Company Law

Team Members

Ritesh Nair MBAAVI014004Kunal Patil MBAAVI014005Gursimran Kaur MBAAIV014003Anisha Jaikumar MBAAVI014010Ramesh Mishra MBAAVI014009

Contents

• What is a company?

• Features of a company• The Companies Act, 1956• Characteristics of a Company• Types of Companies

• How can be company be wound up?

• Modes of winding up• Dissolution of the company• Doctrine of Indoor Management • Cases

• Conclusion

What is a company?

• A company is an artificial person created by law.• A company means a group of persons

associated together for the attainment of a common end, social or economic.

• Company law is defined under the Company Act,1956.Section 3 (1)(i) of the Company Act 1956 defines a company as , ”a company formed or registered under this Act or an existing company.”

• ‘Existing company’ means a company formed and registered under any of the earlier Company Laws.

Features of a company

• A company is considered as a separate legal entity from its members, which can conduct business with all powers to contract.

• Independent corporate entity (Saloman V. Saloman) It is independent of its members and shareholders

• It can own property, separate from its members. The property is vested with the company, as it is a body corporate.

The Companies Act, 1956

• The Companies Act 1956 is an Act of the Parliament of India, enacted in 1956, which enabled companies to be formed by registration, and set out the responsibilities of companies, their directors and secretaries.

• The Companies Act 1956 is administered by the Government of India through the Ministry of Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Public Trustee, Company Law Board, Director of Inspection, etc.

• Since its commencement, it has been amended many times, in which amendment of 1988, 1990, 1996, 2000 and 2011 are notable

The Companies Act, 2013

• Companies Act, 2013 is an Act of the Parliament of India which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.

• The 2013 Act is divided into 29 chapters containing 470 sections as against 658 Sections in the Companies Act, 1956 and has 7 schedules.

• The Act has replaced The Companies Act, 1956 and came into force completely on 1st April, 2014.

Characteristics of a Company

• Separate Legal Entity

• Perpetual succession

• Limited liability

• Requires compulsory registration

• Transferability of shares

• Separate property

• Can sue and can be sued

Registration of Companies

1. Application of availability of name is to be made.

2. MOA and AOA along with the agreement, if any, with any individual for appointment as its managing director, whole-time director or manager to be filed with the Registrar of Companies.

3. Particulars of situation of the registered office of the company and particulars of the first directors of the company to be filed.

4. Declaration by an advocate of the Supreme Court or High Court or Secretary or Chartered Accountant or by a person named in the articles as director, manager or secretary of the Co. that all requirement have been complied with

Types of Companies

• Limited Company

• Unlimited company

• Government Company

• Foreign Company

• Private Company

• Public Company

• Trade union

Trade Union

1.Geared to regulate the relationship between workers and employers.

2.Used for demanding the right of the workers and agriculture laborers.

3.It is registered under the trade union Act.

4.It also have an executive body, elected or nominated for the administration f the organization.

Objective of company

• A company objective is a goal or outcome an organization would like to achieve. Company objectives are measurable. They effectively describe the actions required to accomplish a task. Objectives define the techniques an organization will use to achieve :-

• Sales success, • Customer service goals, • Financial goals and • Any other measurable aspirations of the company

Ashbury Railway Carriage & Iron Co. v. Riche ,1875

• In this case the objects set out in the company’s memorandum were “to make and sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery and rolling stock; to carry on the business of mechanical engineers and general contractors; to purchase, lease, work and sell mines, minerals, land and buildings; to purchase and sell as merchants, timber, coal, metals, or other materials, and to buy any such materials on commission or as agents.”

• The directors purchased a concession for making a railway in Belgium and contracted with Riche to construct the line.

• The construction of a railway, as distinct from rolling stock, was ultra vires. Therefore Riche’s action for breach of the alleged contract failed as it was void.

• This would have been the case even if every shareholder of the company had given approval - it was an act which the company had no lawful power to do.

Court of Appeal

The British Court of Appeal considered the matter and stated that• The provision under which that system of limiting was inaugurated,

were provision not merely, perhaps I might say not mainly, for the benefit of the share holders for the line being in the company, but were enactments intended also to provide for the interest of two other very important bodies, in the first place, those who might become shareholders in succession to the persons who were shareholders for the time being and secondly, the outside public, and more particularly, those who might be creditors of compaines of the kind.

How can be company be wound up?

• By passing a special resolution• If there is a default in holding the statutory

meeting• Failure to commence the business • If there is reduction in the membership of the

minimum number of members as per the statutory requirement

• If it not able to pay its debts

Modes of winding up

• Compulsory winding up under the supervision of the court

(Reasons as stated in the previous slide) Compulsory winding up may happen for just

and equitable reasons also. The just and equitable grounds can be like loss

of substratum , where there is dead lock in the management, etc

• Voluntary winding up ( Members voluntary winding up and creditors voluntary winding up)

• Voluntary winding up subject to the supervision of the court.

Winding up procedure

• A petition for winding up has to be filed by the concerned person to the prescribed authority

• Liquidator to be appointed to safeguard the property of the company

• Then the court will hear the matter and pass necessary orders. It can dismiss the petition or pass an order of winding up

Dissolution of the company

• When the company ceases to exist as a corporate entity for all practical purposes it is said to have been dissolved.

• Dissolution has to be declared by the court.• It will not be extinct and will be kept under

suspension for 2 Years.• The order has to be forwarded by the liquidator

to the Registrar of the Companies within 30 days from the date of the order of dissolution.

Doctrine of Indoor Management

• Though every person is bound to read the Articles and Memorandum of the company, it is not bound to enquire into the internal management of the company whether they are being conducted according to the Articles of the company or not.

• An outsider is entitled to presume that the directors are acting lawfully in all respects.

Doctrine of Indoor Management 1. Where the act is ultra vires the Memorandum it is void

abinitio.

2. Where the third person has actual or constructive notice regarding non-compliance and irregularity of internal procedure.

3. Where the act of an agent falls outside his authority.

4. Where an act of an official of the company is apparently outside his authority.

5. Where there is irregularity in the affairs of the company which could be discovered. In these case, the doctrine of indoor management cannot be applied.

Salomon v Salomon & Co. Ltd – Case study analysis

• Salomon v Salomon & Co. Ltd (1895-99)• Introduction• Human beings are generally legal person but

humanity is a state of nature and legal personality is an artificial construct, which may or may not be conferred. The origin of corporation lies in a logical extension of this separation of humanity from legal personality as the group of humans who are engaged in a common activity could attempt to simplify their joint activity by gaining legal personality from the venture.

Facts of Salomon v SalomonAron Salomon was a leather merchant who converted his business into a Limited Company as Salomon & Co. Limited (the ‘company’). The company so formed consisted on Salomon, his wife and five of his children as members. The company purchased the business of Salomon for £39,000; the purchase consideration was paid in terms of £10,000 debentures conferring a charge over the company’s assets, £20,000 in fully paid, £1 share each and the balance in cash.The company in less than one year ran into difficulties and liquidation proceedings commenced. The assets of the company were not even sufficient to discharge the debentures (held entirely by Salomon himself). And nothing was left for unsecured creditors. The liquidator on behalf of unsecured creditors alleged that the company was a sham and mere alias or agent for Salomon.

Court of Appeal

•The British Court of Appeal considered the matter and Kay LJ stated that•“The statue was intended to allow seven or more persons, bona fide associated for the purpose of trade to limit their liability, under certain conditions and to become a corporation. But shareholders of Salomon & Co Ltd. were not intended to legalize the pretended association for the purpose of enabling an individual to carry on his business within; limited liability in the name of joint stock company.”

•Thus, the focus of court of appeal was that the six family members never intended to take part in the business and only held the shares to fulfill the technicality required by the companies act.

• Lord Macnaghten held that ‘the company is different person altogether from subscribers… and, though it may be that after incorporation the business is precisely the same as it was before and same persons are managers, and same hand receive the profit, the company is not agent for subscriber or trustee for them. Nor are the subscribers as member liable, in any shape or form, except to the extent and manner prescribed by the Act.’ 

• It can be summarized from the above discussion that the House of Lord unanimously held that the company had been validly constituted, since the Companies Act only required only seven (7) members holding at least one (1) share each. It said nothing about their being independent, or that there should be anything like a balance of power in the constitution of the company. Therefore, the business belonged to the company and not to Solomon rather Solomon was its agent. The company was not agent of Solomon.

Principles Laid in Salomon v Salomon

• Artificial Person• Limited Liability• Lifting the Veil of IncorporationThe circumstances under which the courts may lift the corporate

veil may broadly be grouped under the following two heads:(1)Statutory Provisions which includes-Reduction of membershipMisrepresentation in prospectusMis-description of nameFraudulent conductLiability for ultra vires acts(2)Judicial Interpretations

Conclusion

• It may, therefore, be concluded in the light of above discussion that though it is firmly established ever since Salomon’s case that a company is an independent and legal personality distinct from the individuals who are its members, it has since been held that the corporate veil may be lifted, the corporate personality may be ignored and the individual members recognized for who they are in certain exceptional circumstances.

Highlights on New Indian companies Act

Immediate change in letterhead Other personal company Women Director Resident Director Accounting year Loans to director Article of Association Disqualification of directors Appointment of statutory auditor

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