Class Notes on Company Law – Unit I (2nd Sem / 3 year LL.B)

 

Class Notes on Company Law – Unit I

1. The Companies Act, 1956

Overview:

• Purpose: Governs the formation, management, and dissolution of companies in India.
• Key Features:
  • Provides the framework for the establishment and regulation of companies.
  • Regulates the rights and duties of the company, its members, and its directors.

Key Sections:

• Section 3: Defines what constitutes a company under the Act.
• Section 16: Details the procedure for rectification of the company’s name.
• Section 20: Pertains to the address of the registered office of the company.

Historical Context:

• The Companies Act, 1956 was the primary legislation governing company law in India before being largely replaced by the Companies Act, 2013.

Example: The Companies Act, 1956 laid down the legal framework for the incorporation and regulation of public and private companies in India, setting the foundation for the corporate legal environment.

2. Corporate Personality and Its Kinds

Definition:

• Corporate Personality: The concept that a company has a distinct legal identity separate from its members. It can own property, enter into contracts, and be sued or sue in its own name.

Kinds of Corporate Personality:

1. Private Limited Company:
   • Characteristics:
     • Limited liability of members.
     • Shares are not available to the general public.
     • Restrictions on the transfer of shares.
   • Example: A family-owned business with a small number of shareholders.
2. Public Limited Company:
   • Characteristics:
     • Shares are offered to the general public.
     • Can raise capital through public stock exchanges.
     • Greater regulatory requirements.
   • Example: Large corporations like Infosys or Tata Motors.
3. One Person Company (OPC):
   • Characteristics:
     • A single person holds all shares.
     • Limited liability with the flexibility of a private company.
     • Introduced by the Companies Act, 2013, but the concept had roots in earlier legislation.
   • Example: Sole proprietorships that have transitioned to corporate form for liability protection.

Legal Significance:

• Corporate personality allows a company to act as a legal entity separate from its members, facilitating business operations and protecting individual shareholders from personal liability.

Case Example: Salomon v. Salomon & Co. Ltd [1897] AC 22 – The seminal case establishing the principle of separate corporate personality.

3. Promoters

Role and Responsibilities:

• Definition: Promoters are individuals or entities that undertake to form a company and take the necessary steps to set it up and register it.

Functions of Promoters:

• Pre-Incorporation Activities:
  • Drafting the Memorandum of Association (MOA) and Articles of Association (AOA).
  • Arranging for the necessary capital.
  • Securing registration of the company.
  • Finding suitable directors and officers.
• Legal Duties:
  • Fiduciary Duty: Must act in good faith and disclose any personal interest in transactions with the company.
  • Pre-Incorporation Contracts: Promoters are personally liable for contracts entered into before the company is incorporated, unless ratified by the company after incorporation.

Case Example: Preston v. Luck [1881] 8 QBD 395 – The court discussed the liabilities of promoters in pre-incorporation contracts.

4. Registration and Incorporation – Memorandum of Association (MOA)

Incorporation Process:

• Steps to Incorporate:
  1. Obtain a Digital Signature Certificate (DSC): For the company’s directors.
  2. Apply for Director Identification Number (DIN): For directors.
  3. Choose a Company Name: Ensure it complies with naming regulations.
  4. Prepare MOA and AOA: Draft the Memorandum of Association and Articles of Association.
  5. File with Registrar of Companies (RoC): Submit required documents including MOA, AOA, and other forms.
  6. Certificate of Incorporation: Issued by the RoC upon approval, marking the official formation of the company.

Memorandum of Association (MOA):

• Definition: The MOA is a fundamental document that outlines the company’s constitution and scope of activities.
• Contents of MOA:
  • Name Clause: The name of the company.
  • Registered Office Clause: The address of the company’s registered office.
  • Object Clause: The objectives and scope of activities the company intends to undertake.
  • Liability Clause: Specifies the extent of liability of members.
  • Capital Clause: The authorized capital and its division into shares.
• Purpose:
  • Defines the company’s scope of operations.
  • Acts as a charter for the company’s activities.

Example: A company’s MOA might state that it is established to engage in the business of software development and related services.

Case Example: Howard v. Patent Ivory Mfg. Co. [1888] 36 Ch D 348 – Discussed the significance of the object clause in defining a company’s scope of activities.