OBJECTIVE & LEARNING OUTCOMES

Objective•To provide the students a comprehensive introduction to the areas of business law.• The purpose is to give students an overview of legal matters relating to companies that they will deal with in their personal and/or professional life.

Learning Outcomes To be able to appreciate the role of law in economic, political and

social context. Be able to identify the fundamental legal principles behind

formation of the company. To be able to identify the legal issues arising in day to day

business dealings. To be able to familiarize with the management of the companies.

COMPANY •A Company is a legal entity made up of an association of persons for carrying on a commercial or industrial enterprise. •Company members share a common purpose and unite in order to focus their various talents and organize their collectively available skills or resources to achieve specific, declared goals. •Companies take various forms such as:• Voluntary associations including  non profit org. • Business entities with an aim of gaining a profit• Financial entities and banks.

• Meanings & Definitions : An "artificial person", invisible, intangible, created by or under law, with a discrete legal personality, limited liability, perpetual succession, and a  common seal. It is not affected by the death, insanity, or insolvency of an individual member.

UNIT I: INTRODUCTION: HISTORY OF COMPANY

LEGISLATION(Seven Periods)

 MEANING OF COMPANY LAW

• Company law is that branch of law which deals exclusively with all aspects relating to companies, such as incorporations of companies allotment of shares and share capital membership in companies management and administration of companies, winding up of companies. etc.

• Company law in India is that branch of Indian law which regulates companies in India.

COMPANY LAW IN INDIA•Source of Origin: The English Common Law. Various Companies Acts passed in India from time to time were based on the English Companies Act. • 1850: First law on ‘Regn of joint stock companies’ was enacted in India, based on English Companies Act 1844 known as the Joint Stock Companies Act, 1844. • 1850 Act recognized company as a distinct legal entity but privilege of limited liability was not granted to company. •The principle of limited liability was recognized in India by Joint Stock Companies Act, 1857, passed following the English law, the Joint Stock Companies Act, 1856. •The Companies Act 1866 legislated (based on English Companies Act of 1862) ‘for consolidating and amending the law relating to the incorporation, regulation and winding up of trading companies and other associations.’

COMPANY LAW IN INDIA (contd)• 1866 Act was amended and remodelled in 1882 and it remained effective till 1913. •The Indian Companies Act of 1913 was legislated following the English Companies (Consolidation) Act, 1908.• This Act of 1913 was found to be highly inadequate in the course of its operation and thus it went through numerous amendments.Post Independence•The Companies Act, 1956 was enacted in compliance of the recommendations of the Bhabha Committee, came into force on 01 April 1956. •The major amendments in this Act were brought in 2002 which provided for the constitution of the National Company Law Tribunal in place of the Company Law Board.

MAIN OBJECTIVES OF THE COMPANY LAW 1956

• To sustain trust & faith of Shareholders• To protect & preserve rights of Share

holders• To make the drastic control over all the

activities of company• To make regulation of an effective

Annual Meetings• Investment of general public should be

used for the development of society or social welfare

COMPANIES ACT, 2013

1.

• It has replaced The Companies Act, 1956 (in a partial manner) after receiving the assent of the President of India on 29 Aug 2013.

• It extends to whole of India.• An Act of the Parliament of India, it regulates

incorporation of a company, responsibilities of a company, directors, dissolution of a company.

• Act comprises of 29 chapters, 470 Sections with 7 Schedules as against 658 sections and 14 Schedules in the Companies Act, 1956.

• The Act came into force on 12 Sep 2013 with few changes like earlier private companies maximum number of member was 50 and now it will be 200.

• A new term of "one person company" is included in this act that will be a private company.

APPLICABILITY OF COMPANIES ACT 2013

1.

•Companies incorporated under this Act or under any previous company law;•Insurance Companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the IRDA 1999;•Banking companies, except in so far as the said provisions are inconsistent with the provisions of BRA1949;•Companies engaged in the generation or supply of electricity, except in so far as the said provisions are inconsistent with the provisions of the Electricity Act, 2003;•Any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; and such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as may be notified.

NEW CONCEPTS: COMPANIES ACT 2013• One Person Company (OPC): A company with only one person as a member, who shall be the shareholder of the company. It avails all the benefits of a private limited company such as separate legal entity, protecting personal assets from business liability, and perpetual succession. OPC is classified as a private company under Companies Act.• Woman Director: Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more / Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director.• Corporate Social Responsibility (CSR) Clause (135): Every company having net worth of Rs 500 crore or more, or turnover of Rs 1000 crore or more or a net profit of Rs 5 crore or more during any financial year shall constitute a CSR Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. by the High Court).

NEW CONCEPTS:COMPANIES ACT 2013 (contd)

• Valuation by Registered Valuers: A valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, by a person having such qualifications and experience and registered as a valuer. • Class action suits: For the first time, a provision has been made

wherein specified number of member(s), depositor(s) or any class of them, may, if they are of the opinion that the management or control of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors; Where the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner. The order passed by Tribunal shall be binding on the company and all its members, depositors and auditors including audit firm or expert or consultant or advisor or any other person associated with the company.

NEW CONCEPTS:COMPANIES ACT 2013 (contd)

• Dormant Company: Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar for obtaining the status of a dormant company.• Serious Fraud Investigation Office (SFIO): Statutory status

to SFIO has been proposed. Investigation report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO shall have power to arrest in respect of certain offences. Those offences shall be cognizable and the person accused of any such offence shall be released on bail subject to certain conditions provided. • Fast Track Merger: Act 2013 has separate provisions of fast

track merger under S 233. The provisions are notwithstanding with the normal provisions of merger under S 230 & 232 of Act. Under fast this processes Central Government has power to sanction all such scheme and there will be no requirement to approach National Company Law Tribunal (powers presently exercised by HC)

COMPANIES (AMDT) ACT, 2015:KEY HIGHLIGHTS

• CA Amendment 2015 received the assent from President of India on 25 May 2015. It addresses concerns under CA 2013.

Key amendments in the CA Amendment 2015;• Omitting requirement for minimum paid up share capital,

and consequential changes. (For ease of doing business). The minimum paid-up share capital requirement of Rs 1 Lakh (in case of a private company) and Rs 5 Lakh (in case of a public company) under CA 2013 has been done away with. Consequently, the definitions of private and public companies stand amended.

• Making common seal optional and consequential changes for authorization for execution of documents. (For ease of doing business).

• Prescribing specific punishment for deposits accepted under the new Act. This was left out in the Act inadvertently. (To remove an omission).

COMPANIES (AMDT) ACT, 2015:KEY HIGHLIGHTS (contd)

• Prohibition public inspection of Board resolution filed in the Registry. (To meet corporate demand).

• Including provision for writing of past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules.

• Prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosure for the latter category also to be made in the BoD Report. (Demand of auditors).

• Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution).

COMPANIES (AMDT) ACT, 2015:KEY HIGHLIGHTS (contd)

• Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders. (To meet problems faced by large stakeholders who are related parties).

• Exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval non-related shareholders. (Corporate demand).

• Bail restriction to apply only for offences relating to fraud u/s 447. (Though earlier provision is mitigated, concession is made too Law Ministry & ED).

• Winding Up case to be heard by 2-member Bench instead of a 3-member Bench.(Removal of an inadvertent error).

• Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations).

SOLE PROPRIETORSHIP, PARTNERSHIP AND CORPORATION

• A sole proprietorship is a business that has a single owner who is responsible for making decisions for the company.

• A partnership consists of two or more individuals who share the responsibility of running the company.

• A corporation is one of the most recognizable business structures and has a separate identity from the owners of the company. One or more owners may participate as shareholders of a corporation.

COMPANY• A Company is formed when registered under Companies Act.• A Private Company is formed with a minimum of 2 persons and a

public company with 7 persons at least.• A private Company is limited to 50 members excluding its

present and past employees. There is no limit to the maximum numbers of members in case of a public company.

• A Company has a separate legal entity distinct from the members who constitute it.

• Property belongs to the Company and not to the individual members.

• The liability of the shareholders is limited.• Shares are freely transferable. In a private company the articles

restrict the right of members to transfer their shares.• A Company has a perpetual succession. It comes to an end in the

event of winding up.• Audit of account by qualified auditor is compulsory.•  

PARTNERSHIP• Partnership is created when agreed between the individuals.

Registration of partnership firm is optional under the partnership Act.

• A partnership can be created by two persons.• The maximum number of members in a partnership firm is

limited to 10 in case of banking business and 20 in case of any other business.

• A partnership firm has no legal exisitence apart from its members i.e., the partners and the firms are one and the same.

• Property of the partnership firm belongs to individual partners comprising the firm.

• The liability of partnership is unlimited.• The partner cannot transfer his share without the consent of his

co-partners.• Partnership comes to an end when a partner dies or becomes

insolvent, unless otherwise provided in the partnership deed.• The capital of a partnership firm is limited, as it is contributed

only by a few persons• Audit of account is not compulsory. 

DIFFERENCE BETWEEN A PARTNERSHIP & SOLE PROPRIETORSHIP

• Ownership: Sole proprietorships are owned and operated by a single business owner, whereas two or more individuals must participate in ownership of a partnership.

• Decisions: The owner of a sole proprietorship has complete control over the company's finances and operations. All partners of a partnership give input wrt how the company's resources are used and other important business decisions.

• Liability: Sole proprietors and partners of a partnership business have unlimited liability for business lawsuits, obligations and liabilities, ie a partner or sole proprietor may be required to sell personal assets to meet the company's business obligations. In a partnership business, a partner may be liable for another partner's negligent behaviorAny partner may lose her personal assets, if the company's assets are not sufficient to meet the partnership's existing obligations.

DIFFERENCE BETWEEN A PARTNERSHIP & SOLE PROPRIETORSHIP (contd)

• Conflicts: There is NO conflicts wrt decisions making in Sole Proprietors. It is unwise to run a partnership without a partnership agreement in place. A partnership agreement may help partners operate company without disputes and conflicts.

• Acquiring Capital: Since ownership interest in the business cannot be offered to potential investors, it leads to difficulty in raising capital. Partnerships may receive more funds than a sole proprietorship because the partners may be able to get personal loans. Furthermore, partnerships can attract investors by offering ownership interest in the business.

• Continuity: Sole proprietorships end automatically if he dies or decides to sell the business. Partnerships may automatically dissolve if a partner dies or decides to withdraw from the business. However, a partnership may continue to exist after a partner dies or withdraws, if the partnership agreement contains procedures for continuing the business.

DIFFERENCES BETWEEN SOLE PROPRIETORSHIP, PARTNERSHIP &

CORPORATIONFormation:•There are no documents to file to begin a sole proprietorship or a partnership. However, businesses are required to file articles of incorporation, also known as a certificate of formation, to legally form a corporation in any state. State charges a fee to file articles of incorporation. • Corporations are required to register with each state where the company intends to make business transactions. This requirement is not imposed on sole proprietorships or partnerships.•Can A Coy Become A Partner in Partnership Firm?:A coy being a juristic person, is capable of contracting in its own name, since the Partnership (S4, Partnership Act 1932) between persons is a contractual relationship.

DIFFERENCES BETWEEN SOLE PROPRIETORSHIP, PARTNERSHIP &

CORPORATION (contd)Liability:•Sole proprietors and partners in a partnership business have unlimited liability for all debts and liabilities that occur while operating the business and thus may lose their personal assets, if the company's assets are insufficient to cover the company's debts. •Corporations provide owners of the company with limited liability protection against business losses and obligations ie owners of a corporation will not lose their personal assets, if the company goes bankrupt. •Owners of a corporation are liable for company debts and obligations up to extent of their investment in company.

DIFFERENCES BETWEEN SOLE PROPRIETORSHIP, PARTNERSHIP &

CORPORATION (contd) Taxation:•Partnerships and sole proprietorships are referred to as pass-through entities. This is because sole proprietors and partners in a partnership report their share of company profits and losses directly on their personal income tax return. Sole proprietorships and partnerships are not required to file business taxes with the Internal Revenue Service.• Corporations are subject to double taxation. This occurs when the corporation pays taxes on the company's profits at the business level, and shareholders pay taxes on income received from the corporation on their personal tax return.

DIFFERENCES BETWEEN SOLE PROPRIETORSHIP, PARTNERSHIP &

CORPORATION (contd) Structure:•Corporations have a structure consisting of shareholders, directors, officers & employees. Every corporation must select at least one person to serve on its board of directors (BoD).• BoD is responsible for allocating the company's resources and increasing the shareholders' profits. Officers are required to manage the day-to-day activities of the company and implement the decisions made by the company's shareholders and directors. •Sole proprietorships and partnerships have a more informal structure that does not require the selection of officers and directors. •Sole proprietors have full control over every aspect of their business, whereas partnerships and corporations have to vote on important company issues.

DIFFERENCES BETWEEN SOLE PROPRIETORSHIP, PARTNERSHIP &

CORPORATION (contd) Formalities:•Partnerships and sole proprietorships have far less paperwork and fewer ongoing formalities to adhere to in comparison to a corporation. •Corporations are required to hold at least one annual meeting, while sole proprietorships and partnerships do not have to hold company meetings. •A corporation must keep strict financial records and keep a ledger detailing how the company reached certain decisions. •Unlike a corporation, sole proprietorships and partnerships are not required to file annual reports with the state or create financial statements. 

DIFFERENCE BETWEEN A COMPANY & LIMITED LIABILITY PARTNERSHIP

LLP CompanyRegulating Act

regulated by LLP Act 2008

governed by CA, 2013

Min & Max No of Members

min two and NO limit on max

Public Coy: min seven.Private Coy: max 200.

Internal Governance Structure

Contractual Agreement between Partners

regulated by CA 2013

Management Those partners auth by LLP Agreement

BoD elected by the Shareholders

Transfer of Interests

Econ rights are transferable, but it shall not cause disassociation & winding up/ dissolution as also not make transferee a partner

Shares can be transferred freely and transferee succeeds to all rights of membership.

Audit of Accounts

Not must unless; Capital Contribution exceeds Rs 25 Lakhs/Annual Turnover exceeds Rs 40 Lakhs.

Legal necessity

CHARCTERISTIC FEATURES OF A COMPANY• Artificial Person: Being an artificial person, it has to depend

upon natural persons (Directors, Managers, Officers, Shareholders, for getting its various works done.

• Legal Entity (distinct from person who constitute it): Capable of enjoying rights & Subject to duties.

(although a company is regarded as a legal person (though artificial), it is not a citizen either under Constitution of India or the Citizenship Act 1955)• Incorporated Association: Incorporated or Regd under CA;

– OPC.– Pvt (minimum two members).

Public (minimum seven members).• Limited Liability: where a person's financial Liability is limited

to a fixed sum, most commonly the value of a person's investment in a company or partnership.

• Separate Property: Shareholders are not part owners.• Transferability of Shares: Being movable property as per AoA.• Perpetual Succession: “King is Dead, Long Live the King”.• Common Seal (made optional wef 29 May 2015 vide C(Amdt)A

2015)

LIFTING THE CORPORATE VEIL

Corporate Veil:• A legal concept that separates the personality of a

corporation from the personalities of its shareholders, and protects them from being personally liable for the company's debts and other obligations.

• This protection is not ironclad or impenetrable. • Where a court determines that a company's business

was not conducted in accordance with the provisions of corporate legislation (or that it was just a façade for illegal activities), it may hold the shareholders personally liable for the company's obligations under the legal concept of lifting the corporate veil.

• The Circumstances under which Courts may lift Corporate Veil;– Under Statutory Provisions.– Under Judicial Interpretations.

LIFTING THE CORPORATE VEIL UNDER STATUTORY PROVISIONS

• Mis-statement in prospectus (S 34 & 35).• Failure to return application money (S 39).• Misdescription of Name (S 12).• Punishment for Contravention of S 73 or 76 (S 76A).• For facilitating the task of an Inspector appointed U/S 212 or

213 to investigate affairs of company (S 219).• For investigation of Ownership of Company (S 216).• Fraudulent Conduct (S 339).• Liability of Ultra Vires Acts: The Directors & other

officers of a company will be personally liable for all those acts which they have done on behalf of a company if the same are ultra vires the company.

(Ultra vires : a latin phrase meaning "beyond the powers". If an act requires legal authority and it is done with such authority, it is characterised in law as intra vires ("within the powers“ ie valid). If it is done without such authority, it is ultra vires ie invalid).

LIFTING THE CORPORATE VEIL UNDER JUDICIAL INTERPRETATIONS

• Protection of Revenue.• Prevention of Fraud/Improper Conduct.• Determination of the Enemy Character of a Company.• Formation of Subsidiaries to act as an Agent.• Where a company acts as an agent for its shareholders.• In case of an economic offence.• Where company is used to avoid welfare legislation.• Where company is used for some illegal or improper

purpose.• To punish for contempt of court.• For determination of technical competence of the company.• Where company is mere Sham or Cloak.

ADVANTAGES OF INCORPORATION• Independent Legal entity.• Limited Liability.• Perpetual Succession.• Transferability of Shares.• Infinite Membership.• Mobilisation of huge resources.• Separate property.• Ease in control & management.

DISADVANTAGES OF INCORPORATION• Formalities & expenses.• Loss of privacy.• Divorce of control from ownership.• Detailed winding up-procedure.• Control by few.• Greater public accountability.• Possibility of frauds.

KINDS OF COMPANIES• CA 2013: Two Prominent Types of Companies;

– Private Companies : OPC & Small Company.– Public Companies.

• These Companies may be incorporated either as;– Limited Liability Companies:

• Companies limited by Shares.• Companies limited by Guarantee.• Companies limited by Guarantee & Shares.

– Unlimited Liability Companies.

• Companies may also be classified as;– Statutory Companies.– Registered Companies.– Existing Companies.– Govt Companies.– Foreign Companies.– Holding & Subsidiary Companies.– Associations not for profit.

PRIVATE COMPANY (CA2013 S2 (68), CA(A)2015)• Restricts the rights to transfer its shares, if any (not a ban on

transfer of shares). Applicable to Pvt Coy having Share Capital and not incorporated as Pure Guarantee Coy.

• Except OPC, limits number of members to 200 (excludes debenture holders), not including;– Persons in employment of Coy.– Ex Employees who were member of the coy while in employment and

have continued to be members after employment has ceased.

• Prohibits invitation to the public to subscribe for any securities of the company (No Public Issue/ advt inviting investment by public in its shares or debentures). Thus collect capital through private approach.

• Where two or more persons hold one or more share(s) in a coy jointly, they shall for the purposes of membership, be treated as single member.

(In view of the above, a pvt coy must, in its articles, incorporate the above Restrictions, Limitations & Prohibitions)

PRIVATE COMPANY:OTHER REQUIREMENTS• Minimum No of Members:

– Minimum Two, to form a Coy, subscribing their names to MoA.

– Any person competent to contract can subscribe (A coy being a legal person can subscribe).

– Minor ineligible to contract, thus cannot subscribe.• Use of Words ‘Private Limited (Pvt Ltd)’:

– It must be added at the end of the name of the coy.

ONE PERSON COMPANY (OPC):CA 2013 S 2(62) & 3 (1) (c)

• OPC introduced by CA 2013, enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business to enter into a Corporate Framework.

• Hybrid of Sole-Proprietor and Company form of business, has been provided with concessional/ relaxed requirements.

Features of One Person Company (OPC)• Only One Shareholder: Only a natural person, who is an Indian

citizen and resident in India (means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year) shall be eligible to incorporate a OPC. 

• Nominee for the Shareholder: Shareholder nominate another person (a natural person, an Indian citizen & resident in India, with his/ her consent) who shall become the shareholders in case of death/ incapacity of the original.

• Director:  Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.

TERMS & RESTRICTIONS OF OPC• A person shall not be eligible to incorporate more than a OPC or

become nominee in more than one such company.• Minor cannot become member or nominee of the OPC or can hold

share with beneficial interest.• An OPC cannot be incorporated or converted into a Coy U/S 8 of the

Act [Company not for Profit].• An OPC cannot carry out Non-Banking Financial Investment activities

including investment in securities of any body corporate. • An OPC cannot convert voluntarily into any kind of company unless

two years have expired from the date of incorporation of OPC, except threshold limit (paid up share capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant period exceeds Rs.2 Crores i.e., then the OPC has to invariably file forms with the ROC for conversion in to a Private or Public Company, with in a period of Six Months on breaching the above threshold limits.

RELAXATIONS AVAILABLE TO OPC• No need to prepare Cash Flow Statement (S 2 (40).• The annual return can be signed by Director and not

necessarily CS (S 92).• No necessity for AGM to be held (S 96).• Special Provisions related to General Meetings & EOGM

would not apply (S 100 to 111).• Compliance accepted as done if the resolutions are

entered in the Minute’s Book of coy (S 122).• Audited Financial Statements signed by one director (S

134).• Financial Statements can be filed within six months

from the close of the FY as against 30 days (S 137).• An OPC need to hold only one meeting of the BoD in

each half of calendar year and the gap between the two meetings should not be less than 90 days (S173).

STEPS TO INCORPORATE OPC• Obtain Digital Signature Certificate (DSC) for the

proposed Director(s).• Obtain Director Identification Number (DIN) for the

proposed director(s).• Select suitable Company Name, and make an

application to Ministry of Corporate Office for availability of name. 

• Draft MOA & AOA.• Sign and file various documents including MOA & AOA

with the Registrar of Companies electronically. • Payment of Requisite fee to Ministry of Corporate Affairs

and also Stamp Duty. • Scrutiny of documents at Registrar of Companies (ROC).• Receipt of Certificate of Registration/Incorporation from

ROC.

SMALL COMPANY : S 2 (85) • Small Coy introduced by CA 2013.• It means coy other than Public Company;– Paid-up share capital of which does not exceed Rs 50

Lakh, and,– Turnover of which as per its last PLA does not exceed

Rs 2 Crore (higher amount but not exceeding Rs20 Crores may be prescribed).

• Small Company shall not include;– A holding company or a subsidiary company.– Non-Profit Association.– A company or body corporate governed by any

special act.

PUBLIC COMPANY: S 2 (71) & C (A) A 2015

• Public Company means a company which is not a private company.

• A company which is subsidiary of a company, not being a private coy shall deemed to be public company for purposes of this act even where such subsidiary company continues to be a private company in its articles.

DISTINCTION BETWEEN PRIVATE & PUBLIC COMPANY

PRIVATE COY PUBLIC COYMin No of Members

Two Seven

Max No of Members

200 No Restrictions

Transferability of Shares (S 44)

Restrictions as per AoA

Movable property, transferable as per AoA.

Prospectus (S2(68)

Cannot issue Through Prospectus invite general public to subscribe for securities

Min No of Directors

Two Three

DISTINCTION BETWEEN PRIVATE & PUBLIC COMPANY (contd)

PRIVATE COY PUBLIC COYRetirement of Directors (S 152)

Not Required At least 2/3 of Directors must be such whose period of office is subject to retmt by rotation.

Quorum for GM (S 103)

Two Members Personally present

Personally present 5/ upto 1000,15/ upto 5000, 30/>5000

(unless AoA provide for higher numbers)Managerial Remuneration (MR) (S 197)

No Restrictions Total MR not to exceed 11% of Net Profit & MD/Whole time Director >5%

Public Deposits Can not accept Free to accept

SPEC PRIVILEGES & EXEMPTION AVAILABLE TO PRIVATE COMPANIES

• Min No of Members: Two (7 in case of Public Coy) (S 3).• Min No of Directors: Two (3 in case of Public Coy) (S 149).• Quorum for GM (S 103).• Managerial Remuneration (S 197). • Rotational Retirement of Directors (S 152).• Filling Casual Vacancies: NA to private company (S 161). • Spec disqualification: appt as Director: Pvt coy by AoA

provide Spec disqualification (S164(3).• Restriction on No of Directorship: Whereas max 10 for

Public Coy, it is 20 for pvt coy (none a public coy) (S 165).• Indep Directors: Pvt Coy exempted from requirement of ID

(S 149).• Audit Committee of The Board : Pvt Coy not required to

constitute (S 177).

CONVERSION OF PRIVATE COMPANY INTO A PUBLIC COMPANY (S 14)

• Special Resolution: – To be passed to amend AoA (No of members, free

transferability of shares or inviting public deposits).– Becomes Public Coy from date of alteration.– Cease to enjoy privileges & exemptions.

• Increase in Membership: If No of Members <7, it should be raised to 7 (S3).

• Increase in No of Directors: If No of Directors <3, it should be raised to 3 (S149).

• Filing of Altered Articles: Every alteration of the Articles filed with Registrar together with a printed copy of the altered article within 15 days.

• Alteration to be noted in every copy: Every alteration made in the Articles of a company shall be noted in every copy of articles.

CONVERSION OF PUBLIC COMPANY INTO A PRIVATE COMPANY (S 14)

• Passing of Special Resolution: In GM of Shareholders– Authorising conversion and altering AoA (three

restrictive clauses).– Becomes Public Coy from date of alteration.– Cease to enjoy privileges & exemptions.

• Changing the name of the Coy: Adding ‘Pvt’ before Ltd.

• Obtaining the approval of Tribunal: Conversion shall not have effect until Tribunal has approved it, which shall make such order as it may deem fit.

• Filing with the Registrar: Every alteration of articles and a copy of order of Tribunal approving the alteration shall be filed with the Registrar within 15 days.

STATUTORY COMPANY• Each Statutory Company is governed by the

provisions of its special act.• CA 2013 is applicable to the extent that they

are not inconsistent with the special act under which the company is formed.

• Eg: LIC Act, RBI Act

REGISTERED COMPANY• A company registered under the CA is known as

such.• Registered Companies can be incorporated as;– Limited or Unlimited Liability Companies.– Private or Public Companies.

LIMITED LIABILITIES COMPANIESCoy Ltd by Shares (also called Ltd Liability Coy).• A LLC is a corporate structure whereby the members of the

company cannot be held personally liable for the company’s debt or liabilities.

• LLC are essentially hybrid entities that combine the characteristics of a corporation and a partnership or sole proprietorship.

Coy Ltd by Guarantee.• (unlike LLC), A guarantee company has NO share capital or

shareholders.• Instead, it has members who undertake to contribute a nominal

amount towards any shortfall in the company’s assets to settle its debts in the event of its being wound up.

Coy Ltd by Guarantee having Share Capital.• The liability of member is not merely ltd to amount as in r/o

Guarantee Coy not having share capital.• Member(s) may be called upon to also contribute to the extent of

any sum remaining unpaid on shares held by him.

UNLIMITED LIABILITY COMPANY(ULC):(S 3 (2)

• A coy having NO limit on the liability of its members.• Liability of each member extends to the whole amount of the

company’s debt & liabilities (similar to that or partners, but unlike partners, members of company cannot be directly proceeded against).

• An ULC may or may not have share capital.

Conversion of an ULC into LLC (S 18)• Subject to provisions that any debt, liabilities, applications or

contracts by or on behalf of ULC before such conversion are not affected by conversion.

• An ULC having share capital, by a resolution do following;– Increase the nominal amount of its share capital by

increasing nominal amount of each of its share (with condition that increased capital shall only be called for the purposes of coy being wound up.

ASSOCIATION NOT FOR PROFIT• It is an association which is formed not for profit but for

promotion of art, charity, commerce, edn, envt protection, religion, research, Sc, social welfare or any such object.

• May or may not be regd as a coy under the CA, however, when regd (as a coy with ltd liability), it may be given licence by central govt (S 8). Eg: Bombay Gymkhana.

• Conditions for licence;– Has in its object promotion of art, charity, commerce,

edn, envt protection, religion, research, Sc, social welfare or any other such object.

– Intends to apply its profit, if any, or other income in promoting its objects, and,

– Intends to prohibit payment of any dividend to its members.

• Such an association cannot alter its MoA & AoA without previous approval of Central Govt.

ASSN NOT FOR PROFIT:COY FORMED U/S 8Conversion of S 8 Coys

• A Coy regd U/S 8, intending to convert into any other kind can do so by;– passing a resolution at a GM.– Complying with th prescribed procedure (Rule 21 of the Coys (Incorporation)

Rules 2014).

Exemptions to S 8 Coys • CS: Appt of CS not mandatory.• AGM:

– May hold AGM with mere 14 (instead of 21) days notice. – With flexibility of time, day & place, if decided by BoD beforehand.

• Recording of Minutes (S 118): NA, recorded in 30 days, if AoA provide for confirmation of minutes.

• Appt of Min & Max No of Director & ID (S149&150):NA.• Consent to act as Director filed with RoC (S152(5): NA.• BoD Mtgs: only two (one every six months) instead of four.• Quorum- BoD Mtgs: 8 Members or 25% of total strength (whichever

is less) but not less than 2 as against 1/3rd of total strength or 2 Director (which ever is higher).

GOVT COYs: S 2 (45)• Any coy in which not less than 51% of the paid

up share capital is held by;– Central Govt.– Any State Govt or Govts.– Partly by Central Govt & partly by one or more

State Govts.• A subsidiary of a Govt Coy is also treated as

Govt Coy.• Legal status of a Govt Coy (GoI/ State only

holds shares and not infrastructure).• Govt Coy- Private or Public:– May be incorporated any way.– Incorporating as Pvt Coy more convenient as only

two members needed to constitute it.

EXEMPIONS TO A GOVT COYsMin of Corporate Affairs vide Notification dated 05 Jun 0215• Use of word(s) ‘Ltd’ or ‘Pvt Ltd’: A Govt Coy is not

required to use ‘Ltd’ or ‘Pvt Ltd’ at the end of its name.• AGM (S96): At Regd Office/ such other place as Govt

may approve.• Dividends (S123(4): When 100% paid up share Capital

is with Govt, they need not deposit Dividend with Schedule Bank in five days from date of declaration.

• Board’s Report: Requirement of Report to contain info on policy on Director’s appt & remuneration and indep is NA.

• IDs (S149 (6) (a): A person shall be considered as ID if Min/ Deptt of GoI (adm I/C of Coy) or State Govt is a person of integrity, possess relevant epertise & experience.

• Managerial Remuneration (S 197): NA.• Other Exemptions: Provisions of S 160,

162,163,170, 171, 185 & 186 are NA to a Govt Coy.

FOREIGN COY: S 2 (42)• Any coy or body corporate incorporated outside

India which; – Has a place of business in India whether by itself or

through an agent, physically or through electronic mode.

– Conducts any business activity in India in any other manner.

• Having a share transfer/ registration office will constitute a business.

• Mere holding property cannot amount to having a place of business.

SPEC PROVISIONS: FOREIGN COYs To furnish following docus to Registrar within 30 days of est of

business• Certified copy of Charter, Statute or MoA & AoA

(and if not in English then certified translated copy thereof).

• Full address of Regd or Principal Office of the Coy.• A list of Directors and Secretary of the Coy.• Name(s) & address(es) of one or more persons resident in

India auth to accept, on behalf of coy, to accept Notice & Document (S 383).

• Full address of the office of the coy in India which is deemed to be principal place of business in India.

• Particulars of opening & closing of a place of business in India on earlier occasion(s).

• Declaration that none of the Directors or the auth rep in India have ever been convicted or debarred from formation of coys & mgt in India or abroad.

• Any other information as may be prescribed.

OTHER OBLIGATIONS: FOREIGN COYs: S382 • Display of its name & country of incorporation at

every office and place of business(English & Vernacular).• Publication of name & country of incorporation in all

business letters, letters heads & papers in English.• Liability of Members: If liability is ltd, it shall cause

notice of the fact;– In Prospectus, business letters, letters heads & papers and other

official publications (English).– Outside every office and place of business(English &

Vernacular).• Obligations Regarding Accts (S381): In calendar

year make out Balance Sheet & PLA and deliver a copy to Registrar.

• Books of Acct & Other Records (S384):Available at principal place of business.

• Prospectus: It is to be registered before Registrar prior to issue complying provisions of (S 387-389).

OTHER OBLIGATIONS: FOREIGN COYs (contd)

• Foreign Coys in which not less than 50% of Paid Up Share Capital is in Indian hands (S379): Coy shall be required to comply with all the provisions of CA 2013 asif it was a coy incorporated in India.

• Penalty (S 392): Contravening any provisions punishable with – A fine not less than Rs One Lakh extendable to Rs

Three Lakh.– In case of continuing offence upto Rs 50K everyday.– Defaulting Officer punished with six months

imprisonment or fine ranging from Rs 25 K to Rs Five Lakh.

• Winding Up (S 375): It may wound up as an unregistered company.

HOLDING & SUBSIDIARY COMPANY• Subsidiary Coy (S 2(87) means a coy in which

the holding coy;– Controls the composition of BoD, or,– Exercises or controls more than half of the share

capital either at its own or together with one or more of its subsidiary coys.