School of Law

Business Law - I (LW3023)

Draft of the Presentation

Date of Presentation : 01 / 08 / 2022

Submitted By: Submitted to:

Abhigyan Mahapatra (2083001) Mrs. Ipsita Das

Abhyuday (2083002) Assistant Professor - II

Abinash Ray (2083003) KIIT School of Law

Company Law:
Company law is legislation under which companies' formation, registration or incorporation, governance,
and dissolution are administered and controlled. It includes all business organizations which usually carry
on some form of economic or charitable activity. A company is an artificial person with legal recognition.
It means the company has a separate legal personality. The company is not a citizen but has its own
nationality, which depends on the country of its registration. And, In India law relating to companies is
contained in The Companies Act 2013, since the companies act 1956 is now repealed.
An incorporated company owes its existence either to a Special Act of Parliament or to company law.
Public corporations like Life Insurance Corporation of India, SBI, etc., have been brought into existence
through special Acts of Parliament, whereas companies like Tata Steel Ltd., and Reliance Industries
Limited have been formed under the Company law i.e. Companies Act, 1956 which is replaced by the
Companies Act, 2013. 1

Definitions of a company:
According to Sec. 2(20) of the Companies Act, 2013, “Company” means a company incorporated under
this Act or under any previous company law. 2

Although there is no definite legal meaning to what a company is, some authors pointed out that a
company means a group of persons who have gathered together to fulfill or attain a common goal, social
or economic. The definition of a company in the Companies Act, 2013, does not throw any light on the
characteristics of what a company form of organization is, and for that, reference is needed to some
popular definitions from renowned judges and authors.

● Justice Lord Lindley: “A company is an association of many persons who contribute money or
monies worth to common stock and employed in some trade or business and who share the profit
and loss arising therefrom. The common stock so contributed is denoted in money and is the
capital of the company. The persons who contribute to it or to whom it pertains are members. The
proportion of capital to which each member is entitled is his share. The shares are always
transferable although the right to transfer is often more or less restricted.” (However, the ‘An
association of many persons’ part of the definition is no longer valid now with a new concept of
‘One Person Company’ under the Companies Act, 2013. While the rest of the definition is still
held valid.) 3
● Prof. Haney: “A company is an artificial person created by law, having a separate entity, with a
perpetual succession and common seal.” (Here again, the common seal part is no longer valid
since the common seal has been made optional by the Companies (Amendment) Act, 2015.)

1
https://www.mca.gov.in/MinistryV2/classification+and+registration+of+companies.html
2
https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
3
https://www.taxmann.com/post/blog/6174/all-about-companies
 ● Justice Marshall: “A corporation or company is an artificial being, invisible, intangible, existing
only in contemplation of the law.” 4

From these definitions, we get as pointed out by Prof. Haney, that a company acquires a separate entity,
and perpetual succession being the creation of law. Justice Marshall emphasizes the charter of its creation
is to be held supreme. While Justice Lindley emphasizes the concept of shares and their transferability.
Thus a company is a legal entity, allowed by law, which permits a group of people, as shareholders, to
create an independent organization, pursuing a set of objectives, and empowered with legal rights, such as
to sue and be sued, own property, hire employees or loan and borrow money.

Characteristics of a company:

● Incorporation or Registration: The company comes into existence only after registration under
the Companies Act, by following a legal process for registration. And registration is mandatory
for a company to come into existence, and otherwise, such unregistered association of persons in
a business or trade is considered illegal.5

● Separate Legal Entity: As a company is an artificial person in the eye of the law, it has a
separate personality and is not dependent on its members. Of course, it acts through its members
i.e. board of directors but it is only responsible for its actions and not the members. This has
several important consequences:

(a) Company is liable for its liabilities - The shareholders have no obligations towards the liabilities of
the company. They are not liable for the debts of the company and cannot be sued by the creditors of the
company. Similarly, the company is not in any way liable for the individual debts of its members.
However, a shareholder can be a debtor or creditor of the company and he/she can sue or be sued by the
company.

(b) Company owns Property- a company has its own property - the shareholders have no direct right to
this or any share of it. A shareholder has no legal interest in the company’s property and cannot insure it
against theft, damage, etc. The property of the company is to be used for the benefit of the company and
not for the personal benefit of the shareholders.6

● Perpetual Succession: Perpetual succession means continuous life. A company’s life is not in
any manner affected by the death or insolvency of its members. Even if all the members leave or
die, the company continues to exist unless brought to end through a legal process called
Winding-up.

● Limited Liability: the liability of a company is always unlimited, and it is the liability of its
members which may be limited depending on what the type of company is. Basically, If any

4
ibid
5
https://www.writinglaw.com/characteristics-of-company/
6
ibid
 person wishes to cease their membership, he/she is only entitled to whatever price he/she can get
for the shares held.

● Shares and their Transferability: Justice Lindley in his definition of the company explains the
concept of shares and their transferability. The shares of any member in a company shall be
movable property transferable in the manner provided by the articles of the company. The shares
are freely transferable (without any restriction) in the case of public companies while the right to
transfer the shares is restricted (not prohibited) in the case of private companies. Restrictions are
usually in terms of transfer to whom or for what consideration and need to be prescribed by
Articles of Association.
7

SECTIONS

● Section 2(11) : Body corporate or corporation - Includes companies incorporated outside India.
Example - Apple , Microsoft

● Section 2 (20) : Definition of company

● Section 2 (56) : Memorandum - It means Memorandum of Association (MOA). It contains the

following clauses -
1. Name
2. Registered Office
3. Objective
4. Liability
5. Capital

● Section 2 (5) : Articles - It means Articles of Association (AOA). It contains the rules and
regulations which are to be followed by the members of the company.

● Section 2 (69) : Promoter - The person who initiates the starting of a company by approaching
the Registrar of Companies (ROC)

★ Registrar of Companies (ROC) - The work of Registrar of Companies is to verify the

MOA and AOA presented by the Promoter. After due verification the ROC inputs the
name of the company and issues a certificate to start a business.

★ At present these are the ROC operating in India as per the website of Ministry of
Corporate Affairs 8 -

● Andhra Pradesh

7
supra note 2
8
https://www.mca.gov.in/MinistryV2/registrarofcompanies.html
 ● Assam, Meghalaya, Manipur, Tripura, Mizoram, Nagaland and Arunachal
Pradesh
● Bihar
● Chhattisgarh
● Delhi and Haryana
● Goa , Daman and Diu
● Gujarat
● Himachal Pradesh
● Jammu and Kashmir
● Karnataka
● Kerala
● Madhya Pradesh
● Maharashtra
● Odisha
● Puducherry
● Punjab , Chandigarh
● Rajasthan
● Tamil Nadu
● Telangana
● Uttar Pradesh
● Uttarakhand
● West Bengal

★ Maharashtra and Tamil Nadu are the states where the number of ROC is 2 -
● Maharashtra - Mumbai , Pune
● Tamil Nadu - Chennai , Coimbatore

TYPE OF One Person Public Company Private Company

COMPANY Company (OPC)

ARTICLE 2(62) 2(71) 2(68)

MEMBER Minimum – 1 Minimum – 7 Minimum – 2

Maximum – x Maximum – no limit Maximum - 200

DIRECTOR Minimum – 1 Minimum – 3 Minimum – 2

Maximum – 15 Maximum – 15 Maximum – 15

 NAME OF THE Example – Example – Example –
COMPANY
XYZ (OPC) Private XYZ Limited XYZ Private Limited
Limited

ONE PERSON COMPANY ( OPC ) :

● In the MOA of One Person Company the name of ‘other person’ is to be written with the prior
permission of the concerned person who will become the member of the company when the sole
shareholder of the company dies or becomes incapable of performing the duties enshrined.

● The name of the member of the One Person Company (OPC) is filed along with the
Memorandum of Association (MOA) and Articles of Association (AOA) before approaching the
ROC for registration of the company.

● The other member is free to withdraw his name from the company and is not bound to be attached
with the company and perform the duties after the sole member dies or becomes ineligible to
perform the duties.

● The shareholder can change the name of the company , name of other person by indicating it in
the memorandum and intimating the company about such change.

● The Registrar of Companies (ROC) should also be intimated about such change within a
particular period of time and in a prescribed format.

Case Presentation9

1. Moosa Goolam Ariff v Ebrahim Goolam Ariff

(1911-12) 39 IA 237

Facts of the Case-

1. Hadjee Goolam Ariff was a merchant from Rangoon who was unhappy with his two elder sons and
therefore floated a company named Goolam Ariff Estate Limited to which he transferred his property in
exchange for shares as he also wanted his property to stay undivided.
2. He had five children from his two younger wives and made all seven of them as subscribers of the
company. As all the five children were minors at that time, a guardian made separate signatures for each
of the five children's behalf.

9
Certificate of Incorporation
https://www.corporate-cases.com/2012/01/certificate-of-incorporation-conclusive-evidence.html?pfstyle=w
p
3. After Hadjee Goolam Ariff's death, his eldest son Ebrahim Goolam Ariff filed a case where he
contended that as the five children were minors at the time of the signing of the memorandum, the
certificate of incorporation should be deemed void.
4. The Court decided that even though the registrar should not have granted the certificate, it was
conclusive irrespective of all prior proceedings.
5. Lord Macnaghten said, "Their Lordships will assume that the conditions of registration prescribed by
the Indian Companies Act were not duly complied with; that there were not seven subscribers to the
memorandum and that the registrar ought not to have granted the certificate. But the certificate is
conclusive for all purposes."

Analysis and Conclusion

1. The decisive precedent set forth by this case was that while the certificate of incorporation should not
be granted unless the prior requirements are correctly complied with, once granted, the certificate is
conclusive for all purposes and cannot be declared void irrespective of any prior proceedings.
2. Section 447 of the companies act provides for punishment for false particulars.

2. TV Krishna v Andhra Prabha (P) Ltd.

AIR 1960 AP 123

Facts of the Case-

1. Express Group was a newspaper agency which sold the proprietary rights for the Andhra Prabha
Newspaper and Weekly to a new company named Andhra Prabha Pvt Ltd, without any interruption to the
staff and their conditions.
2. The workers went on a strike as they said that Express Group floated the new company and sold the
rights to the same in order to avoid the new wage restructuring as advised by the Wage Committee.
3. The workers filed a petition to rescind the certificate of incorporation on the contention that the reason
for floating of the new company was fraudulent and opposed to public policy.
4. The Court was of the opinion that once the company is floated irrespective of the objective, it has a
distinct legal personality. The registrar cannot refuse to grant as long as the conditions under Section 7 are
satisfied.
5. Once the company is floated, the only way to overcome that is by initiating the proceedings to wind up
the company. Chandra Reddy CJ said,”If a company is born, the only method to get it extinguished is not
by availing its incorporation but by resorting to the provisions of enactments which provide for the
winding up of the companies.”

Analysis and Conclusion

1. The decisive precedent set forth by this case was that if the certificate of incorporation has been granted
then the only way is to initiate the winding up proceedings for the company. It also emphasized on the
point that it is not the duty of the registrar to verify the intention behind the floating of a company as long
as the requirements under Section 7 are fulfilled and the objective is lawful.
2. Section 248 (2), 271 and 272 deal with the procedure for winding up of a company.