CS Executive Chart Book: Legal & Features

CS Executive Chart Book: Quick Revision Guide - Company Law (Module I)

• The book is a quick revision guide for the CS Executive exam covering company law.
• It covers the new syllabus for the June/Dec 2024 exams.
• The content is in summarized tabular chart format and in point-wise summaries for easy learning.

Introduction to Company Law

• The Companies Act, 2013 got presidential approval on August 29, 2013, and was published in the Gazette of India on August 30, 2013.
• As per Section 2(20), a company is defined as one registered under the 2013 Act or any previous company law.
• The word "Company" comes from the Latin "Com & panis", meaning "Together" and "Bread," signifying an association of people who shared meals together.
• Company means a voluntary association that pools money into a common stock for a shared goal, agreeing to share profits and losses.
• Members are called shareholders, and shareholders' stock is called share capital of the company.
• Section 2(11) defines "body corporate" as a company, including a foreign company and certain corporations but excluding cooperative societies and other specified entities.
• Every company is a body corporate, but not every body corporate is a company. Such provision of an act shall apply to company incorporate either via this act or via any earlier one.
• The basic characteristics of a company consists of many things including it being a voluntary organization, A separate legal entity, an Artificial person, where it can own propert, it can sue / be sued, has indefinite succession with limited member liability.
• The legal status of a company depends on its place of incorporation.
• A company cannot claim fundamental rights, although some rights available to any person apply to companies.

Lifting/Piercing the Corporate Veil

• The term "piercing the corporate veil" describes the act of a court disregarding the separate existence of a company to hold its shareholders liable. Effects of illegal association includes:
• A person committing fraud or illegal activity inside a company will be held liable ( cannot enter in contract, neither is it able to be wound up, entity is not able to be recognised neither are they able to sue or be sued).

Doctrine of Ultra Vires

• Ultra vires, from Latin, indicates actions beyond a company's legal authority to perform.
• Activities against the Companies Act, the Memorandum of Association, or Articles of Association are considered ultra vires.
• In Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1878), the House of Lords determined a contract to be ultra vires, and therefore void, as it exceeded the company's objects clause.

Doctrine of Indoor Management

• The doctrine of indoor management protects outsiders dealing with a company, assuming internal procedures are followed correctly
• In Royal British Bank v. Turquand, Turquand could sue the company on a bond because he was entitled to assume that the necessary resolution had been passed.

Doctrine of Constructive Notice

• The doctrine of constructive notice means that all those dealing with the company are construced of having knowledge of the company articles and memorandum of association.

Doctrine of Alter Ego

• A company as an individual is distinct therefore shareholders / director get immunity from any crimes or debts of the company.

Corporate Advantages

• Advantages of corporate form of enterprise include corporate personality, limited liability, perpetual succession, transferable shares, separate property, and capacity to sue.
• Disadvantages of corporate form include formalities and expenses, corporate disclosures, separation of control from ownership, greater social responsibility, greater tax burden, and detailed winding-up procedures.

MCA-21 and Agencies

• MCA-21 is an e-governance initiative by the Ministry of Corporate Affairs.
• Agencies that operate under MCA-21 are the Registrar of Companies (ROC) and Regional Directors (RD).

E-filing

• E-forms are legally admissible in a Court of Law, so a Digital Signature is legally admissible in a court of law and a digitally signed file must conform to the law.
• introduction of pre-certification by an independent professional in the e-form aimed at reducing the workload of the Registrar of Companies.

Legal Status and Types of Registered Companies

• Corporate Personality includes bearing its own name, owning separate and distinct assets, incurring debts, having a bank account, employing people, entering into contracts, and suing or being sued.
• Salomon v. Salomon and Co. Ltd. (1897) established that a company becomes a distinct legal person from its members once validly constituted.
• Basic characteristics of a company include being an artificial person, having perpetual succession, separate property, transferability of shares, capacity to sue or be sued , does not include citizenship.

Types of Companies

• Public Company: An association of at least seven members, registered under the Act, whose securities may be quoted on a Stock Exchange.
• Private Company: Having a minimum of two members, restricting share transfers, limiting membership to 200, and prohibiting public subscription to its securities.
• Section 8 Company/ Non-Profit company: Has objective is to primarily promote art, sport, science, education/ reserach, social welfare however has no profit motive and applies all profitsolely to further objectives.

Small, Government, Holding and Subsidiary Companies

• Small Company has paid-up share capital of under ₹4 crore and turnover exceeding ₹40 crore.
• Government Company with at least 51% of the paid-up capital held by the government.
• Holding Company has control over one or more subsidiary companies.
• Subsidiary Company's composition of the board of directors is controlled by The holding company or can control more than 50% of total voting shares.
• Wholly owned by another indian or foreign company.
• Associate Companies hold at least 20% of Total voting Power.

Private Company essentials

• At least two members needed.
• Liability is limited.
• No minimum share captital.
• Max member limit is 200.
• Needs only two director.

Disadvantages of registered companies

• Include the possibilities of privacy loss, fraud and diversified control, along with greating need for formality/ expense or public accountability.

Share Capital Concepts

• Section 2(84) of the Act defines a share as "a share in the share capital of a company including stock.

Prospectus

• Section 2(70) Prospectus includes any document described or issued as a prospectus, including a red herring prospectus and a shelf prospectus

Share certificate and capital

• Share certificate is documentary evidence of title created once a BR is passed and within set timespan.

Private or Preferential share allottments

• It must be limited to less than 200 persons or face invalidation under the act.

Red Herring and Shelf Propectus

• With key elements ommitted it is to only contain info on the business / sector to draw prospective investors, not to make claims regarding future earnings that could sway judgement.
• Shelf Propectus makes offering shares via a single prospectus for set periods.
• Abridged Propectus - It has silent features, issued alongside applicatons.
• Deemed - issued if the public has been invited.

All time requirements for returns

• Allotment -30 days
• Transfer - 1 month
• Incorporation - 2 months

Share Capital Alterations

• Cannot be done without passing the special resolutions and following proper BR / GM formats, in addition to notification ROC and other conditions being fulfilled.
• Key features of what can be changed include share rights etc.

Charges

• S77 - all charges must be registered with the ROC within 30 days else they may not be valid.
• Floating or crystallised charges can involve the company and its management being held liable.
• Difference between Pledge and Charge: Physical transefr vs Right transferrence is where a pledge consists of a debt / other transaction and the items are transfered as security until obligations / debts have been fulfilled.

Name-Object-Liability -Capital Clauses in MoA

• States name the company wishes to work
• Name shall not be identical or have resembalance to already existing company and not offend or be deemed a violation
• Defines the actions that the company can do
• States the liability of the individual in the entity
• Capital which the company is resigered to be in

Alterations to other clauses of MOA

• Other things that can be altered depend on actions that the court / regional directior has to decide on.
• Key ones generally depend on BR / SR formats.

Articles of Association

• Contain proper regulations for the administration of the company.
• Bind company, members and be in-line with Companies Act 2013 , with further alteration by SR.

Register Section 88, Contents

• Requires to know member names/debt owners / owners of security
• Separate section for each
• Min 2 members for private company.
• Public, 15. Can have 1 director in person form quorom

SBO

• Significant Beneficial owner requirements must be adhered to and met with filing of new / old rules for various compliance.

Veto Power

• Is present with company when company wants to undertake particular action but this individual / entity can overrule if certain concerns aren't met, or this entity objects.

Power to sign accounts etc.

• Must be done by various types of directorial staff including the chair.

Member rights

• Attend meetings
• View documents and get copies
• Statutory registers / Returns
• Vote

Book closure

• Register can be closed for time, within the limits, only when notice for it is given.

Record date

• Date on which company books close advance notice must be adhered to.

Rights of Members

• include various documentation, copies to statutory records, the right to attend meetings, and many other civil or general aspects.

Shareholders Rights

• They may get involved by means of democratic process, where there are certain minimum shares before they can vote on agenda or make action.

Meeting of memorandum and articles of association

• Must be done when company is incorporated.

Transposition of Members

• Its simply requesting the BOD to alter the arrangement of shares of a member who has made error , no need to sign, not stamp requirements.

Company name change

• By following the procedures and applying for the relevant certificates on its alteration, the company may alter name with govt permission.

Registered address

• Company must do to maintain registered office within the legal limits, as changes may require alteration to these things.

Objects

• Alteration includes the following key factors after various checks on funds, and so on.
• Includes newspaper ads , shareholder opportunity and other changes.

Liability

• Special Res is needed to remove sections.

Capital Aleration

• BR / GM and finally follow all ROC for the alteration, for those wishing to alter shares, sub divide , consolidate eetc.

Alteration of Share Capital

• Section 61 of the Companies Act, 2013 lays the procedure for a limited company with share capital to alter its memorandum in a general meeting. This includes increasing authorized share capital, combining or dividing shares, and cancelling capital.

Share capital related penalty

• If not adhered to fine of 10,000 on company and 5,000 on officer will be levied, for each default that occurs.

Buyback Conditions

• For buying back of shares from stakeholders a special resolution is required which must be folllowed strictly.

Objectives of buyback

• These can include a reduction in shares or surplus, prevent unwelcome takeovers.

Sources

• Companies can buy from free reserves, and use premium received for issues.

Buyback methods

• Existing , Open , Employee

Limit

• A cap is placed at 10% using BR, though SR has greater allowances.
• Following this capital will not be altered, and shareholders retain equal limit.

Postponement, alteration on debt

• Floating debts can take security or precedence.

Illegal action penalties

• When illegal company and all officers are both held liable.

Reduction of share capital

• Company can only reduce share capital after following the above process if its a special resolution.
• Process involves applying to company with SR at meeting giving notices to auditor etc.

Non capital reduce

• Has no bearing and doesnt involve all above points.

Transferee death

• If no notice, its a normal transfer, other legal representative.

Death if Transeror

• If notice, it is not registered until the rep is called from.

Right of members

• In an organisation
• To receive notice about meeting
• Receive copies to documents ect
• To view information.

Right of directors etc

• Report and conduct meeting and hold information.

Quorums

• Section -189 - related

Casual vacancy

• Will get filled in by a BOD

Meeting Quorums etc

• Must have set members and at-least every hall. 1 member for every 2

General Body Powers

• To be followed in a GM-SR.

19: Key Managerial Personnel (KMP's) and their Remuneration

• In relation to a company (Section 2(51)), the key managerial personnel includes Chief Executive Officer or Managing Director or manager
• The KMP also includes the company secretary, a whole-time director and many listed or non-listed KMP types. Remuneration to occur as Section's 197 format -
• Cannot be a director who is less than 21yr, etc. - they must be a person who is not working for more than 1 company, and a variety legalities / good repute issues. Also some limitations in over lapping payments.

Duties and regulations

• To make payment of interest or redemption of premium. Cannot be done through subsidiary or investment subsidiary. To declare details before the actual election. To be a resident. Must not be held by outside party in some aspects, etc

Study tips:

• Note that while every attempt has been made to give details, these materials may be lacking. Therefore, it is advised to use at your own discretion.

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