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Q.1. Define a company. Explain its characteristics. Ans. A company or a Joint Stock is an organization formed by an association of person through a process of law for some common purpose (usually a business venture). It has a share capital divided into transferable shares, the owners of which are known as members. It is incorporated under the Companies Act and sometimes by the Special Act of the Parliament. It is creation of law and is known as an artificial person with a perpetual successession and a common seal In other words, a company is an artificial person existing in the eyes of law and distinct from its members. It has no physical existence like a natural person. Section 3(1) (i) of the Companies Act, 1956 defines a company a A company formed and registered under this Act or an existing Company. An existing company means A company formed and registered under any of the previous Company Laws. The term Company has not been much clarified by the Company Act. A corporation is an artificial being, invisible, intangible, existing only in contemplation of the law. A company is an artificial person created by law, having separate entity with a perpetual succession and a common seal. CHARACTERISTIC (FEATURES )OF A COMPANY The most distinguish characteristics of a company are: 1. Incorporated Association: A company is created when it is registered under the Companies Act. It comes into being from the date mentioned in the certificate of incorporation. Section 11 provides that an association of more than 10 persons carrying on business in banking or an association registered under the Companies Act and is deemed to be an illegal association, if it is not so registered. 2. Artificial legal person: A company is an artificial person. It is not a natural person. It exists in the eyes of the law and cannot act on its own. It has to act through a board of directors elected by the shareholders. 3. Separate Legal Entity: A company is a separate legal entity from its shareholders. It can own property, enter into contract, conduct business, sue or be sued. The activities and the working is regulated by its Memorandum of Association, Articles of Association and provisions of the Companies Act. Anyone taking legal action proceeds against the company and not the individual shareholder. The Principle of separate legal entity was explained and emphasized in the famous case Salomon V. Saloman Ltd. 4. Perpetual Existence: A company has perpetual succession and is independent of the life of its members. It existence is not affected by the death, lunancy or bankruptcy if its members or shareholders. A company can be compared with a river which remains its identy thought the parts which compose it are constantly changing. Perpetual succession thus means that inspite of change in the membership of the company, its continuity is not affected. 5. Limited Liability: Liability of the members of the company is limited (though not in all means cases) to the value of the shares subscribed by each of them. 6. Transferability of Shares: The shares of a company are freely transferable in the case of public companies whereas they are not so in case of private companies. 7. Common Seal: Every company has its on common seal which is affixed on all the important documents of the company the common seal, with the name of the company engraved on its, is used as a substitute of its signatures. 8. Separate property: A company, being legal person, is capable of owning, enjoying and disposing of property in its own name. The property of the company is to used for the companys business and not for the personal benefit of its members. 9. Capacity to sue and being sued: The Company is legal person and it can enforce its legal rights. Similarly it can be sued for reach of its legal duties. Prepared by: - Mukesh Verma: 9212528831
Case Law [ Bacha F. Guzdar V commissioner of Income Tax. ] A company was carrying on agricultural business. The income from agriculture business were exempt from tax. A shareholder contended that dividend received by her was also exempt from tax. The court held that dividend received by a shareholder is not agricultural income and so dividend income is liable to be taxed. Q.3. Distinguish between A Company and A Partnership. Ans. Difference between A Company and A Partnership Basis 1. Mode of Formation Company It is established by registration Partnership It is established by an agreement between the partners. Registration is not compulsory under the Indian Partnership Act, 19232
4.Liability
5. Entity
6. Management
7. Transfer of Shares
8. Audit 9. Winding up
A Company is an artificial person A Partnership does not ace a and has a distinct legal entity distinct legal entity separate from separate from its members. the members composing it and its existence comes to an end upon the death or lunacy or insolvency of its partners. Management is entrusted to the Normally every partner takes part elected directors who must be at in the management of the affairs of least three in number in case of a the firm. public company and two in case of a private company. Except in case of private company, A partner has no right to transfer normally there are no restrictions his shares to any other person on the transfer of shares. without the consent of other partners. Under the Companies Act, 1956, Audit is compulsory if stated in audit of the accounts of a company the partnership deed or if income is compulsory. Tax Act so requires. A company can be wound u only A partnership may be wound up by carrying out the process laid by an agreement or by an order of down in the companies Act. the court. In case the firm is unable to pay its debts, the insolvency Act will apply.
Q.4. What is a private company? What are the privileges enjoyed by such a company? Ans. Section 3(i)(iii), as a mended by the Companies (Amendment) Act, 2000 provides that a private company means a company which has minimum paid-up capital of rupees one lakh or such higher paid-up capital as may be prescribed, and by its Articles of Association: Restricts the right of transfer of shares; Limits the number of its members to 50 excluding its employees or ex-employees who are or were and still continue to be its members; and Prohibits the company to invite public to subscribe to its shares or debentures. However, if two or more persons hold shares in joint names then they are regarded only as one single member. Prepared by: - Mukesh Verma: 9212528831
Its shares are not freely transferable. It can issue share warrants. No Government approval required for appointment, re-appointment etc. of Directors. No such restriction applies to a private company. It is 2 in the case of private company.
4. Relationship defined
5. Alteration
Memorandum cannot be altered easily. The company has to follow the strict procedure for the alteration its clause. 6.Binding Effect of ultra vires Acts done by a company ultra vires act the memorandum are void and cannot be ratified by the shareholders
It is subordinate to the Memorandum. Registration of articles is not necessary in case of a public company. Public company may opt for table-A for its incorporation purposes. Ts governs internal relationship between the company and the members and generally have nothing to do with the outsiders. Articles can be easily altered by passing a special resolution.
Acts done by a company ultra vires the articles but ultra vires the memorandum are simply irregular and not void and can be ratified subsequently by the shareholders. 7. Remedy in case of ultra Outsiders have no remedy against Outsiders can enforce contract vires the company for contract entered against the company even if it is into ultra vires the memorandum. ultra vires the articles Q.17:- Define Corporate Identity Number? Ans:- Corporate Identity number is a 21-digit number assigned to every company incorporated on or after Novermber 1, 2000. The Corporate Identity Number allotted to a company indicates listing status, economic activity (industry), State, year of incorporation, ownership and sequential number assigned by ROC (Registration number) Ist Digit Listing Status Next 5 Digit Economic Activity (industry) Prepared by: - Mukesh Verma: 9212528831
Q.18 :- Define Director Identification Number. ? Ans:- Director Identification Number (DIN) is a unique identification number for an existing director or a person intending to become the director of a company. In the scenario of e-filing, DIN will be a prerequisite for filing of certain company related documents. Any individual who is a director or intends to be a director of a should apply for A DIN. The procedure for obtaining DIN is as follows: Visit: MCA portal and fill DIN application online, a simple form available on the link Apply for DIN on submission of this form, a Provisional DIN is generated by the system and is displayed on the screen. Save and take a print out of the filled form, affix your photograph and send the same, along with photocopies of identity and residence proof duly attested by Notary / Gazetted Officer/ Certified Professionals ( CA/CS/CWA) to the following address MCA DIN CELL P.O. BOX NO-03, 201301 Uttar Pradesh, India. The form will be processed by the MCA DIN Cell. Once approved, DIN confirmation and activation letter will be sent to the applicant. An email in this regard will also be sent to the application at the email ID Provided in the DIN application. Q.19 :- Printing and Signing of Memorandum. ? Ans :- Sec-15 :- The memorandum shall Be printed. Be divided into paragraphs numbered consecutively Be signed by each subscriber to memorandum and Include the name of at least 1 witness who shall attested the signature of the subscribers. Q.20:- DEFINITION OF PROSPECTUS AND CONTENT OF PROSPECTUS. Ans:- Prospectus means :- Any document described or issued as a prospectus. Prospectus includes :- Any notice, circular, advertisement or other document, inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares of debentures. Q.21:- LIABILITY FOR OMISSION OF FACTS IN PROSPECTUS. Ans:- LIABILITY FOR OMISSION CONDITIONS:- Omission of any fact required to be disclosed u/s 56 read with schedule II. Loss is caused to the investor by subscribing for shares. The investor relied and acted upon the prospectus. DEFENCES AVAILABE TO THE DIRECTOR :- The person proves that he had no knowledge of the matter not disclosed in the prospectus. The person proves that the omission arose from an honest mistake of fact on his part. In the opinon of the court, the omissions were immaterial. In the opinion of the court, the omissions should reasonably be excused. CRIMINAL LIABILITY FOR MIS-STATEMENT IN PROSPECTUS :- Every person who authorized the issue of a prospectus containing an untrue statement shall be punishable with imprisonment upto 2 years or fine Prepared by: - Mukesh Verma: 9212528831