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MEANING OF A COMPANY

A company means a company formed and


registered under this act or an existing
company as defined in clause (ii)

Sec. 3(1)(j)

An existing Co. means A Co. formed and


registered under any of the previous company
laws.
Sec. 3(1)
Contd..
A Co. is an association of many persons who
contribute money or moneys worth to a
common stock and employ it in some trade or
business and who share the profit and loss
arising therefrom. The common stock so
contributed is denoted in money and is the
capital of the Co. the persons who contribute
it or to whom it belongs are members. The
proportion of capital to which each member is
entitled is his share. The shares are always
transferable although the right to transfer is
often more or less restricted.
- Lord Justice Lindlay
A corporation is an artificial being, invisible,
intangible, existing only in contemplation of
the law. Being a mere creation of law, it
possesses only the properties which the
charter of its creation confers upon it, either
expressly or as incidentaI to its very
existence.
- Chief Justice Marshall
A company is an incorporated
association, which is an artificial person
created by law, having separate entity,
with a perpetual succession and a
common seal
- Haney
CHARACTERSTICS OF A COMPANY
Incorporated association
Artificial legal person
Separate legal entity
A perpetual succession
Limited liability
Transferable shares
Common seal
Separate property
Capacity to sue & being sued
KINDS OF COMPANIES

I. On the basis of mode of incorporation


Chartered Cos.
Statutory Cos.
Registered Cos.
II. On the basis of liability of members
Limited by shares
Limited by guarantee
Unlimited
III. On the basis of No. of members
Private
Public
IV. Govt. Cos.
V. Foreign Company
VI. Holding and subsidiary company
VII. Producer Cos.
DISTINCTION BETWEEN PRIVATE AND PUBLIC COMPANY

Private Public
Min No. of member to form a company is 7
2
Max. No. of member should not exceed 50 No Restriction
Right to transfer share restricted Freely transferable

Prospectus can not be issued Through prospectus general public is


invited to subscribe for shares,
debentures or deposits.
No. of directors must have atleast 2 Must have atleast 3
Commence business immediately after Can only start after receiving the
getting the certificate of incorporation. Certificate to commence business from
registrar of companies.
Directors consent to work, as Necessary
a director with registrar is
not necessary.
Directors can be approved by Each directors appointment requires
a single resolution. separate resolution
Private Public
No. of directors may be increased to any Not more than 12 without the approval of
no. Central Government.
Directors not required to retire by rotation At least 2/3 of directors must retire by
rotation
Managerial Remuneration no Restriction. Not more than 11% of net profit (Not more
than 5% to single Manager/Director)

Quorum for general meeting 2 Five members.


members.
Can be registered with a paid up capital of Rs. 5 Lakh.
Rs. 1 Lakh
Exempted form filing of various returns Not so exempted

Cannot accept deposits from the public Can accept public deposits (Subject
to Secs 58A, AA, AAA & B)
Need not hold a statutory meeting or file a Must do so.
statutory report
THE CORPORATE VEIL
LIFTING
UnderJudicial Interpretation
Under Express Statutory Provision
LIFTING THE CORPORATE VEIL
Under Judicial Inter
For determining the character of the Co.
For the benefit of revenue
In case of fraud or misconduct
Others
Under Express Statutory Provision
Reduction in membership
Directors with unlimited liability
Fraudulent conduct of business
Failure to return application money
Misrepresentation in the prospectus
Misdescription of name
Non payment of tax
Liability of promoters for pre-incorporation contracts
Ultra-Vires acts
Holding subsidiary company
CASE OF SKIPPER CONSTRUCTION CO. (P) LTD

Tejwant Singh, head of skipper group of business, had to pay-back many


hundred persons to the tune of crores of rupees, whom his Co. had cheated at
Jhandewalan Apartment project.

He owns a big mansion at Aurangjeb Road, New Delhi. Skipper family


(Tejwants wife and two sons) has been trying to dodge liability towards
depositors by forming a string of differently named cos. and claiming each is
distinct. His both sons claimed to have recently separated from the father and
to be heading a different Co. each. Technology Park Pvt. Ltd. in one case and
Tej Properties Pvt. Ltd. in another. On 1 Oct. 93 Tejwant Leased his Aurangjeb
road mansion for 5 years to Maple Leaf Trading Co. of Ireland for a rent of
Rs.1 Lakh p.m. the lessor was Tej Properties. Tejwant Singh and his wife being
the only directors of Tej Properties.

The lease was to take effect a week after. On the same day Maple leaf trading
Co. subleased the mansion to the Israeli embassy for 9 years, at a rent of
Rs.8.7 lakhs p.m., with 30 months rent to be deposited at the outset, and in
court. Tejwants younger son said his parents no longer had any connection
with Tej Properties. It was his Co and he has separated from his father.
FORMATION AND INCORPORATION
OF COMPANY
The Whole process is divided into four stages

1. Promotion
2. Registration
3. Floatation
4. Commencement of Business
PROMOTION
The discovery of business opportunities and the
subsequent organization of fund, property and
managerial ability into a business concern for the
purpose of making profits there from.

- Gerstenberg
(Financial Org. & Management)
PROMOTERS

It
is a short and convenient way of designating those
who set in motion the machinery by which the Act
enables them to create an incorporated company.

- Lord Blackburn
One who undertakes to form a
company with reference to a given
project and to set it going and who
takes the necessary steps to
accomplish that purpose.

- Justice Cockburn
It is a term not of law but of
business, usefully summing up in a
single commercial word, a number of
business operations, familiar to the
commercial world by which a
company is brought into existence,

- L. J, Bowen
INCORPORATION OF COMPANY

The promoter of the company will submit the following


documents with the registrar of the companies for the
registration and entitlement to commence business under
the Companies Act 1956

I. The memorandum of association


II. The articles of association
III. A list of persons who have consented to act as
directors of the proposed company
IV.A statutory declaration by appropriate person
V. The promoter will file any agreement with the relevant
persons of the proposed company
CERTIFICATION OF
INCORPORATION
Effect of certification of incorporation
Conclusiveness of the certification of
incorporation
FLOATATION

Private company
Capital is obtained from friends and relatives by
private arrangements.
Public company
a) Public to subscribe for shares-prospectus will
have to be issued
b) Arrange capital from promoters friends and
relatives-only statement in lieu of prospectus to
be issued.
c) SEBI Guidelines
COMMENCEMENT OF BUSINESS

Every private company and a company not limited by share can


commence business immediately. But a public company limited by
shares is debarred from commencing business or borrowing money
without the certification of commencement of business.
1. Where the company has issued a prospectus, it has to satisfy
following conditions.
I. The minimum subscription in cash been received
II. Every director of the company has paid in cash his qualification
shares, a proportion payable on application and allotment on
the shares offered for public subscription.
III. No money is liable to be repaid to applicants for any shares or
debentures which have been offered for public subscription by
reason of any failure to apply for, or to obtain, permission for
the shares or debentures to be dealt in any recognized stock
exchange.
IV. A statutory declaration duly verified by one of the directors or
the secretary in the prescribed from that the above conditions
have been complied with, is filed with registrar.
Contd
2. Where the company has not issued a
prospectus, it has to satisfy following
conditions:

I. A statement in lieu of prospectus has been


filed with the registrar.
II. Every director of the company has paid on
his shares in cash, a proportion equal to the
proportion payable on application and
allotment on the shares payable in cash.
III. A statutory declaration duly verified by one
of the directors or the secretary in the
prescribed form, that above has been
complied with, is filed with the registrar.