Company Law.pptx

Legal aspects of business

1. MB4104 – Business Law

2. Definition of Company It is an artificial person created by a process of law. It has a perpetual succession and a common seal. It exists only in contemplation of law, i.e., it is regarded by the law as a person. Lindley L.J.- An association of many persons who contribute money or money’s worth to a common stock and employ it in some common trade or business, and who share the profit or loss arising therefrom.

3. A company may be defined as “an incorporated association which is an artificial person, having a separate legal entity, with a perpetual succession, a common seal, a common capital compromised of transferable shares and limited liability.”

4. CHARACTERISTICS OF A COMPANY Separate legal entity. A company is in law regarded as an entity separate from its members. In other words, it has an independent corporate existence. Any of its members can enter into contracts with it in the same manner as any other individual can and he cannot be held liable for the acts of the company even if he holds virtually the entire share capital. The company's money and property belong to the company and not to the shareholders

5. Limited liability. A company may be a company limited by shares or a company limited by guarantee. In a company limited by shares, the liability of members is limited to the unpaid value the shares. For example, if the face value of a share in a company is Rs . 10 and a member has already paid Rs . 7 per share, he can be called upon to pay not more than Rs . 3 per share during the lifetime of the company. In a company limited by guarantee, the liability of members is limited to such amount as the members may undertake to contribute to the assets of the company, in the event of its being wound up. CHARACTERISTICS OF A COMPANY

6. 3. Perpetual succession. Members may come and go but the company can go on for ever (until dissolved). Perpetual succession, therefore, means that a company's existence persists irrespective of the change in the composition of its membership. CHARACTERISTICS OF A COMPANY

7. 4. Common seal. Since a company has no physical existence, it must act through its agents and all such contracts entered into by its agents must be under the seal of the company. The common seal acts as the official signature of the company. CHARACTERISTICS OF A COMPANY

8. 5. Transferability of shares. The capital of a company is divided into parts, called shares. These shares are, subject to certain conditions, freely transferable , so that no shareholder is permanently or necessarily wedded to company. When the joint stock companies were established the great object was that the shares should be capable of being easily transferred CHARACTERISTICS OF A COMPANY

9. 6. Separate property. As a company is a legal person distinct from its members, it is capable of owning, enjoying and disposing of property in its own name . Although its capital and assets are contributed by its shareholders, they are not the private and joint owners of its property. The company is the real person in which all its property is vested and by which it is controlled, managed and disposed of. CHARACTERISTICS OF A COMPANY

10. 7. Capacity to sue. A company can sue and be sued in its corporate name. It may also inflict or suffer wrongs . It can in fact do or have done to it most of the things which may be done by or to a human being. CHARACTERISTICS OF A COMPANY

11. KINDS OF COMPANIES On the basis of Incorporation Statutory Company Registered Companies II. On the basis of Liability Companies with limited by liability Company limited by shares Companies limited by guarantee Companies with unlimited liability III. On the basis of Number of Members Private Company Public Company

12. IV. On the basis of Control Holding Company Subsidiary Company V. On the basis of Ownership Government Company Non-Government Company Foreign Company Associations not for profit One Man Company Small Company

13. Statutory Company It is incorporated by a special Act passed either by the Central or State legislature. Companies intended to carry on some business of national importance are formed this way to provide a service to its citizens. Eg. RBI formed under RBI Act 1934 Registered Companies A company registered under the companies Act 2013 or any other existing Act. I. On the basis of Incorporation

14. II. Classification on the basis of Liability Company limited by shares It is a company in which the liability of the members (shareholders) limited i.e. they are only liable for the unpaid value of shares held by the member. The unpaid amount can be called upon any time during the life time or winding up of the company. If the shares of a member are fully paid up then his liability will be nil.

15. Company limited by Guarantee In such a company the Liability of shareholders is limited up to the amount guaranteed or invested by the shareholder towards the assets of the company in the event of its being wound up. The amount guaranteed can be only demanded at the time of its wound up, hence it is a reserve capital. Such companies are generally formed to promote art, science, commerce, sports etc. and are not for profit making

16. Unlimited companies A company having no limit on the liability of its Shareholders is an unlimited company. Thus the liability may extend to the personal property of the Shareholders in case the company is not able to satisfy its claims at the time of winding up . This liability of members is like a partnership where they have to contribute according to the ratio of amount invested in the company

17. Private Company The term “private company” has been defined under section 2(68) of Companies act 2013. A private company means a company, which has a minimum paid up share capital of Rs . 1 lakh and which provides the following restrictions through its Articles of Association and Memorandum – At least 2 members are required to form a private company Restricts the transfer of shares by its members Limits the maximum number of members to 200 Prohibits any invitation or acceptance of public deposits Prohibits invitation to public for debentures of the company It has atleast 2 directors Its name end with the word “Private limited” III. Classification on the basis of Number of Members

18. Examples of Private Ltd. Companies Reliance Industries Limited. Tata Consultancy Services (TCS) Infosys Technologies Ltd. Wipro Limited. Bharti Tele-Ventures Limited. ITC Limited. Hindustan Lever Limited.

19. Public company The term ‘public company’ has been defined under section 2(71)of Companies act 2013. A ‘public company’ means a company which has minimum paid up share capital of Rs . 5 lakh and which is not a private company. It has the following features It does not restrict transferability of shares At least 7 members are required to form a public company There is no restrictions on the number of maximum members It has atleast 3 directors Its name end with the word “limited” It can accept public deposits and invite public for subscription of its shares and debentures A private company which is a subsidiary of a public company will also be considered a public company under this Act

20. Examples of Public Ltd. Companies Indian Oil Corporation Ltd. Bharat Petroleum Corporation Ltd. State Bank of India Hindustan Petroleum Corporation Ltd Oil & Natural Gas Corporation Ltd.

21. IV. Classification on the basis of Control Holding and Subsidiary company Where one company controls the management of another company, the former is called the holding company and the later over which the control is exercised is termed as a subsidiary company. A company shall deemed to be a holding company of another, if that other is a subsidiary A company shall be deemed to be subsidiary of another company if the other company Controls the composition of its Board of Directors. Holds more than half of nominal value of equity share capital. It is a subsidiary of another company which is another company’s subsidiary. If it holds more than 50% of the total voting rights of the company

22. V. Classification on the basis on Ownership On the basis of ownership, a company may be a Government company, or N on-Government company. 1. Government company [Sec. 2(45)] Government company means any company in which not less than 51 per cent of the paid-up share capital is held by— the Central Government, or any State Government or Governments, or part ly by the Central Government and partly by one or more State Governments For example - State Trading Corporation of India Ltd, and Minerals and Metals Trading Corporation of India Itd are Government companies. The subsidiary of a Government company is also a Government company

23. Foreign Company It means any company incorporated outside India which has an established place of business in India (Sec. 2 (42)]. Where not less than fifty per cent of the paid-up share capital whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more citizens of India or by one or more companies of bodies corporate incorporated in India, whether singly or in the aggregated, such company shall comply with the provisions of this Act as may be prescribed with regard to the business carried on by it in India as if the were a company in corporate in India. (Sec. 379 of Companies Act, 2013)

24. Associations not for profit These companies must obtain a license from the central government before they are registered. They are limited liability but are not required to use the word Limited or private with their names. They are formed promoting art, science, commerce, sports etc. Profits are applied towards its objective and cannot be distributed among its members. It enjoys various exemptions on registration. It does not pay stamp duty for registration of Memorandum and Articles of Association. It can be formed without share capital Government can revoke license any time by giving a notice

25. One Man Company Where one man holds practically the whole of the share capital of a company and takes a few more dummy members simply to meet the statutory requirements of the minimum number of persons such a company is one man company. A one man company can be incorporated under sec 2(62) of the Companies Act, 2013. In such a company the principle shareholder is the virtual owner running the business with limited liability and other members may have even one share.

26. Small Company (Sec. 2 (85)] Small Company means a company other than a public company 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 or turn over of which as per last profit and loss account does not exceed two crore such higher amount as may be prescribed which shall not be more than twenty crore rupees. Provided that it shall not apply to holding company/subsidiary company a company registered under Sec. 8 a company governed by any special Act

27. Dormant Company This a new initiative of Ministry of Corporate Affairs to introduce the concept of Dormant Companies, which means Companies which are not carrying on any significant account transaction for a period of two years can apply to Registrar of Companies for getting declared itself as Dormant Companies. In today's economic environment, a lot of Companies are formed for the purpose of holding any assets particularly real assets or any IPR or for a future project and such Company just keeps on complying with the laws even if no actual business is being done or transacted.

28. DIFFERENCE BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY PRIVATE COMPANY PUBLIC COMPANY It can be started with a Minimum Paid up Capital of Rs 1 lakhs Its Minimum Paid up Capital requirement is Rs. 5 lakhs Minimum number of Members – 2 members Minimum number of Members – 7 members Max. number of members – 200 members excluding employed members Max. number of members – No limit Min. number of directors – At least 2 At least 3

29. PRIVATE COMPANY PUBLIC COMPANY Transferability of Shares – The right to transfer is restricted by Articles of Association, it requires prior permission of the Board Of Directors of the company. Shares can be transferred freely Public subscription is restricted They can invite public for subscription Acceptance of public deposits – The articles prohibit a private company from accepting deposits. A public company can accept deposits from public DIFFERENCE BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY

30. PRIVATE COMPANY PUBLIC COMPANY Commencement of business – It can Commence its business immediately after getting the certificate of incorporation It can only commence business after getting certificate of commencement of business Issue of prospectus – Not compulsory Compulsory Statutory meeting – Not required It must hold a statutory meeting after one month or before 6 months from the date of obtained certificate of commencement of business DIFFERENCE BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY

31. PRIVATE COMPANY PUBLIC COMPANY Managerial remuneration not fixed Fixed at 11% of annual net profits Index of members is not required It is required Provisions regarding directors – It is free to appoint directors It requires the directors to file with the registrar a consent to act as directors or sign an undertaking for their qualification shares. DIFFERENCE BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY