Legal Aspect of Business

Group:- 3
21221-21230
MBA++ Div.: B
 Members 
1. 21221 - Patil Vikas Dasharath​
2. 21222 - Shoaib Shabbir Shaikh​
3. 21223 - Manthan Sanjay Sharma​
4. 21224 - Chaudari Nirmal Purushottam​
5. 21225 - Lohar Avinash Sanjay​
6. 21226 - Sanghavi Sumit Vijaykumar​
7. 21227 - Yogesh kautikrao shormare​
8. 21228 - Saoji Chinmay Ravindra​
9. 21229 - Pawar Aniket Ashokrao​
10.21230 - Dharangaonkar Anushka Hemant 
 Table of content
1. Different forms of business organisations and company form organisation

2. Distinguish between limited liability partnership (LLP) and company

3. Lifting of corporate veil – meaning and importance

 Business Organization

Introduction
 An entity which is structured for
the purpose of carrying on the
commercial system of enterprise.

 The organization is governed

under principles and laws
governing contract and exchange
of goods and services.
 Types of Business Structures
1.Sole Proprietorship 2. Partnership Firm
 Wherein one person owns all the assets
Partnership firms are created by drafting a
of the business.
partnership deed among the partners.
 No legal formalities are required other
The partnership deed is registered to make a firm.
than an appropriate licensing to conduct a
Partnership firms in India are governed by the
business.
Indian partnership act, 1932.
 Registration of business name in case it
Maximum no. Of partners in a partnership firm can
differs from sole proprietorship.
be 20 partners.
The profit & loss are shared in a manner as agreed
in the partnership deed.
3. Hindu Undivided Family
A Hindu family can come together and
form a HUF.
HUF is taxed separately from its
members.
One can save taxes by creating a
family unit and pooling in assets to form
a HUF.
HUF has its own pan and files tax
returns independent of its members.
4. Private Company
Shareholders right to transfer shares is
restricted
Minimum number of 2 members in
company
Number of shareholder is limited to 200
An invitation to the public to subscribe to
any shares or debentures or any type of
security is prohibited.
5. Limited Liability Partnership 6. Public Company

An alternate corporate business entity that provides
the benefits of limited liability of a company
On the other hand, it allows its members the
flexibility of organizing their internal management on
the basis of a mutually-arrived agreement as in the
case in a partnership firm
Governed under by limited liability partnership act,
2008
Shareholders right to transfer share; is not
restricted
Minimum 7 members
An invitation to the public to subscribe to
any shares or debentures or any type of
security is permitted
7. Section 8 Company
Section 8 company registered under the
companies act, 2013 established for
promoting commerce, art, science, sports,
education, research, social welfare, religion,
charity, protection of environment or any
such other object
The profits (if any) or other income of
section 8 companies is applied for promoting
only the objects of the company
No dividend is paid to its members
8. Co-operative Societies
 An association of persons who have voluntarily joined
together to achieve a common economic end through the
formation of a democratically controlled organization
making equitable distributions to the capital required.
 Co-operative Society accepts a fair share of risk and
benefits of the undertaking
 Business Formation
Criteria
Incorporation / registration
Members
Maximum number of owners
Capital requirements
Cost of registration
LLP Company
LLP act, 2008 companies act, 2013
Minimum 2 partners and Minimum 7 members for public
maximum 50 partners. and Minimum 2 members for
private
No such limit. 200 shareholders for private
company, no restriction for public
company
No minimum capital requirements No requirement of minimum
authorised and paid up capital
Less when compared to company depends on authorised capital and
stamp duty on each state
 Business Structure
Criteria LLP Company
Liability of owners Limited to the agreed contribution Limited to the unpaid amount of
shares taken in the company
Withdrawal of capital Partners can withdraw capital subject Once paid up, capital cannot be
to LLP agreement. It is also possible withdrawn by shareholders without the
for a partner to reduce contribution approval of court. Company can buy
liability after giving notice to back the shares subject to companies
creditors act.
Interest on capital LLP can provide interest on capital Company cannot provide interest on
without any approval subject to LLP capital to shareholders
agreement
Termination of ownership A partner continues as a partner in the A shareholder (member) can terminate
LLP even after transferring all his membership by transferring the shares
rights in the LLP unless LLP in his name to any person subject to
agreement provides otherwise. A conditions in articles of the company.
partner can even resign from the LLP. A shareholder cannot resign from the
company.
 Business Management
Criteria LLP
Directors / designated Designated partner should be a
partners partner in LLP
Management LLP is managed by partners as per Management of company is vested
LLP agreement. Partners can
delegate management power to a
management team or single partner
Meetings for management No such requirements of meetings.
decisions Decision process as per LLP
agreement.
Ownership meetings for No requirements of meetings of
specific decisions partners of LLP.
Company
A director need not be a
shareholder
with board of directors elected by
shareholders.
In case of a private company,
directors are required to meet once
in every quarter.
General meeting of shareholders to
be conducted once in a year
mandatorily
 Audit, Records & Legal Compliances
Criteria LLP
Audit Requirements Accounts to be Audited only if the
turnover exceeds Rs.40 Lakhs or
contribution exceeds Rs.25 Lakhs.
Registers and Records LLP is not required to maintain any
Registers, Records and Minutes unless
specifically mandated by LLP
agreement. Partners are at liberty decide
the requirements.
Annual and Event based LLP is required to file certain statutory
Filings returns annually and other filings based
on certain events from time to time
irrespective of doing business or not.
Company
Accounts to be Audited whether the
company does any business not
Limited Company is required to
maintain lot of Registers, Records and
to keep Minutes of Board Meetings
and General Meetings from time to
time irrespective of doing business or
not.
Company is required to file certain
statutory returns annually and other
filings based on certain events from
time to time irrespective of doing
business or not
 Taxation
Criteria LLP Company
Permanent Account LLP is required to have a separate PAN Company is required to have a separate
Number (PAN) other than partners. PAN other than Shareholder or Director

Tax Rate LLP is taxable at ‘Firm’ tax at 34.80% Company is taxable at 22% on net
 on net profit of the LLP profit and the Effective IT Rate (IT +
Surcharge + Cess) will be 25.52%.

Dividend Distribution Profit after tax will be credited to Company Profit, if distributed as
Tax (DDT) partners’ account and it will not be Dividend, it  will attract Dividend
taxable in the hands of partners again. Distribution Tax (DDT) @ 20.36% on
dividend
Taxability of Dividend in Profit distributed by an LLP is Dividend from a domestic company
the hands of Shareholder  completely exempted in the hands of up to ₹10 Lakhs is exempted in the
/ Partner Partner.  hands of a Shareholder. Dividend in
excess of ₹10 Lakhs shall be taxable
at 10%
 Lifting of Corporate Veil
 Corporate Veil:
A legal concept that separates the personality of a
corporation from the personalities of its shareholders
and protects them from being personally liable for the
company’s debts and other obligations

 Lifting Of Corporate Veil:

At times it may happen that the corporate personality of
the company is used to commit frauds and improper or
illegal acts. Since an artificial person is not capable of
doing anything illegal or fraudulent, the façade of
corporate personality might have to be removed to
identify the persons who are really guilty. This is
known as ‘lifting of corporate veil’
 There are two existing theories for the lifting of the
corporate veil. The first is the “alter-ego” or other self
theory, and the other is the “instrumentality” theory

 The alter-ego theory considers if there is in distinctive nature

of the boundaries between the corporation and its
shareholders

 The instrumentality theory on the other hand examines the

use of a corporation by its owners in ways that benefit the
owner rather than the corporation. It is up to the court to
decide on which theory to apply or make a combination of
the two doctrines
 The manner in which the veil may be lifted can be put broadly into two categories-
Misstatement of Prospectus
Under Section 26 (9), Section 34
and Section 35[2] of the Act, it is
made culpable to give fraudulent
or untrue information in the
company’s prospectus
Statutory Provisions
Failure to return application money
Section 39(3)[3] of the Act states
provisions against allotment of securities
in the event that the expressed minimum
sum has not been bought in and the total
payable on application isn’t gotten inside
a time of thirty days from the date of
issue of the outline,
at that point such officials in default are
to be fined with a measure of 1,000
rupees for every day during which such
default proceeds or one lakh rupees,
whichever is less.
For investigation of ownership of
company
Under Section 216[4] of the Act, the
Central Government is approved to name
investigators to examine and write about
issues identifying with the organization,
its participation to decide the genuine
people who are monetarily interested by
the achievement or disappointment of the
organization; or who can control or to
really impact the strategies of the
organization.
IV. Fraudulent Conduct: Under Section 339 of the Act, in case
of winding up of a company, it is discovered that organization’s
name was being utilized for completing a deceitful action, the
Court is enabled to hold any such individual in contempt for such
unlawful exercises, be it chief, administrator, or some other
official of the organization.
V. Repeated Defaults:Under Section 451 of the Act, if an
organization or an official of an organization submits an offense
culpable either with fine or with detainment and this offense is
being dedicated again within a period of 3 years, then such
organization and official are to take care of double the payment of
the fine of that offense notwithstanding any detainment
accommodated that offense.
VI. Furnishing False Statements: Under Section 448 of the Act,
if in any return, report, endorsement, fiscal summary, prospectus,
explanation or other record required, any individual offers bogus
or false statements, or hides any applicable or material truth, at
that point he is guilty under Section 447 of the Act.
2. Judicial Provisions:

 It is extremely hard to enroll every single decision of the courts in

which they have lifting the corporate veil

 These are conditions under which the façade of corporate character

can be taken out and people behind the corporate elements might be
distinguished and punished

 Prevention of Fraud and Improper Conduct

 Formation of subsidiary to act as its agents
 Protection of Revenue
 Economic Offences
 Company avoiding welfare legislations
 Company used for illegal/improper purpose
 Company Acts as mere sham or a cloak
 Importance of lifting of corporate veil
 The corporate veil is a concept which provides that the personality of
a company has to be treated separately from that of its shareholders

 It also protects the shareholders from being held personally liable

for the company’s debts and other obligations

 The personality of a company is surely separate from that of the

shareholders of the company, but this doesn’t mean that the
shareholders can do wrong hiding behind the corporate veil

  It makes sure that no individual gets to perform illegal acts under the
company name and walk free
Thank You !