corporate viel and indoor managemen.pptx

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1. Doctrine of Corporate Veil The Doctrine of Corporate Veil refers to the legal principle that a company has a separate legal identity from its owners, shareholders, and directors. This concept, established in Salomon v. Salomon & Co. Ltd. (1897), protects shareholders from personal liability for the company's debts and obligations. Key Features of the Corporate Veil Separate Legal Entity Limited Liability Perpetual Succession Ownership vs. Management

2. Lifting the Corporate Veil Doctrine of Lifting the Corporate Veil is a legal principle that allows courts to look beyond the separate legal identity of a corporation and hold its shareholders, directors, or parent companies personally liable in certain circumstances.The corporate veil is lifted when the company’s separate legal personality is misused for fraudulent, illegal, or unethical purposes. This ensures that individuals do not use the corporate structure as a shield for wrongful activities.

3. Need for Lifting the Corporate Veil Fraud and Misrepresentation Evasion of Legal Obligations Public Interest and Justice Statutory Provisions Avoidance of Contractual Responsibilities Agency or Alter Ego Doctrine Environmental and Social Violations Protection of Minority Shareholders Inter-Corporate Transactions and Manipulation Judicial and Regulatory Intervention

4. Doctrine of Ultra Vires

5. Examples of ultra vires acts Appointing directors in a way that doesn't follow the company's constitution  Using resources for purposes other than what they are intended for  Using company assets or funds for personal use  Making a borrowing that is beyond the authority provided in the company's memorandum 

6. Examples of Ultra Vires A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India (1963): In this case, the directors of a company donated a substantial sum to a trust, an action not authorized by the company's Memorandum of Association. The Supreme Court held that such an act was ultra vires and void, emphasizing that company funds must be used strictly for purposes within the scope of the memorandum. Jahangir R. Modi v. Shamji Ladha (1866): The Bombay High Court addressed a situation where company directors engaged in share transactions beyond the company's authorized activities. The court ruled these actions as ultra vires, holding the directors personally liable for the unauthorized acts. State of Karnataka v. H. Ganesh Kamath (1983): The Supreme Court declared a rule in the Karnataka Motor Vehicles Rules, 1963, as ultra vires the Motor Vehicles Act, 1939, because it was inconsistent with the parent statute. The court emphasized that delegated legislation must conform to the provisions of the enabling Act.

7. Doctrine of Constructive Notice The Doctrine of Constructive Notice means that anyone dealing with a company is expected to know its rules and regulations , even if they haven't actually read them. These rules are found in the Memorandum of Association ( MoA ) and Articles of Association ( AoA ) , which are public documents registered with the government. How It Works: Company Rules Are Public: The MoA and AoA contain important rules about how a company operates. Everyone Is Expected to Know Them: Even if someone has not read these documents, the law assumes they are aware of the rules. No Excuse for Ignorance: If someone enters into a contract with a company that goes against its MoA or AoA , they cannot claim they didn’t know about the restriction. Protects the Company: This rule ensures that companies do not have to honor agreements that violate their internal rules .

8. Short Examples of the Doctrine of Constructive Notice Loan Beyond Limit : A company’s Articles of Association ( AoA ) states that directors cannot take loans above ₹5 crore. If a bank gives ₹10 crore without checking, the company can refuse to repay the extra amount. Unauthorized Business Activity : A company’s Memorandum of Association ( MoA ) allows it to operate in the textile industry only. If an outsider signs a contract with the company for a real estate project, the contract will not be valid. Share Transfer Restrictions : The AoA states that shares cannot be transferred without board approval. If someone buys shares without checking this, the company can reject the transfer. Appointment of Director : If the AoA requires a minimum qualification for a director, and an outsider appoints someone without meeting the criteria, the appointment will be invalid. Contract with Unauthorized Officer : If an employee who is not authorized to sign contracts makes a deal with a supplier, the company can refuse to honor the contract.

9. Doctrine of Indoor Management The Doctrine of Indoor Management is a legal principle that protects individuals or entities that engage in transactions with a company. It assumes that a company’s internal rules and procedures are followed properly, and outsiders (such as investors, creditors, and business partners) are not required to verify every internal approval or decision made by the company’s management. This doctrine ensures smooth business transactions and prevents unnecessary burdens on external parties. It is an exception to the Doctrine of Constructive Notice , which states that outsiders are expected to be aware of the public documents of a company, such as its Memorandum of Association ( MoA ) and Articles of Association ( AoA ) . However, outsiders are not expected to know the internal workings of the company, such as whether the company’s internal approvals or board resolutions were correctly passed.

10. Example………………… Imagine a company’s Articles of Association ( AoA ) state that a loan can only be taken with the approval of the Board of Directors. If an authorized director approaches a bank for a loan on behalf of the company, the bank can assume that internal approvals have been obtained. The bank does not need to investigate whether a formal board meeting took place or if the directors signed off on the decision. This is the Doctrine of Indoor Management in action.

11. Key Benefits of the Doctrine Protects Outsiders – It safeguards individuals and businesses dealing with a company by allowing them to trust the company's representatives. Facilitates Smooth Transactions – Ensures that business operations are not disrupted by excessive formalities. Encourages Corporate Responsibility – Prevents companies from escaping liabilities by claiming that internal procedures were not followed. Ensures Legal Certainty – Provides clarity in business transactions by holding companies accountable for their internal decisions.

12. Features of Company Separate Legal Entity Perpetual Succession Limited Liability Artificial Legal Person Transferability of Shares Common Seal (Optional) Capacity to Sue and Be Sued Ownership and Management Separation Statutory Compliance Winding Up

13. Memorandum of Association The Memorandum of Association ( MoA ) is a crucial legal document required for incorporating a company. It defines the company's objectives, powers, and limitations and serves as its constitution . It acts as a foundation upon which the company's structure and activities are built, ensuring that it operates within the legal framework. Legal Basis and Applicability Governed by: Section 2(56) of the Companies Act, 2013 (India) Mandatory for: All companies registered under the Companies Act Binding on: The company, shareholders, and outsiders

14. Key Features of MoA Defines the Company's Scope: A company cannot perform activities beyond what is mentioned in the MoA . Legal Requirement : It is mandatory for company incorporation and must be submitted to the Registrar of Companies ( RoC ). Protects Shareholders & Creditors : Ensures transparency and prevents companies from engaging in unauthorized activities. Acts as a Public Document : Anyone dealing with the company can inspect its MoA to understand its powers and objectives. Helps in Decision-Making : Guides directors and management regarding business expansion and investment decisions.

15. The MoA is divided into six main clauses 1.Name Clause (Section 4(1)(a)) Specifies the official name of the company. The name must end with “Limited” for a public company and “Private Limited” for a private company. The name should not resemble an existing company and must comply with naming regulations set by the Ministry of Corporate Affairs (MCA) . 2. Registered Office Clause (Section 12) States the official address of the company , where all legal communications are sent. The company must inform the Registrar of Companies ( RoC ) in case of a change in address.

16. 3.Object Clause (Section 4(1)(c)) Specifies the main objectives for which the company is incorporated. Contains ancillary objectives that support the main business operations. The company cannot engage in activities not mentioned in this clause. Any action beyond this clause is deemed Ultra Vires (beyond power) and is invalid . 4. Liability Clause (Section 4(1)(d)) Defines the extent of liability of shareholders: Limited by Shares: Liability is limited to the unpaid value of shares held. Limited by Guarantee: Members contribute a pre-decided amount in case of winding up. Unlimited Liability: Shareholders’ liability is not restricted (rare in modern businesses). 5. Capital Clause (Section 4(1)(e)) Specifies the authorized share capital of the company. The company cannot raise capital beyond the stated amount without amending the MoA . 6. Association Clause (Subscription Clause) Contains details of the first subscribers (promoters) who agree to form the company. Each subscriber must sign the MoA and take at least one share in the company.

17. Importance of Memorandum of Association Legal Foundation : Acts as the company's constitution and determines its powers. Prevents Unauthorized Activities : The company cannot engage in activities beyond what is stated. Ensures Transparency : Stakeholders can inspect the MoA to verify the company's legal business scope. Prevents Misuse of Authority : Directors cannot take decisions that exceed the MoA’s provisions. Facilitates Legal Dispute Resolution : In case of conflicts, courts refer to the MoA to determine the company's authorized actions.

18. Amendment of Memorandum of Association ( MoA ) – Section 13, Companies Act, 2013 The Memorandum of Association ( MoA ) is the foundational document of a company, and any modification to it must follow a legal procedure. Section 13 of the Companies Act, 2013 provides guidelines for amending the MoA , ensuring that changes align with corporate regulations and shareholder interests.

19. Key Provisions for Amending MoA Approval through Special Resolution: The company must pass a Special Resolution (SR) in a General Meeting to approve the amendment. The resolution must be filed with the Registrar of Companies ( RoC ) using Form MGT-14 within 30 days . Approval from Regulatory Authorities (If Required ): Certain amendments require approval from specific regulators: Central Government (for changes in name). Regional Director (for shifting the registered office from one state to another). SEBI, RBI, or Sectoral Regulators (for listed or regulated companies). Restrictions on Amendments : The new objects should not be illegal, fraudulent, or against public interest . Changes should not adversely affect minority shareholders or creditors .

20. Articles of Association Meaning of Articles of Association ( AoA ) The Articles of Association ( AoA ) is a legal document that defines the internal rules and regulations of a company. It governs the management, administration, and conduct of business , ensuring smooth corporate operations. The AoA acts as a contract between the company and its members, directors, and shareholders. Legal Basis Governed under Section 5 of the Companies Act, 2013 Must be consistent with the Memorandum of Association ( MoA ) and the Companies Act Can be altered by passing a Special Resolution (SR) in a General Meeting

21. Importance of Articles of Association Defines rights, duties, and powers of directors and shareholders Establishes rules for board meetings, voting rights, and dividend distribution Provides guidelines for share transfers, appointment & removal of directors Ensures transparent governance and regulatory compliance

22. Key Contents of Articles of Association 1.Share Capital and Shareholders' Rights Classes of shares (Equity, Preference) Rules for issuing, transferring, and forfeiting shares Dividend declaration process 2. Board of Directors & Management Appointment, removal, and powers of directors Duties and responsibilities of board members Frequency and conduct of Board Meetings 3. General Meetings & Voting Rights Procedures for Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs) Voting rights of members and procedures for passing resolutions Rules for proxy voting and quorum requirements

23. Financial Management Dividend declaration and distribution policies Audit procedures and appointment of auditors Financial record maintenance 5. Transfer & Transmission of Shares Conditions for selling/transferring shares Pre-emptive rights of existing shareholders Succession rules in case of a shareholder’s death 6. Borrowing Powers Conditions under which the company can raise loans or issue debentures Limits on financial liabilities 7. Winding Up of the Company Procedures for voluntary or compulsory winding up Distribution of assets upon dissolution

24. Alteration of Articles of Association Procedure (As per Section 14, Companies Act, 2013) Board Approval – Board of Directors approves the proposed amendments. Shareholders’ Approval – Special Resolution (SR) must be passed in a General Meeting . Filing with RoC – File Form MGT-14 with the Registrar of Companies ( RoC ) within 30 days . Regulatory Approval (If Required) – For listed companies, changes must be notified to SEBI & Stock Exchange . Restrictions on Alteration Cannot go against the MoA or the Companies Act Should not impact minority shareholders unfairly Must not violate public interest or legal provisions

25. Question to do………? Differentiate Between MOA & AOA