Khadija Khan

Section - A

BA.LL. B 3rd Year (5th semester)

Internal Assessment 1st

Company Law

Q 1. Define Company. Explain the need for a company ?

Introduction:

The word ‘company’ comes from the Latin word (Com=with or together; panis =bread), and it
originally noted an association of persons who took their meals together. within the leisurely past,
merchants took advantage of festive gatherings, to debate business matters.

Nowadays, business matters became more complicated and can't be discussed at festive gatherings.
Therefore, the corporate sort of organization has assumed greater importance. It denotes a joint-
stock enterprise during which the capital is contributed by several people. Thus, in popular
parlance, a corporation denotes an association of similar temperament persons formed for the aim
of carrying on some business or undertaking.
Definition of company

An association or an organization which is registered or incorporated under the companies act of

2013 is called a company. It is an artificial person created by law.
A company is a "corporation" - an artificial person created by law. A human being is a "natural"
person. A company is a "legal" person. A company thus has legal rights and obligations in the
same way that a natural person does.
In the legal sense, a company is an association of both natural and artificial persons (and is
incorporated under the prevailing law of a country). In terms of the businesses Act, 2013 (Act No.
18 of 2013) a “company” means a corporation incorporated under this Act or under any previous
company law [Section 2(20)].
A company isn't merely a legal institution. it's rather a legal device for the attainment of the social
and economic end. It is, therefore, a combined political, social, economic and legal institution.
Thus, the term company has been described in many ways. “It may be a means of cooperation and
organization within the conduct of an enterprise”.
Need for a Company:
The need for a company is divided into four stages:

• Promotion
• Registration
• Certificate of incorporation
• Certificate of commencement of business

➢ Promotion – the steps which are taken to motivate a number of individuals to come
together for the achievement of a commom objective through the company form is called
promotion. The person who undertake the responsibility to bring the company into
existence are called promoters.

Steps which were taken in promotion of a company :

1. Discovery of an idea
2. Detailed investigation
3. Assembling
4. Financing the proposition

1. Discovery of an idea - the promoters start with a plan to start out some business either in
new field which has not been commercially exploited or in some existing lines of
manufactured or business. he makes preliminary investigation to seek out out whether the
actual business is helpful and he roughly estimates income and expenditure of the proposed
business.

2. Detailed investigation - the promoters has to make detailed investigation of his idea with
the assistants of the many experts like engineers, chemists, market analysis's , finance
experts, management consultants etc. on the idea of reports of those experts the promoters
would be in a very position to grasp the capital requirements , place of location, size of the
unit, demand condition within the market , price of the merchandise, cost of production,
written on capital etc. an in-depth investigation will help him to check the estimated income
is enough to satisfy the value of production and other expenses.

3. Assembling - after detailed investigation, if he satisfied with practicability

and profitability of the proposal concern, he starts assembling preposition, assembling
means getting the support and consent of other persons to act as a director or founders,
arranging for patents, an acceptable site for the corporate, machinery and equipment etc.

4. Financing the proposition - after assembling the proposition, the promoter prepares a '
prospectus ' to present to the general public and to underwriters to steer them to
finance the proposition. the promoter also takes steps to include the corporate, and to
secure the certificate to commence the business.

➢ Registration- The Registration of the Company is legal recognition given to the body corporate
under the Company Law. The procedure of registration has been clearly stated in Section – 7 of
The Companies Act, 2013Steps and formalities for the or registration of the company. The
following documents to be filed with the registrar:
• Memorandum of Association (MOA) with at least 7 persons subscribed, each one share if
it is a public company. If it is a private company at least 2 persons with the shares
subscribed.
• Articles of Association (AOA) except where table ‘A’ considered a companies articles.
• Address of the registered office.
• A list of directions with their names, address and occupation.
• Consent of directions in writing to act as directions.
• An undertaking by directions to take and to pay for any qualification shares. This is not
required for private company.

➢ Certificate of incorporation - On the registration of Memorandum of Association,

Articles of Association and other documents, the Registrar will issue a certificate called
the ‘Certificate of Incorporation ‘. the difficulty of certificate is that the evidence of the
very fact that the corporate is incorporated and therefore the requirements of the businesses
Act are complied with. certifying under his hand that the company is incorporated and, in
the case of a limited company that the company is limited.
➢ Certificate of commencement of business - After getting the certificate of incorporation,
a private company can start its business. A public company can start its business only after
getting a’ certificate of commencement of business’.
After getting the certificate of incorporation:

(i) A public company issues a prospectus of inviting the general public to buy its share
capital,

(ii) A minimum subscription is fixed, and

(iii) the corporate is required to sell a minimum number of shares mentioned within the
 prospectus.

After making the sale of the specified number of shares a certificate is shipped to the
Registrar stating this fact, along-with a letter from the banks, that it's received application
money for such shares.

The Registrar scrutinizes the documents. If he's satisfied, then issues a certificate called
Certificate of Commencement of Business. this is often the conclusive evidence of the
commencement of the business.

Q 2. Discuss doctrine of Lifting of the Corporate Veil.

For all purposes of law, a company is thought to be a separate entity from its shareholders. But
sometimes it's sometimes necessary to appear at the persons behind the company veil. The separate
entity of the corporate is disregarded and also the schemes and intentions of the persons behind
are exposed to full view which is understood as lifting or piercing the company veil. this is often
usually drained the subsequent cases:
1. Determination of character – In Daimler Co Ltd. V. Continental Tyre and Rubber Co. a
company was incorporated in England for the purpose of selling tyres manufactured in
Germany by a German company. The German company held the bulk of the shares in the
English company and all the directors of the company were Germans, resident in
Germany. During the First World War the English company commenced an action to
recover a trade debt. And the question was whether the company had become an enemy
company and should therefore be barred from maintaining the action.

The House of Lords held that though the company was registered in England it is not a
natural person with a mind or conscience. It is neither loyal nor disloyal; neither
friend nor enemy. But it would assume an enemy character if the persons in de fact
control of the company are residents of an enemy country.
2. For benefit of revenge - The separate existence of an organization could also be disregarded
when the sole purpose that it appears to own been formed is that the evasion of taxes. In
Sir Dinshaw Maneckjee , Re the assesses was a wealthy person enjoying large dividend
and interest income. He formed four private companies and agreed with each to carry a
block of investment as an agent for it. Income received was credited within the company
accounts but company handed the quantity to him as pretended loan. Thus, he divided his
income in four parts to scale back his liabilities. The Court disregarded corporate entity
because it was formed only to evade taxes.
In Bacha F Guzdar v. CIT, Bombay, the Supreme Court dismissed the plea of the
plaintiff a member of a tea company, who claimed that the dividend held by her in respect
of her shares should be treated as agricultural income (as it was exempted from tax) and
not income from manufacture and sale of tea.

3. Fraud or improper conduct – in Gilford Motor Co. V. Horne,, H was appointed at the
decision maker of the plaintiff company on the condition that he shall not solicit the
shoppers of the corporate. He formed a brand-new company which undertook
solicitation of plaintiff’s customers. the corporate was restrained by the Court.
4. Agency or Trust or Government company - The separate existence of a corporation could
also be ignored when it's being employed as an agent or trustee. In State of UP v.
Renusagar Power Co. it had been held that an influence generating unit created by an
organization for its exclusive supply wasn't thought to be a separate entity for the aim of
excise.
In Re R.G. Films Ltd. an American company produced film in India technically within
the name of a British company, 90% of whose share was held by the President of the
American company. Board of Trade refused to register the film because the English
company acted merely because the agent of the American company.
5. To avoid welfare legislation - where it absolutely was found that the only purpose of
formation of recent company was to use it as a tool to cut back the quantity to be paid by
way of bonus to workmen, the SC pierced its corporate veil. The Workmen Employed
in Associated Rubber Industries Ltd. v. The Associated Rubber Industries Ltd,
Bhavnagar.
6. Under statutory provision- The Act sometimes imposes personal liability on persons
behind the veil in some instances like, where business is carried on beyond six months
after the knowledge that the membership of company has gone below statutory
minimum (sec 45) - Madanlal v. Himatlal when contract is form by misdescribing
the name of the company (sec 147), when business is carried on only to defraud creditors
(sec 542).
5. Grammar Check
6. Download Report
7. Check Plagiarism