company law This definition does not clearly point out the meaning of a company. In order, Study notes of Law

Download company law This definition does not clearly point out the meaning of a company. In order and more Study notes Law in PDF only on Docsity! Qualified both CA & CS in First attempt. CA. CS. SWATI AGRAWAL CA Educator - Unacademy Taught thousands of students more 8+ years. Ranking as Top Educator on Unacademy for CA. Soft spoken and always approachable for students. Completed B. Com. (Hons.) and ‘O’ Level examination. By CA Swati Agrawal While taking any Subscription Use Code SWATI10 Combo CA-Foundation + Intermediate Regular Subscription ICONIC Subscription UNACADEMY PLUS SUBSCRIPTIONS Only for CA-Foundation Regular Subscription ICONIC Subscription Introduction The Companies Act, 2013 contains 470 sections and seven schedules. The entire Act has been divided into 29 chapters. Applicability of the Companies Act, 2013: The provisions of the Act shall apply to-  Companies incorporated under this Act or under any previous company law.  Insurance companies (except where the provisions of the said Act are inconsistent with the provisionsof the Insurance Act, 1938 or the IRDA Act, 1999)  Banking companies (except where the provisions of the said Act are inconsistent with the provisions of the Banking Regulation Act, 1949)  Companies engaged in the generation or supply of electricity (except where the provisions of the above Act are inconsistent with the provisions of the Electricity Act, 2003)  Any other company governed by any special Act for the time being in force.  Such body corporate which are incorporated by any Act for time being in force, and as the CentralGovernment may by notification specify in this behalf COMPANY: MEANING AND ITS FEATURES Section 2(20) of the Companies Act, 2013 defines the term ‘company’. “Company means a company incorporated under this Act or under any previous company law”Companies incorporated under this Act or under any previous company law. FEATURES Limited Liability The liability of a member depends upon the kind of company of which he is a member. (i) In the case of a limited liability company, the debts of the company in totality do not become the debts of the shareholders. In no case can the shareholders be asked to pay anything more than the unpaid value of their shares. (ii) In the case of a company limited by guarantee, the members are liable only to the extent of the amount guaranteed by them and that too only when the company goes into liquidation. (iii) If it is an unlimited company, the liability of its members is unlimited as well. Artificial Legal Person: (1) A company is an artificial person as it is created by a process other than natural birth. It is a person since it is clothed with all the rights of an individual. (2) The company being a separate legal entity can own property, have banking account, raise loans, incur liabilities and enter into contracts. It can sue and be sued in its own name. It can do everything which any natural person can do except be sent to jail, take an oath, marry or practice a learned profession. Hence, it is a legal person in its own sense. (3) As the company is an artificial person, it can act only through some human agency, viz., directors. The directors cannot control affairs of the company and act as its agency, but they are not the “agents” of the members of the company. (4) Thus, a company is called an artificial legal person. Common Seal A company being an artificial person is not bestowed with a body of a natural being. Therefore, it works through the agency of human beings. Common seal is the official signature of a company, which is affixed by the officers and employees of the company on its every document. The common seal is a seal used by a corporation as the symbol of its incorporation. (3) To avoid a legal obligation: Where it was found that the sole purpose for the formation of the company was to use it as a device to reduce the amount to be paid by way of bonus to workmen, the Supreme Court upheld the piercing of the veil to look at the real transaction. The Workmen Employed in Associated Rubber Industries Limited, Bhavnagar vs. The Associated Rubber Industries Ltd., Bhavnagar and another. (4) Formation of subsidiaries to act as agents: A company may sometimes be regarded as an agent or trustee of its members, or of another company, and may therefore be deemed to have lost its individuality in favour of its principal. Here the principal will be held liable for the acts of that company. Merchandise Transport Limited vs. British Transport Commission (1982). (5) Company formed for fraud/improper conduct or to defeat law: Where the device of incorporation is adopted for some illegal or improper purpose, e.g., to defeat or circumvent law, to defraud creditors or to avoid legal obligations. Gilford Motor Co. vs. Horne Types of Companies Types of Companies On the basis of Liability Limited by Shares Limited by Guarantee Unlimited Liability Company On the basis of Members One Person Company Small Company Private Company Public Company On the basis of Control Holding Company Subsidiary Company Associate Company On the basis of Capital Listed Company Unlisted Company Others Government Company Section 8 Company PFI Foreign Company Nidhi Company Dormant Company FORMATION OF COMPANY: Section 3 of the Companies Act, 2013 deals with the basic requirement with respect to the constitution of the company. In the case of a public company, any 7 or more persons can form a company for any lawful purpose by subscribing their names to memorandum and complying with the requirements of this Act in respect of registration. In exactly the same way, 2 or more persons can form a private company and one person where company to be formed is one person company INCORPORATION OF COMPANY: : Section 7 of the Companies Act, 2013 provides for the procedure to be followed for incorporation of a company. (1) Filing of the documents and information with the registrar: For the registration of the company following documents and information are required to be filed with the registrar within whose jurisdiction the registered oflce of the company is proposed to be situated- (1) the memorandum and articles of the company duly signed by all the subscribers to the memorandum. (2) a declaration by person who is engaged in the formation of the company (an advocate, a chartered accountant, cost accountant or company secretary in practice), and by a person named in the articles (director, manager or secretary of the company), that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with. (3) a declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles stating that- (1) he is not convicted of any offence in connection with the promotion, formation or management of any company, or (2) he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the last five years, (3) and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief; Maintenance of copies of all documents and information: The company shall maintain and preserve at its registered office copies of all documents and information as originally filed, till its dissolution under this Act. Furnishing of false or incorrect information or suppression of material fact at the time of incorporation (i.e. at the time of Incorporation): If any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be liable for action for fraud under section 447. Company already incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact (i.e. post Incorporation): Where, at any time after the incorporation of a company, it is proved that the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as the first directors of the company and the persons making declaration under this section shall each be liable for action for fraud under section 447. Order of the Tribunal : Where a company has been got incorporated by furnishing false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the situation so warrants,— a. pass such orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or b. direct that liability of the members shall be unlimited; or Capital The term Capital has a variety of meanings. It means one thing to economists; another to accountants and still another to businessmen and lawyers. In relation to a company limited by shares, the word capital means share-capital, i.e., the capital or figure in terms of so many rupees divided into shares of fixed amount. In other words, the contributions of persons to the common stock of the company form the capital of the company. The proportion of the capital to which each member is entitled, is his share. A share is not a sum of money; it is rather an interest measured by a sum of money and made up of various rights contained in the contract. Classification Of Capital In the domain of Company Law, the term ‘capital’ is used in the following senses: a. Nominal or authorised or registered capital b. Issued Capital c. Subscribed Capital d. Called up Capital e. Paid up Capita Shares are a movable property: According to section 44 of the Companies Act, 2013, the shares or debentures or other interests of any member in a company shall be movable property transferable in the manner provided by the articles of the company. Shares shall be numbered: Section 45 provides, every share in a company having a share capital, shall be distinguished by its distinctive number. This implies that every share shall be numbered. However, this shall not apply to a share held by a person whose name is entered as holder of beneficial interest in such share in the records of a depository. III.Kinds of share capital Section 43 of the Companies Act, 2013 provides the kinds of share capital. According to the provision the share capital of a company limited by shares shall be of two kinds, namely:— According to explanation to section 43: a. payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and b. repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company; ● The shareholders must know the purposes for which his money can be used by the company and what risks he is taking in making the investment. A company cannot depart from the provisions contained in the memorandum however imperative may be the necessity for the departure. It cannot enter into a contract or engage in any trade or business, which is beyond the power confessed on it by the memorandum. If it does so, it would be ultra vires the company and void. As per Section 4, Memorandum of a company shall be drawn up in such form as is given in Tables A, B, C, D and E in Schedule I of the Companies Act, 2013. ● Table A is a form for memorandum of association of a company limited by shares. ● Table B is a form for memorandum of association of a company limited by guarantee and not having a share capital. ● Table C is a form for memorandum of association of a company limited by guarantee and having a share capital. ● Table D is a form for memorandum of association of an unlimited company. ● Table E is a form for memorandum of association of an unlimited company and having share capital. The memorandum and articles of a company must be as closed to model forms, as possible, depending upon the circumstances. Content of the memorandum: The memorandum of a company shall state— a. the name of the company (Name Clause) with the last word “Limited” in the case of a public limited company, or the last words “Private Limited” in the case of a private limited company. This clause is not applicable on the companies formed under section 8 of the Act. The name including phrase ‘Electoral Trust’ may be allowed for Registration of companies to be formed under section 8 of the Act, in accordance with the Electoral Trusts Scheme, 2013 notified by the Central Board of Direct Taxes (CBDT). For the Companies under section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc. [The Companies (Incorporation) Rules, 2014]. As per MCA notification dated 5th June, 2015, a Government company’s name must end with the word “Limited”. In the case of One Person Company, the words “One Person Company”, should be included below its name. e. the amount of authorized capital (Capital Clause) divided into share of fixed amounts and the number of shares with the subscribers to the memorandum have agreed to take, indicated opposite their names, which shall not be less than one share. A company not having share capital need not have this clause. f. the desire of the subscribers to be formed into a company. The Memorandum shall conclude with the association clause. Every subscriber to the Memorandum shall take at least one share, and shall write against his name, the number of shares taken by him. In the case of OPC, the name of the person who, in the event of death of the subscriber, shall become the member of the company. MEMORANDUM OF ASSOCIATION OF [NAME OF THE LIMITED COMPANY] 1. Name of the Company The name of the company is [SPECIFY]. |. Address of the Company The registered office of the company will be situated in [CITY, STATE/PROVINCE/ COUNTRY1. m. — Opjects. The object for which the company is established i MAIN OBJECTIVES FOR ESTABLISHING THE € RESSOURCES] to carry on business. [SUMMARIZE THE SOMPANY AND THE USE OF FINANCIAL WW. Limited Liab oy The liability of the members is limited. Vv. Authorized Capital The authorized capital of the company is [SPECIFY] divided into [SPECIFY] shares. The categories/class of shares are [SPECIFY]. The nominal value per share are [SPECIFY]. VIL Type of Shares. The company is authorized to issue [SPECIFY] shares without nominal value or par value. [Do not include artich fall shares have par value]. vi Maximum Price of Shares The maximum price or consideration at, or for which, the shares without nominal or par value may be sold is [SPECIFY] vi. Subscriber of the Company Each subscriber to this Memorandum of Association wishes to form a company and agrees to become a member of the company and to take at least one share. Memorandum of Association Page 1of2 Structure of Memorandum Of Association The memorandum must be printed, divided into paragraphs, numbered consecutively, and signed by at least seven persons (two in the case of a private company and one in the case of One Person Company) in the presence of at least one witness, who will attest the signatures. The particulars about the signatories to the memorandum as well as the witness, as to their address, description, occupation etc., must also be entered. An act which is ultra vires the company being void, cannot be ratified by the shareholders of the company. Sometimes, act which is ultra vires can be regularised by ratifying it subsequently. For instance, if the act is ultra vires the power of the directors, the shareholders can ratify it; if it is ultra vires the articles of the company, the company can alter the articles; if the act is within the power of the company but is done irregularly, shareholder can validate it. The leading case through which this doctrine was enunciated is that of Ashbury Railway Carriage and Iron Company Limited v. Riche-(1875). Doctrine Of Ultra Vires The facts of the case are: The main objects of a company were: a. To make, sell or lend on hire, railway carriages and wagons; b. To carry on the business of mechanical engineers and general contractors. c. To purchase, lease, sell and work mines. d. To purchase and sell as merchants or agents, coal, timber, metals etc. The directors of the company entered into a contract with Riche, for financing the construction of a railway line in Belgium, and the company further ratified this act of the directors by passing a special resolution. The company however, repudiated the contract as being ultra-vires. And Riche brought an action for damages for breach of contract. His contention was that the contract was well within the meaning of the word general contractors and hence within its powers. Moreover it had been ratified by a majority of share- holders. However, it was held by the Court that the contract was null and void. It said that the terms general contractors was associated with mechanical engineers, i.e. it had to be read in connection with the company’s main business. If, the term general contractor’s was not so interpreted, it would authorize the making of contracts of any kind and every description, for example, marine and fire insurance. Articles Of Association The document containing the articles of association of a company (the Magna Carta) is a business document; hence it has to be construed strictly. It regulates domestic management of a company and creates certain rights and obligations between the members and the company [S.S. Rajkumar vs. Perfect Castings (P) Ltd.]. The articles of association are in fact the bye-laws of the company according to which director and other officers are required to perform their functions as regards the management of the company, its accounts and audit. It is important therefore that the auditor should study them and, while doing so he should note the provisions therein in respect of relevant matters. Doctrine of Constructive Notice: Doctrine of Constructive Notice: Section 399 of the Companies Act, 2013 provides that any person can inspect by electronic means any document kept by the Registrar, or make a record of the same, or get a copy or extracts of any document, including certificate of incorporation of any company, on payment of prescribed fees. The memorandum and articles of association of a company when registered with Registrar of Companies, become public documents, and they are available for inspection to any person, on the payment of a nominal fees. In other words, Section 399 confers the right of inspection to all. It is, therefore, the duty of every person dealing with a company to inspect its documents and make sure that his contract is in conformity with their provisions but whether a person reads them or not, it will be presumed that he knows the contents of the documents. This kind of presumed/implied notice is called constructive notice. By constructive notice is meant: i. Whether a person reads the documents or not, he is presumed to have knowledge of the contents of the documents, He is not only presumed to have read the documents but also understood them in their true perspective, and ii. Every person dealing with the company not only has the constructive notice of the memorandum and articles, but also of all the other related documents, such as Special Resolutions etc., which are required to be registered with the Registrar. Thus, if a person enters into a contract which is beyond the powers of the company as defined in the memorandum, or outside the authority of directors as per memorandum or articles, he cannot acquire any rights under the contract against the company. Doctrine of Indoor Management: ● Thus, you will notice that the aforementioned rule of Indoor Management is important to persons dealing with a company through its directors or other persons. They are entitled to assume that the acts of the directors or other officers of the company are validly performed, if they are within the scope of their apparent authority. So long as an act is valid under the articles, if done in a particular manner, an outsider dealing with the company is entitled to assume that it has been done in the manner required. ● The above mentioned doctrine of Indoor Management or Turquand Rule has limitations of its own. That is to say, it is inapplicable to the following cases, namely: Doctrine of Indoor Management: Held, it was decided that the bond was valid, so the Royal British Bank could enforce the terms. He said the bank was deemed to be aware that the directors could borrow only up to the amount resolutions allowed. Articles of association were registered with Companies House, so there was constructive notice. But the bank could not be deemed to know which ordinary resolutions passed, because these were not registrable. The bond was valid because there was no requirement to look into the company’s internal workings. This is the indoor management rule, that the company’s indoor auairs are the company’s problem. Exception to Doctrine of Indoor Management: A. Actual or constructive knowledge of irregularity: The rule does not protect any person when the person dealing with the company has notice, whether actual or constructive, of the irregularity. In Howard vs. Patent Ivory Manufacturing Co. where the directors could not defend the issue of debentures to themselves because they should have known that the extent to which they were lending money to the company required the assent of the general meeting which they had not obtained. Likewise, in Morris v Kansseen, a director could not defend an allotment of shares to him as he participated in the meeting, which made the allotment. His appointment as a director also fell through because none of the directors appointed him was validly in office. Exception to Doctrine of Indoor Management: C. Forgery: The doctrine of indoor management applies only to irregularities which might otherwise affect a transaction but it cannot apply to forgery which must be regarded as nullity. Forgery may in circumstances exclude the ‘Turquand Rule’. The only clear illustration is found in the Ruben v Great Fingall Consolidated. In this case the plaintiu was the transferee of a share certificate issued under the seal of the defendant’s company. The company’s secretary, who had aflxed the seal of the company and forged the signature of the two directors, issued the certificate. The plaintiu contended that whether the signature were genuine or forged was apart of the internal management, and therefore, the company should be estopped from denying genuineness of the document. But it was held, that the rule has never been extended to cover such a complete forgery. Mind Maps Companies Act,2013 Introductio n & Applicabili ty Featur es of Compa ny Types of Compa nies Corpora te Veil Incorporati on of Company Shares and Share Capital MOA AOA By CA Swati Agrawal Types of Companies On the basis of Liability Limited by Shares Limited by Guarantee Unlimited Liability Company On the basis of Members One Person Company Small Company Private Company Public Company On the basis of Control Holding Company Subsidiary Company Associate Company On the basis of Capital Listed Company Unlisted Company Others Government Company Section 8 Company PFI Foreign Company Nidhi Company Dormant Company By CA Swati Agrawal Corporate Veil Meaning Lifting Up of Corporate Veil Trading With Enemy Where corporate entity is used to evade Taxes Where Subsidiary company is form to act as agent To Avoid Legal obligation Forgery By CA Swati Agrawal Incorporation of Company Promoters: -Person who is named as promoter in Prospectus or Annual Return. - Controls directly or Indirectly Affairs of Company Formation of Company: -Public Company: 7 or More Members. -Private Company: 2 or More Members -One Person Company: 1 Member Steps of Incorporation of Company: 1.Filling of Documents. 2. Issue of Incorporation Certificate 3. Allotment of Corporate Identification Number(CIN) 4.Maintainance of Copies of Documents. 5.Furnishing of False/Incorrect information or suppression of facts. 6. Already incorporated by furnishing false information. 7.Order of Tribunal By CA Swati Agrawal Articles of Association Contents Regulat ions Inclusion of Matters Entrenc hment Provisio ns Manner of Entrenc hment Notice to registrar Model Articles By CA Swati Agrawal Doctrines Doctrine of Ultra Vires: -Ultra Vires means Beyond Power -Void-Ab-Initio -Cannot be ratified Doctrine of Indoor Management: 1. Exception to Doctrine of constructive Notice. 2.Outsider cannot be assumed to have knowledge of internal irregularities. 3. Protection for outsider against Company Case: Royal British Bank V. Turquand Doctrine of Constructive Notice : 1. Any person dealing with company assumed to have knowledge of documents of Company. 2. Protection for Company against Outsider. Case: Ashbury Railway Carriage Company V. Riche By CA Swati Agrawal