Q1

ANS

Company is an association of person who takes their meals together. The term is derived from the Latin
word (“com” meaning “with” or “together”; “panis” that is “bread”) Section 2(20) of Companies Act,
2013 states that a company means any association of person registered under the present or the
previous companies act. It is called a “body corporate” because the persons composing it are made into
one body by incorporating it according to the law and clothing it with legal personality.

Under common law, a company is defined as a ‘legal person’ or ‘legal entity’ separate from its member
and capable of being surviving beyond the lives of its members. Whereas it is not merely legal, it is
rather a legal device for attainment of any social or economic end and to a large extent publicly and
socially responsible. It is, therefore, a combined political, social, economic and legal institution.

a) Separate Legal Entity

The outstanding feature of a company is its independent corporate existence. In the landmark decision
of Salomon v Salomon (1897) AC 22, it was held that a company has a corporate personality which is
distinct from its members or subscribers. A single shareholder may virtually hold the entire share capital
of the company; even in such a case, the company does not lose its identity.

b) Perpetual succession

An incorporated company never dies, as it is an entity with perpetual succession. For understanding this
point more clearly let’s assume M, N, and O are the only members of a company, holding all its shares.
Since a company has no physical existence, it must act through its agents and all such contracts entered
into by its agents should be under the company’s seal.

c) Common Seal

A Company becomes a legal entity by perpetual succession and also by a common seal. In fact, a
common seal of a company is a symbol of its incorporation. It is considered as the official signature of a
company. But now by the virtue of 2015 amendment to the Companies Act, a company may or may not
have a common seal. As per section 21 of Companies Act, authentication of documents, proceedings
and contracts on behalf of a company, signed by any key managerial personnel or an officer of the
company duly authorised by the board in this behalf.

d) Limited Liability of Members

A company having its separate legal entity is the owner of its own assets and bound by its liabilities.
Members are neither the owner nor liable for its debts. All the debts of a company are to be paid by
itself rather than by its members. Members liability becomes limited or restricted to the nominal value
of the shares taken by them in a company limited by shares or the amount guaranteed by them in a
company limited by guarantee.

Exceptions to the principle of limited liability

1. Incorporation by furnishing false information

2. Fraudulent conduct of business

3. Unlimited company

4. Misleading prospectus

5. Acceptance of deposit with a fraudulent intention

e) Transferability of shares

Section 44 companies act of the Act, declares that “the shares or debentures or any other interest of any
member in a company shall be a movable property that can be transferred in the manner provided in
the article of the company.” Thus incorporation of a company allows its member to sell their shares in
an open market and to get back his investment without any hassle of withdrawing money from the
company.

f) Capacity to sue and be sued

Being a body corporate company possesses individual capacity being sued and suing others in its own
name. A company’s right to sue arises when some loss is caused to the company i.e. to property or
personality of the company. A company also has a right to sue whenever any defamatory material
published about it that may affect its business.

g) Company, not a citizen

According to Citizenship Act 1955, only a natural person can be a citizen of India, not a juristic person
will be considered as citizen same stated by the Supreme Court in case of The State Trading Corporation
Of India Ltd. vs The Commercial Tax Officer. Even though the company does not get the citizenship
status of a country, it still can get a residential status.
Q2

Ans

According to section 2(20) of the Companies Act 2013, the term “company” denotes a company
incorporated either under this Act or under any other previous company law.

Further, in a common manner, a company may be described as an incorporated association,

which is an artificial person, having its own separate legal entity, with the features like
perpetual succession, common seal, and a common capital made of transferable shares and
limited liability.

Different Types of Companies under Companies Act 2013

The different types of companies under Companies Act 2013[1] are as follows:

1. Types of Companies Based on Incorporation

The different types of companies under Companies Act 2013, based on Incorporation, are as follows:

Statutory Companies

The term “Statutory Companies” denotes the companies

that are constituted either by a special Act of Parliament or
by State Legislature. Further, these companies are formed
majorly with an intention to offer public services.

For Example: Life Insurance Corporation of India and

Reserve Bank of India

Registered Companies

The companies that are registered under the Companies Act 2013 or under any other previous Company Law are
known as Registered Companies.

However, such companies come into existence only when they are registered under the provisions of the
Companies Act and have acquired a Certificate of Incorporation granted by the Registrar.

2. Types of Companies Based on Liability

The different types of companies under Companies Act 2013, based on

Liability, are as follows:

Companies Limited by Shares

A company in which the liability of the members is limited to the extent of the
amount specified in the Memorandum of Association is termed as Company
Limited by Shares.

For Example: a shareholder who has paid Rs 75 on a share of a face value of Rs

100 can be called upon to pay the remaining amount of Rs 25 only.
Companies Limited by Guarantees

The term “company limited by guarantee” means a company in which the liability of the members is limited to the
extent of guarantee undertaken by them.

For Example Clubs, Trade Associations, Societies, Research Associations, who are working for promoting several
objects are the example of guarantee companies.

Unlimited Liability Companies

A company that is not having any limit on the liability of its shareholders or members is known as an unlimited
company. Further, in this case, the members are liable for undertaking the company’s debts in proportion to their
individual interests, and their liability is unlimited.

Also, such companies may or may not have share capital and can be either a private limited company or a public
limited company.

3. Types of Companies Based on Number of Members of Company

The different types of companies under Companies Act 2013, based on

the Number of Members, are as follows:

Public Limited Company

The term public limited company is defined under the provisions of

section 2 (71) of the Companies Act 2013 as a company that is not a
private company. Further, the main essence of a public limited
company is that its shares and debentures are transferable in nature
and are capable of being listed on the recognised stock exchange.

Private Limited Company

The term Private limited company is defined under the provisions of section 2 (68) of the Companies Act 2013 as a
company that is not able to transfer its shares and cannot have more than 200 members. Further, this business
format prohibits the company from inviting the general public to subscribe to shares and securities.

One Person Company

With the enforcement of the Companies Act 2013, various new concepts, such as One Person Company as a
business format, were introduced, which were not there earlier in the Companies Act 1956. Further, theses kind of
amendments has completely transformed the Indian Corporate Laws.

4. Types of Companies Based on Domicile

The different types of companies under Companies Act 2013, based on Domicile are as follows:

Foreign Company

The term Foreign Company is defined under section 2 (42) of the Companies Act 2013 as the company or body
corporate that is incorporated or formed outside India. Further, in a laymen’s sense, a foreign company is a
business format that has a place of business outside India.
Also, section 379 to section 393 of the Companies Act 2013 deals with the provisions applicable to a Foreign
Company.

Indian Company

The term Indian Company is defined under section 2 (20) of the Companies Act 2013 as any company incorporated
under the provisions of the Companies Act 2013 or under any other previous corporate law.
Q3.

ANS

The erstwhile Companies Act, 1956 ('CA 1956') contained no statement of statutory duties of directors, and acts of
directors were usually reviewed in the context of their powers in terms of section 291 of the CA 1956 (which dealt with
general powers of the board) and other applicable laws, and their established roles under common law as laid down
in several judicial precedents1.

The Companies Act, 2013 ('CA 2013') for the first time has laid down the duties of directors in unequivocal terms in
section 166. In summary, the general duties of directors under the CA 2013 are as follows:

 to act in accordance with the articles of the company, in other words, to act within powers;
 to act in good faith in order to promote the objects of the company for the benefit of its members as a whole;
 to act in the best interest of the company, its employees, shareholders, community and for the protection of
environment;
 to exercise due and reasonable care, skill and diligence and independent judgment;
 to avoid direct or indirect conflicts of interest;
 to avoid undue gain or advantage either to himself or relatives, partners or associates; and
 not to assign his office to any other person;

Liabilities of Directors under CA 2013.

Under CA 2013, directors may be held liable as "officers" of the company.

 Every whole-time director;

 Every key managerial personnel ('KMP');
 If no KMP then such director(s) as specified by the board in its behalf or all directors, if no director is so
specified;
 Any person who is charged with any responsibility by the board or any kmp, actively participates in,
knowingly permits, or knowingly fails to take active steps to prevent any default;
 Any person in accordance with whose advice, directions or instructions the board of the company is
accustomed to act, other than a person who gives advice to the board in a professional capacity; and
  Every director, in respect of a contravention of any of the provisions of the ca13, who is aware of such
contravention by virtue of the receipt by him of any proceedings of the board or participation in such
proceedings without objecting to the same, or where such contravention had taken place with his consent or
connivance.

Nature of Contraventions under CA 2013 – Compoundable vs. Non-Compoundable.

Compoundable Offences: Many of the contraventions under CA 2013 are in the nature of non-compliances (such as
failure to file annual return, contravention of provisions with respect to related party transactions, acceptance of
deposits, giving of loans to directors etc. by the company) which attract either fines (or in some cases are punishable
with fines or imprisonment or both). Such offences can be remedied or compounded, subject to relevant provisions in
the Act, by paying late fees/penalties/fines as applicable.

Non-Compoundable Offences: These liabilities can be imposed on the directors if they are in default (including non-
executive directors) regardless of the fact that they are the executive directors of the company or not.

Liability under certain other legislations.

Other directors/officers (whether executive or non-executive) of the company can also be held liable in certain cases:

 where the offence has been committed with the consent/connivance of, or is attributable to, any neglect on
the part of such director; or
 such director has been designated by the company (as notified to the concerned authority) to be in charge of
the management of the company and responsible for compliances (as occupier/owner) under certain
legislations which allow for such nomination, failing which all directors of the company.

Safeguards – Adopt a Precautionary Approach.

To safeguard their interest and avoid undue liability, it is advisable that directors adopt a precautionary approach. A
few of the safeguards that can be considered and implemented are as follows:

 To attend meetings regularly;

 To be inquisitive and peruse agendas for unusual items and seek additional information in writing, if
necessary;
 To ensure that disagreements/dissenting views are recorded in the minutes;
 To act honestly and with reasonable justifications;
 To report concerns about unethical behavior, actual or suspected fraud or violation of the company's code of
conduct or ethics policy;
 To seek professional advice, establish audit committees, engage external agencies, if situation demands;
 To engage external agencies for addressing whistle blowing issues. The Company may consider appointing
an external agency for whistle blowing reporting;
 To provide requisite disclosures of interests/conflicts, consider excusing oneself from participation in
proceedings in cases of conflict;
 For ongoing and day to day compliances, have a competent compliance team and establish committees (for
regular internal audits etc.); and
 To include indemnity provisions in the letter of appointment and seek Directors & Officers Liability insurance
from the company to protect against malicious actions.