company law part i

8/6/2019 Company Law Part i

1/27

COMPANY LAW


2/27

DEFINITION A voluntary association of persons.

It has capital divided into parts, known as

shares. It is an artificial person created by law.

It has a common seal.

An artificial person has no body, no soul. So, Company = Artificial Person


3/27

CHARACTERISTICS OF A

COMPANY Separate legal entity

Limited liability

Perpetual succession

Common seal

Transferability of shares

Separate property

Capacity to sue


4/27

1.SEPARATE LEGAL ENTITY A company in law is regarded as an entity

separate from the members.

A companys money and property belong tothe company and not its shareholders.

Ram & Co. Ltd. Is entirely different from

Ram.


5/27

Case: SALOMON v. SALOMON &

Co. Ltd.(1897) S sold his boots business for 30000 pounds.

S took 23000 shares of 1 pound each & 10000 debentures ,

rest were taken by his family members.

Debentures gave S charge over the assets of the company.

Later it was found that the assets were of 6000 pounds, &

liabilities were 17000 pounds, out of which 10000 were due to

S, & 7000 to unsecured creditors.

Unsecured creditors tried to say that S and the company were

one and the same thing, & company was a mere agent of S.


6/27

2. LIMITED LIABILITY A company may be limited by shares or

limited by guarantee.

Incase of limited by shares, the liability of themembers is only to the unpaid value of shares.

Share is for Rs.10, and already paid Rs.7, so

he can be called upon to pay not more thanRs.3.


7/27

3. PERPETUAL SUCCESSION A company never dies, nor does its life depend on

the life of it members.

It is not affected by insolvency, retirement, or mentaldisorder.

A company can go on forever, members may comeand go, even if all its human members are dead.

Just like the river Thames is still the same river,though the parts which compose it are changingevery instant.


8/27

4. COMMON SEAL A company has no physical existence.

All contracts entered into by its agents must

be under the common seal of the company.

The common seal acts as the official signature

of the company.


9/27

5.TRANSFERABILITY OF

SHARES The capital of the company is divided into

parts called as shares.

Shares are freely transferrable so that noshareholder is necessarily or permanently

wedded to the company.


10/27

6.SEPARATE PROPERTY A company is capable of owning, enjoying &

disposing of property in its own name.

Capital and assets are contributed by itsshareholders but they are not the owners of its

property because : (we have done the

separate legal entity characteristic.)


11/27

7. CAPACITY TO SUE A company can sue and be sued in its

corporate name.

It can perform all those functions which maybe performed by a human being.


12/27

COMPANY VS PARTNERSHIPCOMPANY PARTNERSHIP

- Companies Act,1956. - Indian Partnership

Act,1932.

- Registration is - No such registration is

compulsory. required.

- Insolvency of company - Insolvency of partnership

doesnot make the members makes all its partners

insolvent. insolvent.


13/27

COMPANY VS PARTNERSHIPCOMPANY PARTNERSHIP

- Members of a - Members of a

company are not partnership are.

liable for its debts,

wrongs.

- A company has to maintain - No such compulsion.

books of account and have

its accounts audited.

- Members: - Members:

Min: Pvt: 2 , Pub: 7 Min: 2Max: Pvt:50 , Pub: unlimited Max: 10(banking business), 20

(any other business)


14/27

TYPES OF COMPANYA company limited by guarantee. Commonly used

where companies are formed for non-commercial

purposes, such as clubs or charities. The membersguarantee the payment of certain (usually nominal)

amounts if the company goes into insolvent

liquidation, but otherwise they have no economic

rights in relation to the company. This type ofcompany is common in England .


15/27

A company limited by shares. The most common

form of company used for business ventures.

Specifically, a limited company is a "company inwhich the liability of each shareholder is limited to

the amount individually invested" with corporations

being "the most common example of a limited

company."


16/27

A company limited by guarantee with a

share capital. A hybrid entity, usually used

where the company is formed for non-commercial purposes, but the activities of the

company are partly funded by investors who

expect a return.


17/27

A limited-liability company. "A company

statutorily authorized in certain statesthat is

characterized by limited liability, managementby members or managers, and limitations on

ownership transfer."


18/27

An unlimited company with or without

a share capital. A hybrid entity, a

company where the liability of members orshareholders for the debts (if any) of the

company are not limited.


19/27

PRIVATE COMPANY "Private company" is defined in section 3(1)(iii) of the Act and it means a

(a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty (50) not including

(i) persons who are in the employment of the company; and

(ii) persons who, having been formerly in the employment of the company,were members of the company while in that employment and havecontinued to be members after the employment ceased; and

(c) prohibits any invitation to the public to subscribe for any shares in, ordebentures of, the company: and

(d) prohibits any invitation or acceptance of deposits from persons otherthan its members, directors or their relatives:

Provided that where two or more persons hold one or more shares in acompany jointly, they shall, for the purposes of this definition, be treated asa single member.


20/27

PUBLIC COMPANY "Public company" is defined in section 3(1)(iv) of the

Act and it means a company which

(a) is not a private company;

(b) has a minimum paid-up capital of five lakh rupees or

such higher paid-up capital, as may be prescribed;

(c) is a private company which is a subsidiary of a

company which is not a private company.


21/27

GOVERNMENT COMPANY

"Government company" is defined in section 617 of the Actand it means any company in which not less than fifty-oneper cent of the paid-up share capital is held by the CentralGovernment, or by any State Government or Governments,or partly by the Central Government and partly by one ormore State Governments and includes a company which is asubsidiary of a Government company as thus defined.

As provided by section 620 of the Act, the CentralGovernment may, by notification in the Official Gazette,

exempt Government companies from certain provisions orcertain provisions of the Act shall apply to them withexceptions, modifications and adaptations.


22/27

FOREIGN COMPANY

"Foreign company" is defined in section 591 of the Act and it means acompany which

(a) is incorporated outside India and

(b) has established a place of business within India.

Within 30 days of establishment of such place ofbusiness within India, theForeign Company is required to submit documents/details under section592. Alterations and changes in these documents/details are required to benotified within 30 days.

The provisions of sections 118(right to obtain copies of trust deed), 124 to145(registration of charges), 159(annual returns to be made by company),209(Books of account to be kept by company), 209A (inspection of books ofaccount of company), 233A (power of Central Government to direct special

audits in certain cases), 233B (audit of cost accounts in certain cases), 234to 246(power of Registrar to call for information etc.) apply to such foreigncompany.


23/27

HOLDING & SUBSIDIARY

COMPANY According to Sec.2(19) "holding company" means a holding company within the

meaning of section 4 of the Act;

According to Sec.2(47) "subsidiary company" or "subsidiary" means a subsidiarycompany within the meaning ofSection 4 of the Act.

Sec.4. of the Act states,

(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if

(a) that other controls the composition of its Board of directors; or

(b) that other

(i) where the first-mentioned company is an existing company in respect of which theholders of preference shares issued before the commencement of this Act have the samevoting rights in all respects as the holders of equity shares, exercises or controls morethan half of the total voting power of such company;

(ii) where the first-mentioned company is any other company, holds more than half innominal value of its equity share capital; or

(c) the first-mentioned company is a subsidiary of any company which is that otherssubsidiary.


24/27


25/27

LIFTING THE CORPORATE VEILLifting, or "piercing" the "corporate veil", refers tobeing able to sue executives in a corporation asindividuals, as opposed to suing the corporation.

Normally, if a corporation harms you, you can only filea lawsuit against the corporation itself. However, incertain circumstances, you can sue individuals within acorporation. For instance, if a CEO commits fraudresulting in huge losses for a shareholder, then that

shareholder may be able to go after the CEOpersonally, not just the company.


26/27

The term "Lifting of Corporate Veil" belongs to the Corporate Law and it is basicallyused in Companies Act, 1956 Judgments by the courts.

Lifting of Corporate Veil means that the court is empowered to "Lift" away thecorporate mask of any organization or many organizations involved in any corporatedeal or deals and it enables the courts look into the matters more"practically" by

seeing "who is the real person behind any organization or behind any corporate deal"as such.

The court can decide that who is the person who is controlling the day to day affairs ofa company in reality and who is responsible for the actions of the company decisions.

It is also possible that a person may be absolutely insignificant in papers in anycompany while the same person may be having the final say in all crucial decisions ofthat same company as such.

Source(s):

Companies Act 1956.


27/27

WHEN THE VEIL IS LIFTED:

The veil of incorporation may be lifted where a company is asham and no third party has an involvement with it.

It may also be lifted where the company is a party to a fraud . It will not be lifted just because justice demands .

A director can escape personal liability to a third party innegligence by acting through his company and ensuring that heis perceived as accepting no personal liability for what he is

doing.

He cannot escape personal liability where he acts fraudulentlyon behalf of his company .

company law part i

Documents