Business Laws, Taxation and Company Law

8/8/2019 Business Laws, Taxation and Company Law

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BUSINESS LAWSBUSINESS LAWS&&

ENTREPRENEURSENTREPRENEURS

S.V. Rama KrishnaS.V. Rama KrishnaM.ComM.Com., CAIIB, ACS, LL.M.., CAIIB, ACS, LL.M.

PG DIRPM, PGDMSM, PGDBAPG DIRPM, PGDMSM, PGDBA

Advocate AdvocateHigh Court of Andhra PradeshHigh Court of Andhra Pradesh

[email protected]@gmail.com


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ORIGIN OF LAWORIGIN OF LAW

SinceSince timetime immemorialimmemorial everyevery societysociety hashas itsits ownownlawlaw..

TribalTribal societiessocieties evolvedevolved andand cherishedcherished customarycustomary

lawslawsLawLaw isis aa socialsocial sciencescience growsgrows withwith societysociety..

LawLaw meansmeans different different thingsthings inin different different timestimes highlyhighly dynamicdynamic concept concept withwith corecore valuesvaluesDharmaDharma (Hindu),(Hindu), HukumHukum (Islamic),(Islamic), JusJus (Roman),(Roman),Droit Droit (French),(French), Richt Richt (German)(German)


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What is law?What is law?

RomansRomans:: Law Law isis thethe standard standard of of what what isis just just and and unjust unjust..

HindusHindus:: Law Law isis thethe command command of of God God.. Hence,Hence, thethe Ruler Ruler isisalsoalso bound bound by by law law..

J ohnJ ohn Austin Austin:: Law Law isis aa command command issued issued by by thetheuncommanded uncommanded commander commander knownknown asas sovereign sovereign.. SuchSuchcommandscommands areare backed backed upup by by sanctionssanctions..

KelsonsKelsons PurePure Theory Theory:: Law Law normsnorms areare ought ought normsnorms( (GrundnormsGrundnorms) ).. Every Every legal legal act act relatesrelates toto aa normnorm whichwhichgivesgives legal legal validity validity toto it it..


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Definitions of law Definitions of law

RoscoeRoscoe Pound Pound:: TheThe task task of of law law isis continually continually moremoreefficaciousefficacious social social engineeringengineering (balance(balance betweenbetweencompetingcompeting interestsinterests inin society)society)..

J ohnJ ohn Salmond Salmond:: Law Law isis thethe body body of of principles principles recognised recognised and and applied applied by by thethe statestate inin thethe administrationadministration of of justice justice..

BlackstoneBlackstone:: Law Law inin itsits general general and and comprehensivecomprehensive sense,sense,signifiessignifies aa rulerule of of actionaction and and it it applied applied indiscriminately indiscriminately totoall all kindskinds of of action,action, whether whether animateanimate or or inanimate,inanimate, rational rational or or irrational irrational..


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SOURCES OF LAWSOURCES OF LAWPrimary Sources:Primary Sources:

i.i. Customs and UsagesCustoms and Usages (practices of ethnic groups)(practices of ethnic groups)ii.ii. J udicial PrecedentsJ udicial Precedents (already decided cases)(already decided cases)iii.iii. StatutesStatutes Acts of Legislatures Acts of Legislatures (Parliament & State legislatures)(Parliament & State legislatures)

iv.iv. Personal Laws (dealing with marriages, divorces,Personal Laws (dealing with marriages, divorces,maintenance, adoptions, inheritance of ancestral properties)maintenance, adoptions, inheritance of ancestral properties)

Secondary Sources:Secondary Sources:

i.i. English Law (due to colonial rule)English Law (due to colonial rule)ii.ii. Common Law Common Law iii.iii. Equity Equity iv.iv. Roman Law Roman Law


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Function and purpose of lawFunction and purpose of lawEnsure justice to all Ensure justice to all Stability, predictability and continuity so that peopleStability, predictability and continuity so that peoplecan be sure of how to order their affairs in society.can be sure of how to order their affairs in society.

(focuses on rights and duties as responsible citizen).(focuses on rights and duties as responsible citizen).Instrument of peaceful changeInstrument of peaceful change

Rule of law and not rule of rulersRule of law and not rule of rulers


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Famous legal maximsFamous legal maxims Actus Actus nonnon facit facit reumreum nisi nisi mensmens sit sit rearea :: ( (mensmens rearea):The act ):The act itself does not constitute guilt unless done with a guilty intent.itself does not constitute guilt unless done with a guilty intent.

Ubi Ubi jus jus ibi ibi idemidem remediumremedium:: Where there is a right, there is aWhere there is a right, there is aremedy.remedy.

IgnorantiaIgnorantia facti facti excusat excusat,, ignorantiaignorantia juris juris nonnon--excusant excusant::ignorance of fact excuses, ignorance of the law excuses not.ignorance of fact excuses, ignorance of the law excuses not.

N atural law:N atural law: a law which so necessarily agrees with the naturea law which so necessarily agrees with the nature

and state of man that without observing its maxims the peaceand state of man that without observing its maxims the peaceand happiness of society can never be preserved, and is soand happiness of society can never be preserved, and is socalled because of knowledge of them may be attained merely by called because of knowledge of them may be attained merely by the light of reason, from the fact of their essential agreeablenessthe light of reason, from the fact of their essential agreeablenesswith the constitution of human race.with the constitution of human race.


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M agnitude of applicable laws toM agnitude of applicable laws to

business entitybusiness entityIt is reported that about 140 Acts will be made applicable to aIt is reported that about 140 Acts will be made applicable to amanufacturing company.manufacturing company.

Most of them may be related to

Most of them may be related to

((ii) General Laws) General Laws(ii)(ii) Business / commercial lawsBusiness / commercial laws(iii) Corporate laws(iii) Corporate laws

(iv) Industrial and(iv) Industrial and labourlabour lawslaws(v) Environmental laws(v) Environmental laws(vi) Taxation laws,(vi) Taxation laws,(vii) Intellectual Property Rights etc.(vii) Intellectual Property Rights etc.



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Who is an entrepreneur ?Who is an entrepreneur ?

According to Oxford Dictionary: According to Oxford Dictionary:a person who makes money by starting or runninga person who makes money by starting or runningbusinesses, especially when this involves takingbusinesses, especially when this involves takingfinancial risks.financial risks.

An entrepreneur generally engages himself in An entrepreneur generally engages himself inproduction of goods and services and sell them inproduction of goods and services and sell them inmarket and in the process earn his livelihood.market and in the process earn his livelihood.

For this anFor this an organisedorganised activity is taken up which weactivity is taken up which wegenerally call it a project .generally call it a project .



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Formats of business enterprisesFormats of business enterprises

Broadly, an entrepreneur may carry on hisBroadly, an entrepreneur may carry on hisbusiness in any of the following formatsbusiness in any of the following formats

(a) Sole Proprietorship concern(a) Sole Proprietorship concern(b) Partnership Firm(b) Partnership Firm(c) Company (private limited company or(c) Company (private limited company or

public limited company)public limited company)



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Proprietorship Proprietorship

Ownership with one person and enjoys all benefits.Ownership with one person and enjoys all benefits.

Suffers unlimited personal liability for businessSuffers unlimited personal liability for businessliabilities.liabilities.

All actions are contractual in nature and governed by All actions are contractual in nature and governed bythe provisions of Indian Contract Act, 1872the provisions of Indian Contract Act, 1872

With the death of the proprietor, the business dies asWith the death of the proprietor, the business dies asthe business entity and personal entity are one andthe business entity and personal entity are one andthe same.the same.



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Partnership PartnershipTwo or more persons agreeing to share the profits of Two or more persons agreeing to share the profits of business, carried on by all or by any one on behalf of all.business, carried on by all or by any one on behalf of all.

Individually known as partners and collectively Firm .Individually known as partners and collectively Firm .

A Firm can have its own separate name but the liability of A Firm can have its own separate name but the liability of partners is joint and several.partners is joint and several.

It is always more than one person formally agreeing to beIt is always more than one person formally agreeing to be

partners in business.partners in business.

Unlimited liability of each partner to outsiders for Firm sUnlimited liability of each partner to outsiders for Firm sliabilities.liabilities.



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A formal Partnership Deed is entered into amongst the A formal Partnership Deed is entered into amongst thepartners with their rights and duties.partners with their rights and duties.

The Indian Partnership Act, 1932 is governing Act.The Indian Partnership Act, 1932 is governing Act.

The Act provides for rights and duties of partnersThe Act provides for rights and duties of partners

The Act provides for registration of Firm and consequencesThe Act provides for registration of Firm and consequencesof nonof non--registration.registration.

No compulsion to register a Firm but the consequences areNo compulsion to register a Firm but the consequences aredangerous. Cases cannot be filed by Firm or partners against dangerous. Cases cannot be filed by Firm or partners against others if not registered.others if not registered.



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Companies Companies

The Companies Act, 1956 contains elaborate provisions fromThe Companies Act, 1956 contains elaborate provisions fromincorporation to winding up.incorporation to winding up.

It is the largest Act in the world with 658 Sections and 15It is the largest Act in the world with 658 Sections and 15Schedules.Schedules.

Governed by the provisions of (a) M emorandum of Association,Governed by the provisions of (a) M emorandum of Association,(b) Articles of Association, and (c ) Companies Act, 1956.(b) Articles of Association, and (c ) Companies Act, 1956.

Individuals are known as shareholders who own a part of shareIndividuals are known as shareholders who own a part of shareof the total share capital. It is a separate existence andof the total share capital. It is a separate existence andcorporate personality i.e. a juridical person having its own namecorporate personality i.e. a juridical person having its own nameand entity like individuals.and entity like individuals.



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It has its own rights and liabilities to outsiders and theIt has its own rights and liabilities to outsiders and theshareholders are not individually liable for company s liabilities.shareholders are not individually liable for company s liabilities.That is why it is known as limited liability .That is why it is known as limited liability .

Only two kinds of companiesOnly two kinds of companies private company or publicprivate company or publiccompany. Every company must carry the word limited orcompany. Every company must carry the word limited or

private limited at the end of its name. private limited at the end of its name.The relationship between companies may be (a) HoldingThe relationship between companies may be (a) HoldingCompany, and (b) Subsidiary Company.Company, and (b) Subsidiary Company.

The management is carried on by directors and a director needThe management is carried on by directors and a director neednot be a shareholder.not be a shareholder.

Ultimate power of controlling directors is in the hands of Ultimate power of controlling directors is in the hands of shareholders.shareholders.



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A democratic principle of M ajority rule is followed in deciding A democratic principle of M ajority rule is followed in decidingmatters.matters.

Each share is a power in voting and majority holding in total paidEach share is a power in voting and majority holding in total paidup capital always controls the company.up capital always controls the company.

Incorporation of a company is compulsory.Incorporation of a company is compulsory.

Share capital may be subscribed by private individuals or publicShare capital may be subscribed by private individuals or publicat large.at large.

In case of public at large, we call it public issue of capital byIn case of public at large, we call it public issue of capital byissue of a prospectus .issue of a prospectus .



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All public issues are governed by provisions of the Listing All public issues are governed by provisions of the Listing Agreement with a Stock Exchange and by Securities Exchange Agreement with a Stock Exchange and by Securities ExchangeBoard of India (SEBI) requirements.Board of India (SEBI) requirements.

Legal requirements include periodical filing of various returnsLegal requirements include periodical filing of various returns

with Registrar of Companies (ROC) such as audited balancewith Registrar of Companies (ROC) such as audited balancesheets, annual reports, special resolutions, alternations tosheets, annual reports, special resolutions, alternations toM emorandum of Association and Articles of Association,M emorandum of Association and Articles of Association,appointment /changes of Directors, M D etc., creation andappointment /changes of Directors, M D etc., creation andsatisfaction of charges on assets of the company etc.satisfaction of charges on assets of the company etc.

Once in a year shareholders meet known as Annual GeneralOnce in a year shareholders meet known as Annual GeneralM eeting, and minimum four times the Directors shall meet M eeting, and minimum four times the Directors shall meet known as Board M eetings.known as Board M eetings.



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Other than AG M , any meeting of shareholders is known asOther than AG M , any meeting of shareholders is known asExtraordinary General M eeting (EG M ).Extraordinary General M eeting (EG M ).

All matters are decided by way of resolutions. All matters are decided by way of resolutions.

Ordinary or special resolutions at AG M or EGM s.Ordinary or special resolutions at AG M or EGM s.

Penalties are prescribed for nonPenalties are prescribed for non- -compliance of variouscompliance of variousprovisions of the Companies Act, 1956.provisions of the Companies Act, 1956.

The death of company is known as winding up and it is doneThe death of company is known as winding up and it is done

under the supervision of the High Court.under the supervision of the High Court.

Directors are personally liable for violations of law.Directors are personally liable for violations of law.



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Business / Commercial / EconomicBusiness / Commercial / EconomicCorporate LawsCorporate Laws

The Indian Contract Act, 1872The Indian Contract Act, 1872The Sale of Goods Act, 1930The Sale of Goods Act, 1930The Indian Partnership Act 1932The Indian Partnership Act 1932

The Negotiable Instruments Act, 1881The Negotiable Instruments Act, 1881The Companies Act, 1956The Companies Act, 1956The Consumer Protection Act, 1986The Consumer Protection Act, 1986

Arbitration and Conciliation Act, 1996 Arbitration and Conciliation Act, 1996The Foreign Exchange M anagement Act, 1999The Foreign Exchange M anagement Act, 1999The Competition Act, 2002The Competition Act, 2002The Securities Exchange Board of India Act, 1992The Securities Exchange Board of India Act, 1992The Information Technology Act, 2000The Information Technology Act, 2000



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The Indian Contract Act, 1872The Indian Contract Act, 1872(contains 238 sections)(contains 238 sections)

Defines contracts, deals withDefines contracts, deals withEssentials of contractsEssentials of contractsQuasi contractsQuasi contractsPerformance of contractsPerformance of contractsContracts of Indemnity and guaranteeContracts of Indemnity and guaranteeContracts of Bailment and pledgeContracts of Bailment and pledgeContracts of AgencyContracts of Agency



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Sale of Goods Act, 1930Sale of Goods Act, 1930(contains 66 sections)(contains 66 sections)

Defines goods , sale etc.Defines goods , sale etc. sale and agreement to sale sale and agreement to sale condition and warranty condition and warranty unpaid seller and his rights unpaid seller and his rights



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The Indian Partnership Act, 1932The Indian Partnership Act, 1932(contains 74 sections)(contains 74 sections)

Defines partnership and firmDefines partnership and firmRights and obligations of partnersRights and obligations of partnersRegistration of FirmRegistration of Firm

Effect of nonEffect of non- -registration of firmregistration of firm



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The Negotiable Instruments Act, 1881The Negotiable Instruments Act, 1881

(contains 147 sections)(contains 147 sections)

Defines negotiable instrumentsDefines negotiable instruments (promissory note, bill of (promissory note, bill of exchange andexchange and chequecheque))

Drawer,Drawer, DraweeDrawee, holder, holder in due course,, holder, holder in due course,payment in due course, crossing of payment in due course, crossing of chequescheques, ,negotiation,negotiation, indorsement indorsement etc.etc.

DishonourDishonour of of chequescheques and procedure for punishment and procedure for punishment under Section 138under Section 138



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Consumer Protection Act, 1986Consumer Protection Act, 1986(contains 31 sections)(contains 31 sections)

For providing better protection to consumers andFor providing better protection to consumers andcreated authorities to settle consumer disputescreated authorities to settle consumer disputes(cheap, speedy and time bound(cheap, speedy and time bound redressalredressal of disputes)of disputes)

Three tier mechanismThree tier mechanism district forum, statedistrict forum, statecommission .commission .

Appeal mechanism Appeal mechanism

Penalties for nonPenalties for non- -compliance of orderscompliance of orders



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ARBITRATION AND CONCILIATION ACT, 1996 ARBITRATION AND CONCILIATION ACT, 1996(contains 86 sections and 3 schedules)(contains 86 sections and 3 schedules)

Based on UNCITRAL model law (United NationsBased on UNCITRAL model law (United NationsCommission on International Trade Law)Commission on International Trade Law)International Commercial ArbitrationInternational Commercial Arbitration

Arbitration Agreement Arbitration Agreement Composition of Arbitral TribunalComposition of Arbitral Tribunal

Procedure and conduct of arbitral proceedingsProcedure and conduct of arbitral proceedings Appeal against awards of arbitrator Appeal against awards of arbitrator



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The Information Technology Act, 2000The Information Technology Act, 2000(contains 94 sections)(contains 94 sections)

Facilitates eFacilitates e- -commerce, ecommerce, e- -filingfiling Alternative to paper based communication Alternative to paper based communicationNumber of definitionsNumber of definitions

Digital signatureDigital signatureCertifying AuthoritiesCertifying AuthoritiesDigital Signature CertificatesDigital Signature CertificatesPenalties and adjudicationPenalties and adjudicationCyber Regulations Appellate TribunalCyber Regulations Appellate TribunalOffences of tampering computer source, hacking etc.Offences of tampering computer source, hacking etc.Punishments (Punishments (uptoupto 10 years imprisonment and fine10 years imprisonment and fine uptoupto Rs. 2Rs. 2lakhslakhs))



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Laws governing IntellectualLaws governing Intellectual

Property RightsProperty Rights Aimed to protect and encourage innovations and Aimed to protect and encourage innovations andintellectual pursuit of individuals on one hand andintellectual pursuit of individuals on one hand andfor the benefit of whole society by encouragingfor the benefit of whole society by encouragingcommercialisationcommercialisation of these efforts.of these efforts.

COPYRIGHT ACT, 1957COPYRIGHT ACT, 1957PATENTS ACT, 1970PATENTS ACT, 1970TRADE M ARKS ACT, 1999TRADE M ARKS ACT, 1999DESIGNS ACT, 2000DESIGNS ACT, 2000



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Environmental LawsEnvironmental Laws

Aimed to provide safe environment to the Aimed to provide safe environment to thesociety.society.The Water (Prevention and Control of The Water (Prevention and Control of

Pollution) Act, 1973Pollution) Act, 1973The Air (Prevention and Control of Pollution)The Air (Prevention and Control of Pollution) Act, 1981 Act, 1981The Environment (Protection) Act, 1986The Environment (Protection) Act, 1986

Rules and Regulations made under the aboveRules and Regulations made under the above Acts. Acts.Pollution Control Boards implement the laws.Pollution Control Boards implement the laws.



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Taxation lawsTaxation laws Aimed to ensure revenues to the Central and State Aimed to ensure revenues to the Central and StateGovernmnetsGovernmnets to enable to discharge socioto enable to discharge socio--economiceconomicdevelopment activities.development activities.

The Income Tax Act, 1961The Income Tax Act, 1961The Customs Act, 1962The Customs Act, 1962The Central Excise Act. 1944The Central Excise Act. 1944The Central Sales Tax Act, 1956 & concerned StateThe Central Sales Tax Act, 1956 & concerned StateGeneral Sales Tax Acts.General Sales Tax Acts.

A number of State Acts & Rules relating to sales, A number of State Acts & Rules relating to sales,excise etc.excise etc.Duties (Duties (octroioctroi, toll etc.), toll etc.)



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Industrial andIndustrial and LabourLabour LawsLaws

Some of the important Acts areSome of the important Acts are - -

The Factories Act, 1948The Factories Act, 1948The Industrial Disputes Act, 1947The Industrial Disputes Act, 1947The Trade Unions Act, 1926The Trade Unions Act, 1926The Employees Provident Funds andThe Employees Provident Funds andM iscellaneous Provisions Act, 1952M iscellaneous Provisions Act, 1952The Employees State Insurance Act, 1948The Employees State Insurance Act, 1948The Industrial Employment (Standing Orders)The Industrial Employment (Standing Orders)

Act, 1946 Act, 1946



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The Workmen s Compensation Act, 1923The Workmen s Compensation Act, 1923The M aternity Benefit Act, 1961The M aternity Benefit Act, 1961The M inimum Wages Act, 1948The M inimum Wages Act, 1948The Payment of Bonus Act, 1965The Payment of Bonus Act, 1965Shops and Establishment Acts of Shops and Establishment Acts of concerned States.concerned States.



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Law making power in IndiaLaw making power in India

Article 246 of Constitution of India empowers Parliament Article 246 of Constitution of India empowers Parliament and State Legislatures to make laws.and State Legislatures to make laws.

77thth Schedule contains 3 Lists :Schedule contains 3 Lists :

Union List Union List -- 97 subject matters (Parliament)97 subject matters (Parliament)State List State List - - 66 subject matters (State Legislatures)66 subject matters (State Legislatures)Concurrent List Concurrent List 47 subject matters (both empowered)47 subject matters (both empowered)

It is reported that there are more than 80,000 Acts areIt is reported that there are more than 80,000 Acts arepassed by Legislatures in India, of which more than half passed by Legislatures in India, of which more than half by Parliament and balance by various State Legislatures.by Parliament and balance by various State Legislatures.



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How to read an Act (law)?How to read an Act (law)?

Title of the Act reveals the subject matter dealt Title of the Act reveals the subject matter dealt with in the Act.with in the Act. (The Companies Act, 1956; Sale of Goods(The Companies Act, 1956; Sale of Goods

Act, 1930; The Indian Contract Act, 1872; The Indian Act, 1930; The Indian Contract Act, 1872; The Indian

Partnership Act, 1932 etc.). The year signifies the year inPartnership Act, 1932 etc.). The year signifies the year inwhich the Act was formed.which the Act was formed.

Preamble below the Title of the Act signifies the objects and Preamble below the Title of the Act signifies the objects andpurposes of the Act.purposes of the Act.

11st st SectionSection of the Act has three parts (of the Act has three parts (i i) Short Title; (ii) Extent ) Short Title; (ii) Extent of application; and (iii) commencement date.of application; and (iii) commencement date.



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22ndnd

SectionSection normally defines or interprets certain words and phrasesnormally defines or interprets certain words and phrasesused in the Act. Elsewhere in the Act, other terms may be defined.used in the Act. Elsewhere in the Act, other terms may be defined.

33rdrd Section onwards, the detailed law would be stated governingSection onwards, the detailed law would be stated governingthat particular subject matter.that particular subject matter.

In some Acts where certain Enforcement Authorities (like RBI,In some Acts where certain Enforcement Authorities (like RBI,SEBI,SEBI, IcomeIcome Tax Authorities, Police, Excise, Customs etc.) may beTax Authorities, Police, Excise, Customs etc.) may becreated to implement the law, their constitution, qualifications,created to implement the law, their constitution, qualifications,manner of appointment and term of office etc. will be stated.manner of appointment and term of office etc. will be stated.

Appellate Authorities might also be there to appeal against the Appellate Authorities might also be there to appeal against theorders of the Enforcement Authorities.orders of the Enforcement Authorities.

If no specific authorities are created, for dispute resolution, theIf no specific authorities are created, for dispute resolution, thenormal Civil Courts would have jurisdiction to deal with disputes.normal Civil Courts would have jurisdiction to deal with disputes.



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CertainCertain Schedules Schedules may be linked to a particular section in themay be linked to a particular section in the Act. It may contain a format or a rule or requirement of law. Act. It may contain a format or a rule or requirement of law.

Rule making power may be vested in Government. Rule making power may be vested in Government.

Guideline making powers vests in Regulating Authorities (SEBI, Guideline making powers vests in Regulating Authorities (SEBI,RBI, IRD A, etc.). Clarifications and Orders may also be issued fromRBI, IRD A, etc.). Clarifications and Orders may also be issued fromtime to time.time to time.

For nonFor non--compliance with law, such actions may be termed ascompliance with law, such actions may be termed as offences . offences .

Any offence would be punished by way of imprisonment or fine Any offence would be punished by way of imprisonment or fineor both.or both.

Only prescribed punishment will be awarded to offenders byOnly prescribed punishment will be awarded to offenders byEnforcement Authorities or Courts in the administration of justice.Enforcement Authorities or Courts in the administration of justice.



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What should we do??What should we do??

We need to know the law because ignorance of We need to know the law because ignorance of law is no excuse . We have no choice.law is no excuse . We have no choice.

We must follow and respect the law because anyWe must follow and respect the law because anyviolations would be punished by way of violations would be punished by way of imprisonments and fines.imprisonments and fines.

In case of doubt, consult proper experts in timeIn case of doubt, consult proper experts in timeand be happy.and be happy.



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Thank YouThank You

&&Wish youWish you

A great professional career A great professional career


Business Laws, Taxation and Company Law

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