The Companies Act, 1956

Why study company law ?

Most popular form of business organisation.
Why.?

It provides an organisational framework

it is a means to an end

 A company is a person in Income-tax.  More than 60% of income-tax revenue

comes from corporate assessees
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Non-corporate form of business enterprises Sole proprietorship Joint Hindu Family (HUF) Partnership Corporate Form of business enterprises Co-operative organisation Can be converted into a Producer company. Company Limited Liability Partnership (LLP)
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ME ANING OF A COMPANY
A COMPANY IS AN ASSOCIATION OF PERSONS FOR SOME COMMON PURPOSE VIZ. BUSINESS, CHARITY, RESEARCH ETC. REGISTERED OR INCORPORATED UNDER THE COMPANIES ACT WHERE BY IT AQUIRES CERTAIN ATTRIBUTES Separate Legal Entity Limited Liability Perpetual Succession Transferable Shares Separate Property Common Seal

 By a company is meant an association of many persons who contribute money or moneys worth to a common stock and employ it in some trade or business, and who share the profit and loss (as the case may be) arising there from. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it, or to whom it belongs, are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable although the right to transfer is often more or less restricted. (Lord Justice Lindley) 4

 On the basis of its characteristics, a company can be defined as incorporated an association, which is an artificial person created by law, having a separate entity, with a perpetual succession and a common seal . (Haney)
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Characteristic Features of a Company

Separate Legal entity
Solomon v Solomon &Co.Ltd.

Limited liability of members Perpetual Succession

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 Separation

of ownership from

management

 Transferable shares  Separate Property  Common Seal  Capacity to sue and being sued
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Lifting the corporate veil

Fictional veil between the company and its members. Lifting the veil means disregarding the corporate entity and paying regard to the realities behind the legal form When entity relies on its corporate personality as a shield to cover its wrongdoings

Statutory recognition of lifting of corporate veil

Under Statutory Provisions 1. Reduction of membership below the statutory minimum (sec. 45) 2. Misrepresentations in prospectus (sec.62 & 63)

3. Failure to return application money (sec. 69) 4. Misdescription of name (sec. 147) 5. Piercing the veil in holding and subsidiary company relationships 6. Company under investigation 7. Fraud during winding up 8. For ultra vires Act 9. For violations of the provisions of other statues
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UNDER JUDICIAL DECISIONS 1. Lifting corporate veil in tax matters. 2. Lifting corporate veil where company is used for evasion of personal and statutory obligation. 3. Lifting corporate veil for determination of the enemy character of the company. 4. Lifting corporate veil in associated companies. 11

5. Lifting corporate veil where company is used to avoid welfare legislation. 6. Lifting corporate veil where body corporate is used to commit fraud or improper conduct. 7. Lifting corporate veil for determining technical competence of the company.
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DIFFERENCE BETWEEN COMPANY & BODY CORPORATE



Is Company a Citizen?

Is a Company a property of the shareholders?

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Body Corporate is wider than the term

company
 It has three distinct attributes:

Separate legal personality Perpetual succession Common seal

 Includes foreign company, PFI, N.Bank, AOP
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declared as a BC by CG. e.g ONGC

Distinction between Company and Corporation

Generally speaking, an association of persons incorporated and clothed with legal personality separate from the persons constituting it is known as corporation. As per Section 2 (7) of the Companies Act the word corporation is synonymous with body corporate. Every company is a body corporate but every body corporate is not a company.
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Disadvantages of Corporate form

1. Formalities and expenses to form a company
with the authorized capital of ten lakhs registration fees is Rs. 27,200.

2. 3. 4. 5. 6.
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Corporate Disclosures Separation of control from ownership. Greater social responsibility. Greater tax burden; MAT, DDT etc. Detailed winding up procedure

KINDS OF COMPANIES
A. B. The Companies not covered by the Companies Act, 1956. The Companies covered by the Companies Act, 1956.

Companies not covered by the Companies Act i) Statutory companies ii) Chartered Companies
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Companies covered by the Companies Act a) Private Company - Sec 3 (1) (iii) b) Public Company - Sec 3(1)(iv) These companies may be:

i) Companies with liability limited by shares. ii) Companies with liability limited by guarantee. iii) Companies with unlimited liabilities (Unlimited Companies).
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COMPANIES
COVERED BY THE COMPANIES ACT PUBLIC PRIVATE NOT COVERED BY THE COMPANIES ACT
STATUTORY

CHARTERED

THESE COMPANIES MAY BE

1. Companies Limited by Shares 2. Companies Limited by Guarantee 3. Unlimited Companies

OTHER COMPANIES

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1. Companies not for profit 2. Government Companies, 3. Foreign Companies 4. Holding and Subsidiary Companies

From the point of view of liability, public and private companies may be organized as I. Companies not for profit ii. Government. companies iii. Foreign companies iv. Holding and subsidiary companies Advantages and Privileges of Private Companies i) Formation ii) Business iii) Meetings iv) Board of Directors
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FEATURES OF PRIVATE COMPANIES

A PRIVATE COMPANY Means a Company which has a minimum paid-up Capital of Rs. 1.00 lac
AND

1. Number of Members

2. Transfer of Shares

3. Invitation for Public Subscription

4. Invitation or Acceptance of Deposits

Minimum2 Maximum 50

Restricted

No public Offer for Shares or Debentures

Not allowed from persons other than its members, directors or their relatives

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FE ATURE OF PUBLIC COMPANIE S S

A PUBLIC COMPANY means a company which

Is formed by at least Seven Persons and

which is not a a private company

which has a paid-up capital of

Rs. 5 lac

which is a pvt company & subsidiary of

a public company

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Distinction of a Private Company and a Public Limited Company Number of Members Number of Directors Transfer of Shares Public Subscription Commencement of business Allotment of Shares Statutory Meeting Managerial Remuneration Index of members
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Other Companies
a. Government company [Sec 617] b. Foreign Companies [Sec 591] c. Holding and subsidiary Companies [Sec. 4] d. Companies not for profit (or Association not for profit) [Sec 25] e. Public financial institutions f. Investment company
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ILLEGAL ASSOCIATION [SEC 11]

An association or partnership is an illegal association if all the following conditions are satisfied : (a)The number of persons carrying on business exceeds 20 (10 persons in case of banking business). (b) It is formed for the purpose of earning profits.

(c)It is not registered under the Companies Act or formed under any other Indian law (e.g. Cooperative Societies Act ,Trust Act). (d)It is not a Joint Hindu Family (i.e., an HUF is not an illegal association even if he number of members exceed 20 or 10, as the case may be). 25

ILLEGAL ASSOCIATION [SEC 11]

EXCEPTIONS Associations not for profit-making Joint Hindu Family Effects of an illegal association
Members personally liable and punishable with fine upto Rs. 10,000.

An illegal association is liable to be taxed.

( KS Chattiar vs ITO 1957, ITR 457)

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Conversion of private company into a Public company 1. Conversion by default [Sec. 43] 2. Conversion by operation of law 3. Conversion by choice [Sec. 44] Conversion of a public company into a Private company Defunct Company

Meaning of Officer who is in default Sec 5

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ADMINISTRATION OF COMPANIES ACT - I

CENTRAL GOVERNMENT (Ministry of Company Affairs)

REGIONAL DIRECTOR REGISTRAR OF COMPANIES

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JURISDICTION OF COURTS

Supreme Court

National Company Law Appellate Tribunal

National Company Law Tribunal

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