or other investment vehicles.
14.Non-Trading Company:
 A non-trading company is a company that does not engage in active
business operations, such as buying or selling goods or services. Non-
trading companies are often used for holding assets, intellectual property,
or as investment vehicles.
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15.Producer Company:
 A producer company is a type of company formed by farmers, artisans, or
other producers to collectively engage in agricultural or industrial activities
and share profits. Producer companies aim to empower producers by
providing them with collective bargaining power and access to markets.

MOA
Meaning of MOA:
 The Memorandum of Association (MOA) is a legal document that sets out
the constitution and objectives of a company. It is one of the foundational
documents required for the incorporation of a company and defines the
company's scope of activities, powers, and limitations. The MOA
establishes the company's relationship with its shareholders and external
stakeholders. The MOA is defined as a document that contains the
fundamental conditions upon which a company is incorporated.

3. Contents of MOA:
The Memorandum of Association typically includes the following key elements:
 Name Clause: Specifies the name of the company, which must end with
the appropriate corporate identifier (e.g., "Limited" for a public limited
company, "Private Limited" for a private limited company).
 Registered Office Clause: Every company must have registered office .the
moa should contain name of state in which registered office is there.
Within 15 days of its incorporation it shall have a registered office
 Object Clause: Sets out the main objectives or purposes for which the
company is formed. This clause defines the scope of activities that the
company is authorized to undertake and limits its operations to those
specified objectives.
  Liability Clause: States the liability of the company's members, which can
be limited by shares or guarantee, or unlimited.
 Capital Clause: Specifies the authorized share capital of the company, i.e.,
the maximum amount of share capital that the company is authorized to
issue.

4. Alterations of MOA:
 Name Clause: Change of company name requires shareholder approval
and filing with the Registrar of Companies.
 Registered Office Clause: Changing the registered office address within
the same state involves updating records and filing with the Registrar.
 Change from One State to Another: Moving the registered office to a
different state requires complex procedures, including approvals from
shareholders and regulatory authorities in both states.

 Object Clause: Altering the main objectives of the company requires

shareholder approval and compliance with legal requirements.

 Liability Clause: Changing the liability of members requires shareholder

approval and compliance with legal procedures, such as amending the
Articles of Association.

What’s the use of Memorandum of Association?

1. It defines the scope & powers of a company, beyond which the company
cannot operate.
2. It regulates company’s relation with the outside world.
3. It is used in the registration process; without it the company cannot be
incorporated.

Meaning of AOA:
 The Articles of Association (AOA) are a legal document that governs the
internal management, regulations, and operations of a company. It
supplements the Memorandum of Association (MOA) by providing
detailed rules and procedures for the company's administration and
decision-making processes.
Contents of AOA:
The Articles of Association typically include the following key elements:
 Share Capital: Specifies the authorized share capital of the company and
the rights attached to different classes of shares.
 Shareholders' Rights: Defines the rights and obligations of shareholders,
including voting rights, dividend entitlements, and transfer of shares.
 Directors and Board Meetings: Sets out the procedures for appointment,
powers, and duties of directors, as well as rules for board meetings,
quorum, and decision-making processes.
 Dividends and Reserves: Specifies the procedures for declaring and
distributing dividends, as well as rules for setting aside reserves and
surplus profits.
 Borrowing Powers: Outlines the company's authority to borrow money,
issue debentures, and create charges over its assets.
THREE DOCTRINES
Doctrine of Ultra Vires:
 Meaning: Ultra vires is a Latin term meaning "beyond the powers."
The doctrine of ultra vires refers to the principle that a company
cannot undertake activities or enter into contracts that are beyond
the scope of its objects clause as outlined in its Memorandum of
Association (MOA).
 Objective: The objective of the doctrine is to protect shareholders
and creditors by ensuring that the company operates within its
authorized powers and does not engage in activities that may
jeopardize its interests.
 Effect on Transactions:
i. Transaction Contract Void: If a transaction is ultra vires, it's
void and unenforceable against the company.
ii. Injunction against Ultra Vires Actions: Interested parties can
seek court injunctions to stop unauthorized actions by the
company.
iii. Boing (Avoiding) Ultra Vires Transactions: Actions taken to
nullify or rescind unauthorized transactions.

2. Doctrine of Constructive Notice:

 Meaning: The doctrine of constructive notice states that all
persons dealing with a company are deemed to have knowledge
of the company's public documents, such as its Memorandum of
Association (MOA) and Articles of Association (AOA), as these
documents are available for public inspection.
 Effect: Third parties are presumed to have knowledge of the
contents of a company's public documents, even if they have not
actually read or inspected them. This knowledge is considered to
be "constructive" and affects the legal rights and liabilities of the
parties involved.
  Example: If a person enters into a contract with a company, they
are presumed to have knowledge of any limitations or restrictions
contained in the company's MOA and AOA, even if they did not
actually review these documents. Therefore, they cannot claim
ignorance of the company's powers or restrictions if the contract
is later found to be ultra vires.

3. Doctrine of Indoor Management (Procedural Irregularity

Rule):
 Meaning: The doctrine of indoor management, also known as the
Procedural Irregularity Rule or the Turquand rule, provides
protection to third parties dealing with a company against internal
irregularities or unauthorized actions by the company's officers.
Effect: Third parties dealing with a company can rely on the external
appearance of authority and regularity, and they are not required to inquire
into the internal affairs of the company. This protects innocent third parties
from being held accountable for internal irregularities within the company.