Company

Law
Nature of a company:
A Company, in common parlance means a group of
persons associated together for the attainment of a
common end.

Definition of a Company
A Company is defined as an artificial person
created by Law with perpetual succession and
a common seal.

Characteristics of a Company
1. It is a separate legal entity
2. Limited liability
3. Perpetual succession
4. Common seal
5. Transferability of shares
6. Separate property
7. Capacity to sue

Kinds of Companies
Companies can be classified into various kinds
on the following basis.
1. On the basis of incorporation: Statutory Companies: These are companies created
by a special act of the Legislature
Eg. Reserve Bank of India
State Bank of India
Life Insurance Corporation
Industrial Finance Corporation

Registered Companies:
These are companies which are formed and
registered under the companies Act 1956.

2. On the basis of liability

1) Companies with liability may be:
a. Companies limited by shares or
b. Companies limited by guarantee
2) Companies with unlimited liability:
1. Where the Liability of the members of a company is limited to the
amount unpaid on the shares, such a company is known as
company limited by shares.
2. Where the liability of the members of a company
is limited to a fixed amount which the members undertake
to contribute to the assets of a company in the event of its
being wound up, such a company is known as company
limited by a guarantee.
Contd

3. Unlimited Companies: A Company without limited

liability is known as company with unlimited liability. In such
a company every member is liable for the debts of the
company as in a partnership is proportion to his interest in
the company.

III On the basis of Number of members.

On the basis of number of members a company can be:
1) Private Limited Company
2) Public Limited Company
A private company is a company which has a minimum
paid up capital of Rs. One lakh
or such higher paid up capital as may be prescribed by its
articles.

1. Restricts the right to transfer its shares if any. This

restriction is needed to preserve the private character
of a company
2. Restricts the number of members of the company
to a maximum of 50.

Contd

3. Prohibit any invitation to the public to subscribe for any

shares or debentures of the company
4. Prohibits any invitations or acceptances of deposits from
persons other than its members, directors or their relatives.

Public Limited Company:

1. Is not a private company
2. Has a minimum paid up capital of Rs.5,00,000 or such
higher paid up capital as may be prescribed.

Distinction between Public Limited Company and

Private Limited Company
1.Minimum number:- The minimum number of persons
required to form a public company is 7. It is 2 in case
of a private company.
2.Maximum number:- There is no restriction on
maximum number of member in a public
company, whereas the maximum
number cannot exceed 50 in a private
company.

Contd

3.Minimum capital:A public company must have a minimum of

Rs. 5, 00,000 as capital.
A private limited company must have a minimum capital of
Rs. 1,00,000/4. Number of Directors:A public company must have at least 3 directors
whereas private directors must have 2 directors.

Contd

5. Restriction on appointment on directors:In the case of public company the directors

must file wit the Registrar consent to act the directors or
sign as undertaking for their qualification shares. The
directors of a private company need not to do so.
6.Restriction on Invitation to subscribe for shares:A public company invites the general public to subscribe
for the shares in or the debentures of the company. A
private company by its articles prohibits any such invitation
to the public.

Contd

7.Transferability of shares or debentures:In a public company the shares and debentures

are freely transferable. In a private company the right to
transfer shares and debentures is restricted by the articles.
8.Special privileges:A private company enjoys some special privileges. A public
company enjoys no such privileges.

9.Quorum:If the articles of a company do not provide for a

larger Quorum, five members personally present in
the case of Public company is Quorum for a meeting of
the company. It is 2 in the case of private company.
10.Managerial remuneration:Total Managerial Remuneration in a public company
cannot exceed 11% on the net profits. No such restriction
applies to a private company.

IV On the basis of control.

On the basis of control companies can be classified into:
1. Holding Companies and
2. Subsidiary Companies

Holding Companies:
A company is known as the holding company of
another company if it has control over that other
company.
A company is deemed to be the holding company of
another if, but only if, that other is its subsidiary. Now the
question is: what is a subsidiary company?
Subsidiary company:
A company is known as a subsidiary of another company
when control is exercised by the latter (called holding
company) over the former called a subsidiary
company.

V On the Basis of ownership:

On the basis of ownership, a company may be a
Government company , or Non-Government Company.
The latter is controlled and operated by private capital.

Government Company
A Government company means any
company in which not less than 51 percent
of the paid-up shares capital is held by
a. the Central Government or
b. any state Government or Government ,or
c. Partly by the Central Government and partly by
one or more State Governments. For example, State
Trading Corporation of India Ltd. And Minerals and
Metals Trading. Corporation of India Ltd are Government
companies. The subsidiary of a Government company is
also a Government company.

Formation of a company
Before a company is formed, certain preliminary steps
are necessary e.g. whether it should be a private
company or a public company, what its capital should
be, and whether it is worthwhile forming a new company
or taking over the business of an already established
concern. All these steps are taken by certain persons
known as Promoters. They do all the necessary
preliminary work incidental to the
formation of a company.

Incorporation of company:
Any 7 or more persons (2 or more
in case of a private company) associated for any law
full purpose may form an incorporated company, with or
without limited liability. They shall subscribe their names
to a Memorandum of Association means signing the
Memorandum.
The Memorandum is a token of their agreement to
associate themselves.

A company for the purpose of incorporation

shall file before the Registrar of Companies
an application along with the following
documents and necessary fees.
1.Memorandum of Association duly
signed by the subscribers.
2.Articles of Association duly signed
by the subscribers.

3.Agreement if any which the company

proposes to enter in to with any individual
for appointment as its managing or whole
time Director or Manager.
4.A list of the directors who have agreed to become the
First Directors of the company and their written consent to
act as Directors and take up qualifying shares.
5.A declaration stating that all the
requirement of the companies Act and
other formalities relating to registration
have been complied with.

Certificate of Incorporation:
When the requisite documents are filed with the
Registrar, the Registrar shall satisfy himself that statutory
requirement regarding requisition have been duly
complied with.
If the Registrar is satisfied, he retains and registers the
memorandum, the articles and other documents filed with
him and issues a certificate of the incorporation. This is
the proof of the formation of a company.

Memorandum of Association
Memorandum of Association is the charter of the company
and it lays down the area of operation of the company. It is
a document of great importance which contains the
fundamental conditions upon which alone the company is
allowed to be operating.

CONTENTS OF THE MEMORANDUM:

1. The name clause
2. The registered office clause
3. The objects clause
4. The capital clause
5. The liability clause
6. The association clause
7. The declaration clause

ARTICLES OF ASSOCIATION
Articles of Association are the rules, regulations & bye-laws for the
internal management of the affairs of the company.
They are framed with the object of carrying out the aims & objects
as set out in the memorandum of association.
The article are next in importance to the
memorandum of association. In framing the
articles of a company care must be taken to see
that regulations framed do not go beyond the
powers of the company itself as contemplated by
the memorandum of association.

CONTENTS OF THE ARTICLES

1.

Share capital, rights of share holders, variation of

these rights, payment of commissions, share
certificates
2. Lien on shares
3. Calls on shares
4. Transfer of shares
5. Transmission of shares
6. Forfeiture of shares
7. Conversion of shares into stock
8. Share warrants
9. Alteration of capital
10. General meetings & proceedings.
Contd

11. Voting rights of members, voting & poll, proxies

12. Directors,
their
appointment,
remuneration,
qualifications, powers & proceedings of board of
directors.
13. Manager
14. Secretary
15. Dividends & reserves.
16. Accounts, audit & borrowing powers.
17. Capitalization of profits.
18. Winding up.

Distinction between Memorandum of

Association & Articles of Association
Memorandum of
Articles of Association
Association
1. It is the charter of the 1. They are the
company indicating the
regulations for the
nature of its capital. It
internal management
also defines the
of the company & are
companys relationship
subsidiary to the
with outside world.
memorandum
2.

It defines the scope of 2.

the activities of the
company, or the area
beyond which the
actions of the company
cannot go.

They are the rules for

carrying out the
objects of the company
as set out in the
memorandum

3.

It, being the charter of 3.

the company, is the
supreme document

They are subordinate

to the memorandum. If
there is a conflict
between the articles &
the memorandum, the
latter prevails.

4.

Every company must

have its own
memorandum

A company limited by
shares need not have
articles of its own. In
such a case, Table A
applies

5.

Any act of the

5.
company which is ultra
vires the memorandum
is wholly void & cannot
be ratified even by the
whole body of
shareholders

4.

Any act of the

company which is ultra
vives the articles (but
in intra vires the
memorandum) can be
confirmed by the
shareholders

DOCTRINE OF ULTRAVIRES
A company has the power to do all such things as are:
1. Authorised to be done by the companies act, 1956
2. Essential to the attainment of its objects specified in the
memorandum
3. Reasonably & fairly incidental to its objects; every thing
else is ultravires the company. Ultra means beyond &
Vires means Powers. The term ultravires a company
means that the doing of the act is beyond the legal
power & authority of the company.

DOCTRINE OF CONSTRUCTIVE
NOTICE
Every outsider dealing with a company is deemed to have
notice of the contents of the Memorandum & the Articles of
Association. These documents, on registration with the
Registrar, assume the character of public documents. This
is known as constructive notice of Memorandum and
Articles.

DOCTRINE OF INDOOR MANAGEMENT

There is one limitation to the doctrine of constructive
notice of the Memorandum & the Articles of company.
The outsiders dealing with the company are entitled
to assume that as far as the internal proceedings of
the company are concerned, everything has been
regularly done. They are presumed to have read
these documents & to see that the proposed dealing
is not inconsistent therewith, but they are not bound
to do more; they need not inquire into the regularity of
the internal proceedings as required by the
memorandum & the Articles. They can presume that
all in being done regularly. This limitation of the
doctrine of constructive notice is known as the
doctrine of indoor management.

PROSPECTUS
Prospectus is defined as any document described or
issued as a prospectus and 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 in, or debentures of, a body
corporate.
Prospectus must be in writing & it is an invitation to the
public

CONTENTS OF THE PROSPECTUS

1.
2.
3.
4.
5.
6.
7.
8.

General information
Capital structure of the company
Terms of the present issue
Particulars of the issue
Company, management & project
Particulars in regard to the company and other listed
companies under the same management
Outstanding litigations
Management perception of risk factors

The prospectus should be dated & signed

by the directors.

MISSTATEMENTS IN PROSPECTUS &

THEIR CONSEQUENCES
If there is any misstatement of a material fact in a
prospectus or if the prospectus is wanting in any material
fact, there may arise
1. Civil liability
2. Criminal liability

Liability for misstatements in prospectus

Criminal Liability

Civil Liability

Against the
company

Rescission of contract

Against the directors,

promoters, and
experts

Claim for damages

For fraudulent
misrepresentation

Damages

Compensation under
sec. 62 with sec. 56

For innocent
misrepresentation

Damages for noncompliance

COMMENCEMENT OF
BUSINESS
A private company can commence business immediately
after its incorporation. A public company can do so only
after it obtains a certificate of commencement of business.

SHARE CAPITAL
Share capital means the capital raised by a company by
the issues of shares.
KINDS OF CAPITAL:
1. Authorized / Nominal / Registered capital
2. Issued capital
3. Subscribed capital
4. Called up capital
5. Paid up capital
6. Uncalled capital
7. Reserve capital

KINDS OF SHARES
The company may generally issue 2 kinds of shares.
1. Equity shares
2. Preference shares
Equity share means a share with voting
rights, & differential rights as to dividend.
Preference shares means those shares which
carry preferential rights regarding payment of
dividend & repayment of capital on winding
up.

KINDS OF PREFERENCE SHARES

1.

Cumulative preference shares

2.

Non-cumulative preference shares

3.

Participating preference shares

4.

Non-participating preference shares

5.

Convertible preference shares

6.

Non-convertible preference shares

7.

Redeemable preference shares

8.

Irredeemable preference shares

MEMBERSHIP IN A COMPANY
The members or share holders of the
company are the persons who collectively
constitute the company as a corporate entity.
A registered share holder is a member but a
registered member may not be a share
holder.
A person who owns a bearer share warrant is
a share holder but he is not a member as his
name is struck off the register of members.
This means that a person can be a holder of
shares without being a member. A member
may be a share holder but a share holder
may not be a member.
Contd

A legal representative of a deceased member is not a

member until his name is registered. He is however, a
share holder even though his name doesnt appear in the
register of members

HOW TO BECOME A MEMBER

1.

Membership by subscription

2.

Membership by application & registration

3.

Membership by beneficial ownership

4.

Membership by qualification shares

CESSATION OF MEMBERSHIP
A person may cease to be the member of a
company by
1. Act of the parties,
2. Operation of law

1.

Cessation of membership by act of the parties. A

person may cease to be the member of a company

1) If he transfers his shares to another person

2) If his shares are forfeited
3) If the company sells his shares under some
provision in its Articles (eg: to enforce a lien)
4) If he rescinds the contract to take shares on the
ground of mis-representation in the prospectus
or on the ground of irregular allotment
5) If redeemable preference shares are redeemed
6) If he surrenders his shares, where surrender is
permitted
7) If share warrants are issued to him in exchange
of fully paid shares

2. Cessation of membership by operation of

law:
This covers the following cases1. Insolvency
2. Death
3. Sale of shares in execution of a decree of a
court
4. Winding up of the company

Transfer & Transmission Of Shares

Distinction between transfer & transmission
Transfer of shares

Transmission of shares

1.

1.

2.
3.
4.

It is effected by a
voluntary act of the
parties
It takes place for
consideration
The transferor has to
execute a valid
instrument of transfer
As soon as the
transfer is complete,
the liability of the
transferor ceases.

2.
3.
4.

It takes place by
operation of law, eg:
due to death,
insolvency or lunacy
of a member
No consideration is
involved
There is no
prescribed instrument
of transfer
Share continue to be
subject to the original
liabilities

MANAGEMENT AND ADMINISTRATION

OF A COMPANY
MEETINGS AND PROCEEDINGS:
The various meetings of a company may be classified as follows
Meetings of share holders. These meetings may be:

I.

General meetings which include

1.
1)

Statutory meetings

2)

Annual general meetings &

3)

Extra ordinary meetings

2. Class meetings of share holders

II.

Meetings of creditors and debenture holders

III.

Meetings of directors

QUORUM FOR MEETING

Quorum means the minimum number of members
who must be present in order to constitute a valid
meeting and transact business threat. The quorum
in generally fixed by the Articles. If the Articles of a
company do not provide for a longer quorum, the
following rules apply:
1)5 members personally present in the case of a
public company (other than a deemed public
company), & 2 in the case of any other company,
shall be the quorum for a meeting of the company.
For the purpose of quorum a person may be
counted as 2 or more members if he holds shares in
different capacities. eg: as a trustee and also in his
own right.

Company Management
The directors are the brain of a company: Director includes any person occupying the position of
director, by whatever name called. The important factor to
determine whether a person is or is not a director is to refer to
the nature of the office and its duties.
Only individuals can be directors:-

Number of directors:Minimum number: Public limited company shall have at least 3

directors and a private limited company shall have
at least 2 directors

Maximum number: Articles of Association of a company may prescribe the maximum and
minimum number of directors for its Board. The number so fixed may be
increased or reduced within the limits prescribed by the Articles by an
ordinary resolution of the company in general meeting.

Any increase in number of directors beyond the

maximum permitted by the Articles shall be approved
by the Central Government. But where the increase in
number does not make the total number of directors
more than 12, no approval of the Central Government is
needed.

Position of Directors: Directors as agents: Directors are not employees: Directors are not prevented from being employees by entering
into a contract of employment with the company.
For certain matters under the Companies Act, the directors are
treated as officers of the company.
Directors are treated as trustees.
True position is that directors are in a fiduciary
relationship.
No person to be a director of more than 15
companies.

Removal of Directors:Directors may be removed by

The

shareholders,

The Central Government,

The Company Law Board,

Managerial Remuneration:The total managerial remuneration of the directors and the

manager in respect of any financial year shall not exceed 11 per
cent of the net profit of the company for that financial year.

Winding up of a company
Winding up of a company is a process of putting an end to
the life of the company. It is a proceeding by means of
which a company is dissolved and in the course of such
dissolution, its assets are collected, its debts are paid off
out of the assets of the company and if any surplus is left,
it is distributed among the members in accordance with
their rights

Modes of Winding up
Compulsory winding up by court
A company may be wound up by an order of court under
following grounds,

If the company has by a special resolution resolved that it may

be wound up by the court.

Default in delivering statutory report

Failure to commence business within a year of incorporation

If the number of members is reduced below 7 in case of a

public Ltd company and below 2 in case of a Pvt Ltd company

Failure to repay its debts

On just and equitable grounds.

Voluntary Winding up
The object of a voluntary winding up is that the
company and its creditors are left to settle their
affairs without going to the court, but they may apply to the
court for any directions or orders if and when necessary.
It may be :
Members voluntary winding up
This type of winding up takes place only when the company is
in a position to pay its debts. Declaration of solvency is made by
the director. A meeting of members is called and a liquidator is
appointed. No committee of inspection is formed.
The liquidator can exercise some powers with the
sanction of a special resolution of the company.
The meeting of members is again called on the
completion of the proceedings of winding up.
Contd

Voluntary Winding up
Creditors voluntary winding up.
This type of winding up takes place only if the
company is not in a position to pay off its debts. Here the
meeting of the members and the creditors is called. The
liquidator is appointed by the creditors and the
remuneration is fixed by the committee of inspection. The
liquidator exercises power with sanction of the court.

Winding up subject to
supervision of the court
At any time after a company has passed a resolution for
voluntary winding up, the court may make an order that
the voluntary winding up will continue, but subject to the
supervision of the court and with such liberty of creditors,
contributors and others to apply to the court on such terms
and conditions as the court thinks fit.

Consumer Protection Act, 1986

Objectives of the act
Right of protection to life and property
Right to be informed
Right to choose
Right to be heard
Right to redress
Right to education

Definition
s

Consumer means a person who buys any goods for a

consideration which has been paid or promised, or partly
paid and partly promised or under a system of deferred
payment.
Buyer of goods for a consideration is a consumer

Contd

 Person who hires services is a consumer

Goods means every kind of movable property other than
actionable claims and money, shares, growing crops,
things attached to the land
Service means service made available to any potential
user and includes provision of facilities in connection with
banking, insurance, transport, supply of electricity etc

Who are not

consumers

A person who purchased goods for resale

A person who purchased goods for commercial purpose
A person who obtains services without consideration
A person who obtains services under a contract of
personal service

Consumer
disputes
Defect
Manufacturing defect
Instruction defect

Complaints are relied upon

evidences
Expert opinion
Manufacturers records
Government and industry standard
Post accident changes
Report of Govt. and other agencies
Past records

Complaint
s
Complaint means any allegation in writing made by
complainant that: as a result of any unfair trade practice or
restrictive trade practice, adopted by trader, complainant
has suffered loss or damage, services mentioned by
complainant suffer any deficiency, excess of price or under
any law for the time being in force.

Who can make

complaints
The consumer to whom such goods sold or delivered or
such service provided.
Recognized consumers association registered under
law
Central or state government

How to draft a
complaint
Name and description and address of the complainant
Name and description and address of the opposite party
The facts related to complaint and when and where it
arose
Documents

To whom the complaint is to be made

District forum
State commission
National commission

How to file a
complaint
No fees have been prescribed
Complainant or authorised agent can present the
complaint in person
The complaint can be sent by post to the appropriate
forum

UNFAIR TRADE PRACTICES

The Consumer Protection Act has adopted the definition of
Unfair Trade Practices as given in the MRTP Act.
According to section 36-A of the MRTP Act, 1969,
whenever the methods listed in Section-36 A are adopted
for the purpose of promoting the sale, use or supply of any
goods, or for the provision of any services
and thereby some loss or injury is caused
to the consumers or such goods or services,
it is an unfair trade practice

The practices mentioned in section 36-A

are grouped into the following five
categories
1.

Misleading Advertisement and False Representation

2.

Sales offer of bargain price

3.

Schemes offering Gifts or Prizes

4.

Non-Compliance of prescribed Standards

5.

Hoarding, destruction or refusal

INGREDIENTS OF UNFAIR
TRADE PRACTICES
a)

The trade practices must consist of any of the

practices listed above.

b)

The purpose of such trade practice must be to promote

the sale, use or supply of any goods or provision or of
any services.

c)

The trade practices must have caused loss or injury to

the consumer whether by eliminating
or restricting competition.

RESTRICTIVE TRADE PRACTICES

(RTP)
According to section 2(nn) of the Consumer Protection Act
Restrictive Trade Practices are those trade practices which
requires a consumer to buy, hire or avail of any goods or,
as the case may be, services as a condition precedent for
buying, hiring or availing of other goods or services.

CONSUMER DISPUTES REDRESSAL

AGENCIES
For the purpose of speedy and simple settlement of
consumers disputes section 9 of the Act, 1986 provides for
the establishment of the following three Consumer Disputes
Redressal Agencies:
Consumer Disputes Redressal Forum (District Forum)
Consumer

Disputes

Redressal

Commission

Commission)
National Consumer Disputes Redressal
Commission (National Commission)

(State

District
Forum

Established under section 9(2) of the Consumer

Protection Act, 1986. This is established by the state
government in each district of the state by means of a
notification. If reasonable and necessary, the State
Government can establish more than one district forum
in a district.

State
Commission
Established
by the State

Government with the

prior approval of the Central Government, in the
State notification under Section 9(5) of the
Consumer Protection Act.

National Commission
In exercise of the powers conferred under
sec 9(c) of the Consumers Protection Act,
the Central Government established a
National
Consumer
Redressal
Commission to be known as the National
Commission by notification