COMPANY LAW / MODULE-1

 Company Law (CL): -

CL, also known as corporate law, refers to the legal framework that governs the
formation, operation & management of companies.

 Concept & Meaning of Company: -

¡ Corporate personality: It’s a term used for a company incorporated under the
Companies Act & has been awarded the esteemed status of being a Corporation.
¡ Definition of Company: According to Prof. Haney, “A company is an artificial
person created by law, having separate entity with perpetual succession & a
common seal.”
¡ A company means a group of persons associated to achieve common objectives.

 Characteristics of the Company: -

1) Incorporated Association:
A company must be incorporated or registered under the Companies Act. Minimum
no required for the purpose in public co. is 7 & 2 in the case of a private company.

2) Artificial Person:
A company is created with the sanction of law & is not itself a human being, therefore
it’s called artificial & since it’s clothed with certain rights & obligations, it’s called a
person. It exists in the eyes of law & cannot act on its own. It has to act through the
BOD elected by the shareholders.

3) Separate Legal Entity:

A company is regarded as an entity separate from its members. In other words, it has
an independent existence. Any of its members can enter into contracts with it in the
same manner as any other individual can & he can’t be held liable for the acts of the
company even if he holds the entire share capital.

4) Limited liability:
A company may be a company Ltd. by shares or a company Ltd. by guarantee. In a
company Ltd. by shares, the liability of members is ltd to the unpaid value of the
shares. In a company Ltd. by guarantee, the liability of members is ltd to such amt as
the members may undertake to contribute to the assets of the company, in the event
of its being wound up.

5) Perpetual Existence:
A company being an artificial person cannot be incapacitated by illness & it doesn’t
have an allotted life span. The death, insolvency, or retirement of its members leaves
the company unaffected. Members can come & go but the company can go forever.
6) Common Seal:
A company, being an artificial person doesn’t come with a body of natural being.
Therefore, it has to work through its directors, officers & other employees. But, it can
be held bound by only those documents which bear its signature. Common seal is the
official signature of a company.

7) Capacity to Sue:
A company can be sued in its corporate name. It may also inflict or suffer wrongs. It
can do or has done most of the things which are done by or to human beings.

8) Separate Property:
As a legal person, a company can own, enjoy & dispose of any property in its own
name. A member does not even have an insurable interest in the company’s
property.

9) Transferability of Shares:
The shares of a company are transferable in the manner provided in the Articles of
the company. However, in a private company, certain restrictions are placed on such
transfer of shares but the right to transfer is not taken away absolutely.

 Kinds/Types of Company: -
1) On the basis of Incorporation: From the pov of incorporation, there are 3 kinds of
companies:

i. Chartered Companies:
These companies are incorporated under a special charter by the Monarch (King or
Queen of England). For Example, The East India Company or The Bank of England.
Such companies don’t exist in India.

ii. Statutory Companies:

These companies are incorporated by a special act passed by the Parliament, i.e.
Central or State Legislature. They derive their powers from the acts constituting them
& enjoy certain powers that companies incorporated under the Companies Act have.
For Example, RBI, LIC, SBI, Industrial Finance Corporation, etc.

iii. Registered Companies:

These companies are formed under the Companies Act, 1956 or registered under the
Companies Act passed earlier to this. Such companies come into existence only when
they are registered under the Act & a certificate of incorporation has been issued by
the Registrar of Companies.

2) On the basis of Liability: From the pov of liability, there are 3 kinds of companies:

i. Companies Limited by Shares:

When the liability of the members of a company is limited by the Memorandum to
the amt if any, unpaid on the shares, such a company is called a company limited by
shares.

ii. Companies limited by guarantee:

A company in which the liability of its members is ltd to the extent of the amt
guaranteed is called a company Ltd by guarantee. The liability of its members is Ltd.

iii. Unlimited Companies:

Unlimited Co. gives the choice to the promoters to form a company with or without
ltd liability. A company not having any limit on the liability of its members is called an
unlimited company.

3) On the basis of Number of Members: From the pov of no of members, there are
2 types of company:

i. Private Company:
A private company restricts the right of the members to transfer shares, limits the no
of members to 50 & prohibits any invitation from the public to subscribe for its shares
or debentures.

ii. Public Company:

A public company does not restrict the right of the members to transfer shares, limit
the no of its members & prohibit any invitation from the public to subscribe for its
shares or debentures of the company.

iii. One-Man Company (OMC):

In OMC 1 man holds practically the whole share capital of the company & in order to
meet the statutory requirement of the minimum no of members, some dummy
members, who’re mostly his relatives/friends, hold 1 or 2 shares.

4) On the basis of Control: From the pov of control, there are 2 kinds of companies:

i. Holding Company:
A company is known as the holding company of another company if it has control
over that other company. According to Section 4(4), “A company is deemed to be the
holding company of another, but if only, that other company is its subsidiary.

ii. Subsidiary Company:

A company is known as a subsidiary company of another company when control is
exercised by the latter (called a holding company) over the former, called a subsidiary
company.

5) On the basis of Ownership: From the pov of ownership, there are 2 kinds of
companies:
i. Government Company:
A government company means any company in which at least 51% of paid-up share
capital is held by the central government or state government, or partly by the
central and partly by the state government.

ii. Foreign Company:

Foreign company means any company which is incorporated outside India and has an
established place in India.

 Definition of One Person Company (OPC): -

¡ The Companies Act defines the OPC as a company that has only 1 person as its
member. Members of a company are nothing but subscribers to its MOA, or its
shareholders. So, an OPC is a company that has only 1 shareholder as its member.
¡ OPCs are created when there’s only 1 founder/promoter for the business.
Entrepreneurs whose businesses lie in the early stages prefer to create OPCs
instead of sole proprietorship business because of the several advantages that
OPCs offer.

 Features of a One-Person Company: -

► Private Company: Section 3(1)(c) of the Companies Act says that a single person
can form a company for any lawful purpose. It further describes OPCs as private
companies.

► Single-Member: OPCs can have only one member or

shareholder, unlike other private companies.

► Nominee: A unique feature of OPCs that separates it from other kinds of

companies is that the sole member of the company has to mention a nominee while
registering the company.

► No Perpetual Succession: Since there is only 1 member in an OPC, his death will
result in the nominee choosing or rejecting to become its sole member. This does not
happen in other companies as they follow the concept of perpetual succession.

► Minimum 1 Director: OPCs need to have minimum 1 person (the member) as

director. They can have maximum of 15 directors.

► No Minimum Paid-Up Share Capital: Companies Act, 2013 has not prescribed any
amount as minimum paid-up capital for OPCs.

► Special Privileges: OPCs enjoy several privileges and exemptions under the
Companies Act that other kinds of companies do not possess.
 Definition of an Associate Company: -
¡ Associate Company, in relation to another company, means it’s a company in
which another company has a significant influence, but is not a subsidiary
company of the company having such influence and includes a joint venture
company.

 Definition of Producer Company: -

It’s registered under the Companies Act, 2013, which has the objective of production,
harvesting, procurement, grading, pooling, handling, marketing, selling, export of
primary produce of the members, and import of goods & services for their benefit.
It’s made for the benefit of farmers. It improves the livelihood and standard of living
of farmers. It’s an idea of giving a corporate structure, to the activities related to
agriculture. It is a company where producers, agriculturalists, and farmers can carry
on business collectively in form of a corporate. It can be incorporated by any person
who falls under the definition of a primary producer. It includes people like farmers,
connected to agriculture, etc.

 Lifting Corporate Veil: -

As the company is a separate legal entity, it has been provided with a veil. But if the
court feels like that veil is being used for wrongful purposes, the court can lift the
corporate veil and makes the individual liable for their acts which they should not
have done or be doing in the name of the company.

 Circumstances to Lift the Corporate Veil: -

It can be either lifted under the statutory provisions or judicial interpretations. The
statutory provisions are provided under the companies act 1956 or 2013. And the
judicial interpretations are based on the facts of each case as per the decisions of the
court.

 When Does the Corporate Veil Lift?

1. Failure to Refund Application Money- After the issue of shares to the public, the
company has to pay back the initial payment to the unsuccessful applicants, if they
fail to do so, the corporate veil can be lifted.

2. Mis-Description of the Company Name- While signing a contract if the company’s

name is not properly described, then the corporate veil can be lifted.

3. Misrepresentation in the Prospectus- In case of misrepresentation, the

promoters, directors, and every other person responsible in this matter can be
held liable.
4. Fraudulent Conduct- In case the company is carried on with an intent to do fraud,
then the court may lift the corporate veil.

 Registration Procedure OR Incorporation Process: -

Step 1: Acquire Director Identification Number (DIN)
This is the 1st process in registration, each director of the company should obtain
their DIN. As per the amendment act 2006, acquiring a DIN is compulsory for every
director whether existing or intending. To get DIN one needs to file an eForm DIN-1
and should pay applicable fees. The DIN-1 form is available on the Official site of the
Ministry of Corporate Affairs (MCA).

Step 2: Acquire Digital Signature Certificate (DSC)

In order to ensure the security or authenticity of documents filed electronically, a
valid digital signature on the documents is submitted electronically. This is the only
and safest way that one can submit their documents electronically. The digital
signature certificate should be acquired by only those agencies which are appointed
by the controller of certification agencies (CCA).

Step 3: Create an A/c on MCA Portal – New User Registration

This is about having a registered user account on MCA Portal for filing an eForm, for
online fee payment, for different transactions as registered, etc. Creating an account
is totally free of cost. To register yourself on the MCA portal, click on the register link.

Step 4: Apply for the Company to be Registered

This is the final major step in the registration of your company which includes
incorporating the company name, Registering the office address or notice of the
situation of the office, and notice for the appointment of company directors,
manager, and secretary. And also, regarding the take and pay for their qualification
shares.

 Types of Forms and Their Uses: -

► Form-1A:
Application form for availability or change of a company name.
► Form-1:
It’s for the application or declaration for incorporation of a company, in this form, you
have to fill the same name which you have chosen during the application of form-1A.
► Form-18:
This form is for notice of the situation of a new company office or a change of
situation of a previously registered office. **For a new company, you have to fill the
form with a genuine office address and submit.
► Form-32:
For a new company, this form is for notice of the appointment of a New Director,
Manager & Secretary. **For an existing company, this form is for a change of
Director, Manger, Secretary or Company Head.