Corporate Law 3rd Semester

Index
S. No. Contents
1. Introduction
2. Promotion and Formation of Company
3. Memorandum and Articles of Association
4. Management of Companies
5. Company Secretary
Introduction: Meaning And Nature of Company
A company is a legal entity formed by a group of individuals to engage
in and operate a business—commercial or industrial—enterprise. A
company may be organized in various ways for tax and financial liability
purposes depending on the corporate law of its jurisdiction. The line of
business the company is in will generally determine which business
structure it chooses such as a partnership, proprietorship, or
corporation. These structures also denote the ownership structure of
the company.
They can also be distinguished between private and public companies.
Both have different ownership structures, regulations, and financial
reporting requirements.
A company is a legal entity formed by a group of individuals to engage
in and operate a business enterprise in a commercial or industrial
capacity.
A company's business line depends on its structure, which can range

from a partnership to a proprietorship, or even a corporation.
Companies may be either public or private; the former issues equity to
shareholders on an exchange, while the latter is privately-owned and
not regulated.
A company is generally organized to earn a profit from business
activities.
Nature of Company
The following are the characteristics of the company:
1. Separate Legal Entity
A company is perceived to be a distinct legal entity. Once incorporated
under the Act, the company is vested with a corporate personality
which does not depend on its members. The money credited by the
creditors of the company can be recovered only from the company and
the properties owned by the company. Individual members cannot be
sued. Similarly, the company in any way is not liable for the individual
debts of the members.
The company bears its own name, acts under its own name, has a seal
of its own and its assets are separate and distinct from those of its
members. it is a different ‘person’ from the members who compose it.
Therefore it is capable of owning property, incurring debts, borrowing
money, having a bank account, employing people, entering into
contracts and suing or being sued in the same manner as an individual.
2. Limited liability
Limited liability means the company's debts are its own and members
are protected from personal liability unless they are negligent or gave
personal guarantees. A company may be limited by shares or by
guarantee. In a company limited by shares, the liability of members is
limited to the unpaid value of the shares. If the shares are fully paid i.e
if the amount has already been fully paid to the company, then the
member need not contribute any more towards the company’s debts. if
the amount has not been fully paid, then the member’s liability is
limited to the unpaid amount.
3.Perpetual Existence.
Perpetual succession means that the membership of a company may
keep changing from time to time, but that shall not affect its continuity.
Its life does not depend upon the death, insolvency or retirement of
any or all shareholder (s) or director (s). Law creates it and law alone
can dissolve it. 4. Separate Property: As a company is a legal person
distinct from its members, it is capable of owning, enjoying and
disposing of property in its own name. Although its capital and assets
are contributed by its shareholders, they are not the private and joint
owners of its property. The company is the juristic person in which all
its property is vested and by which it is controlled, managed and
disposed of.
5. Shares:
In a public company, the shares are freely transferable.
The right to transfer shares is a statutory right and it cannot be taken
away by a provision in the articles. However, the articles shall prescribe
the manner in which such transfer of shares shall be made and it may
also contain bona fide and reasonable restrictions on the right of
members to transfer their shares.
6. Common Seal
A company cannot sign documents by itself. It acts through natural
persons who are called its directors. A common seal is used with the
name of the company engraved on it as a substitute of its signature.
Kinds of Company
Companies on the Basis of Liabilities
When we look at the liabilities of members, companies can be limited
by shares, limited by guarantee or simply unlimited.
a) Companies Limited by Shares

Sometimes, shareholders of some companies might not pay the entire
value of their shares in one go. In these companies, the liabilities of
members is limited to the extent of the amount not paid by them on
their shares.
This means that in case of winding up, members will be liable only until
they pay the remaining amount of their shares.
b) Companies Limited by Guarantee

In some companies, the memorandum of association mentions
amounts of money that some members guarantee to pay.
In case of winding up, they will be liable only to pay only the amount so
guaranteed. The company or its creditors cannot compel them to pay
any more money.
c) Unlimited Companies
Unlimited companies have no limits on their members’ liabilities.
hence, the company can use all personal assets of shareholders to meet
its debts while winding up. Their liabilities will extend to the company’s
entire debt.
Companies on the basis of members
a) One Person Companies (OPC)
These kinds of companies have only one member as their sole
shareholder. They are separate from sole proprietorships because OPCs
are legal entities distinct from their sole members. Unlike other
companies, opcs don’t need to have any minimum share capital.
b) Private Companies
Private companies are those whose articles of association restrict free
transferability of shares. In terms of members, private companies need
to have a minimum of 2 and a maximum of 200. These members
include present and former employees who also hold shares.
c) Public Companies
In contrast to private companies, public companies allow their
members to freely transfer their shares to others. Secondly, they need
to have a minimum of 7 members, but the maximum number of
members they can have is unlimited.
Companies on the basis of Control or Holding In terms of control, there

are two types of companies.
a) Holding and Subsidiary Companies
In some cases, a company’s shares might be held fully or partly by
another company. Here, the company owning these shares becomes
the holding or parent company. Likewise, the company whose shares
the parent company owns becomes its subsidiary company.
Holding companies exercise control over their subsidiaries by dictating
the composition of their board of directors. Furthermore, parent
companies also exercise control by owning more than 50% of their
subsidiary companies’ shares.
b) Associate Companies
Associate companies are those in which other companies have
significant influence. this “significant influence” amounts to ownership
of at least 20% shares of the associate company.
the other company’s control can exist in terms of the associate
company’s business decisions under an agreement. Associate
companies can also exist under joint venture agreements.
Companies in terms of Access to Capital
When we consider the access a company has to capital, companies may
be either listed or unlisted.
Listed companies have their securities listed on stock exchanges. This
means people can freely buy their securities. Hence, only public
companies can be listed, and not private companies.
Unlisted companies, on the other hand, do not list their securities on
stock exchanges. Both, public, as well as private companies, can come
under this category.
Other Types of Companies
a) Government Companies
Government companies are those in which more than 50% of share
capital is held by either the central government, or by one or more
state government, or jointly by the central government and one or
more state government.
b) Foreign Companies
Foreign companies are incorporated outside India. They also conduct
business in India using a place of business either by themselves or with
some other company.
c) Charitable Companies (Section 8)
Certain companies have charitable purposes as their objectives. These

companies are called Section 8 companies because they are registered
under Section 8 of Companies Act, 2013.
Charitable companies have the promotion of arts, science, culture,
religion, education, sports, trade, commerce, etc. as their objectives.
Since they do not earn profits, they also do not pay any dividend to
their members.
d) Dormant Companies
These companies are generally formed for future projects. They do not
have significant accounting transactions and do not have to carry out all
compliances of regular companies.
e) Nidhi Companies
A Nidhi company functions to promote the habits of thrift and saving
amongst its members. It receives deposits from members and uses
them for their own benefits.
f) Public Financial Institutions
Life Insurance Corporation, Unit Trust of India and other such
companies are treated as public financial institutions. They are
essentially government companies that conduct functions of public
financing.

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Index

A company's business line depends on its structure, which can range

a) Companies Limited by Shares

b) Companies Limited by Guarantee

Companies on the basis of Control or Holding In terms of control, there

Certain companies have charitable purposes as their objectives. These

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