This document provides an overview of the key elements and topics covered in the Core Course - V on Elements of Company Law. The course code is SY B.COM - 235 and is worth 3 credits. The document outlines the following topics that will be covered: background and features of the Companies Act 2013; definitions and characteristics of a company; types of companies based on mode of formation, number of members, liability, control, and other classifications; and an introduction to Chapter 1 of the Company Act regarding companies. Examples and definitions of key terms are provided throughout the document.
1. CORE COURSE – V
ELEMENTS OF COMPANY LAW
Code: SY B.COM - 235
Total Credits: 03
1
Mr Dinesh Lahori
M. Com, MPM, MLL & LW, Eq. Masters in German,
M. Phil, GDCA, Phd Scholar.
3. 1. Background and Features of company the Companies Act,
2013
2. Company: Meaning, Nature and Characteristics of Company.
3. Types of Companies: On the basis of mode of formation,
Number of members, liability and Control,
Public and Private Companies: Distinction, Advantages,
Disadvantages, Privileges and their Conversion into each other.
Other kinds of Companies: One Person Company, Charitable
Companies, Dormant Company, Sick Company, Small Company,
Listed Company, Foreign Company and its business in India etc
Syllabus – Chapter 01 – Company Act – Introduction
and Concept.
3
4. 4
• Easy to
start and
wind up.
• Prompt
decision
• Flexibility
in
operations
• Limited
capital
• Limited
expertise
• Limited
life
• Unlimited
liability
• No legal
status.
5. Merits of Sole Proprietorship
• Single Owner
• Easy to set up
• No profit sharing
• High privacy
• Advantage of Tax
• Less capital required
• Direct interaction with
customers
• Provides employment
opportunities
• Easy in dissolution
Demerits
• Limited funds
• Unlimited liability
• Continuity is uncertain
• Lack of management
• Size is limited
• Loss in absence
• Doubtful secrecy
• Limited business area
5
9. In a practical way, a company means a company of certain
persons registered under the Companies Act….?????
Two or more persons who are desirous of carrying on joint
business enterprises,
- have the choice of either forming a company or a partnership.
“Partnership is suitable device for a small scale businesses,
which can be financed and managed by a small group of
partners, who take personal interest and there is mutual
trust and confidence among them.
But where the enterprise requires a rather greater
mobilization of capital which the resources of few persons
cannot provide, the formation of the company is the only
choice.
9
10. Com – with or together, panis – bread
(latin term)
Earlier,……
Word ‘Company’ has no strictly technical
or legal meaning.
In terms of Company act, a Company
means a company formed and
registered under the Companies Act.
10
11. A company is a voluntary incorporated body which
is an artificial legal person, having a separate
legal entity with separation of ownership and
management, created by law with limited liability
having a common seal and perpetual succession.
“A company is a voluntary association for profit
with capital divisible into transferable shares
with limited liability, having corporate entity and
a common seal with perpetual succession”
Summarized Definition
11
12. In Company Law, a Company is a “Artificial
Legal person” or “Legal entity” separate
from and capable of surviving beyond the
lives of its members.
Like any juristic person, a company is legally an
entity apart from its members, capable of
rights and duties of its own and endowed
(gifted) with the potential of perpetual
succession
12
13. Nature of Corporate Form and its Merits (Contd)
Limited Liability:
The company, being a separate person, is the owner of its
assets and bound by its liabilities. Members, even as a whole,
are neither the owners of the company’s undertaking, nor
liable for its debts.
The liabilities of the members is limited to the nominal value
of shares possessed or the amount guaranteed by them.
But on the other hand, in the case of Partnership - the
liability of the partners ………………
The whole fortune of the partners is at stake because the
creditors of the Partnership firm may even charge the
private property of partners. 13
14. Perpetual succession:
An incorporated company never dies.
In spite of the total change in membership, “the company will be
the same entity, with the same privileges and immunities,
estates, and possessions”
Thus, Perpetual succession means membership of a company may
keep on changing, but that does not affects its continuity. (As
river Thames & Ganga – its existence is continuous, despite its
contents)
The guarantors of a company’s loan could not claim to be relieved,
since its management has changed.
Illustration: A, B & C are the only members of the company, holding
all its shares – these shares were totally transferred to X, Y & Z.
14
15. Professional Management:
Young managers willingly join companies because they
will be functioning individually and are assured of the
fact that there is no human employer and
shareholders exercise only a formative role. Such an
atmosphere of independence and strong financial
backing gives them an opportunity to develop
extraordinary managerial capabilities.
Finances
The company is the only channel of organizing business
which is given the privilege of raising capital by public
subscriptions either by way of shares and debentures.
15
16. Separate Property – Separation of Ownership and Management
A Company, being a legal person, is capable of owning, enjoying and sell
out its property in its own name. The company becomes the owner of
its capital and assets.
The shareholders are not the several or joint owners of the company’s
property.
Illustration: A person who was the holder of nearly all the shares,
except one in the Timber Company and was also a substantial creditor.
He insured the company’s timber in his own name. The timber have
been destroyed by fire, the Insurance company ………..
The property, however much, the shareholders may come and go,
remains vested in the company, and the company may convey, assign,
mortgage, or otherwise deal with it irrespective of these mutations.
While in the partnership firm, the distinction is often not
16
17. Transferable shares:
Should Company entertain
applications of transfer of
shares?
Should Company entertain
applications of transmission of
shares? 17
18. Transferable shares:
Due to incorporation of the Joint stock company, a
member is able to sell his shares in the open market
and to get back his investment without having to
withdraw the money from the company.
This provides liquidity to the investor and stability to
the company.
On the other hand, In a partnership – a partner
cannot transfer his share in the capital of the firm,
without the unanimous consent of other partners.
18
19. Capacity to sue and be sued:
A company has the right to protect its fair name. it can sue
for such insulting remarks against it as are likely to
damage its business or property etc.
Criminal complaint can be filed by a company but it must be
represented by a natural person. The compliant by a
company is liable to be dismissed because of the absence
of representative as in case of Individual compliant
dismissed for absence of Complainant.
In absence of the above right, the company would be
disadvantaged as against individuals under a law, which is
designed to encourage and achieve proper standards of
conduct in public life or society. 19
20. Independent Corporate Existence – Separate Legal Entity
No one can say he is the owner of the Company and the business now
belongs to an institution
A partnership has no existence apart from its members, it is nothing
but a collection of partners.
On other hand, a company in law is a person – it is a distinct legal
persona existing independent of its members.
By incorporation under the act, the Company is vested with a corporate
personality (an entity) which is separate from the members who
compose it.
It says that upon issue of COI, the subscribers of MOA and other
persons, who may from time to time be the members of Company,
shall be body corporate of exercising and functioning with perpetual
succession and common seal.
20
21. a) Registration: Exist only when registered.
b) Voluntary association:
Formed by the choice and consent of the members
c) Legal Personality: By law it is a single person.
d) Contractual capacity:
A share holder of a company, in its individual
capacity, can not bind the company in any way.
e) Management: Board of directors, MD and
managers, but not shareholders.
Main features or characteristics of a company
21
22. f) Permanent existence: Perpetual existence
g) Registered office
h) Common seal
i) Limited liability:
The creditors of a company are not creditors of
individual shareholders, but a right against the
assets of the company
j) Transferability:
k) Statutory obligations:
Filing balance sheets, maintaining proper accounts
books and registers. 22
23. l) Artificial personality: but not a natural person
m) Residence: a company has a residence for taxation
and other purpose
n) Separate name: specific name to be registered and
affixed at the premises
o) Number of members:
Private: Minimum 2, Max 200
Public: Minimum 7 and max no limit
p) Share holders are actual owners and thus they
participate directly and indirectly.
23
24. q) Raising of capital on the large scale
r) Capacity to sue
s) Rigidity of objects
t) Statutory requirements and its business
u) Separate legal entity
v) An artificial person but not a citizen
z) Lifting the Corporate veil.
Determination of the character
Where company is a mere cloak or sham
Where the company is acting as an agent of the shareholders
Protection of revenue, like tax evasion
24
25. Evolution:
Corporations are not novelities.
They are institutions of very ancient date.
A body corporate during seventeenth & eighteenth Centuries
could be brought into existence either by Royal charter or by
special act of Parliament & which were expensive and dilatory
(slow paced).
Consequently to meet growing needs, large unincorporated
partnerships came into existence, trading however in corporate
form. The membership of each such concern being very large,
the management of business was left to a few trustees…..????
Many spurious companies were created which would appear only
to disappear resulting in losses to the investing public.
25
26. The English parliament, therefore, passed an act, known as
the “Bubbles Act of 1720” which was an attempt to
prevent smaller non-charter companies from forming or
the South Sea Company itself wanting to prevent other
bubbles from forming that might have decreased the
intensity of South Sea Bubble.
This proved to be a great setback to the expanding trade
and commerce. Yet the act remained on the statute book
for over a century and was repealed in 1825.
The history of Indian Co Law began with the Joint Stock
Co act of 1850. Since then cumulative process of
amendment and consolidation has brought us to the most
comprehensive legislation Company act 1956.
26
27. Corporate Veil ???????
Independent Corporate Existence – Separate
Legal Entity – Company is different from its
members.
Separation of Ownership and Management –
Money of somebody else is handled by somebody
else.
Limited Liability – If company incurs liability,
the private property of the members is not at
stake.
27
28. 28
Saloman Vs Saloman and Co Ltd.
Aron Saloman
Shoe Business
Proprietor
Firm
Incorporated New
Company
Saloman and
Co Ltd
What Business
it will do ???
Acquired the Sole
proprietorship of
Saloman worth
39000 Pounds.
29. After one year – Liquidation Process – Assets Vs Liabilities
Assets – 6k Pounds, Liabilities – 16k Pounds including 10k
debentures of Aron Saloman - ??????
29
Saloman &
Co Ltd
Members
Aron
Saloman
20k shares
Wife,
Daughter
and 4 sons
with one
share each
Directors
Aron
Saloman
and his son
Creditors
Aron
Saloman 10k
Pounds as
Debentures
30. Lifting the Corporate Veil
https://youtu.be/XkI7Wq03ewA
1. Determination of the character
Daimler Co Ltd Vs Continental Tyre & Rubber Co Ltd
(Great Britain) https://youtu.be/XSwDENfG4NM
2. Where company is a mere cloak or sham, Protection
of Fraud. – Jones Vs Lipman
3. Protection of revenue, like tax evasion – Dinshaw
Maneckjee Petit Case.
30
32. On the basis
of
Incorporation
/ Formation
Chartered
Company
Statutory
Company
Registered
Company
On the basis
of Ownership
/ Number
Private
Company
Public
Company
One Person
Company
On the basis
of Liability
Company
limited by
Shares
Company
limited by
Guarantee
Company
with
unlimited
liability
On the basis
of Place /
Domicile
Foreign
Company
Indian
Company
On the basis
of Control
Government
Company
Holding &
Subsidiary
Company
Associate
Company
Miscellaneous
Charitable
Company /
Non profit
Company
Sick
Company
Dormant Co.
Small
Company
Listed
Company
32
34. A) On the basis of Incorporation:
i) Chartered companies: these are companies also known as
Royal Charters. Such companies are incorporated under the
special charter of the king or the queen. The East India
co., Bank of England are few examples, but post
independence do not exist.
ii) Statutory company: the companies which are formed under
special acts of legislature and they enjoy the rights and
liabilities as designed by the act. For example: LIC, SBI
and Reserve Bank of India.
iii) Registered company under the Companies Act 1956 or 2013
or earlier.
Important types of Companies
34
37. B) Classification of Companies based on Ownership or number.
i) Private company
ii) Public company
iii) One man company: X and Y register their company as a
private company with a share capital of Rs 7 lakhs, divided
into 70000 shares of Rs 10 each. Y holds 69999 share
while X holds only 1 share. This is a one man company.
https://economictimes.indiatimes.com/company/truffle-
house-(opc)-private-limited-/U15100DL2017OPC322340
https://www.tradeindia.com/Seller-27955029-Akhan-Dairy-
Opc-Pvt-Ltd-/
https://sainaassociates.com/opc-registration-in-pune
37
38. C) On the basis of Liability:
i. Companies limited by Shares
ii.Companies limited by Guarantee
This is a company where the liability of its
members is limited to such amounts as they
may respectively undertake as fixed by the
MOA to contribute to the assets of the
company in the event of winding up.
iii) Unlimited company 38
39. D) On the basis of Place / Domicile:
1. Foreign Company –
Any Company or body corporate incorporated
outside India, which –
a) Has a place of business in India by itself or
through agent, physically or electronic means.
b) Conducts business activity in India
Examples – American Cos in India – Amway,
Cognizant, Cummins, Ford, Intel etc.
2. Indian company (Inland company) –
Incorporated in India – Maruti, Tata etc.
39
40. E) On the basis of Control:
According to section 2 (27), control shall include the right
to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or
persons acting individually or in concert, directly
or indirectly, including by virtue of their shareholding or
management rights or shareholders agreements or
voting agreements or in any other manner.
1. Government Company:
Any company in which more than 51% of paid share capital
is held by Central / State or partly. (Subsidiary of Govt Co
will be Govt Co)
Illustrations: HA, SAIL, BHEL
40
41. E) On the basis of Control: (Contd)
2. Holding and Subsidiary Company:
Essentially, if one company holds more than 50% of the shares of another
or appoints a majority of the other company’s directors, the second
company is a subsidiary of the first. The first company is called the holding
company.https://www.google.com/search?q=vivanta&oq=vivanta&aqs=chrome
..69i57j46l7.5612j0j15&sourceid=chrome&ie=UTF-8
Subsidiary company not to hold shares in its holding company
One of the best-known holding companies is Berkshire Hathaway. Warren
Buffett's company owns GEICO, Dairy Queen and Fruit of the Loom among
other businesses. Another well-known holding company is Alphabet, which
owns Google, YouTube, Nest and other companies.
Alphabet is the parent company of Google. It encompasses companies like
Fiber, XLabs, Calico, Nest, etc. Google now only exists with the core
business of search and Android.
https://www.investopedia.com/investing/companies-owned-by-google/ 41
42. Associate company
As per Section 2(6), “Associate company”, in relation to
another company, means a company in which that other
company has a significant influence, but which is not a
subsidiary company of the company having such influence and
includes a joint venture company.
Explanation to section 2(6) provides that “significant
influence” means control of at least twenty per cent of total
share capital, or of business decisions under an agreement.
To add more governance and transparency in the working of
the company, the concept of associate company has been
introduced. It will provide a more rational and objective
framework of associate relationship between the companies.
42
44. Miscellaneous
44
Listed companies are those which are included and traded on a
particular stock exchange. The stock exchanges have various
prerequisites that a company must fulfil and continue to fulfil in
order to be and stay listed
Why??? . The reason companies like to go public is so that they
can reduce their debt and have means of financing themselves
apart from bank loans
An unlisted public company is one which is not listed on any stock
exchange but can have an unlimited number of shareholders to
raise capital for any commercial venture.
45. Small Company is a new form of private company
under Companies Act, 2013 – BUT WHY ????
Why small companies should suffer the effects
of regulation, which are designed to ensure
balancing of interests of stakeholders of large
widely held corporates.
To enable simplified decision making procedures
and relieving small cos to select statutory
internal administrative procedures.
To enable and achieve transparency at low cost.
45
46. Association not for Profit / Charitable Company
However, Section 8(1) permits the registration, under a licence
granted by the Central Government, of associations not for
profit with limited liability without being required to use the
word “Limited’ or the words ‘Private Limited” after their names.
This is of great value to companies not engaged in business like
bodies pursuing charitable, educational or other purposes of
great utility.
The Central Government may grant such a licence if:
(i) it is intended to form a company for promoting commerce, art,
science, sports, education, research, social welfare, religion,
charity protection of environment or any such other object; and
(ii) the company prohibits payment of any dividend to its members
but intends to apply its profits or other income in promotion of its
objects. 46
47. Sick Company
Sick Industrial Company means an Industrial company, which
has at the end of any financial year:
a) Accumulated losses exceeding 50% of average net worth
during 4 years; or
b) Has failed to repay debts to its creditor (s) in 3
consecutive quarters on demand made in writing for such
repayment.
However, the companies bill does not define a sick company as
such and provides that any company would be ‘sick company’
where the NCLT through an order in writing decide its ability
to repay the debts and declares it as a sick company.
47
48. DORMANT COMPANIES
The Companies Act, 2013 has recognized a new set of companies called as
dormant companies, where a company is formed and registered under this
Act for a future project or to hold an asset or intellectual property and
has no significant accounting transaction, such a company or an inactive
company may make an application to the Registrar in such manner as may be
prescribed for obtaining the status of a dormant company.
(i) “inactive company” means a company which has not been carrying on any
business or operation, or has not made any significant accounting transaction
during the last two financial years, or has not filed financial statements and
annual returns during the last two financial years;
(ii) “significant accounting transaction” means any transaction other than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records. 48
49. 49
As per section 455(2), the Registrar on consideration of the
application shall allow the status of a dormant company to the
applicant and issue a certificate in such form as may be
prescribed to that effect.
According to section 455(4), in case of a company which has
not filed financial statements or annual returns for two
financial years consecutively, the Registrar shall issue a notice
to that company and enter the name of such company in the
register maintained for dormant companies.
Further a dormant company shall have such minimum number of
directors, file such documents and pay such annual fee as may
be prescribed to the Registrar to retain its dormant status in
the register and may become an active company on an
application made in this behalf accompanied by such documents
50. On the basis
of
Incorporation
/ Formation
Chartered
Company
Statutory
Company
Registered
Company
On the basis
of Ownership
/ Number
Private
Company
Public
Company
One Person
Company
On the basis
of Liability
Company
limited by
Shares
Company
limited by
Guarantee
Company
with
unlimited
liability
On the basis
of Place /
Domicile
Foreign
Company
Indian
Company
On the basis
of Control
Government
Company
Holding &
Subsidiary
Company
Associate
Company
Miscellaneous
Charitable
Company /
Non profit
Company
Sick
Company
Dormant Co.
Small
Company
Listed
Company
50
51. 1) Minimum number of members
2) Maximum number of members
3) Commencement of business
4) Invitation of public
5) Transferability of share.
6) Number of directors: [atleast 3 in Public and 2 in private]
7) Statutory Meeting
8) Managerial remuneration (max 11% of NP)
9) Restrictions on appointment of directors
10)Managerial remuneration
Difference between Private AND Public company
51
52. Basis Public Company Private Company
Members Minimum – 07
Maximum -
unlimited
Minimum – 02
Maximum – 200
Number of
Directors
Minimum - 03 Minimum – 02
Index of Members Compulsory Not compulsory
Transfer of shares Permissible Not permissible
Invitation from
Public
Can invite Public for
subscription of
shares
Cannot
52
53. Privileges of a Private Limited Company
over a public company
67(2) Financial assistance can be given to its employees for
purchase of or subscribing to its own shares or shares in
its holding company
121(1) Need not prepare a report on the Annual General
Meeting.
134(3)(p) Need not prepare a statement indicating the
manner in which formal annual evaluation has been made by
the Board of its own performance and that of its
committees and individual directors.
53
54. 149(1) Private company need not have more than two
directors.
149(4) Need not appoint Independent directors on its
Board.
152(6) A proportion of directors need not retire every
year.
164(3) Additional grounds for disqualification for
appointment as a director may be specified by the company
in its articles.
165(1) Restrictive provisions regarding total number of
directorships which a person may hold in a public compnay do not
include directorships held in a private company which is neither a
holding or subsidiary company of a public company. 54
55. 167(4) Additional grounds for vacation of office of
a director may be provided in the Articles.
190(4) The provisions relating to contract of
employment with managing or whole-time directors
does not apply to a private company
197(1) Total managerial remuneration payable by a
private company, to its directors, including
managing director and whole-time director, and its
manager in respect of any financial year may
exceed eleven per cent. of the net profits
55
57. 1. Background and Features of company the Companies Act,
2013
2. Company: Meaning, Nature and Characteristics of Company.
3. Types of Companies: On the basis of mode of formation,
Number of members, liability and Control,
Public and Private Companies: Distinction, Advantages,
Disadvantages, Privileges and their Conversion into each other.
Other kinds of Companies: One Person Company, Charitable
Companies, Dormant Company, Sick Company, Small Company,
Listed Company, Foreign Company and its business in India etc
Syllabus – Chapter 01 – Company Act – Introduction
and Concept.
57
