Basics of formation of company in India. The law governing it, Study notes of Law

Download Basics of formation of company in India. The law governing it and more Study notes Law in PDF only on Docsity!

Company Law

Company Law

What is a company?

What is a company?

►

A Company is a A Company is a voluntary voluntary

association of persons association of persons formed for the formed for the

purpose of doing business, having a purpose of doing business, having a

distinct name and limited liability. distinct name and limited liability.

►

They can be incorporated under the

They can be incorporated under the

Companies Act (it may be any type

Companies Act (it may be any type

of company)

of company)

►

Corporations Corporations enacted under special enacted under special

enactments ( Even those which are enactments ( Even those which are

incorporated outside India) incorporated outside India)

►

Corporate sole Corporate sole

►

Any

Any other body corporate

other body corporate notified by

notified by

the central government

the central government

Other features

Other features

►

Limited Liability Limited Liability ( either by share or guarantee ( either by share or guarantee ) )

►

It It can own property, separate from its members

can own property, separate from its members .

The property is vested with the company, as it is a The property is vested with the company, as it is a

body corporate.

body corporate.

►

The The income of the members are different from the income of the members are different from the

income of the company income of the company ( Income received by the ( Income received by the

members as dividends cannot be same as that of

members as dividends cannot be same as that of

the company) the company)

cont….

cont….

Features continued..

Features continued..

►

Perpetual succession Perpetual succession : Death of the members is : Death of the members is

not the death of the company until it is wound up

not the death of the company until it is wound up

►

As it is a legal entity or a As it is a legal entity or a juristic person or artificial juristic person or artificial

person it can

person it can sue and be sued

sue and be sued

►

The company enjoys The company enjoys rights and liabilities rights and liabilities which which

are not as that of the members of the company are not as that of the members of the company

Circumstances to lift the

Circumstances to lift the

corporate veil…

corporate veil…

The corporate veil can be lifted either

The corporate veil can be lifted either

under the

under the

►

Statutory provisions Statutory provisions or or

►

Judicial interpretations Judicial interpretations

The statutory provisions are

The statutory provisions are

Provided under the Companies

Provided under the Companies

Act, 1956

Act, 1956

The other circumstances are decided The other circumstances are decided

through Judicial interpretations, which through Judicial interpretations, which

are based on facts of each case as per are based on facts of each case as per

the decisions of the court

the decisions of the court

Statutory circumstances

Statutory circumstances

for lifting the corporate

for lifting the corporate

veil

veil

►

Reduction in membership- Reduction in membership- Less than Less than

seven in public company and less seven in public company and less

than two if it is a private company than two if it is a private company

►

Failure to refund application money-

Failure to refund application money-

After the issue of shares to the

After the issue of shares to the

pubic, the company has to pay back

pubic, the company has to pay back

the initial payment to the

the initial payment to the

unsuccessful applicants (SEBI unsuccessful applicants (SEBI

Guidelines- 130 Days), if they fail to Guidelines- 130 Days), if they fail to

do so, the corporate veil can be do so, the corporate veil can be

lifted. lifted.

►

Mis-description of companies name-

Mis-description of companies name-

While signing a contract if the

While signing a contract if the

company’s name is not properly

company’s name is not properly

described, then the corporate veil

described, then the corporate veil

can be lifted. can be lifted.

Circumstances to lift the corporate

Circumstances to lift the corporate

veil through judicial interpretations

veil through judicial interpretations

►

When the court feels that there are no statutory

When the court feels that there are no statutory

provisions which can pierce the corporate veil, and

provisions which can pierce the corporate veil, and

the identity of the company is not the one which the identity of the company is not the one which

has to exist, and the court has to interfere in order has to exist, and the court has to interfere in order

to avoid the activities that are done in the name of

to avoid the activities that are done in the name of

the company by persons managing them

the company by persons managing them , it has

, it has

been empowered to do so…… been empowered to do so……

The circumstances are….. The circumstances are…..

Judicial interpretations by the

Judicial interpretations by the

court are as follows:

court are as follows:

►

Protection of Revenue- Protection of Revenue- When ever a company uses its When ever a company uses its

name for the purpose of tax evasion or to circumvent tax name for the purpose of tax evasion or to circumvent tax

obligations obligations

►

Prevention of fraud or Improper conduct- Prevention of fraud or Improper conduct- The incorporation The incorporation

has been used for fraudulent purpose, like defrauding the has been used for fraudulent purpose, like defrauding the

creditors, defeating the purpose of law etc.. creditors, defeating the purpose of law etc..

►

Determination of the character of the company- Determination of the character of the company- Enemy Enemy

company or all the members being the citizens of the company or all the members being the citizens of the

enemy country. (Daimler Co. Ltd V. Continental Tyre & enemy country. (Daimler Co. Ltd V. Continental Tyre &

Rubber Co. Ltd) Rubber Co. Ltd)

Types of Companies

Types of Companies

►

Limited Company ( Limited by share or by

Limited Company ( Limited by share or by

guarantee)

guarantee)

►

Unlimited company

Unlimited company

►

Government Company

Government Company

►

Foreign Company

Foreign Company

►

Private Company

Private Company

►

Public Company

Public Company

Limited Company

Limited Company

►

Limited by Shares- Limited by Shares- In such companies, the In such companies, the

liability is only the amount which remains liability is only the amount which remains

unpaid on the shares. unpaid on the shares.

►

Limited by Guarantee not having share Limited by Guarantee not having share

capital- capital- In this type of companies the In this type of companies the

memorandum of Association limits the memorandum of Association limits the

members’ liability. It will be based on the members’ liability. It will be based on the

undertaking that has been given in MOA undertaking that has been given in MOA

for their contribution in case of a winding for their contribution in case of a winding

up. up.

►

Limited by guarantee having share capital- Limited by guarantee having share capital-

In such cases , the liability would be based In such cases , the liability would be based

on the MOA towards the guaranteed on the MOA towards the guaranteed

amount and the remaining would be from amount and the remaining would be from

the unpaid sums of the shares held by the the unpaid sums of the shares held by the

person concerned. person concerned.

Government Company

Government Company

►

When

When 51%

of the paid up share

of the paid up share

capital is held by the government.

capital is held by the government.

►

The share can be held by the The share can be held by the central central

government or state government government or state government .

Partly by central and partly by two or

Partly by central and partly by two or

more governments.

more governments.

►

As the legal status of the company As the legal status of the company

does not change by being a does not change by being a

government company, there are no government company, there are no

special privileges given to them.

special privileges given to them.

Foreign Company

Foreign Company

►

A company incorporated

A company incorporated

outside India, but

outside India, but

having a place

having a place

of business in India

of business in India

►

If it does not have a place of

If it does not have a place of

business in India but only has

business in India but only has

agents in India it cannot be

agents in India it cannot be

considered to be foreign

considered to be foreign

company.

company.

►

Prohibits any invitation to the public Prohibits any invitation to the public

to subscribe to subscribe and therefore it cannot and therefore it cannot

issue a prospectus inviting the public issue a prospectus inviting the public

to subscribe for any shares in, or to subscribe for any shares in, or

debentures of the company

debentures of the company

►

It

It prohibits acceptance of deposits

prohibits acceptance of deposits

from persons other than its

from persons other than its

members, directors or their relatives. members, directors or their relatives.

►

If If two or more are holding one or two or more are holding one or

more shares more shares in a company in a company jointly, jointly,

they shall for the purpose of this they shall for the purpose of this

definition, be treated as

definition, be treated as a single

a single

member.

member.

►

As there is

As there is no public accountability

no public accountability

like a public company, there is

like a public company, there is no

no

rigorous surveillance. rigorous surveillance.

Exemption and Privileges of a

Exemption and Privileges of a

Private company

Private company

►

It can have a

It can have a minimum of two members.

minimum of two members.

►

It can

It can commence business immediately

commence business immediately after

after

obtaining certificate of incorporation. obtaining certificate of incorporation.

►

It need It need not issue prospectus not issue prospectus or statement in lieu of or statement in lieu of

prospectus.

prospectus.

►

It can have a

It can have a minimum of 2 directors.

minimum of 2 directors.

►

It

It need not hold statutory meeting

need not hold statutory meeting or file statutory

or file statutory

report with the ROC. report with the ROC.