COMPANY

LAW
2013
The most striking characteristics of a company
are:
► Corporate Personality

► Common Seal

► Limited Liability

► Perpetual Succession

► Separate Property

► Transferability of Shares
► Capacity to Sue and Be Sued

History of companies act in India

► The Indian company law begun with the companies act 1

850, modeled on British
companies act 1 844
► The Indian Companies act of 1913 was based on the British
Companies act of 1 908
► The Indian Companies act, 1 956; April 1, 1956
► The Indian Companies act, 2013
Highlights of the Companies Act 201 3
► Passed in Lok sabha: December 1 8, 201 2

► Passed in Rajya Sabha: August 08, 2013

► Tbtal number of sections: 470

► Tbtal number of chapters: 29

► Tbtal number of schedules: 7

► Effective from September 12, 2013

J.J Irani Committee

 J
/---------------------------------------------\

29 Chapters 1 3 Parts

ÖS8 Section ร Ar»d 4 70 Sections

15 ScKecjlules And
7 Sch>edu les
OLD COMPANIES
 CAPTION ACT 1956.

There are maximum of 50 There are maximum number of 200

members. Members members.

Does not exists. It can be treated has

conclusive evidence.
One person In
Company corporation
The concept of one person company was It cant be treated has conclusive evidence
introduced to form a private limited because action can be taken even after
company. incorporation.
 OLD COMPANIES NEW COMPANIES
CAPTION ACT 1956 ACT 2013.
Inspection of documents in electronic form is made.
E-governance No such provision
existed. govt.
No such provision existed.
In prescribed companies classes or class
women can be a director.
Max. no of
Women director directors are 12 Number increased to 15 but by passing with
not beyond them with approval of central special resolution .

Maximum no. of
Directors
 OLD COMPANIES NEW COMPANIES
CAPTI
ON
ACT 1956
ACT 2 ๐ 13.
• Constitution of corporate social responsibility (C.S.R.)
Committee of the board is compulsory for companies:

-Having turnover of rupees

1OOO crore or more or
-a net profit of rupees 5 crore during financial year.

• No provisions for CSR • Every financial year at least 2°/o of the

initiatives average net profits to be spent on CSR
activities,
Corporate
Social
Responsibility
(C.S.R.)
DEFINITION
• A company can be defined as an "artificial person”, invisible, intangible, created by or under law, with
a discrete legal entity, perpetual succession and a common seal. It is not affected by the death,
insanity or insolvency of an individual member.

• According to Section 3(1 )(i) of the Companies Act, a company means, “ A company formed and
registered under this Act or an existing company.”

• A voluntary association formed and organized to carry on a business.

 Characteristics of a company

• Separate legal entity

• Limited liability
• Perpetual succession ・Common seal
• Transferability of shares
• Separate property
• One Share-One Vote:
 SEPARZXTE LEGAL ENTITY-

A company is in law regarded as an entity separate from its members. It has an

independent corporate
existence.
• The company is different and distinct from its members in law. It has its own name
and its own seal, its assets and liabilities are separate and distinct from those of
its members. It is capable of owning property, incurring debt, borrowing money,
having a bank account,
employing people, entering into contracts and suing and being sued separately.
Salomon v A Salomon and Co Ltd [1897] AC 22'
• Corporate separate personality
• Salomon conducted his business as a sole trader. He sold it to a company incorporated for the
purpose called A Salomon and Co Ltd. The only members were Mr Salomon, his wife, and their
five children. Each member took one £1 share each. The company bought the business for
 £39,000. Mr Salomon subscribed for 20,000 further shares. However; £10,000 was not paid by
the company, which instead issued Salomon with series of debentures and gave him a floating
charge on its assets. When the company failed the company's liquidator contended that the
floating charge should not be honoured, and Salomon should be made responsible for the
company's debts.
• Lord Halsbury LC stated (at 30-31):
"••• it seems to me impossible to dispute that once the company is legally incorporated it must
be treated like any other independent person with its rights and liabilities appropriate to itself,
and that the motives of those who took part in the promotion of the company are absolutely
irrelevant in discussing what those rights and liabilities are."
• From this case comes the fundamental concept that a company has a legal personality or
identity separate from its members. A company is thus a legal ^person'.

Limited Liability
:The liability of the members of the company is limited to contribution to the assets of
the company up to the face value of shares held by him. A member is liable to pay
only the uncalled money due on shares held by him when called upon to pay and
nothing more, even if liabilities of the company far exceeds its assets. On the other
hand, partners of a partnership firm have unlimited liability i.e. if the assets of the firm
are not adequate 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 case of a
company once the members have paid all their dues towards the shares held by
them in the company.
PERPETUAL SUCCESSION-

・ Being an artificial person a company never dies, nor does its life
depend on the life of its
members. Members may come and go but the company can go on
forever. It continues to exist even if all its members are dead. The
existence of company can be terminated only by law
• A company does not die or cease to exist unless it is specifically
wound up or the task for which it was formed has been completed
• 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.
• COMMON SEAL-
• Since a company has no physical existence, it must act through its
agents and all such contracts entered into by its agents must be
under a seal of the company. The common seal acts as the
official signature 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

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
contrast 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.

Capacity to sue and being sued:

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

• LIFTING OF THE CORPORATE VEIL

• Formality and expense-
• Company not a citizen-
 LIFTING OF THE CORPORATE VEIL
In the eyes of law, a company is a legal person with a separate entity distinct
from its members of shareholders. In essence it means that there is a veil or
curtain separating the legal entity of the company from its members or
shareholders.* When any fraudulent and dishonest use is made of the legal entity,
the individuals concerned will not be allowed to take shelter behind the corporate
personality. The Courts will break through the corporate shell and apply the
principle of 'lifting or piercing the corporate veil'. The Court will make the members
or the controlling persons liable for debts and obligations of the company.
law will lift the corporate veil
A: Under statutory provisions
・ Reduction of the number of members below statutory minimum
・ For establishing the relationship of holding and subsidiary company
・ For facilitating the task of an inspector to investigate the affairs of the
company
・ For investigation of the ownership of the company
law will lift the corporate veil

B: Under judicial interpretation

• Fraud Or Improper Conduct:
• For Benefit Of Revenue:
• Enemy Character: e.g. Daimler Co. Ltd. vs. Continental Tyre and
Rubber Co. (GreatBritain) L
• Company Avoiding Legal Obligations:
• Single Economic Entity:
• Agency Or Trust:
• Public Interest:
Formality and expense- Incorporation is a very expensive affair It
requires a number of formalities to be complied with both as to the
formation and administration of affairs.
Compa/iy nof a citizen- In State Trading Corporation of India v. CTO,
the SC held that a company though a legal person is not a citizen neither
under the provisions of the Constitution nor under the Citizenship Act.
Incorporation of company
๐
Formation of a company involves following procedures -
๐
a) Approval of name.
๐
b) Drafting of Memorandum of Association, typed on stamp paper and signed ๐ c) Articles of Association duly typed
on stamp paper and signed (not essential in case of public limited company limited by shares, but still almost
invariably submitted).
๐
d) E-filing of documents
๐
e) Submission of required papers like Statutory declaration of compliance, Power of Attorney ๐ f) Payment of filing
Fees.
๐
g) Correcting Memorandum and Articles if required by ROC by person holding Power of Attorney ๐ h) Filing final
copy of Memorandum and Articles in pdf format, if corrections were made.
๐
i) Collect certificate of incorporation by holder of Power of Attorney. 7 (C)
Fees payable for registration of a company
• Fees payable for registration of a company ha\nng share capital depends on
nominal share capital and varies from Rs 4,000 to Rs 2,00,04,000. [Rs two crore
ana four thousand], as follows —
Nominal share capital (Authorised Registration fees Rs
Capital)
Not exceeding Rs One lakh 4,000
Above Rs one lakh and upto Rs five 4,000 plus Rs 300 for every Rs 10,000 or part thereof
lakhs above Rs one lakh
Above Rs five lakhs and upto Rs fifty 16,000 plus Rs 200 for every Rs 10,000 or part
lakhs thereof above Rs five lakhs
Above Rs fifty lakhs and upto Rs 1,06,000 plus Rs 100 for every Rs 10,000 or part
One crore thereof above Rs fifty lakhs
Above Rs one crore and upto Rs 1,56,000 plus Rs 50 for every Rs 10,000 or part
397.96 crore thereof above Rs One crore
Rs 397.96 crore and above Rs two crore and Rs 4,000 (2,00,04,000)
 The Company
・ Company basically means a group of persons
associated for any common object such as
business, charity, sports and research etc.
・ Legally, Company is an incorporated association which is an artificial
person, having separate legal entity, with perpetual succession, a
common seal, a common capital comprised of transferable
shares and carrying limited liability.
・ Classification is required to define legal
guidelines clearly as per different objectives and ownership patterns
Companies are classified on the basis
of
• El Incorporation
• El Liability of members
• El Number of members
• El Ownership/ control
ON THE BASIS OF INCORPORATION

l:Statutory company :These companies are those in corporate under

special act passed by the parliament or the state legislature.
These are mostly concerned with public utilities. Reserve Bank of
India, LIC, GIC, Railways, Tramways, NHAI.
2: Registered companies Those companies are those formed and
registered under the Indian
companies act.
BHEL, SAIL, GAIL, BEML, ONGC, OIL and RNRL.
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B: Company Limited by Guarantee: The liability of members of the company is
limited up to specific amount guaranteed by them. The purpose of such a
guarantee is to enable the company to have funds to meet its liability at the time of
winding up. The important features of such companies are:-
(a) Each member promises to pay a fixed amount in the event of wind up.
(b) This amount is known as guarantee amount.
(c) The amount of guarantee is laid down in the Memorandum of Association.
(d) The amount of guarantee is paid only in the case of winding up of the
company.
(e) Such a company may or may not have share capital
・ 2 :Unlimited companies
・ A company not having any limit on the liability of its members is termed as the
unlimited companies.
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・ Unlimited companies — Section 12 specifically provides that any 7 or more
persons ( 2 or more in case of a private company ) may form an incorporated
company, without limited liability. In case of such a company, every member is
liable for the debts of the com pany.
・ It means in the case of winding up of the company, the private property of the
members can be taken over y the creditors for the recovery of their dues i.e.
debts. Such companies are not popular in India.
 ON THE BASIS OF NUMBER OF
MEMBERS
1: Private companies :
・ A company whose ownership is private. A private company which has
minimum paid up capital of one lack rupees.
・ Can have a minimum of 2 and maximum of 200 members
・ Has restricted the right to transfer its shares to any other person
・ The major ownership restrictions are:
・ shareholders can not sell or transfer their shares without offering them first to
other shareholders for purchase,
・ shareholders cannot offer their shares to the general public over a stock
exchange.
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• Restrictions imposed on private Companies:
(1) A private limited company must include the words "private limited" with its
name.
(2) A private company must have its own Articles of
Z\ssocia ti o n
(3) The shares of private company are not transferable.
(4) A private company cannot invite public to subscribe its shares or
debentures.
(5) The maximum number of members in a private
company is restricted to 200.
(6) Every year private company must file three copies of Balance Sheet and
Profit and Loss Account together with Auditors Report, to the Registrar of
companies.
(7) A member of private company can appoint only one proxy.
2: Public companies:A public company is a company with securities (equity and debt)
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owned and traded by the general public through the public capital markets.
・ Has a minimum paid-up capita I of rupees five lakhs or more
・ Does not restrict the right to transfer its shares to any other person
・ Can invite general public for the subscription of its shares or debentures
・ Can invite or accept
・ Public Company has to file the documents like Memorandum of Association, Articles of
Association and Prospectus with the Registrar of Companies.
• Public companv has following features:-
(a) Public company collects capital from general public by way of issuing
shares and debentures,
(b) The shares of Public company are freely transferable,
(c) The liability of the members of Public Limited Company is limited up to the
extent of face value of he shares
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purchased by them,
(d) Public company must collect minimum subscription and must obtain
Trading Certificate i.e. Certificate of
Commencement of Business to start the business,
(e) Public company must start its business within one year of getting
Incorporation Certificate otherwise it will be wound up by the court,
(f) It is also compulsory for a Public Company to hold statutory meeting within
six months of ๐ btaining "Trading Certificate".