LAWTANTRA NOTES COMPANIES ACT, 2013
INTRODUCTION
The Companies Act, 2013 was enacted to consolidate and amend the law relating to the companies. The Companies Act, 2013 contains 470 sections and seven schedules. The entire Act has been divided into 29 chapters.
- A substantial part of this Act is in the form of Companies Rules.
- The Companies Act, 2013 aims to improve corporate governance, simplify regulations, strengthen the interests of minority investors, and for the rest time legislates the role of whistle-blowers.
Q-1 Describe Meaning and characteristics of company.
ANSWER :
Meaning: In terms of the Companies Act, 2013Section 2(20) : A “company” means a company incorporated under this Act or under any previous company law.
NATURE AND CHARACTERISTICS OF A COMPANY :
1. Corporate personality : It is a different ‘person’ from the members who compose it. A shareholder cannot be held liable for the acts of the company even if he holds virtually the entire share capital. A member does not even have an insurable interest in the property of the company. The leading case on this point is Macaura v. Northern Assurance Co. Limited (1925)
2. Perpetual Succession : Members may die or change, but the company goes on. Death, Unsoundness and Insolvency of all the members do not affect the existence of company.
3. Limited Liability : The liability of members will be limited
- In case of a company limited by shares : Liability will be limited till the unpaid face value of shares
- In case of a company limited by guarantee : Liability will be limited till the amount of guarantee amount
- In case of unlimited liability company: In unlimited liability, company liability will be unlimited but only towards the company not towards the third party
4. Artificial Legal Person : A company is an artificial person created by a process other than natural birth. It legal or judicial as it is created by law.
5. Common Seal : Common seal is the official signature of a company but by amendment of 2015 now there is no compulsion on the company to have a common seal.
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Q-2 What is corporate veil and state the circumstances when this veil will be lifted.
ANSWER :
Meaning of Corporate veil : The term Corporate Veil refers to the concept that members of a company are shielded from liability connected to the company’s actions. If the company incurs any debts or contravenes any laws, the corporate veil concept implies that members should not be liable for those errors.
Case-law: The case of Salomon v. Salomon and Co. Ltd.
Once a company has been validly constituted under the Companies Act, it becomes a legal person distinct from its members and for this purpose it is immaterial whether any member holds a large or small proportion of the shares, and whether he holds those shares as beneficially or as a mere . Lifting of Corporate Veil:
1. To determine the character of the company i.e. to find out whether co-enemy or friend:Daimler co. Ltd v/s Continental tyre& Rubber co. Ltd.: It was held that a company will be regarded as having enemy character if the persons having de facto control of company are residents of enemy country or wherever they may be they are acting on instructions of enemy.
2. To protect revenue/tax: Re.DinshawManekjee Petit: The assessee was receiving Huge dividend and interest income and he created three companies to reinvest the income for reducing the tax burden, the companies were having no business other than receiving investment and giving back to the assessee as a pretended loan. It was held that the company was not more than the assessee himself and the assessee was held liable to pay the tax.
3. To avoid a legal obligation: Where it was found that the sole purpose for the formation of
the company was to use it as a device to reduce the amount to be paid by way of bonus to workmen, the Supreme Court upheld the piercing of the veil to look at the real transaction (The Workmen Employed Associated Rubber Industries Limited, Bhavnagar vs. The Associated Rubber Industries Ltd., Bhavnagar and another).
4. Formation of subsidiaries to act as agents: A company may sometimes be regarded as an agentor trustee of its members, or of another company, and may therefore be deemed to have lost its individuality in favor of its principal. Here the principal will be held liable for the acts of that company.
5. Company formed for fraud/improper conduct or to defeat law: Where the device of incorporation adopted for some illegal or improper purpose, e.g., to defeat or circumvent the law, to defraud creditors or to avoid legal obligations.
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Q-3 Describe Private company and public company.
ANSWER :
Private Company :
Meaning : Private company is a company that may by its articles restrict the following:
• Restrict the right to transfer shares.
• Limits the number of members to 200 ( which excludes Employees/Ex-employees and treating joint holders as a single member )
• Prohibits invitation to public to subscribe for any securities Other Criteria:
• It should have a minimum paid-up capital as may be prescribed
• It should have a Minimum of 2 members and a maximum of 200(other than OPC)
• It should have minimum 2 directors.
Public Company: Meaning:
• Company that is not a private company is considered a Public Company.
• A subsidiary of a Public company is also a public company. Other Criteria:
• It should have a minimum paid-up capital as may be prescribed
• It should have a minimum of 7 members and there is no maximum limit.
• It should have minimum 3 directors
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