Legal Aspects of Business | Company Organization
Corporate Law
1. Company – Meaning & Features
- Definition: A company is an organization formed and registered under the Companies Act, 2013. It becomes a separate legal entity with distinct rights from its shareholders.
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Features:
- Incorporated Association: Legally formed under the Act.
- Legal Entity: Independent of its members.
- Artificial Person: Created by law, not by nature.
- Limited Liability: Members are not personally responsible for debts.
- Separate Property: Own assets and liabilities.
- Transferability of Shares: Shares can be transferred (if applicable).
- Perpetual Succession: Continuous existence regardless of members.
- Common Seal: Legal tool used for official documents.
2. Lifting of Corporate Veil
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When the veil may be lifted:
- Reduction of Membership: Below legal minimum.
- Misrepresentation: False information in the prospectus.
- Failure to Return Money: For unreturned application money.
- Fraudulent Business: If the company’s business is found to be fraudulent.
- Ultra Vires Acts: Actions beyond the company’s legal power.
- Violation of Laws: For breaking regulations (e.g., tax laws).
- Enemy Character: To determine if a company is an enemy entity.
- Agency Role: If the company acts as an agent for shareholders.
- Avoiding Laws: Used to bypass welfare laws.
- Illegal Use: For improper purposes.
3. Kinds of Companies
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Private Company:
- Minimum capital: ₹1 Lakh.
- Restricted share transfer.
- No public invitations for share subscription.
- Max members: 200.
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Public Company:
- Minimum capital: ₹5 Lakhs.
- Minimum members: 7.
- Open share subscription.
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Government Company:
- Government holds at least 51% shareholding.
- Can be private or public.
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Foreign Company:
- Incorporated outside India, but operates in India.
- Must submit certain documents to the Registrar.
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Holding & Subsidiary Companies:
- Holding Company: Controls board of directors or owns majority shares.
- Subsidiary Company: Controlled by another company.
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Section 25 Company:
- Formed for non-profit purposes (e.g., charity, social purposes).
- No dividends paid to members.
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Producer Company:
- For co-operatives in agriculture, animal husbandry, etc.
- Can raise funds and modernize.
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One Person Company (OPC):
- A private company with only one member and one director.
4. Promotion of Company
- Promotion: Initial steps to register and set up the company.
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Promoter’s Role:
- The promoter is responsible for formation but is not an agent or trustee.
- Fiduciary Duty: Promoters must act in the best interest of the company.
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Promoter’s Duties:
- No Secret Profit: Cannot make profits secretly.
- Disclosure: Must disclose personal interests in transactions with the company.
5. Procedure for Registration/Incorporation of a Company
- Decide Company Type: Private or Public.
- Name Approval: Application for name approval with ROC (Registrar of Companies).
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Memorandum & Articles of Association:
- Memorandum: Outlines the company’s scope of operations.
- Articles: Internal rules for managing the company.
- Statutory Declaration: Declaration by a professional confirming compliance with the law.
- File Documents & Fees: Submit documents to ROC with registration fees.
6. Certificate of Incorporation
- The company officially exists once it receives the Certificate of Incorporation.
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The Certificate:
- Confirms legal existence.
- Is proof that all legal requirements have been met.
7. Allotment of Corporate Identity Number (CIN)
- CIN: A unique identification number given to the company once registered.
