Business Law: Artificial Legal Person and Common Seal

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Questions and Answers

What is the role of directors in a company?

They can authorize the company's acts through its common seal. (correct)

They act as the agents of the company members.

They can manage personal affairs of the company members.

They are the sole owners of the company.

What does 'common seal' represent in a company?

The official signature of the company used for authentication. (correct)

A legal representation of a company’s owner.

A historical relic that signifies company ownership.

The physical representation of a director’s signature.

What change did the Companies (Amendment) Act, 2015 introduce regarding the common seal?

It made the common seal mandatory for all companies.

It prohibited the use of common seals for new companies.

It made the common seal optional for companies. (correct)

It allowed companies to store the common seal virtually.

Which of the following statements about the common seal is true?

It acts as a relic from medieval times. Signup and view all the answers

If a company does not have a common seal, who has the authority to authenticate documents?

Two directors or a director and the Company Secretary. Signup and view all the answers

What defines a foreign company as per Section 2(42)?

It has a place of business in India and conducts any business activity in India. Signup and view all the answers

What is the primary objective of companies formed under Section 8 of the Companies Act, 2013?

To promote charitable objects and protect the environment. Signup and view all the answers

Which of the following is NOT true about Section 8 companies?

They are required to pay dividends to their members. Signup and view all the answers

How does the Central Government assist in the formation of Section 8 companies?

It issues a license for registration under specific conditions. Signup and view all the answers

Which of the following is an example of a Section 8 company?

FICCI. Signup and view all the answers

What does the liability clause specify for a company limited by shares?

Members' liability is limited to any unpaid amount on their shares. Signup and view all the answers

In a company limited by guarantee, what is the obligation of each member upon winding-up?

To contribute towards debts, liabilities, and winding-up expenses. Signup and view all the answers

What is stipulated in the capital clause for a company with share capital?

The number of shares and their fixed amounts agreed upon by subscribers. Signup and view all the answers

What is required from every subscriber when forming a company?

They must take at least one share and record it next to their name. Signup and view all the answers

Which clause concludes the Memorandum of a company?

The association clause showing the intention of forming a company. Signup and view all the answers

What does the term 'ultra vires' refer to in the context of company law?

Actions taken beyond the power of the directors. Signup and view all the answers

In the case of Ashbury Railway Carriage and Iron Company Limited v. Riche, what was the main reason the contract was deemed null and void?

The contract was outside the stated objects of the company. Signup and view all the answers

Which action can shareholders take if a contract is ultra vires the powers of the directors?

Ratify the contract irrespective of its validity. Signup and view all the answers

What was a key interpretation made by the Court regarding the term 'general contractors'?

It must be associated specifically with mechanical engineering. Signup and view all the answers

Which of the following statements is true regarding an ultra vires contract?

It cannot become intravires by any circumstantial factors. Signup and view all the answers

What is the definition of subscribed capital according to the Companies Act, 2013?

The nominal amount of shares taken up by the public Signup and view all the answers

What penalty do a company and its officers face for failing to disclose subscribed and paid-up capital as required?

₹ 10,000 for the company and ₹ 5,000 for each officer Signup and view all the answers

Which capital refers to the total amount called for payment according to the Companies Act, 2013?

Called-up capital Signup and view all the answers

What constitutes paid-up capital as per the Companies Act, 2013?

Total amount paid or credited as paid up on shares issued Signup and view all the answers

How is a share defined in the context of the Companies Act, 2013?

An interest in the company's assets based on the amount paid up Signup and view all the answers

Study Notes

Artificial Legal Person

Companies are legal persons, not natural people
Companies function through human agents, such as directors
Directors act on behalf of the company, not for its members
Directors can authenticate company actions, either personally or through the company seal

Common Seal

A company's common seal acts as its official signature
It's used to authenticate company documents
The Companies Act, 2015 has made common seals optional, allowing companies to use alternative authentication methods
The amendment suggests that common seals are outdated and unnecessary
Companies which choose not to have a common seal must use two directors or a director and company secretary for authentication

Types of Companies

Foreign Company: A company registered outside India that conducts business within India, either directly or through agents
Section 8 Company: A company formed for charitable purposes, such as promoting commerce, art, science, or social welfare
Section 8 Companies: Do not pay dividends to members and focus on fulfilling their stated objectives

Company Capital Terms

Authorized Capital: The total amount of share capital that a company is legally permitted to issue
Issued Capital: The portion of authorized capital that the company has actually offered to its members for subscription, including shares issued for non-cash consideration
Subscribed Capital: The portion of issued capital that has been taken up by members, representing the nominal value of shares they own
Called-up Capital: The total amount of subscribed share capital that the company has requested payment for from its members
Paid-up Capital: The total amount of capital that members have actually paid on their shares

A share represents a proportional interest in a company's assets.
The value of a share is determined by its relationship to the total capital paid to the company.
Share capital contributes to the company's overall financial structure and provides funds for growth and operations

Doctrine of Ultra Vires

This doctrine states that a company can only engage in activities authorized by its Memorandum of Association.
Any action outside these stated purposes is considered ultra vires and invalid
Shareholders can ratify ultra vires actions by the directors, or the company can amend its articles to allow for the activities
Ultra vires acts cannot be made valid through estoppel, acquiescence, lapse of time, delay, or ratification

Memorandum of Association

It outlines the fundamental terms and conditions for a company's existence
Contains essential clauses:
- Liability Clause: Specifies the liability of members, either limited or unlimited
- Capital Clause: Specifies the authorized capital of the company, divided into shares of defined amounts with agreed-upon subscriber numbers
- Association Clause: Defines the company's subscribers and outlines their respective shareholdings
In the case of a one-person company (OPC), the memorandum must identify the person who will become a member in the event of the subscriber's death.

Ashbury Railway Carriage and Iron Company Limited v. Riche (1875)

This landmark case established the doctrine of ultra vires.
The Ashbury Railway Carriage and Iron Company entered into a contract for financing a railway line in Belgium.
The contract was challenged as being beyond the company's stated objects in its Memorandum of Association.
The court ruled that the contract was ultra vires and therefore void.
This highlighted the importance of adhering to the company's authorized objects and the consequences of exceeding those boundaries.

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Description

Test your understanding of artificial legal persons, the function of directors within companies, and the implications of common seals in business law. Explore the types of companies defined under the Companies Act, 2015, including foreign and Section 8 companies.