Legal Aspects of

Business
 Laws to be covered
 Companies Act, 2013 (Section 1 to Section
122)
 Negotiable Instruments Act, 1881
 Sale of Goods Act, 1930
 Indian Contracts Act, 1872
 Consumer Protection Act, 1986
 Information Technology Act, 2000
COMPANY LAW
 INTRODUCTION
Meaning of Company:

The word Company is derived from the Latin word

(Com= With or together; panis= bread) & it originally
referred to an association of persons who took their
meal together.

The Company denotes an association of likeminded

persons formed for the purpose of carrying on some
business or undertaking.
A Company is a Body corporate because the persons
forming it are made in to one body by incorporating
it according to law and clothing it with legal
personality.

As a legal person a corporate is capable of enjoying

many of the rights and incurring many of the
liabilities of a natural person.
An incorporated company owes its existence either
to special Act of Parliament or to Company Law.

Examples:
 LIC, SBI have been brought into existence through

an special Acts of Parliament.

 Companies like Tata Steel Ltd., Reliance Industries

Ltd. have been formed under the C.A. 1956 which
is being replaced by C.A. 2013
DEVELOPMENT OF
INDIAN COMPANY
LAW
 Company Law in India, as indicated earlier, is the
cherished child of the English parents.

 First Company Act was passed in India in 1850.

 It provided for –
◦ Registration of Companies

◦ Transferability of shares
 This Act was recast in 1882 embodying the
amendments which were made in the Company Law
in England upto that time.

 In 1913 consolidated Act was passed & major

amendments were made to the consolidated Act in
1936.

 Later on Companies Act 1956 came in to the

picture under which CG and court assumed
extensive powers to intervene directly in the affairs
of the Company.
 The Companies Act 1956 was based on the -
Bhabha Committee Recommendations.

 The Act came in to force on 1st April, 1956.

 This Act was the longest piece of legislation ever

passed by our Parliament.

 The Companies Act 1956 consisted of 658 Sections

and 15 Schedules
Evolution of Companies Act, 2013

 Main object was to amend and consolidate the law

relating to Companies.

 Companies bill was assented by the President of

India on 29th August, 2013.

 C.A. 2013 consists of 470 Sections, 29 chapters, &

7 schedules
 Definition of Company
 In a legal sense, a company is an association of
both natural and artificial persons.

 As per C.A., 2013 “a company means a Company

formed under this act and any other previous act”

 Lord Justice Lindley has defined a company as -

“ an association of many persons who contribute
money or money’s worth to a common stock and
employ it in some trade or business and who share
the profit and loss arising therefrom.”
 NATURE & CHARACTERISTICS
OF A COMPANY

 Corporate Personality
Case Example:
Salomon V. Salomon and Co. Ltd., 1897

 Limited Liability

 Perpetual Succession
 Separate Property
Case Law:
Mrs. Bacha F. Guzdar V. The Commissioner of
Income tax, Bombay,1955

 Transferability of Shares

 Common Seal

 Capacity to sue and be sued

 Contractual Rights

 Limitation of Action

 Separate Management
 Voluntary Association for profit

 Termination of Existence
COMPANY VIS-À-VIS
OTHER FORMS OF
BUSINESS
 DISTINCTION B/W COMPANY &
PARTNERSHIP
COMPANY PARTNERSHIP
Legal Person. Not a Legal Person.
Property belongs to the Property of the firm is of
Company. the individuals who are
comprising it.
Creditors of the Company Creditors of the firm are
can only proceed against the creditors of individual
the Company and not partners.
against its members.
 DISTINCTION B/W COMPANY &
PARTNERSHIP
COMPANY PARTNERSHIP
A member of a Co. can A partner cannot contract
contract with it. with his firm.
A Company has perpetual A firm doesnot have
succession. perpetual succession.
A company’s share can A partner cannot transfer
ordinarily be transferred. hi share without the
consent of other partners.
Shareholder may be A partners liability is
limited either by shares or always unlimited.
 DISTINCTION B/W COMPANY &
PARTNERSHIP
COMPANY PARTNERSHIP
A Co. may have any no. of Minimum two partners are
members, except private required to form a
co. cannot have more partnership.
than 200 members.
A company is required to The accounts of a firm are
get its account audited audited at the discretion
annually by a Chartered of the partners.
Accountant.
A Company being a A partnership firm is a
creation of law can be result of an agreement
DIFF. B/W COMPANY &
HUF
DISTINCTION B/W COMPANY & HUF
(HINDU UNDIVIDED FAMILY)
COMPANY HUF
Consists of heterogeneous Consists of homogenous
members. members.
There is no such system Here Karta has the sole
like Karta in the Company. authority to contract
debts for the purpose of
the business.
There is no such rule for A person becomes
becoming a member of member of an HUF by
company. virtue of birth
 LIMITED LIABILITY PARTNERSHIP
(LLP)
 It is an alternative corporate business form.

 Consisting benefits of limited liability of a company

and flexibility of a partnership.

 LLP is a separate legal entity.

 Liability of the partners is limited to their agreed

contribution in the LLP
 LIMITED LIABILITY PARTNERSHIP
(LLP)
 Mutual rights and duties of the partners are
governed by an agreement.

 LLP is called ‘Hybrid’ between a company & a

partnership.

 LLP has lesser compliance requirement as

compared to a company.
 LIMITED LIABILITY PARTNERSHIP
(LLP)

A basic difference between an LLP & a Company lies

in the internal governance structure of a company is
regulated by statute(i.e. Companies Act) whereas for
an LLP it would be by a contractual agreement
between partners.
DIFF. B/W COMPANY &
LLP
 DISTINCTION B/W COMPANY & LLP
COMPANY LLP
Memorandum is to filed Incorporation Document
with ROC is required to be filed.
Memorandum should Incorporation Document
contain State in which is not required to contain
incorporated. State in which
incorporated.
Name to contain 'Limited' Name to contain 'Limited
or 'Private Limited' as Liability Partnership' or
suffix. 'LLP' as suffix.
 DISTINCTION B/W COMPANY & LLP
COMPANY LLP
Managing Director
COMPANY and Designated LLPPartner to
Whole time Director
Memorandum to
is to filed look after Document
Incorporation statutory
look after day to day
with ROC compliances.
is required to be filed.
administration.
Memorandum should Incorporation Document
Individual
contain State director or Every
in which partner
is not required has
to contain
member does not have authority
incorporated. State into conduct
which
authority in conduct of business of LLP, unless
incorporated.
business of company. the LLP Agreement
Name to contain 'Limited' Name to contain 'Limited
provides to contrary.
or 'Private Limited' as Liability Partnership' or
Restrictions
suffix. on No restriction
'LLP' as suffix. on
remuneration to director remuneration to partner.
 DISTINCTION B/W COMPANY & LLP
COMPANY LLP
COMPANY LLP
Notice of change of A partner who has
Memorandum is given
director is to be to filed
by Incorporation
resigned from Document
LLP can
with ROC
company. is required
himself filetonotice
be filed.
of his
Memorandum should Incorporation Document
resignation to ROC.
contain State certificate,
Share, share in which is Nonot required toofcontain
requirement share
incorporated.
register of members, State in which
and share certificate.
transfer and transmission incorporated.
Name to etc.
of shares contain 'Limited' Name to contain 'Limited
required.
or
Board'Private Limited'
meetings, as
general Liability Partnership'
No provision or
for regular
suffix.
meetings are required. 'LLP' as suffix.
meeting of Board and
 DISTINCTION B/W COMPANY & LLP
COMPANY LLP
COMPANY LLP
Charges are required to be No provision for
Memorandum
registered. is to filed Incorporation Document
registration of charges.
with ROC is required to be filed.
Elaborate records and No records and registers
Memorandum should
registers are required to Incorporation Document
have been prescribed.
contain State in
be maintained. which is not required to contain
incorporated. State in which
Restrictions on Board Partners are free to enter
incorporated.
regarding some specified into any contract.
Name to contain
contracts, 'Limited'
contracts in Name to contain 'Limited
or
which'Private Limited'
directors as Liability Partnership'
interested, or
suffix.
investments, loans and 'LLP' as suffix.
 DISTINCTION B/W COMPANY & LLP
COMPANY LLP
COMPANY LLP
Disclosures required of No requirement of
Memorandum
contracts where is directors
to filed Incorporation Document
disclosures required of
with ROC
are interested. is requiredwhere
contracts to be filed.
partners
Memorandum should Incorporation
are interested,Document
unless
contain State in which is not requiredinto contain
specified LLP
incorporated. State
Agreement.in which
Elaborate provision incorporated.
No provision relating to
Name
relatingto to
contain 'Limited'
redressal in Name to contain
redressal 'Limited
in case of
or
case 'Private Limited' and
of oppression as Liability
oppression Partnership' and
or
suffix.
mismanagement. 'LLP' as suffix.
mismanagement
DOCTRINE OF LIFTING OF CORPORATE
VEIL
 DOCTRINE OF LIFTING OF CORPORATE VEIL

 Personality of a company is a statutory privilege.

 It must be used for legitimate business only.

 If a fraud and dishonest use is made of the legal entity,

it will not be allowed.

 The court will apply a doctrine/ principle of what we

called as “lifting of or piercing the corporate veil”.
 DOCTRINE OF LIFTING OF CORPORATE VEIL

 Judicial Interpretations:

 Salomon V. Salomon & Co. Ltd., 1897

 Re. Sir Dinshaw Manakjee Petit, 1927

IS COMPANY A CITIZEN ??
 Judicial Interpretations:

 R.C. Cooper V. Union of India, 1970

 Bennet Coleman Co. V. Union of India, 1973

NEW CONCEPTS
INTRODUCED IN
C.A., 2013
 NEW CONCEPTS
 Associate Company

 One Person Company

 Small Company

 Dormant Company

 Independent Directors
 NEW CONCEPTS
 Women Director

 Resident Director

 Special Court

 Secretarial Standards

 Secretarial Audit
 NEW CONCEPTS
 Class Action

 Registered Valuers

 Rotation of Auditors

 Vigil Mechanism

 Corporate Social Responsibility

 NEW CONCEPTS

 Cross Border mergers

 Prohibition of Insider trading

 Global Depositories Receipts

TYPES OF COMPANIES
UNDER C.A., 2013
 TYPES
 Public Company

 Private Company

 One Person Company

 PUBLIC COMPANY
 Capital requirement.

 7 or more persons can form a public company.

 Any subsidiary of public co. shall be treated as

public co. even if such co. has obtained the status
of a private co. in its articles.
 PRIVATE COMPANY

 Capital requirement

 2 or more persons can form a private co. subject to

a limit of maximum 200 members except in the
case of one person co.

 Right to transfer its shares is restricted

 ONE PERSON COMPANY

 Only one person as member

FURTHER CLASSIFICATION OF CO.s

 Classification on the basis of Incorporation:

◦ Statutory Companies

◦ Registered Companies

 Classification on the basis of liability:

◦ Unlimited liability Companies
◦ Companies limited by guarantee
◦ Companies limited by shares
FURTHER CLASSIFICATION OF CO.s
 Other forms of Companies:

◦ Non profit making companies

◦ Government Companies

◦ Foreign Companies
FURTHER CLASSIFICATION OF CO.s

◦ Holding & Subsidiary Companies

◦ Associate Companies/ Joint venture Companies

◦ Investment Companies
FURTHER CLASSIFICATION OF CO.s

◦ Producer Companies

◦ Dormant Companies
THANK YOU