Company law important point

Company law important point

• The word ‘company’ is derived from the Latin word (Com = with or together; panis = bread), and it originally referred to an association of persons who took their meals together.

• In the legal sense, a company is an association of both natural and artificial persons incorporated under the existing law of a country. A company has a separate legal entity from the persons constituting it.

• The main characteristics of a company are corporate personality, limited liability, perpetual succession, separate property, transferability of shares, capacity to sue and be sued, contractual rights, limitation of action, separate management, termination of existence etc.

• The company, though a legal person, is not a citizen under the Citizenship Act, 1955 or the Constitution of India. Though it has established through judicial decisions that a company cannot be a citizen, yet it has nationality, domicile and residence.

• Company Law in India has been modelled on the English Company Law.

• In India after independence, the Companies Act, 1956 was enacted with a view to consolidate and amend the earlier laws relating to companies and certain other associations.

• Companies Act, 2013 was passed by the Lok Sabha and Rajya Sabha on 18th December and 8th August, 2013 respectively. It received the assent of the Hon’ble President of India on 29th August, 2013 and was notified in the Gazette of India on 30th August, 2013. The Companies Act, 2013 has replaced the Companies Act, 1956.

• Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality. The Court may break through the corporate shell and apply the principle of what is known as “lifting of or piercing the corporate veil”.

• In order to prevent the mischief arising from large trading undertakings being carried on by large fluctuating bodies so that persons dealing with them do not know with whom they were contracting, the law has put a ceiling on the number of persons constituting an association or partnership.

If the ceiling exceeds 50, then such association or partnership has to register itself either under the Companies Act, 2013 or some other Indian Statute.

• From the point of view of incorporation, companies can be classified as chartered companies, statutory companies and registered companies.

Companies can be categorized as unlimited companies, companies limited by guarantee and companies limited by shares. Companies can also be classified as public companies, private companies, one person companies, small companies, associations not for profit having licence

under Section 8 of the Act, Government companies, foreign companies, holding companies, subsidiary companies, associate companies, investment companies and Producer Companies.

• A private company has been defined under Section 2(68) of the Companies Act, 2013 as a company which has a minimum paid-up capital as prescribed, and by its articles restricts the right to transfer its shares, limits the number of its members to two hundred, and prohibits any invitation to the public to subscribe for any securities of the company..

• Where a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included therein under section 2(68), the company shall, as from the date of such alteration, cease to be a private company.

• A private company can be further classified into a One Person Company and Small Company.

• One Person Company” means a company which has only one person as a member.

• ‘Small company’’ means a company, other than a public company,

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees.

• Above definition of small company is not applicable to a holding company or a subsidiary company; or a company registered under section 8; or a company or body corporate governed by any special Act.

• A public company is a company which (a) is not a private company (b) has a minimum paid-up share capital as may be prescribed.

• A limited company is a company limited by shares or by guarantee. An unlimited company is a company not having any limit on the liability of its members.

• Associations not for profit with limited liability are permitted to be registered under a licence granted by the Central Government without using the word(s) ‘Limited’ or ‘Private Limited’.

• Section 2(45) defines a Government company as a company in which not less than fifty one per cent of the paid-up share capital is held by Central or State Government or governments or partly by one and partly by others.

• Auditor of a government company shall be appointed or reappointed by the Comptroller and Auditor General of India (C.&A.G.).

• Foreign Company means any company or body corporate incorporated outside India which (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner

• Investment Company means a company whose principal business is the acquisition of shares, debentures or other securities.

• A Producer Company is a body corporate having objects or activities specified in Section 581B and which is registered as such under the provisions of the Act. Section 581B(1) of the Companies Act, 1956 provides the objects for which a producer company may be registered under the Act.

• The primary object of Nidhis is to carry on the business of accepting deposits and lending money to member- borrowers only against jewels, etc., and mortgage of property. According to section 406 of Companies Act, 2013

“Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.

• A company formed under an Act of Parliament or State Legislature is called a Statutory Company/ Corporation.

• Principal characteristics of Statutory Corporation are State ownership, creation by special law, immunity from Parliamentary scrutiny, freedom in regard to personnel, body corporate features, distinct relation with the Government, independent finances, commercial audit and operation on business principles.

• Central Government has exempted applicability of various provisions of the Act, to Private Company, Nidhi Company, Section 8 Company and Government Company.