Legal Aspects of

COMPANIES ACT, 2013 Business

Prof. Mehek Kapoor

 CLASSIFICATION OF COMPANIES
On the Basis of On the Basis of On the Basis of Other
Liability Members Control
FOR INFORMATION ONLY

Limited by One Person Holding Govt Company

Shares Company Company

Limited by Public Company Subsidiary Foreign

Guarantee Company Company,

Unlimited Private Listed/ Unlisted

Company Company Company

Dormant
Companies
 BASIS FOR COMPARISON PARTNERSHIP FIRM COMPANY
Meaning A company is an association of
When two or more persons agree
persons who invests money towards
to carry on a business and share
a common stock, for carrying on a
the profits & losses mutually, it is
business and shares the profits &
known as a Partnership firm.
losses of the business.
Governing Act Indian Partnership Act, 1932 Indian Companies Act, 2013
How it is created? Partnership firm is created by The company is created by
mutual agreement between the incorporation under the Companies
partners. Act.
Minimum number of members 2 in case of private company and
2 7 in case of public company, 1 for
one person company.
Maximum number of members 200 in case of a private company
100 partners and a public company can have
unlimited number of members.
Audit Mandatory
Not Mandatory
Liability Unlimited Limited
Contractual capacity A partnership firm cannot enter A company can sue and be sued in
into contracts in its own name its own name.
Legal formalities in dissolution /
No Yes
winding up
Separate legal entity No Yes
Mutual agency Yes No
 FEATURES OF A COMPANY
➢A Company is a Separate Legal Entity

➢Artificial Legal Person

➢Separate Property

➢Perpetual Succession

➢Limited Liability

➢Common Seal
SHAREHOLDERS(MEMBERS) V. DIRECTORS
➢Shareholders or Members means a person who is a subscriber to the
memorandum of the company or is entered as a member in the Register of
Members, or any person holding shares of the company as a beneficial owner in
the records of a depository. Directors are the officers of the company, appointed
to the board of the company by the shareholders, who manage the company.

➢Both Shareholders Directors and have different roles to play in order to run a
company. Shareholder is the owner of the company, the Director is the manager
of the company on behalf of the shareholders. One can assume the roles of both
director and shareholders, or can also be only a director or shareholder of the
company unless the articles otherwise provide.

➢The Board of directors is entrusted with complying legal formalities required

and act in the best interest of the company whereas the shareholders are not
involved in the day to day business or management of the company unless they
form the part of the board.
SHAREHOLDERS(MEMBERS) V. DIRECTORS

➢There is also parity in regard to receipt of money from a company. While the
shareholders are entitled to receive part of profits as dividend, directors are
entitled to receive remuneration and sitting fees from the company or any other
fees as provided to them for services provided in any other capacity.

➢Private company - minimum 2 directors, 2 shareholders

➢Public Company – minimum 3 directors, 7 shareholders
➢One Person Company- minimum 1 director, 1 shareholder
ARTICLES OF ASSOCIATION (AOA)
Every company needs a set of rules and regulations to manage its
internal affairs. There are two important business documents of a
company, namely, Memorandum of Association (MOA) and Articles of
Association (AOA).
The AOA specifies the internal regulations of the company and
contains the bye-laws of the company. Therefore, the director and
other members must perform their functions of management of the
company, its accounts, and audits in accordance with the AOA.
The AOA must contain the regulations for the management of
the company. The Articles must specify all matters, in accordance with
the rules. Furthermore, a company can include additional matters
deemed necessary for its management.
Companies Act, 2013 provides forms for AOA for different types of
companies. Further, the articles must be in the respective form. A
company can adopt all or any of the regulations specified in the
model articles.
 MEMORANDUM OF ASSOCIATION (MOA)

Contains the objects for which the company is formed and therefore identifies
the possible scope of its operations beyond which its actions cannot go.
It defines as well as confines the powers of the company.
If anything is done beyond these powers that will be ultra vires the company
and be void.
 MEMORANDUM OF ASSOCIATION (MOA)
1. Name Clause:
 A Company is a legal entity. So, it must have a name to establish its identity.
 Confers protection against subsequent company registration in the same or closely
similar name.

2. Registered Office /Domicile Clause:

 Memorandum of Association must state the name of the State in which the
registered office of the company is to be situated.
 It will fix up the domicile of the company.
 Registered office of a company is the place of its residence for the purposes of
delivering or addressing any communication, service of any notice or process of
Court of Law and for determining the question of jurisdiction in any action against
the company.
3. Objects Clause:
It is the most important clause in the Memorandum of Association. It defines and limits the
scope of operations of the company. It explains to the members the scope of activity of
the company where their capital will be employed.

4. Liability Clauses:
 Liability clause mentions the liability of members of the company.

5. Capital Clause:
 Memorandum of Association of a limited company having share capital must state the
amount of share capital with which the company is to be registered.

6. Association/Subscription Clause:
 This clause states that the persons subscribing their signatures at the end of the
Memorandum are desirous of forming themselves into an association in pursuance of
the Memorandum.
MEETINGS
Types of Shareholder Meetings
 Statutory Meeting- Once in lifetime of company, first meeting
 Annual General Meeting(AGM)- Held every year to discuss
business and share annual reports
 Extra Ordinary General Meeting- held for special business
that cannot be put off until next AGM

Types of Resolutions
 Special Resolution – Atleast 75% votes are required
 Ordinary Resolution -More than 50% votes are required
CORPORATE VEIL
The separate legal entity of a company is one of its most
unique features. The Corporate Veil Theory is a legal concept which
separates the identity of the company from its members.
Members are shielded from the liabilities arising out of the company’s
actions. Therefore, if the company incurs debts or contravenes
any laws, then the members are not liable for those errors and enjoy
corporate insulation. In simpler words, the shareholders are protected
from the acts of the company.
Lifting the Corporate Veil means looking beyond the company as a
legal person, disregarding the corporate identity and paying regard
to humans instead.
In certain cases, the Courts ignore the company and concern
themselves directly with the members or managers of the company.
This is called piercing the corporate veil. Usually, Courts choose this
option when the case involves a question of control rather
than ownership.
LIFTING OF THE CORPORATE VEIL
In the following scenarios the Courts may lift the corporate veil to look
into the activities of the company-
1] To Determine the Character of the Company
2] To Protect Revenue or Tax
3] If trying to avoid a Legal Obligation
4] Forming Subsidiaries to act as Agents
5] A company formed for fraud or improper conduct or to defeat the law
6] Ultra vires acts
WINDING UP OF A COMPANY
VOLUNTARY WINDING UP

The circumstances in which company may be wound up voluntarily are:

➢When the period fixed for the duration of the company in its articles
has expired
➢When an event on the happening of which the company is to be
dissolved as per its articles takes place
➢The company resolves by special resolution at any general meeting
to be voluntary winding up
WINDING UP OF A COMPANY
COMPULSORY (TRIBUNAL) WINDING UP
The winding up process is done by the tribunal. This is done by the tribunal and the
company has little to no say in the procedure. The company will be a mere
spectator.

1.Inability to pay debts

2. Special Resolution Resolved for winding up of the company but
execution takes place by NCLT/discretion of NCLT to govern the winding
up.
3.When the company acts against the interest of sovereignty of India &
integrity of India
4. Affairs of the company are conducted in a fraudulent manner. (Formed
for unlawful purposes/Management guilty of fraud)
5. Company has failed to file the returns with the registrar of the
company for 5 consecutive years.
6. When NCLT deems it is just and equitable to wind up the company.