COMPANY LAW
Definition;
Sec 2(20) of the companies act, 2013 defines a company “Company means a company formed
and registered under this act or any other previous existing act”.
Features of a company
1. Incorporated Association- A company is formed and registered by complying with
prescribed formalities, prescribed under this act.
2. Artificial person- Company is an artificial person, as it is not fictitious in nature.
3. Separate legal entity- Company is a legal person in the eyes of law distinct from its
member. Company is a separate person having its own rights and obligations.
4. Perpetual sucession- Death , insanity ,insolvency of a member does not effect the
continuity of the company.
5. Limited liability- Limited liability is for the members of company, as below:
Type of company Liability of Members
1. Company limited by shares Amount unpaid on shares held by members.
2. Guarantee company Amount guaranteed by every member.
3. Guarantee company with share capital Amount unpaid on the share and amount
guaranteed by each member.
4. Unlimited company Every member is liable to contribute to the
debts of the company until the same are paid
in full.
6. Common seal- It’s a official signature of a company.
7. Transferability of shares- Shares are transferable as per the provisions of Articles of
Association.
8. Separation of ownership from management- Members do not participate in the day to day
affairs of the company, the management lies with Board of directors. However
appointment and removal of board of directors lies with members.
9. Separate property.
10. Capacity to sue and be sued.
Lifting of corporate veil
Meaning: Lifting of corporate veil means ignoring the separate identity of the company. It
means disregarding the corporate personality and looking behind the real person who are in
the control of a company.
Permissible situations
Lifting of corporate veil is permissible only if:
a) It is permissible by the statue or
b) There is a clear evidence of abuse of the device of incorporation.
The court has the discretion whether or not to lift the corporate veil.
Lifting of corporate veil under statutory provisions
1. Reduction in members below statutory minimum
Basic of corporate law
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, If the number of member falls below the statutory minimum and the company continues
to carry on business for more than 6 months then the remaining members who are aware
of such fact shall be personally liable for the debts contracted after 6 months.
2. Mis-description of name, address and registered office (section 12)
If any officer of a company signs on behalf of a company, any contract or negotiable
instrument but fails to correctly mention the name of the company, then shall be
personally liable the same.
3. Fraudulent trading
If in a winding up it appears in the court that the business of the company has been
carried on with an intend to defraud the creditors or any other person, then the court may
declare that any of the directors or officers who are parties to such fraud, shall be
personally liable.
4. Arrears of tax(sec 179 of IT act)
In case of a private company which is been wind up but any tax payable by the company
can not be recovered, then every directors during the relevant previous year shall be
jointly and severely liable for payment of tax.
5. Ultra virus act
The directors of the company shall be personally liable for all ultra virus acts done on
behalf of a company.
6. Mis-statements in prospectus (section 34 & 35)
7. Failure to refund money on shares not allotted (section 39)
Kinds of Companies
Private company-Sec 2(68)
Definition:
A Private Company means a company which has a minimum paid up share capital as may be
prescribed, and which by its articles -
1) Restricts the right to transfer its shares, if any
2) Except in case of One Person Company, limits the number of its members to 200:
Provided that where 2 or more persons hold one or more shares in a company jointly,
they shall, for the purposes of this clause, be treated as a single member: Provided further
that -
a) Persons who are in the employment of the company and
b) Persons who have been formally in the employment of the company while in that
employment and have continued to be the members after the employment ceased.
3. Prohibits any invitation to the public to subscribe for shares, or debentures of the company.
Public company-Sec 2(71)
Public company means a company which-
a) Is not a private company.
b) Has a minimum paid up capital, as may be prescribed by Central Government.
Provided that a company which is a subsidiary of a company, not being a private company, shall
be deemed to be a public company for the purposes of this Act even where such subsidiary
company continues to be a private company in its articles.
One Person Company (OPC) – Sec 2(62)
Basic of corporate law
Page 2
Definition;
Sec 2(20) of the companies act, 2013 defines a company “Company means a company formed
and registered under this act or any other previous existing act”.
Features of a company
1. Incorporated Association- A company is formed and registered by complying with
prescribed formalities, prescribed under this act.
2. Artificial person- Company is an artificial person, as it is not fictitious in nature.
3. Separate legal entity- Company is a legal person in the eyes of law distinct from its
member. Company is a separate person having its own rights and obligations.
4. Perpetual sucession- Death , insanity ,insolvency of a member does not effect the
continuity of the company.
5. Limited liability- Limited liability is for the members of company, as below:
Type of company Liability of Members
1. Company limited by shares Amount unpaid on shares held by members.
2. Guarantee company Amount guaranteed by every member.
3. Guarantee company with share capital Amount unpaid on the share and amount
guaranteed by each member.
4. Unlimited company Every member is liable to contribute to the
debts of the company until the same are paid
in full.
6. Common seal- It’s a official signature of a company.
7. Transferability of shares- Shares are transferable as per the provisions of Articles of
Association.
8. Separation of ownership from management- Members do not participate in the day to day
affairs of the company, the management lies with Board of directors. However
appointment and removal of board of directors lies with members.
9. Separate property.
10. Capacity to sue and be sued.
Lifting of corporate veil
Meaning: Lifting of corporate veil means ignoring the separate identity of the company. It
means disregarding the corporate personality and looking behind the real person who are in
the control of a company.
Permissible situations
Lifting of corporate veil is permissible only if:
a) It is permissible by the statue or
b) There is a clear evidence of abuse of the device of incorporation.
The court has the discretion whether or not to lift the corporate veil.
Lifting of corporate veil under statutory provisions
1. Reduction in members below statutory minimum
Basic of corporate law
Page 1
, If the number of member falls below the statutory minimum and the company continues
to carry on business for more than 6 months then the remaining members who are aware
of such fact shall be personally liable for the debts contracted after 6 months.
2. Mis-description of name, address and registered office (section 12)
If any officer of a company signs on behalf of a company, any contract or negotiable
instrument but fails to correctly mention the name of the company, then shall be
personally liable the same.
3. Fraudulent trading
If in a winding up it appears in the court that the business of the company has been
carried on with an intend to defraud the creditors or any other person, then the court may
declare that any of the directors or officers who are parties to such fraud, shall be
personally liable.
4. Arrears of tax(sec 179 of IT act)
In case of a private company which is been wind up but any tax payable by the company
can not be recovered, then every directors during the relevant previous year shall be
jointly and severely liable for payment of tax.
5. Ultra virus act
The directors of the company shall be personally liable for all ultra virus acts done on
behalf of a company.
6. Mis-statements in prospectus (section 34 & 35)
7. Failure to refund money on shares not allotted (section 39)
Kinds of Companies
Private company-Sec 2(68)
Definition:
A Private Company means a company which has a minimum paid up share capital as may be
prescribed, and which by its articles -
1) Restricts the right to transfer its shares, if any
2) Except in case of One Person Company, limits the number of its members to 200:
Provided that where 2 or more persons hold one or more shares in a company jointly,
they shall, for the purposes of this clause, be treated as a single member: Provided further
that -
a) Persons who are in the employment of the company and
b) Persons who have been formally in the employment of the company while in that
employment and have continued to be the members after the employment ceased.
3. Prohibits any invitation to the public to subscribe for shares, or debentures of the company.
Public company-Sec 2(71)
Public company means a company which-
a) Is not a private company.
b) Has a minimum paid up capital, as may be prescribed by Central Government.
Provided that a company which is a subsidiary of a company, not being a private company, shall
be deemed to be a public company for the purposes of this Act even where such subsidiary
company continues to be a private company in its articles.
One Person Company (OPC) – Sec 2(62)
Basic of corporate law
Page 2
