business law india

7/27/2019 Business law India

1/37

Business Enterprises

1

IMTDubai-2012-14


2/37

NATURE, FORM AND TYPES OF BUSINESS

ENTERPRISES

Business Enterprises

Non-Corporate Corporate

(Sole Proprietorship, Partnerships & HUF) (Cos. & Co-operatives)

IMTDu

bai-2012-14

2


3/37

NATURE, FORM AND TYPES OF BUSINESS

ENTERPRISES

Basic difference between Corporate and Non-

Corporate form of business organization is that whilea non-corporate form of business can be started

without Registration, Corporate bodies cannot be set

up without registration under the laws which govern

their functioning.

3

IMTDubai-2012-14


4/37

COMPANIES ACT, 1956

IMTDu

bai-2012-14

4


5/37

COMPANIES ACT, 1956 - FEATURES

The Companies Act, 1956 is the longest piece of

legislation ever passed by our Parliament.

The Act consists of658 Sections and 15 Schedules.

IMTDu

bai-2012-14

5


6/37

BRIEF STRUCTURE OF THE COMPANIES ACT,

1956

Section 1 Short Title, Extent and Commencement

Section 2 Definitions

Section 3 to 658 Other Provisions

IMTDu

bai-2012-14

6


7/37

SHORT TITLE, EXTENT AND COMMENCEMENT

(SECTION 1)

This Act may be called the Companies Act, 1956.

It extends the whole of India.

It came into force on April 01, 1956.

7

IMTDubai-2012-14


8/37

DEFINITION OF COMPANY UNDER COMPANIES

ACT, 1956

A company means a company formed and

registered under the Companies Act, 1956.

8

IMTDubai-2012-14


9/37

COMPANY ITS MEANING

A Company in broad sense may mean an

association of individuals formed for carrying on

some business or undertaking for acquisition of

gain.

However, an association formed not for profit

acquires a corporate life and falls within the

meaning of a company by reason of a license u/s 25

of the Companies Act, 1956.

9

IMTDubai-2012-14


10/37

COMPANY ITS MEANING

In legal sense, a co. is an association of both

natural and artificial persons incorporated

under the existing laws of the country.

10

IMTDubai

-2012-14


11/37

COMPANY ITS MEANING

Co means as association of many persons who

contribute money or moneys worth to a common

stock & employ it in some trade or business & who

share the profit or loss arising there from.

The common stock so contributed is the capital.

The persons who form it are the members. The proportion of the capital to which each

member is entitled is his share.

11

IMTDubai

-2012-14


12/37

COMPANY ITS CHARACTERISTICS

The most striking characteristics of a company are:

1. Corporate Personality

By incorporation under the Act, the co. is vested

with a corporate personality quite distinct from

individuals who are its members.

12

IMTDubai

-2012-14


13/37

CORPORATE PERSONALITY

Being a separate legal entity :

It bears its own name;

It has a seal of its own; It is capable of owning property,

Incurring debts, borrowing money,

Having a bank account,

Employing people, entering into contracts,

Suing and being sued

13

IMTDubai

-2012-14


14/37


Saloman V. Saloman and Co. Ltd.

Saloman V. Saloman.xlsx

14

IMTDubai

-2012-14
http://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Saloman%20V.%20Saloman.xlsx


15/37


Lee V. Lees Air Farming Ltd.

Lee V. Lee Air Farming.xlsx

15

IMTDubai

-2012-14
http://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Lee%20V.%20Lee%20Air%20Farming.xlsx


16/37


Small deviation from the Corporate Personality

Rule

Experience of a Shareholder is the experience of aCompany

New Horizons Limited V. Union of India

New Horizons Limited.xlsx16

IMTDubai

-2012-14
http://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/New%20Horizons%20Limited.xlsx


17/37


2. Limited Liability

One of the most important advantages of doingbusiness under the corporate form or organization.

This means that the liability of a members is

limited.

17

IMTDubai

-2012-14


18/37



Eg., If A holds shares of nominal value of Rs.1000 and has already paid Rs. 600, he cannot be

called upon to pay more than Rs. 400, the amount

remaining unpaid on his shares.

If he holds fully paid up shares, he has no further

liability to pay even if the co. is declared insolvent.

18

IMTDubai

-2012-14


19/37



In Partnership firms, the liability of the partnersfor the debts of the business is unlimited.

Not only their share in the firm but their

personal assets may be attached to satisfy thedebts and liabilities of the firm.

19

IMTDubai

-2012-14


20/37


3. Perpetual Succession

Members may come and members may go, butthe co. can go on forever.

During the war, all the members of one Private

Co., while in the General Meeting, were killed by abomb, but the co. survived not even a hydrogen

bomb could have destroyed it.

20

IMTDubai

-2012-14


21/37


4. Separate Property

A Co. being a legal person and entirely distinctfrom its members, is capable of owning, enjoying

and disposing of property in its own name.

The property of the Co. is not the property of theshareholders, it is the property of the Co.

Norther Insurance Co. Ltd..xlsx 21

IMTDubai

-2012-14
http://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Norther%20Insurance%20Co.%20Ltd..xlsx


22/37


5. Transferability of Shares

The capital of a co. is divided into parts, calledShares.

A member may sell his shares in the open market

and realise the money.

This provides liquidity to the members andensures stability to the Co. (as the member is not

withdrawing his money from the Co.).

22

IMTDubai

-2012-14


23/37


6. Common Seal

Since, the Co. has no physical existence, it mustact through its agents and all contract entered into

by his agents must be under the seal of the Co.

The Common Seal of a Co. is of great importanceand acts as official signature of a Co.

The name of the Co. must be engraved on its seal. 23

IMTDubai

-2012-14


24/37


7. Capacity to sue and be sued

A Co. being a body corporate, can sue and be suedin its name.

24

IMTDubai

-2012-14


25/37


8. Contractual Rights

A Co., being a separate legal entity different fromits members, can enter into contracts for the

conduct of the business in its own name.

25

IMTDubai

-2012-14


26/37


9. Limitation of action

A Co. cannot go beyond the power stated in theMOA.

MOA of the Co. regulates the powers and fixes

the objects of the Co. and provides the entire superstructure of the Co. rests.

26

IMTDubai

-2012-14


27/37


10. Separate Management

Members do not have effective and intimatecontrol over its working and elect its

representatives to conduct corporate functioning.

The Co. is administered and managed by itsBoard of Director.

27

IMTDubai

-2012-14


28/37


11. Termination of Existence

A Co., being an abstract and artificial person,does not die a natural death.

It has its existence only in contemplation of law.

28

IMTDubai

-2012-14


29/37


11. Termination of Existence

The existence of a Co. is terminated by means ofwinding up.

However, to avoid winding up sometimes

companies change their form by means ofreorganization, reconstruction and

amalgamation.

29

IMTDubai

-2012-14


30/37

LIFTING OF CORPORATE VEIL

As the separate personality of the company is astatutory privilege, it must be used for legitimate

purposes only.

Where a fraudulent or dishonest use is made of the

legal entity, the individuals concerned will not be

allowed to take shelter behind the corporate

personality.

The court will break through the corporate shell

and apply the principle lifting or piercing the

corporate veil. 30

IMTDubai

-2012-14


31/37


Fraudulent Conduct :

Where the business has been carried on with anintent to defraud creditors or any other person or

for any fraudulent purpose, those who are

knowingly parties to such conduct of business be

made personally liable without any limitation for

all or any debts or other liabilities of the Co.

31

IMTDubai-2012-14


32/37


Non Payment of Tax:

When any Pvt. Co. is wound up, any tax assessedon the Co., whether before or in the course of

liquidation in respect of any income of any PY

cannot be recovered, every person who was

Director of that co. at any time during the relevant

PYshall be jointly and severally liable for payment

of tax.

32

IMTDubai-2012-14


33/37


Ultra Vires Act:

Directors of a Co. will be personally liable for allthose acts which they have done on behalf of a co. if

they are Ultra Vires the Co.

33

IMTDubai-2012-14


34/37


Mis Description of name:

Where an officer of a Co. signs on behalf of a Co.any contract, agreement, cheque, bill of exchange,

order for money or goods or such other documents,

such person shall be personally liable to the holder

if the name of the Co. in not mentioned.

Hendon V. Adelman & Others.xlsx

34

IMTDubai-2012-14
http://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_6/Hendon%20V.%20Adelman%20&%20Others.xlsx


35/37


Misrepresentation in Prospectus:

In case of misrepresentation in Prospectus, everyDirector, Promoter and every other persons who

authorises the issue of such prospectus incurs

liability towards those who subscribe for share on

the faith of untrue statement.

35

IMTDubai-2012-14


36/37

ILLEGAL ASSOCIATION

An unincorporated Co., association or

partnership consisting of large number of persons

has been declared illegal.

No Co., Association or Partnership consisting of

more than 20 persons (10 in case of banking

business) can be formed for the purpose of carrying

on any businessfor gain, unless it is registered asa Co. under the Companies Act, 1956 or is formed

in pursuance of some other Indian Law.36

IMTDubai-2012-14


37/37

THANK YOU

37

IMTDubai-2012-14

business law india

Documents