Unit 5

Law relating Companies and Competition

Content
Company-Definition, Meaning, Features and Types of
Companies , Incorporation of a Company- Memorandum
of Association, Article Of Association and Prospectus,
Statement in lieu of Prospectus and share capital
Structure.
Mergers and Amalgamation
Introduction to competition Law
Company-Definition

Sec 2(20) of the Companies Act, 2013 defines a

company and means a company incorporated under
this Act or under any previous company law.
The Companies Act, 2013 has total 470 sections.
Features of a Company

Incorporated
Incorporated association
association

Artificial
Artificial legal
legal Person
Person

Separate
Separate Legal
Legal entity
entity (Solaman
(Solaman Vs
Vs Solaman)
Solaman)

Perpetual
Perpetual succession
succession

Limited
Limited liability
liability

Transferable
Transferable shares
shares

Common
Common Seal
Seal

Separate
Separate Property
Property

Capacity
Capacity to
to sue
sue and
and be
be sued
sued
Classification of companies
Small
SmallCompany
Company
On
Onthe
thebasis
basisof
ofsize:
size:
Other
OtherCompany
Company

Limited
Limitedby
byshares
shares

On
Onthe
thebasis
basisof
ofliability
liability Limited
Limitedby
byGuarantee
Guarantee

Unlimited
Unlimitedcompany
company

Public
Public

On
Onthe
thebasis
basisof
ofnumber
numberof
ofmembers
members Private
Private

One
OnePerson
PersonCompany
Company

Company
Companywith
withcharitable
charitableobjectives
objectives

On
Onthe
thebasis
basisof
ofnature
natureof
ofbusiness
business
Dormant
DormantCompany
Company
Holding
Holding

On
Onthe
thebasis
basisof
ofcontrol
control Subsidiary
Subsidiary Foreign
ForeignCompany
Company
On
Onthe
thebasis
basisof
of
jurisdiction
jurisdiction
Associate
Associate Government
Governmentcompany
company
Classification on the basis of size: Small Company
under sec 2(85)
• The concept of a small company has been introduced for the first
time under the Act of 2013.
• It is a Company other than a public company
• Having a paid up capital not exceeding INR 50 lacs or such
higher amount as may be prescribed not exceeding INR 500 lacs;
• OR a turnover as per last P&L Account not exceeding INR 200
lacs or such higher amount as may be prescribed not exceeding
INR 2000 lacs

• Note : The status of a small company may change from year to

year. If a company breaches the limit set for the small company, it
losses its exemptions and privileges granted to it with regards to
annual return and Board meetings.
Classification on the basis of
liability
• 2(21) “company limited by guarantee” means a company
having the liability of its members limited by the
memorandum to such amount as the members may
respectively undertake to contribute to the assets of the
company in the event of its being wound up
• 2(22) “company limited by shares” means a company
having the liability of its members limited by the
memorandum to the amount, if any, unpaid on the
shares respectively held by them
• 2 (92) “unlimited company” means a company not
having any limit on the liability of its members;
Classification on the basis of
number of members
Public company:
• 2(71) “public company” means a company which—
• (a) is not a private company;
• (b) has a minimum paid-up share capital of five lakh rupees
or such higher paid-up capital, as may be prescribed.

• Private Company:
• Refer to the next slide >>>
Private company
• 2(68) “private company” means a company having a minimum paid-up share
capital of one lakh rupees or such higher paid-up share capital as may be
prescribed and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) Except in case of One Person Company, limits the number of its members to two
hundred:
• Provided that where two or more persons hold one or more shares in a
company jointly, they shall, for the purposes of this clause, be treated as a
single member:
• Provided further that—
• (A) persons who are in the employment of the company; and
• (B) persons who, having been formerly in the employment of the company,
were members of the company while in that employment and have continued
to be members after the employment ceased,
• shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the
company;
One Person Company
• Sec 2(62) “One Person Company” means a company which
has only one person as a member.
• Private Company which has only one person as a member
Name of nominee to be provided in the memorandum with
his prior written consent
• Minimum one director is required – no bar on appointment
of more than one director.
• Ceases to be a OPC where paid up capital exceeds INR 50
lacs or average annual turnover exceeds INR 200 lacs
Classification on the basis of nature of
the business
Company with charitable purposes
• a limited company which
• (a) has in its objects the promotion of commerce, art,
science, sports, education, research, social welfare,
religion, charity, protection of environment or any
such other object;
• (b) intends to apply its profits, if any, or other income
in promoting its objects; and
• (c) intends to prohibit the payment of any dividend to
its members,
Dormant Company
• Sec455. (1)
• Where a company is formed and registered under
this Act for a future project or to hold an asset or
intellectual property and has no significant
accounting transaction, such a company or an
inactive company may make an application to the
Registrar in such manner as may be prescribed for
obtaining the status of a dormant company.
Classification on the basis of control

Holding & Subsidiary company

• 2(46) “holding company”, in relation to one or more
other companies, means a company of which such
companies are subsidiary companies.
• 2(87) “subsidiary company” or “subsidiary”, in relation to any
other company (that is to say the holding company),
means a company in which the holding company—
• (i) controls the composition of the Board of Directors; or
• (ii) exercises or controls more than one-half of the total share
capital
either on its own or together with one or more of its
subsidiary companies:
Associate Company

• “associate company”, in relation to another company,

means a company in which that other company has a
significant influence, but which is not a subsidiary
company of the company having such influence and
includes a joint venture company.
Classification on the basis of jurisdiction

Foreign Company
• 2(42) “foreign company” means any company or body corporate
incorporated outside India which—
• (a) has a place of business in India whether by itself or through an
agent ,physically or through electronic mode; and
• (b) conducts any business activity in India in any other manner.
Government company

• 2(45) “Government company” means any company in which not less

than fifty one per cent. of the paid-up share capital is held by
• the Central Government, or
• by any State Government or Governments, or
• partly by the Central Government and partly by one or more
State Governments,
and includes a company which is a subsidiary company of such
a Government company;

Domestic Company
• Companies Act 2013 does not define Domestic Company.
Structure of Share Capital

Called Uncalled
Up UP

Paid up Reserve
capital Authorized , Capital
Nominal or
Registered
Capital
Incorporation of a company
3. (1) A company may be formed for any lawful purpose by—
• (a) seven or more persons, where the company to be formed is to be a public
• company;
• (b) two or more persons, where the company to be formed is to be a private
• company; or
• (c) one person, where the company to be formed is to be One Person Company that is
to say, a private company,
by subscribing their names or his name to a memorandum and complying with the
requirements of this Act in respect of registration:
Provided that the memorandum of One Person Company shall indicate the name of the
other person, with his prior written consent in the prescribed form, who shall, in the
event of the subscriber’s death or his incapacity to contract become the member of
the company
• Provided that the memorandum of One Person Company shall
indicate the name of the other person, with his prior written
consent in the prescribed form, who shall, in the event of the
subscriber’s death or his incapacity to contract become the
member of the company
• Provided further that such other person may withdraw his
consent in such manner as may be prescribed:
• Provided also that the member of One Person Company may at any time change
the name of such other person by giving notice in such manner as may be prescribed:
• Provided also that it shall be the duty of the member of One Person Company to
intimate the company of the change, if any, in the name of the other person
nominated by him
• Provided also that any such change in the name of the person shall not be deemed to
be an alteration of the memorandum.
• A company formed may be either—
• (a) a company limited by shares; or
• (b) a company limited by guarantee; or
• (c) an unlimited company
Memorandum of Association
• The memorandum of a company shall state—
• (a) the name of the company with the last word “Limited” in the case of a public
limited company, or the last words “Private Limited” in the case of a private limited
company: Provided that nothing in this clause shall apply to a company registered
under section 8;
• (b) the State in which the registered office of the company is to be situated;
• (c) the objects for which the company is proposed to be incorporated and any matter
considered necessary in furtherance thereof;
• (d) the liability of members of the company, whether limited or unlimited,
• (e) in the case of a company having a share capital, the amount of share capital with
which the company is to be registered
• (f) in the case of One Person Company, the name of the person who, in the event of
death of the subscriber, shall become the member of the company
Memorandum
• Name clause
• The name stated in the memorandum shall not—
• (a) be identical with or resemble too nearly to the name of an
existing company registered under this Act or any previous
company law; or
• (b) be such that its use by the company— (i) will constitute an
offence under any law for the time being in force; or (ii) is
undesirable in the opinion of the Government
• a company shall not be registered with a name which contains —
any word or expression which is likely to give the impression
that the company is in any way connected with, or having the
patronage of, the Central Government, any State Government, or
any local authority, corporation or body constituted by the
Central Government or any State Government.
Introduction

Companies may expand horizontally by acquiring another

business through Corporate combinations.

These combinations can be in the form of:-

• Mergers
• Acquisition
• Amalgamations
• Takeovers
Why do companies go for mergers and acquisitions?

Deal with competition both domestically and internationally.

Increase shareholder’s value
Enjoy economies of scale.
Diversify risk
Enjoy tax
benefits
Merger Vs Amalgation
• While the terms are used interchangeably- there is a thin
line of difference. 

• When an entity gets absorbed by another entity and that

which got absorbed looses its separate identity, while the
absorbing entity retains its identity, then such an
absorption is called 'merger'. 

When two entities fuse with each other, so that both loose
their existing identities and a new single fused entity
results due to the fusion, such a fusion is known as
'amalgamation'. 
 • If A Company is merged with B company; then A is being absorbed
by B;
A ceases to exist Assets and liabilities of A are
merged with B

B retains its identity

Shareholders of A become shareholders of B
A is the transferor company
B is the transferee company
• A company and B company amalgamate and emerge as C;
• The identity of both A and B is lost
• The merged entity is C
Types of mergers

Vertical
Mergers

Horizontal Conglomerate
mergers mergers

Mergers
can be
Horizontal merger
Companies that are in direct competition and
share the same product lines and markets (Ford
and Volvo, Rolls Royce and Lamborghini, Pepsi
and Coke)
Competing firms consolidate in case of horizontal
merger.
Vertical merger
• A merger between two companies producing different
goods or services for one specific finished product.
• A vertical merger can also occur when two or more firms,
operating at different levels within an industry's supply
chain, merge operations.
• These companies can be in different stages of production
of the same product.
 Conglomerate merger
• A merger between firms that are involved in totally
unrelated business activities.
• An athletic shoe company can merge with a soft drink
company.
• There are two types of conglomerate mergers: pure and
mixed.
• Pure conglomerate mergers involve firms with nothing in
common, while mixed conglomerate mergers involve
firms that are looking for
• product extensions or market extensions.
• A market extension merger takes place between two
companies that deal in the same products but in separate
markets.
Provisions of companies Act with regards to mergers

• A resolution to approve merger must have the approval of the

Board in a duly convened meeting.
• Companies intending to merge must seek the sanction of the
National Company Law Tribunal under the Companies Act,
2013 (as against the High court under the old act)
• The entities must prepare a scheme of amalgamation/merger
setting out the following:
• The manner of valuation of the assests of the transferor company
• The variation in the rights of the shareholders of the merged
entities prior and after the merger.
• The manner of transfer of the liabilities of the transferor company
are transferred to the transferee company
• A meeting of shareholders must be convened.
• The notice of the meeting of the shareholders must be
accompanies by :
• Copy of Valuation report
• Statement explaining details of compromise/arrangement
• Statement explaining impact of such
compromise/arrangement on stakeholders.
• Both the merging entities must seek the approval of the
¾ of their shareholders of their entities through postal
ballot
• Persons holding at least 10% of shareholding or 5% of the
total outstanding debt as per the latest audited financials
eligible to raise objections .
• Dissenting shareholders must be given a right to exit the
company.
• The majority shareholders may acquire the shares of the
dissenting minority at an approved rate.
• The NCLT may order a meeting of the creditors or class
of creditors and seek their approval(90% of the creditors
in value) for the intended merger.
• Notice of the meeting of the shareholders and the
creditors must be filed with the income tax department,
RBI, ROC, RD, SEBI, stock exchanges (wherever
applicable), CCI or any other regulators likely to be
affected.
• Regulators have an opportunity to make representation
against the proposed merger within 30 days .
• - ‘no objection’ is deemed in case of no representation.
• Companies Act 2013 allows:
• Merger of domestic companies
• Merger of a foreign company with an Indian company
• Merger of an India company with a foreign company
• Fast track mergers between
• Small companies
• Holding companies and their wholly owned subsidiaries
Competition Act,
2002
History
• The Govt. Of India introduced the bill in 2001.

• Bill passed in Dec 2002.

• On 13 Jan 2003 The President of India gave his assent.

• Competition Commission Of India(CCI) has advocated the

competition Act 2002.

• It replaces Monopolies and Restrictive Trade Practices Act

1969.
Objectives of the Act
• i. To prevent anti-competition practices;
• ii. To promote and sustain competition in markets;
• iii. To protect the interests of consumers; and
• iv. To ensure freedom of trade for all participants
in the markets in India.
Definitions
• “Acquisition” means, directly or indirectly,
acquiring or agreeing to acquire—
• (i) shares, voting rights or assets of any
enterprise; or
• (ii) control over management or control over
assets of any enterprise
• “Cartel” includes an association of producers,
sellers, distributors, traders or service providers
who, by agreement amongst themselves, limit,
control or attempt to control the production,
distribution, sale or price of, or, trade in goods or
provision of services
Definitions
• “Consumer” means any person who—
• (i) buys any goods for a consideration which has been paid
or promised or partly paid and partly promised, and includes
any user of such goods.

• (ii) hires or avails of any services for a consideration which

has been paid or promised or partly paid and partly
promised, and includes any beneficiary of such services.
Definitions
• “Enterprise” means a person or a department of the
Government, who or which is, or has been, engaged in any
activity, relating to the production, storage, supply, distribution,
acquisition or control of articles or goods, or the provision of
services, of any kind, or in investment, or in the business of
acquiring, holding, underwriting or dealing with shares,
debentures or other securities of any other body corporate, either
directly or through one or more of its units or divisions or
subsidiaries, whether such unit or division or subsidiary is located
at the same place where the enterprise is located or at a different
place or at different places,
• but does not include any
• activity of the Government relatable to the sovereign functions
of the Government including all activities carried on by the
departments of the Central Government dealing with atomic
energy, currency, defence and space.
Definitions
• “Price”, in relation to the sale of any goods or to the
performance of any services, includes every valuable
consideration, whether direct or indirect, or deferred, and
includes any consideration which in effect relates to the
sale of any goods or to the performance of any services
although ostensibly relating to any other matter or thing.
Definition
• “Predatory pricing” is some thing called pricing below than
the cost of the product. The objective of pricing is to eliminate
the competition and then create dominant position in the
market and put the price so high to recover the earlier losses.
It is sort of abuse of dominant position.
• There are some methods in economics to establish whether a
pricing is predatory pricing or not. Once the predatory pricing
is fixed then the CCI can pass an order that enterprise has
abused its dominant position in contravention of the
Competition Act and pass the penal order for it.
Types of Agreements
Competition law identifies two types of agreement.
• First Horizontal agreements which are among the enterprises
who are or may compete within same business.
• Second is the vertical agreement  which are among
independent enterprise.  
Anti-competitive agreements
• Section 3 of the Act -
• no enterprise or association of enterprises shall enter into
any agreement in respect of production, supply, distribution,
storage, acquisition or control of goods or provision of
services, which causes or is likely to cause an appreciable
adverse effect on competition within India.
Anti-competitive agreement
(Sec.3)
• Section 3 of The Competition Act 2002 deals with the anti-
competitive agreements.

• An agreement which adversely effect the competition. It includes

but is not limited to: -

• 1. Agreement which limit the production.

• 2. Agreement which limit the supply.
• 3. Agreement to allocate market : Market division or market
allocation schemes are agreements in which competitors
divide markets among themselves. In such schemes, competing
firms allocate specific customers or types of customers, products, or
territories among themselves.
• 4. Agreement to fix prices: a practice whereby rival companies come
to an illicit agreement not to sell goods or services below a certain price
• 5. Agreement to collusive bidding: Collusive bidding refers to
agreements by contractors or suppliers in a particular trade or
area to cooperate to defeat the competitive bidding process in
order to inflate prices to artificially high levels
• 6. Conditional purchase (Or tie-in-agreements): Marketing
arrangement in which a supplier of an in-demand good or service
sells it on the basis that the buyer (usually a retailer or reseller)
also buys a certain amount of another (less popular) product.
• 7. Refusal to deal: Is with customers or suppliers, with the
effect of preventing them from dealing with a rival.
• 8. Exclusive supply/distribution agreement: Situation where
suppliers and distributors enter into an exclusive agreement that
only allows the named distributor to sell a specific product.
Abuse of Dominant Position
(Sec.4)
• According to Section 4 of the Act, no enterprise shall abuse its dominant
position.
• Abuse - It is the misuse of an advantageous position by an enterprise to
gain extra benefits but which resultantly damage the consumer interest
and make it difficult other players to compete.
• An abuse of dominant position is said to occur, when an enterprise:
• (a) Directly or indirectly imposes unfair or discriminatory purchase or
selling prices on condition, including predatory prices;
• (b) Limits production, markets or technical development to the
prejudice of consumers;
• (c) Indulges in action resulting in denial of market access;
• (d) Makes the conclusion of contracts subject to acceptance by other
parties;
• (e) Uses dominance in one market to move into or protect other
markets.
Abuse of dominant position
includes
• Imposition of unjust conditions.
• Imposition of unfair pricing.
• Predatory pricing.
• Create hindrance in entry of new operators.
•  Abuse of market position.