Course Name: Company Law and Corporate Governance

Course Code: BBH435

Credits: 4
UNIT –I Introduction to Company Law 08 Hrs
Introduction, Development of Company Law, Objects of Companies Act, Meaning and definition of
Company, Special features of Co. Kinds of Companies Features of various types of companies,
Differences between Private and Public companies, Punishment for improper use of “Limited” or
“Private Limited” - Investment attributes - risk, return, security, marketability, liquidity and
convenience

1.1 Definition of Company

Legal Definition:
A legal entity created by a group of individuals to engage in and operate a business for the
purpose of generating profits.
Formed through legal procedures like incorporation or registration, governed by specific laws
and regulations.
Economic Definition:
A production unit that combines resources (labor, capital, materials) to produce goods and
services for sale in a market.
Financial Definition:
An entity that raises capital from investors and lenders to finance its operations and
investments.
1.2 Special features of Company
A company is referred to as an association of people who contribute money or money’s worth
to a common fund and use it for a purpose.
Hence, it has a few definite characteristic features which categorize it from the other types of
an organization.
1] Incorporated Association
A company is required to be registered under the Companies Act 2013.
Any association of persons that is not registered and subsequently incorporated with the
Registrar of Companies is not recognized as a company at all.
Separate Legal Entity:
A company exists as a separate legal entity which is different from its shareholders and
members.
Due to this feature, shareholders can enter into a contract with the company and can also sue
the company and be sued by the company.
Limited Liability:
 As the company exists as a separate entity, members of the company are not liable for the
debts of the company.
Liability of members of a company is limited to the extent of the shares that are held by them
or by the extent of the guarantee amount
Transferability of Shares:
Shareholders of a public limited company can transfer their shares as per the rules laid down
in the articles of association.
However, in case of a private limited company, there might be some restrictions on the
transfer of shares.
Common Seal:
The firm is an artificial entity or a person, and therefore cannot sign its name by itself.
It creates the necessity of a common seal that can be used for representing the decisions made
on behalf of the company.
Perpetual Succession:
The company being an artificial person established by law perpetuates to exist regardless of
the differences in its membership.
In simple words, a company is an artificial person. Therefore, it does not have any
restrictions on age.
The factors like death, insolvency, retirement or the insanity of one or all of the members do
not impact the company status.
Number of Members:
As per the Companies Act, 2013, the minimum number of members required to start a public
limited company is seven while for a private limited company, it is two.
The maximum number of members for a public limited company can be unlimited while it is
restricted to 200 for a private limited company.
1.3 TYPES of Company
Documents Required
The following documents must be prepared and submitted to the Registrar of Companies
(ROC):
Memorandum of Association (MoA): This document outlines the objectives or business for
which the company is being incorporated. It is a legal document that serves as the foundation
of a company.
Articles of Association (AoA): An article of association is a legal document that defines the
internal governance and operations of a company.
Appointment of Nominee: Since there is only one director and member, a nominee who will
act on behalf of the director must be appointed in case of incapacitation or death. The
nominee’s consent, along with their PAN card and Aadhaar card, should be provided through
Form INC-3.
Proof of Registered Office: The proof of the registered office, proof of ownership, and a No
Objection Certificate (NOC) from the owner must be submitted.
Declaration and Consent: The proposed director should provide a declaration in Form INC-
9 and their consent in Form DIR-2.
Compliance Certificate: A declaration by a professional certifying that all necessary
compliances have been made.
The SPICe+ form can be conveniently filed online through the Ministry of Corporate Affairs
portal. By utilizing this streamlined process, the registration of an OPC can be completed
efficiently and effectively.
To register a One Person Company (OPC) in India, you can follow the online registration
process through the MCA portal by following these steps:
Step 1: Obtain a Digital Signature Certificate (DSC)
Obtain a Digital Signature Certificate (DSC) for the proposed director and shareholder of the
company. The DSC is used for electronically signing documents.
Step 2: Obtain Director Identification Number (DIN)
Obtain a Director Identification Number (DIN) for the proposed director of the company.
The Ministry of Corporate Affairs (MCA) issues this unique identification number.
Step 3: Name Reservation
Apply for name reservation through the MCA portal by submitting Form SPICe+ (Part A).
Choose a unique name for your company, ensuring it doesn’t resemble any existing company
or trademark.
Step 4: Prepare MOA and AOA
Prepare your company’s Memorandum of Association (MOA) (0bjectives) and Articles of
Association (AOA). (internal governance)
These documents outline the company’s objectives and internal regulations.
Step 5: File the Forms
 Step 6: Certificate of Incorporation
Once the ROC approves your application and verifies the compliance requirements, they will
issue a Certificate of Incorporation.
This certificate signifies the successful registration of your One Person Company.
The timelines for OPC registration can vary, but generally, the process takes around ten days,
subject to departmental approval and response times from the respective departments.

Registration of One Person Company

In India, a One Person Company (OPC) is registered using the SPICe+ (Simplified Proforma
for Incorporating Company Electronically Plus) form.
The registration process for an OPC involves two parts, as follows:
Part A: This part of the SPICe+ form is used to obtain approval for the desired company
name and to apply for the Director Identification Number (DIN) or Permanent Account
Number (PAN) of the proposed director.
Part B: The second part of the form, known as Part B, includes incorporation-related details.
Here, you will provide information such as the registered office address of the OPC, share capital
details, particulars of the director, and details of the shareholder

Explanation:
RIL, the holding company, owns a controlling interest in its subsidiaries and exerts significant
influence over their operations. These subsidiaries operate in various sectors but are
ultimately controlled by RIL.
RIL also has significant minority interests in its associate companies, giving it some influence
over their operations but not full control.
This allows RIL to benefit from the success of these companies without having to manage
them directly.
Tata Sons Limited: Holding company for the Tata Group, with subsidiaries in industries like
steel, automobiles, and IT.
Example of Holding, Subsidiary, and Associate Company in India:
Holding Company:
Reliance Industries Limited (RIL): A large Indian multinational conglomerate holding
company headquartered in Mumbai. It has a diverse portfolio of businesses spanning
energy, petrochemicals, telecommunications, retail, natural resources, and textiles.

Subsidiaries:
Reliance Jio Infocomm Limited: A subsidiary of RIL, providing telecommunications
services in India.
Reliance Retail Ventures Limited: A subsidiary of RIL, operating retail stores in various
formats across India.
Reliance Petroleum Limited: A subsidiary of RIL, engaged in refining and marketing
petroleum products.
Reliance Power Limited: A subsidiary of RIL, generating and selling electricity in India.
B. Associate company, sometimes also known as an affiliate company, is a company in
which a parent company owns a significant, but non-controlling, minority stake.
This typically means owning between 0 to 50% of the company's shares.
Characteristics of an associate company:
Parent company owns a minority stake in the associate company.
The parent company does not have a controlling interest and cannot dictate the associate
company's decisions.
If the parent company owns a non-controlling interest (generally less than 50%
ownership), then the financial results are not consolidated with the parent company's financial
results.
E.g. 1: Tata Sons Ltd and Tata Motors Ltd:
Tata Sons Ltd owns approximately 28.63% of Tata Motors Ltd, making it an associate
company.
This relationship allows Tata Sons to have some influence over Tata Motors' strategic
decisions, while still allowing the latter to operate independently.
E.g. 2: Pidilite Industries Ltd and Vinyl Chemicals (India) Ltd:
Pidilite Industries Ltd owns a 40% stake in Vinyl Chemicals (India) Ltd, making the latter its
associate company.
This allows Pidilite to leverage Vinyl Chemicals' expertise in manufacturing chemicals used
in its adhesive products.
1.5 Punishment for improper use of “Limited” or “Private Limited
Only companies that are duly incorporated with limited liability can use "Limited" or "Private
Limited" in their names.
These terms are not interchangeable.
"Private Limited" is used for companies with restricted ownership, while "Limited" can be
used by any company with limited liability.
It's important to note that the misuse of these terms can have serious consequences,
including:
Legal action: The company can be fined, sued, or even dissolved.
Financial losses: The company may be required to pay damages to anyone who is misled by
the improper use of the name.
Damage to reputation: The company may be seen as untrustworthy or fraudulent.
Under Section 453 of the Companies Act, 2013, any person or entity using "Limited" or
"Private Limited" in their name without being duly incorporated with limited liability can be
fined.
The fine ranges from ₹500 per day to ₹2,000 per day for the period during which the name
was used.
Additionally, the Registrar of Companies can issue a stop order prohibiting the use of the
name.
1.6 Development of Company Law
History Of Company Law
The concept of company act taken from English Companies Act, 1844.
The first company legislation in India was passed in 1850 known as a Joint Stock Companies
Act.
Finally the Companies Act, 1956 was passed and came into force 1st April 1956. It consists
of 658 sections and 13 schedules.
After 25 amendments the Companies Act, 2013 passed by Parliament by introducing a new
Company Bill. It came into force on the 29th of August 2013.

1.7 Meaning & Definition Of Company Law

The word “company” is derived from two Latin words that are “com” & “panis” which
means “together” & “bread” respectively.
So it literally means that a company is an association of a person who took their meals
together.
Company simply means an incorporated association of a person.
Here, person means there are two types of person;
Natural Person – It is created by nature for example; human beings.
Artificial or Legal Person – It is created by law for example; firms, companies, trusts,
1.8 Meaning of company law
Company law, also known as corporate law or business law, is a body of rules and regulations
that govern the formation, operation, and dissolution of companies.
It encompasses several key aspects, including:
Formation:
Governance:
Finance:
Regulatory Compliance:
Mergers and Acquisitions:
Winding Up:
1.9 Objectives of companies act
The National Company Law Tribunal (NCLT) and the National Company Law Appellate
Tribunal (NCLAT) are quasi-judicial bodies in India responsible for adjudicating matters
related to Indian companies.
They were established under the Companies Act, 2013, to provide a specialized forum for
speedy and efficient resolution of company-related disputes.
Example:
https://www.livemint.com/companies/news/idbi-bank-moves-nclat-against-nclt-order-on-zee-
11689864225468.html

Investment attributes - risk, return, security, marketability, liquidity and convenience

1. Risk:
Different investments carry different levels of risk, determined by factors like the asset class,
issuer's financial health, economic conditions, and market volatility.
Understanding your risk tolerance is crucial before investing, as it guides your asset allocation
and helps you avoid chasing high-risk, high-reward options that might not align with your
comfort level
2. Return:
The potential gain or income generated from an investment over a specific period.
Returns can be expressed in various forms, such as interest, dividends, capital appreciation, or
a combination of these.

3. Security:
Prioritizing investments with strong security measures and reliable custodians protects your
assets and minimizes worries about potential losses.
4. Marketability:
The ease with which you can buy or sell an investment.
Highly marketable investments trade readily on organized exchanges or have readily available
buyers and sellers.
5. Liquidity:
The ease with which you can convert your investment into cash.
Highly liquid investments can be quickly converted to cash without significant price impact
or loss of value.
6. Convenience:
The ease and accessibility of managing your investment.
Some investments require minimal effort to purchase, hold, and sell, while others might
involve complicated procedures or involve high transaction fees.