UNIT 1

INTRODUCTION
A) CHOICE OF FORM ON BUSINESS ENTITY
● Selection of the form of business entity is one of the most important decisions
before starting a business. This decision is required to be revisited periodically as
the business develops.
● The choice amongst the various forms of business entities depends upon many
aspects such as objects of the proposed business, likely number of members,
amount to be invested, scale of operations, state control, legal requirements, tax
implications, advantages of one form of business over another, etc.
B) NATURE, FORM AND TYPES OF BUSINESS ENTERPRISES
● Business enterprises can be broadly divided into two broad categories, namely,
one which is non-corporate in form (or unincorporated bodies) and the other
which has a corporate character (or incorporated bodies).
● Enterprises which fall in the former category are sole proprietorship,
partnership and Hindu Undivided Family. Business organisations which
comprise the latter category are companies and co-operative undertakings.
● The basic difference between the corporate and the non-corporate form of the
organisation is that while a non-corporate form of business may be started
without registration, corporate bodies cannot be set up without registration under
the laws which govern their functioning.
● Non-corporate form of business enterprises
➢ Sole proprietorship
➢ Joint hindu family/ hindu undivided family
➢ partnership
● Corporate form of business enterprises
1) The co-operative organisation
2) Company
3) LLP

1) The co-operative organisation

Co-operative organisation is a voluntary association with unrestricted
membership and collectively owned funds, organised on democratic principles of
equality by persons of moderate means and income, who join together to supply
their needs and wants, in which the motive of production and distribution is
service rather than profit
A co-operative society is required to be registered under Co-operative Societies
Act 1912. The co-operative societies receive a number of special concessions
from the law and the government, in order to encourage healthy development of
co-operatives.
2) Company
 A company is an artificial legal person creator by process of law which
makes it an entity separate and district from its members who constitute
it.
The capital of the company is provided by a group of people called
shareholders who entrust the management of the company in the hands
of persons known as the Boards of Directors
3) Limited Liability Partnership(LLP)
LLP is an incorporated partnership formed and registered under the LLP
ACT 2008
Owning to flexibility in its structure and operation, LLP is useful for small
and medium enterprises, in general, and for the enterprises in services
sector, in particular. LLP is also very suitable for professionals like
company secretaries, chartered accountants, cost accountants,
advocates etc.
History of Company Law
● Company legislation in India owes its origin to the english company law.
● In britain, the earliest business associations during the 11th to 13th centuries were called
the “merchant guilds”. There guilds obtained characters from the crown mainly to
secure for their members, a monopoly in respect of particular trade or commodity.
● In the 14th century, the word “company” was adopted by certain merchants for trading
overseas.
● By the end of the 16th century Royal Charters granted a monopoly of trade to members
of the company over a certain territory. There companies were called regulated
companies.
● East india company was one of such regulated companies established by a charter in
1600. It had monopoly of trade in India; its members could carry on trade individually
and had the option to subscribe to the joint fund or stock of the company
● By the end of the 17th century all these companies or merchant guilds are many
regulated companies which the crown had incorporated.
● At this time the only method of obtaining the incorporation of a company was by Royal
charter or by an act of parliament. These methods of incorporation were quite
expensive and time consuming.
● As a result, the 18th century witnessed a flood of speculative and often fraudulent
schemes of company flotations of which the notorious schemes of South Sea Company
is the best known example.
● Consequently, the Bubble Act 1720 was passed. The Act prohibited generally the use
of the form of corporations unless a corporation was authorised to at as such by an Act
of Parliament of Royal charter
● Although the Bubble Act help up the development of capital market for a century, it did
not destroy the unincorporated companies
● In 1825, the Bubble Act was repealed. In 1834, the Trading Companies Act was
passed empowering the crown to confer by Letters Patent any of the privileges of
incorporation except limited liability.
 ● In 1844, the Joint Stock Companies Act 1844 was passed for the first time. This Act
provided for the registration of companies with more than 25 members or with shares
transferable without the consent of all the members. It also provided for incorporation by
registration.
● The Act for the first time created the office of the ‘Registrar of Companies’ and required
particulars of the company’s constitution, changes therein and annual returns to be filled
with the registrar so that there would be full record retained officially.
● Limited liability was still excluded under Joint Stock Company Act, 1844.
● In 1855, the Limited Liability Act 1855 by which any company registered under the
JSC Act 1844 might limit the liability of its members for its debts and obligations
generally to the amount unpaid for their shares
● In fact, the English Companies Act 1856 known in the JSC Act 1856 replaced the earlier
Act 1844 and 1855. Under this act seven or more persons could form themselves into an
incorporated company with or without limited liability by signing a MOA and complying
with the requirements of the Act.
● The JSC Act 1856, was repealed by the Companies Act 1862 which followed the same
pattern but contained a number of improvements.
● In 1908, the whole of the existing statute law was consolidated and after the further
amending statutes, in 1929 and 1948, and enacted new consolidated legislation in 1948.
● The Companies Act 1948, was itself amended and supplemented by the Company Act
1967, 1980,1981 and 1983, the whole of the existing statute law relating exclusively to
companies was consolidated in the Companies Act 1985.
● In 2006, the Companies Act 2006 was passed by UK Parliament. The Act provides a
comprehensive code of company law, and makes changes to almost every facet of the
company law in relation to companies. The key provisions are directors duties,
takeovers, amalgamations, corporate governance, independent directors etc.
History of Company Legislation in India
● The company legislation in india has closely followed the company legislation in england
● The first legislative enactment for registration of Joint Stock Companies was passed in
the year 1850 which was based on the JSCA 1844(Actual first )
● This act recognised companies as district legal entities but did not introduce the concept
of limited liability. The concept of limited liability in india, was recognised for the first time
by the Companies Act 1857 closely following the English Companies Act 1856 in this
regard.
● The Companies Act 1857, kept the liability of the members of banking companies
unlimited. It was only in 1858 that the limited liability concept was extended in banking
companies.
● The Companies Act 1866 was passed for consolidating and amending the law relating to
incorporation, regulation and winding-up of trading companies and other associations.
This Act was based on the English Companies Act 1962
● The Company Act 1866 continues till 1913 when it was replaced by the Companies Act
1913. This Act had been passed following the English Companies Consolidation Act
1908.
 ● Till 1956, the business companies in India were regulated by this Act of 1913. Certain
amendments were made in the years 1914, 1915, 1920, 1926, 1930 and 1932.
● The Indian Companies Acts closely followed the English Acts and the decisions of the
English Courts under the English Company Law were also closely followed by the Indian
Courts.
● Post Independence
● At the end of 1950, the Government of India appointed a Committee under the Chairman
of H.C. Baba to the revision of the Indian Companies Act, with particular reference to its
bearing on the development of Indian trade and industry.
● The H.C. Baba Committee examined and submitted its report in March 1952. Based on
the recommendations, a Bill to enact the legislation, the Companies Act, 1956 was
introduced in the Parliament.
● The Companies Act 1956, largely follow the English Companies Act 1948
● Companies act 1956 - 658 sections

The major features of the Indian Companies Act 1956 are:

1) The promotion and formation of companies
2) Capital structure of companies
3) Company meetings and procedures
4) The presentations of company accounts, their audit, and the powers and duties of
auditors
5) The inspection and investigation of the affiast of the company
6) The constitution of Board of Directors, and the powers and duties of Directors, Managing
Directors and Managers
7) The administration of Company Law

The Companies Act 1956 has been amended several times since then. The major amendments
were introduced in the years 1960, 62, 63, 64, 65, 66, 67, 69, 74, 77, 84, 88 and 91.

● In the wake of the economic reforms processes initiated from july 1991, the Government
recognised the many provisions of the Companies Act had become redundant and were
not conclusive to the growth of the corporate sector in the changing environment.
● Consequently, an attempt was made to recast the Act, which was reflected in the
Companies bill 1993. The said Bill was subsequently withdrawn. As part of the
continuing reforms process, certain amendments were incorporated by the Companies
(Amendment) Act 1996.
● In 1998, the Companies (Amendment) Act 1999 was passed to surge the capital
market by boosting the morale of national business besides encouraging FIIs as well as
FDI in the country. The main features are buy back of shares, sweat equity shares,
creation of investor education and protection fund, accounting standards etc.
● The Companies (Amendment) Act 2002 provides for producers companies. The Second
Amendment Act 2002 replaces the Company Law Board with the National Company
Law Tribunal (NCTL) and also creates the Appellate Tribunal (NCALT).
● In 2004, the Ministry of Corporate Affairs constituted an Expert Committee under the
Chairmanship of Dr. J.J. Irani to suggest a framework for such a law to replace the
existing Act. The Committee submitted its report in May 2005.
● In 2008, the Companies Bill 2008 seeks to enable the corporate sector in India to
operate that fosters entrepreneurship, investment and growth. Due to the dissolution of
the 14th Lok Sabha, the Companies Bill 2008 lapsed.
● The Government decided to re-introduce the Companies Bill, 2008 as the Companies
Bill 2009, without any change except the year of Bill. The Bill was referred to the
Parliamentary Standing Committee on Financial which gave us its report on 31st August
2010.
● In view of numerous amendments to the Companies Bill 2009 arising out of the
recommendations and introduced a fresh bill as the Companies Bill.
● The Companies Bill 2012 to have a modern legislation for growth and regulation of
corporate sector in India.
● The new Companies Act 2013 was finally notified on August 30, 213. The new law, 470
sections spread over 29 chapters and 7 schedules, replaces the six decade old
Companies Act 1956.
● The 2013 Act intends to promote self-regulation and introduces novel concepts including
one-person company, small company and dormant company.
● It also promotes investor protection and transparency by including concepts of insider
trading, class action suits, creation of a National Financial Reporting Authority and
establishment of a Serious Fraud Investigation office for investigation of fraud.
● Further, section 2 containing 94 definitions has been added for better clarity
● Salient features of the Companies Act 2013
1) National company law tribunal
2) Fast track mergers and cross border mergers
3) Class action suits for shareholders
4) Corporate social responsibility
5) Prohibition on forwards dealings and insider trading
6) One person company
7) Submission by electronic mode
8) Indian resident as directors
9) Rotation of auditors
10) Prohibits auditors from performing non-audit services
11) Rehabilitation and liquidation process
● The Companies Amendment Bill 2015 was published in the Official Gazette of India on
26/05/2015 as the Companies Amendment Act 2015. The important highlights are:-
1) No minimum paid-up capital
2) No requirement for commencement of business
3) Common seal is optional
4) Stringent penalty for company inviting or accepting deposit
5) Dividend cannot be declared by Company having losses
● The Companies (Amendment) Act 2017 was came into force on january 3 2018. The
amendments broadly aimed at:
 1) Stringent compliance requirements
2) Facilitating ease of doing business
3) Harmonization with the accounting standards, the securities and exchange board
of indian act 1992 and the regulations made thereunder, and the reserve bank of
india act 1934 and the regulations made thereunder
4) Rectifying omissions and inconsistencies in the Act.

● The Companies (Amendment) Act, 2019

On july 31 2019, the MCA(Ministry of Corporate Affairs) introduced the Companies
(Amendment) Act 2019. The Amendment considers changes brought in by the
Companies (Amendment) Ordinance 2018, the Companies (Amendment) Ordinance Act
2019 and the Companies (Amendment) Second Ordinance Act 2019 to further amend
the Companies Act 2013. The key changes are:
1) Commencement of business
2) Shifting of powers from the National Company Law Tribunal to the Central
Government
3) Matters to be stated in the prospectus
4) Dematerialisation of securities
5) Provisions relating to penalties
6) Registration of charges
7) Prevention of oppression and mismanagement
8) Compounding of offences
● The Companies Act 2013
● The Act was modified in the Official Gazette on 30th august 2013 and different dates
may be appointed for enforcement of different provisions of the Companies Act 2013,
through notifications.
● Section 1 came into force on 30th August 2013, 98 sections came into force on 12th
september 2013, 143 sections were enforced from 1st april 2014 and so on.
● The Companies Act 2013 is an Act to consolidate and amend the law relating to
companies
● Section 1 - states that the extent to the applicability of the Act. It says that the Act shall
extend to the whole of India.
● Section 1 states that the applicability of the Act. The provisions of this Act shall apply to -
1) companies incorporated under this Act or under any previous company law
2) Insurance companies, except inconsistent with the provisions of the Insurance Act
1938 or the IRDA Act 1999
3) Banking companies, except inconsistent with the provisions of the Banking Regulation
Act 1949
4) Companies engaged in the generation of supply of electricity, except inconsistent with
the provisions of the Electricity Act 2003
5) Any other company governed by any special Act, except inconsistent with the
provisions by any Act
6) Such body corporate, incorporated by any Act
7) Food Corporation of India (FCI), National Highway Authority of India (NHAI) etc.