Law 2

1, discuss characteristics of company act 2013?

Ans,

Characteristics of a Company
A company as an entity has many distinct features which together make it a unique organization. The
essential characteristics of a company are following:

Separate Legal Entity:

Under Incorporation law, a company becomes a separate legal entity as compared to its members. The
company is distinct and different from its members in law. It has its own seal and its own name, its
assets and liabilities are separate and distinct from those of its members. It is capable of owning
property, incurring debt, and borrowing money, employing people, having a bank account, entering
into contracts and suing and being sued separately.

Limited Liability:
The liability of the members of the company is limited to contribution to the assets of the company
upto the face value of shares held by him. A member is liable to pay only the uncalled money due on
shares held by him. If the assets of the firm are not sufficient to pay the liabilities of the firm, the
creditors can force the partners to make good the deficit from their personal assets. This cannot be
done in the case of a company once the members have paid all their dues towards the shares held by
them in the company.

Perpetual Succession:
A company does not cease to exist unless it is specifically wound up or the task for which it was formed
has been completed. Membership of a company may keep on changing from time to time but that
does not affect life of the company. Insolvency or Death of member does not affect the existence of
the company.

Separate Property:
A company is a distinct legal entity. The company's property is its own. A member cannot claim to be
owner of the company's property during the existence of the company.

Transferability of Shares:
Shares in a company are freely transferable, subject to certain conditions, such that no share-holder is
permanently or necessarily wedded to a company. When a member transfers his shares to another
person, the transferee steps into the shoes of the transferor and acquires all the rights of the
transferor in respect of those shares.

Common Seal:
A company is an artificial person and does not have a physical presence. Thus, it acts through its Board
of Directors for carrying out its activities and entering into various agreements. Such contracts must be
under the seal of the company. The common seal is the official signature of the company. The name of
the company must be engraved on the common seal. Any document not bearing the seal of the
company may not be accepted as authentic and may not have any legal force.

Capacity to sue and being sued:

A company can sue or be sued in its own name as distinct from its members.

Separate Management:
A company is administered and managed by its managerial personnel i.e. the Board of Directors. The
shareholders are simply the holders of the shares in the company and need not be necessarily the
managers of the company.

One Share-One Vote:

The principle of voting in a company is one share-one vote i.e. if a person has 10 shares, he has 10
votes in the company. This is in direct distinction to the voting principle of a co-operative society
where the "One Member - One Vote" principle applies i.e. irrespective of the number of shares held,
one member has only one vote.

2, what do you mean by lifting the corporate veil?

Discusse with reference with land mark case?
Ans,

Company enjoys a separate position from that of position of it’s owners. It is artificial but yet a
person in eyes of law. Problems arise when this position of the company is misused. It is not
incorrect to say that, though the company is an unreal person, but still it cannot act on it’s
own. There has to be some human agency involved so that company is able to perform it’s
functions. When this human agency is working, in the name of the company, for achieving
goals approved by law, the social order is not disturbed. But when this medium of operations
begins to be tainted, conflicts arise. This authority rather becomes firing of bullets from
someone else’s gun.

When directors, or whosoever be in charge of the company, start committing frauds, or illegal
activities, or even activities outside purview of the objective/articles of the company, principle
of lifting the corporate veil is initiated. It is disregarding the corporate personality of a
company, in order to look behind the scenes, to determine who the real culprit of the
committed offence is. Thus, wherever this personality of the company is employed for
thepurpose of committing illegality or for defrauding others, Courts have authority to ignore
the corporate character and look at the reality behind the corporate veil in order to ensure
justice is served. This approach of judiciary in cracking open the corporate shell is somewhat
cautious and circumspect.
In the case United States v. Milwaukee Refrigerator Transit Company[4], it was stated “A
corporation will be looked upon as a legal entity, as a general rule, and until sufficient reason
to the contrary appears; but, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation
as an association of persons.” Supreme Court of India had adopted the similar thinking in the
case Tata Engineering And Locomotive Co. Ltd. vs. State of Bihar & Ors[5] where the
corporations petitioning had joined together and claimed protection under Article 286 of
Constitution of India for non-imposition of taxon the sale or purchase of goods, the Apex
Court held that “If their contention is accepted, it would really mean that what the
corporations or companies cannot achieve directly, they can achieve indirectly by relying upon
the doctrine of lifting the veil.”

3, liabilities of promoters role under companies act 2013?

Ans

A promoter is a person who occupies the fiduciary position and who, usually, takes care of the
preliminary tasks such as incorporation, and floatation and solicits people to invest money in
the company. A promoter, in general, have the control over the affairs of the company and
the board of directors are accustomed to act with his advice. The below are the liabilities of a
promoter:

1. Information furnished during incorporation — If it is proved that the company has

been incorporated by giving false information that includes suppression of material facts, the
promoter along with the first directors shall be made liable and the applicable action will be
taken against them.

2. Misinformation while promoting and advertising — If it is found that, while

advertising or issuing prospectus or inviting to purchase subscriptions, there is non-
compliance in disclosing information, Promoters could be liable for the misstatements in the
advertising material.

3. Misleading Promises to attract investments — If any deceptive or misleading

forecasts are made, knowingly or recklessly, for the purpose of attracting investments, the
promoters and the concerned key managerial personnel can be held liable

4. Contravention of private placement — If the acceptance of monies and issue of

shares or securities that are intended for specific people are not done as per the rules, then
the promoters could be liable for the violations.

5. Revival and rehabilitation activities — The promoters along with the directors are
liable to attend the meetings and furnish necessary information to the committee of creditors.
In the case of sick companies, if a tribunal finds that funds or other property of company is
diverted to purposes that are not aligned to the interests of the company, the promoter,
managers and the directors would be made liable and would lead to disqualification and the
financial assistance will be removed.

6. Company liquidation and winding up activities — If any promoter, without

reasonable cause, fails to cooperate with the Company Liquidator during winding up phase,
he shall be made liable for his acts and he shall be punishable with imprisonment or fine.

7. Secret profits — If it is found that the promoter has undisclosed transaction of monies or
contracts or agreements that have unstated profits, the company can make the promoter
liable and his acts are considered as deceit or breach of duty in company. The promoter will
be made guilty and further action could be taken by the company as per the relevant laws.

4, what are the various types of companies?

Ans,

 A company is that form of business organization, which is created by law. It

refers to an association of persons, created to undertake business activities,
having a separate legal existence, perpetual succession and a common seal.
It is a legal entity incorporated under the Companies Act, 2013 or any other
previous acts, prevalent in the country.

Types of Company
 On the basis of members
1. 1. One person Company: OPC or one person company is a new category of
company introduced to encourage startups and young
entrepreneurs wherein a single person can incorporate the entity. It also
promotes the concept of corporatization of the business. It should be noted
that it is not the same as a sole proprietorship firm, in a way that OPC has
separate legal existence with limited liability.
2.
3. 2.Private Company: A private company is one in which two or more
persons get the company registered under the Companies Act. The securities
of such a company are not listed on a recognised stock exchange, and they
cannot invite the public to subscribe for the shares/debentures. The members of
a private company are restricted from transferring the shares. The maximum
 number of members in a private company is 200.
4.
5. 3.Public Company: A company which is formed by a minimum number of
seven members with a lawful object is termed as a public company. Its
securities are listed on a recognized stock exchange, and its shares are freely
transferable. Further, there is no limit on the maximum number of members in
such a company. The subsidiary of the public company is also considered as a
public company.

On the basis of liability

2.
1. 1. Company limited by shares: Company limited by shares is one in
which memorandum of association of the company specifies that the liabilities
of the shareholders are limited to the amount unpaid on shares which they
own. Hence, the shareholders are liable only to the extent of the amount that is
not paid on their holdings.
2.
3. 2. Company limited by guarantee: A company in which the liability of
members is limited to a definite sum stated in the memorandum of association
of the company. Meaning that the liability of the members is confined by the
MoA to a stipulated sum, as they have guaranteed to contribute to the
company’s assets, in the event of winding up of the company.
4.
5. 3. Unlimited Company: An unlimited company is a company whose liability
does not have any limit. In this type of company, the liability of the member
ends when he/she ceases to be a member of that company.
6.

Special companies
3.
1. 1. Government Company: The company whose at least 51% paid up share
capital is owned by Central Government/State Government, or partly by central
and partly by the state government. Further, it also covers a company whose
holding company is a government company.
2.
3. 2. Foreign Company: Any company registered outside the country that has
a business place in India or by way of an agent traditionally or electronically and
undertakes business operations in the country in any manner.
4.
5. 3. Section 8 Company: A company formed for a charitable object, i.e. to
encourage commerce, science, sports, art, research, education, social welfare,
environment protection religion, etc. comes under the category of Section 8
company. These companies are given special license by the Central
Government. Further, they use the money earned as profit for the promotion of
the object and thus, dividend to members is not paid.
6.
7. 4. Public Financial Institution: The companies, which are engaged in financial
and investment business and whose 51% or more paid up share capital is held
by Central Government and are established under any act are termed as public
financial institutions. It includes LIC, ICICI, IDFC, IDBI, UTI etc.
8.

On the basis of the control

4.
1. 1. Holding Company: A parent company that owns and controls the
management and composition of the Board of Directors of another company
(i.e. subsidiary company) is termed as a holding company.
2.
3. 2. Subsidiary Company: A company whose more than 51% of its total share
capital is owned by another company, i.e. a holding company either itself or
together with its subsidiaries, as well as the holding company also governs the
composition of Board of Directors is called the subsidiary company.
4.
5. 3. Associate Company: A company in which another company possess
a considerable influence over the company, then the latter is called as an
associate company. The term considerable influence implies controls a
minimum 20% of total share capital, or business decisions, as per an
agreement.

Apart from the list given above, there are many other companies such as listed
company, unlisted company, dormant company and Nidhi company.

5, what are the various kinds of companies one person?

Ans,

One person company is a type of company introduced by the Companies Act, 2013 that

has one person as a shareholder and director. During the incorporation of a one person
company, the sole director & shareholder must propose a person as his/her nominee.

a. Private company:
 Section 3(1)(c) of the Companies Act says that a single person can form a
company for any lawful purpose. It further describes OPCs as private companies.

b. Single-member: 
OPCs can have only one member or shareholder, unlike other private
companies.

c. Nominee:
 A unique feature of OPCs that separates it from other kinds of companies is that
the sole member of the company has to mention a nominee while registering
the company.

d. No perpetual succession: 
Since there is only one member in an OPC, his death will result in the
nominee choosing or rejecting to become its sole member. This does not
happen in other companies as they follow the concept of perpetual
succession.

e. Minimum one director:

 OPCs need to have minimum one person (the member) as director. They can
have a maximum of 15 directors.

f. No minimum paid-up share capital: 

Companies Act, 2013 has not prescribed any amount as minimum paid-up
capital for OPCs.

g. Special privileges: 
OPCs enjoy several privileges and exemptions under the Companies Act that
other kinds of companies do not possess.
6, discuss the circumstances of the misstatement in company law?
Ans,
A false statement of fact or law is called misrepresentation .[3] that is relied on by the other party in
entering a contract. Suppose, Rahim took a wedding dress with beads and sequins to the cleaners.
They gave her a contract to sign and she asked the assistant what it was. The assistant said it was
to stop risk to the beads. In fact the contract exempted all liability. The dress was stained. But the
exclusion was ineffective because of the assistant’s misrepresentation.

For example, a second hand car dealer claiming “this is the fastest car ever”, or a washing
detergent company advertising that their product will clean your clothes “whiter than white” do not
count. This is because a reasonable person would be unlikely to take such claims seriously

Criteria of Misleading information

Misrepresentation is one of several vitiating factors which can affect the validity of a contract. A
misrepresentation occurs when one party makes a false statement with the intention of inducing
another party to contract. For an action to be successful, some criteria must be met in order to
prove a misrepresentation. These include:

 A false statement of fact has been made,

 The statement was directed at the suing party and
 The statement had acted to induce the suing party to contract.

Misleaidng Representation includes

(1) untrue statement

(2) statements which produce wrong impression

(3) statements which are mis-leading

(4) concealment of material facts, and

(5) omission of facts.

The prospectus must take all statements with absolute accuracy and not state the facts which are
not strictly correct. A statement may be not only because of what it states but also because of what
it states but also because of what it conceals or omits

1) The statements is misleading in the form and context in which it is included and
2) The omission from a prospectus of any matter is calculated to mislead.
7, importance of prospectus in company law?
Ans,

A prospectus is a document that companies and others file with the Securities and
Exchange Commission when they are offering new shares of a security to the public. One
of the most common reasons for issuing a prospectus is when a company is making an
initial public offering, putting shares of stock up for sale for the first time. Mutual funds
issue a prospectus at regular intervals because they routinely make new shares available.

Issuer Information
Among the most salient details in the prospectus for a new stock are the descriptions that the
company offers of itself, its assets, its operations, its goals and its business plan. The prospectus
also features a section known as "certain considerations," which explains any particular risk factors
that could impede the success of the company and harm a shareholder's investment in its stock.
Other company information includes an examination of the competition, pending legislation and the
broader economy and its influence on the company. A prospectus for a stock also features a
financial statement for the company and the opinion of an independent auditor about the company's
financials. A bond prospectus similarly features relevant financial information about the
corporation or public entity issuing the bond.

Offering Information
In addition to issuer information, a prospectus for a stock or bond offering includes information
about the security itself. It describes the number of shares or bond certificates being sold in an
offering, the price, the underwriter and how the security will be available for purchase. For either a
stock or a bond, the prospectus should specify how the company or public entity that is selling the
security will use the funds that are being raised from the sale. If the prospectus is for a stock, it will
include information about its dividend policy and it will describe the different classes of stock and
the voting rights for shareholders.

Mutual Fund Activity, Objectives and Leadership

A mutual fund prospectus details the performance of the fund, often including both recent quarterly
results and those from previous calendar years. It also specifies the various goals for the fund and
the basic overarching investment strategies that guide it. For instance, the prospectus for a fund
might indicate that the fund invests in American stocks with strong long-term growth potential.
This type of description gives investors an opportunity to review a fund's objectives to make sure
that they match the investors' own goals. The identity of the managers who are steering the fund
also often appears in the prospectus.

Mutual Fund Fees, Expenses and Guidance

A mutual fund prospectus provides investors with guidance to help with their role as shareholders.
For instance, it gives investors instructions on their tax obligations related to the shares that they
own, and it also details instructions on how to buy and sell shares of the fund. The prospectus
provides a reliable place for investors to track down the various fees that are attached to owning
shares of the fund, such as the amount of the management fee. In addition, the prospectus is a
document that an investor can study in order to understand all of a fund's expenses to determine if it
is operating efficiently enough for the investor's taste.

8, what are the various types of Shelf Prospectus

Ans,

“prospectus of company” means any document described or issued as a prospectus and includes

a red herring prospectus or shelf prospectus or any notice, circular, advertisement or other
document inviting offers from the public for the subscription or purchase of any securities of a
body corporate.
A prospectus of company may issued by or behalf of a public company. It can issue either with
reference to its formation or subsequently, or on behalf of any person who has engaged or
interested in the formation of a public company.

Types of Prospectus

Red Herring Prospectus

A prospectus for stocks and bonds are issued in different stages – the first
stage is the preliminary prospectus, which contains the details of the business
and proposed financial action which is nicknamed as Red Herring.
The word Red Herring  means to distract or mislead someone from an
important issue. When a company decides to attract investors to invest in their
company, they use a prospectus named Red Herring Prospectus.

Abridged Prospectus

Abridged Prospectus is the actual summary of a prospectus. It contains all the

salient features of a prospectus. The original prospectus that a company files
to the exchange regulator is too large. The abridged prospectus contains the
summary of the same prospectus.

Reading the entire prospectus may be too much time consuming for an
investor. Instead, they go through the abridged prospectus, which gives them
the basic idea about the company.

Shelf Prospectus 

Shelf means ‘life’ or ‘validity’ of a prospectus. Only selected companies bring

their shelf prospectus. All companies are not eligible for designing a shelf
prospectus. Normally finance-based companies are eligible for bringing out
their shelf prospectus.

Shelf prospectus has validity with a maximum of one year. There are various
companies which frequently raise funds (ex. banks) for issuing loans.

Every time they raise funds from the public, they require approval from
the Stock Exchange and Registrar of Companies(ROC).

Also, every time a company wishes to raise funds again, they must file their
prospectus to the regulators for approval. If any company submits their Shelf
prospectus, they don’t have to file the prospectus again and again while
raising funds for that particular year.
A company filing a Shelf prospectus have to file an Information Memorandum
which must contain:

 New changes made by the company after the previous offer security.
 Other charges created if any
 Any new material or facts created

After the validity period is over, the company has to submit another
prospectus which will be valid for another one year.

Deemed Prospectus 

Deemed means to presume something. When a company agrees to allot

shares to an issuing house( which is a different company) which they will later
sell to the public, then the document by which offer is made is deemed to be a
prospectus.  

The document by which the issuing house offers share to the public is said to
be deemed prospectus.

Anyone condition from the following two conditions should be fulfilled:   

 The issuing house should issue the shares to the public 6 months
after the agreement with the company whose shares are to be issued.
 The issuing house shouldn’t give the share price to the company until
they bring it to the public.

9, what do you mean by private placement?

Ans

A private placement is a sale of stock shares or bonds to pre-selected investors

and institutions rather than on the open market. It is an alternative to an initial
public offering (IPO) for a company seeking to raise capital for expansion.
Investors invited to participate in private placement programs include wealthy
individual investors, banks and other financial institutions, mutual funds,
insurance companies, and pension funds.

There are minimal regulatory requirements and standards for a private

placement even though, like an IPO, it involves the sale of securities. The sale
does not even have to be registered with the U.S. Securities and Exchange
Commission (SEC). The company is not required to provide a prospectus to
potential investors and detailed financial information may not be disclosed.

The sale of stock on the public exchanges is regulated by the Securities Act of

1933, which was enacted after the market crash of 1929 to ensure that
investors receive sufficient disclosure when they purchase securities.
Regulation D of that act provides a registration exemption for private placement
offerings.

The same regulation allows an issuer to sell securities to a pre-selected group

of investors that meet specified requirements. Instead of a prospectus, private
placements are sold using a private placement memorandum (PPM) and cannot
be broadly marketed to the general public.

It specifies that only accredited investors may participate. These may include

individuals or entities such as venture capital firms that qualify under the SEC’s
terms.