B.

COM SEM : 3

COMPANY LAW AND ADMINISTRATION

 COMPANY – A company is a legal en ty formed by a group of individuals to engage in and

operate a business enterprise in a commercial or industrial capacity. A company's business
line depends on its structure, which can range from a partnership to a proprietorship, or
even a corpora on.

 ACT - Act meaning in law is a decree approved by the respec ve legislature, i.e., in India's
case State Legisla ve Assembly or Parliament of India.

 COMPANIES ACT - The Companies Act 2013 is an act of the Parliament of India on Indian
company law which regulates the incorpora on of a company, responsibili es of a
company, directors, and dissolu on of a company.

Evolu on of company law

 The concept of company act taken from English Companies Act, 1844.

 The first company legisla on in India was passed in 1850 known as a Joint Stock Companies
Act.

 This Act was replaced by the Joint Stock Companies Act, 1857 which introduced the principle
of limited liability for the first in India.

 This act again as a Joint Stock Companies Act, 1860 modified by addi on the principle to
banking companies.

 In 1866 the first comprehensive Act provided for the incorpora on, regula on and winding
up of companies.

 The 1866 Act was recast in 1882 and remained in force ll 1913.

 Later, the Indian Companies Act, 1913 was passed followed by the English Companies Act,
1908.

 A er that, this act was amended and recasted several mes almost every year.

 Finally, the Companies Act, 1956 was passed and came into force 1st April 1956 based on the
English Companies Act, 1943. It consists of 658 sec ons and 13 schedules.

 A er 25 amendments the Companies Act, 2013 passed by Parliament by introducing a new

Company Bill. It came into force on the 29th of August 2013.
 Some Major Ones Include:
 Tata Motors Limited.
 Reliance Industries Limited, owned by Mukesh D. Ambani, is a premier example of the
Joint-Stock Company in India.
 State Bank of India
 Jindal Steel & Power Ltd.
 Grasim Industries Ltd.
 Oil & Natural Gas Ltd. (ONGC)

Nature of JOINT STOCK COMPANY

A company has its own legal iden ty, which is separate from its shareholders. It is known as an
ar ficial person and has its own rights. Hence, a shareholder can’t bind a company by his acts, as the
members and company are considered as two different individuals in the eyes of the law. A company
can buy its property, borrow money, incur debts, enter into a contract or even file a case against its
shareholders. In the same way, shareholders can also sue the company, and they won’t be
responsible for the debt taken by the company.

Limited liability

One of the most a rac ve features of a Joint Stock Company is its limited liability. The liability of the
shareholders will be limited to the value of their shares. For example, if a company makes a loss and
cannot pay its creditors, then shareholders won’t pay anything more than the value of their shares.
Shareholders won’t be personally liable, and their personal property won’t be used to recover the
dues of the company.

Transferable shares

Every shareholder will have the right to transfer their shares without consul ng it with other
shareholders. The shares of the Joint Stock Company are listed in the stock exchange, hence, they
can easily be purchased or sold through stock exchanges.

Perpetual Succession

A company and shareholders are considered as two different individuals, and it is established by law;
hence only law can bring it to an end. There won’t be any interrup on due to the death, re rement,
insolvency of any shareholder; it won’t affect the existence of the company.

Common seal

Although a company is considered to have its own separate iden ty as an ar ficial person, it can’t
put its signature as a real person. The common seal acts as the official signature of a company, and it
binds the company for its acts. The law requires every company to have its common seal, and it must
be affixed on all the important documents. Any document that doesn’t have the common seal of a
company won’t be binding to the company.

Publica on of financial statements

A Joint-stock company should publish its audited financial statement so that it can provide
informa on to the shareholders about the company’s revenue, expenses, debt, and profitability.

Separa on of ownership and control

A company will have mul ple shareholders, who will be considered the owners of the company, but
they won’t be able to take part in day-to-day ac vi es. Ownership will be with shareholders, but
control will be in the hands of the board of directors, who will be elected by shareholders as their
representa ves.

Overview of companies act 2013

 The Companies Act 2013 is the law covering incorpora on, dissolu on and the running of
companies in India. The Act came into force across India on 12th September 2013 and has a
few amendments to the previous act of 1956. It has also introduced new concepts like a One
Person Company.

SIGNIFICANCE of companies ACT 2013

Companies Act 2013

The Companies Act 2013 regulates the forma on and func oning of corpora ons or companies in
India. The first Companies Act a er independence was passed in 1956, which governed business
en es in the country. The 1956 Act was based on the recommenda ons of the Bhabha Commi ee.
This Act was amended mul ple mes, and in 2013, major changes were introduced. By Sec on 135
of the 2013 Act, India became the first country to make corporate social responsibility (CSR) spending
mandatory by law.

Currently, the Ministry of Corporate Affairs is administering the following Central government Acts:

1. Companies Act 2013

2. Companies Act 1956 (some provisions of this Act s ll apply)

3. Compe on Act 2002

4. Insolvency & Bankruptcy Code, 2016

5. Chartered Accountant Act 1949

The Companies Act 2013 has replaced the 1956 Act.

Objec ves of companies ACT 2013

The Companies Act, 2013 was introduced to provide an overall framework and a set of rules for
companies in India. The Act is comprehensive and inclusive legisla on covering all aspects of
company opera ons.

The objec ves behind the enactment of this legisla on are as follows:

1) To provide a comprehensive framework for regula ng companies in India

2) To make it easier for Indian companies to start and operate their businesses;

3) To promote corporate governance in India;

4) To improve economic development in the country by promo ng entrepreneurship.

The major highlights of the 2013 Act are given below:

• The maximum number of shareholders for a private company is 200 (the previous cap was at
50).

• The concept of a one-person company.

• CSR made mandatory

Salient Features of the Companies Act 2013

• It has introduced the concept of ‘Dormant Companies’. Dormant companies are those that
have not engaged in business for two years consecu vely.

• It introduced the Na onal Company Law Tribunal. It is a quasi-judicial body in India

adjudica ng issues concerning companies. It replaced the Company Law Board.
h ps://nclt.gov.in/r

• It provides for self-regula on concerning disclosures and transparency rather than having a
government-approval based regime.

• Documents must be maintained in electronic form.

• Official liquidators have adjudicatory powers for companies having net assets of up to Rs.1
crore.

• The procedure for mergers and amalgama ons have been made faster and simpler.

• Cross-border mergers are allowed by this Act (foreign company merging with an Indian
company and reverse) but with the permission of the Reserve Bank of India.

• The concept of a one-person company has been introduced. This is a new type of private
company which may have only one director and one shareholder. The 1956 Act required at
least two directors and two shareholders for a private company.

• Having independent directors has been made a statutory requirement for public companies.

• For a prescribed class of companies, women directors are mandatory.

• All companies should have at least one director who has been a resident of India for not less
than 182 days in the last calendar year.

• The Act provides for entrenchment (apply extra-legal safeguards) of the ar cles of
associa on.

• The Act mandates at least 7 days of no ce for calling board mee ngs. (21 days NOTICE in
case of AGM)

• It In this Act, the du es of a Director has been defined. It has also defined the du es of ‘Key
Managerial Personnel’ and ‘Promoter’.
 • For public companies, there should be a rota on of audit firms and auditors. The Act also
prevents auditors from performing non-audit services to the company. In case of non-
compliance, there is substan al criminal and civil liability for an auditor.

• The Act makes it mandatory for companies to form CSR commi ees and formulate CSR
policies. For certain companies, mandatory disclosures have been made regarding CSR.

BODY CORPORATE

Meaning – Is defined in sec on 2(11) of the companies act 2013. this includes a private company,
public company, one personal company; small company, limited liability partnerships, foreign
company etc.

Classifica on of companies

One person company

Private company
Public company
Company listed by Guarantee
Company limited by shares
Holding company
Subsidiary company
Small company
Government company
Foreign company
Global company
Limited company.

One person company - According to Sec on 2 (62) of the Companies Act, 2013, One Person
Company means a company which has only one person as a member. It is incorporated as a private
company which has only one member. Therefore, a corpora on can be registered even when it only
has one shareholder or member.

Company listed by Guarantee - A company limited by Guarantee is o en referred to as a 'not for

profit' or 'Charitable company', this refers to the fact the par es involved do not remove the profit
from the company as shareholders can in a company limited by shares. Any profit made by the
company is re-used for the good of the business.

Company limited by shares - "Limited by shares" means that the liability of the shareholders to
creditors of the company is limited to the capital originally invested,

Holding company - A holding company is a parent company — usually a corpora on , that is created
to buy and control the ownership interests of other companies. The companies that are owned or
controlled by a corpora on holding company are called its subsidiaries.

 When a large corpora on operates under a different name, it's more than likely a holding
company. Holding company examples include Goldman Sachs, Nestle, JP Morgan, Alphabet
(which owns Google), and many na onally registered agents with subsidiaries in various
states.

Subsidiary company - a subsidiary is a company that belongs to another company, which is usually
referred to as the parent company or holding company. The parent holds a controlling interest in the
subsidiary company, meaning it owns or controls more than half of its stock.
Small company – Small companies provide services or are retailing ac vi es such as supermarkets,
pharmaceu cal stores, bakeries, and smaller produc on units. Small companies are self-owned
enterprises that involve less cash, fewer employees, and li le or no equipment. These enterprises
are well-suited to opera ng on a small level to sa sfy a local area while also profi ng the proprietors.
According to the latest defini on, a “small company‘‘ means a company with –

1. Paid-up share capital of fewer than ₹2 crores; or

2. Turnover of fewer than ₹20 crores.

Eg _ Tally solu ons ,cipla health

Government company - Government company means any company in which - fi y-one per cent of
the [paid-up share capital] is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State Governments.

Foreign company - A foreign company is any company or body corporate incorporated outside India
which, has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and. conducts any business ac vity in India in any other manner.

. Global company - A global company is one that operates in at least one country other than its home
country. Realis cally, expanding to one addi onal country is a major success for Global Company.
“Global” means “all around the world.” Because of this, a Global corpora on would need to do
business globally. A global enterprise is one which owns and manages the func ons in two or more
countries. for example- Unilever Ltd, Coca-Cola, Samsung etc.

Limited company - A limited company (LC) is a general form of incorpora on that limits the amount
of liability undertaken by the company's shareholders. It refers to a legal structure that ensures that
the liability of company members or subscribers is limited to their stake in the company by way of
investments or commitments.

PRIVATE COMPANY

For a private company, the shares are privately held and traded among a select group of
investors. Privately held businesses do not have stock or owners.

The main dis nc on is that fewer people own and sell fewer shares. Typically, venture
capitalists or other investors provide capital to private companies. It is, thus, an excellent
investment for those looking for high-risk, high-reward opportuni es.

To raise addi onal funds for growth, private companies can go public through an ini al public
offering (IPO). The company can decide to go public to gain access to addi onal capital
through public investment, allowing them to expand its market reach and grow its business.

Examples : -

1. Family-Owned Businesses: Members of the same family own and run these businesses.
Examples:

 . 1. Reliance Industries – PRIVATELY OWNED CONGLOMERATE

 2. Wipro

 3. Dr. Reddy’s Laboratories

  4. HCL Technologies

 5. Cipla

 6. Tata Group - PRIVATELY OWNED CONGLOMERATE

PRIVATE COMPANY

Non-profit Organiza ons: Organiza ons found to support a social or environmental cause that does
not have shareholders.

NGOs are typically run by individuals or groups passionate about social causes and work to achieve
their objec ves with li le or no government interven on. Top NGO in India has developed and
strengthened through their good works in the last few decades. However, only a few have impacted
society; some are s ll working hard and serving the community.
Examples: 1.The American Red Cross and the World Wildlife Fund.

. Startups/Unicorns: New businesses typically owned privately and funded by venture capitalists or
angel investors.

PUBLIC COMPANY

A public company can sell its registered securi es to the general public a er an ini al public offering
(IPO). A er the IPO, the organiza on becomes a publicly-traded company, and the general public can
trade its shares on public stock exchanges.

DOCTRAINE OF LIFTING THE VEIL OF CORPORATE ENTITY

The company, once incorporated, holds a separate legal en ty in the eyes of law. The company can
act under its own name, have a seal of its own, can enter contracts, purchase or sell property, have a
bank account and sue or get sued in the same manner as an individual. Thus, a company is a juris c
person different from the persons who cons tute it.

The Corporate Veil is a shield that protects the members from the ac on of the company. In simple
terms, if a company violates any law or incurs any liability, then the members cannot be held liable.
Thus, shareholders enjoy protec on from the acts of the company.

Corporate social responsibility (CSR)

is a strategy undertaken by companies to not just grow profits, but also to take an ac ve and posi ve
social role in the world around them. The term is also associated with the related term corporate
ci zenship.
Importance of CSR in today’s world

Improved public image.

Increased brand awareness and recogni on.
An advantage over compe tors.
Increased customer engagement.
Greater employee engagement.
More benefits for employees.

 Improved public image. This is crucial, as consumers assess your public image when deciding
whether to buy from you. Something simple, like staff members volunteering an hour a week
at a charity, shows that you’re a brand commi ed to helping others. As a result, you’ll appear
much more favourable to consumers.

 Increased brand awareness and recogni on. If you’re commi ed to ethical prac ces, this
news will spread. More people will therefore hear about your brand, which creates an
increased brand awareness.

 Cost savings. Many simple changes in favour of sustainability, such as using less packaging,
will help to decrease your produc on costs.

 An advantage over compe tors. By embracing CSR, you stand out from compe tors in your
industry. You establish yourself as a company commi ed to going one step further by
considering social and environmental factors.

 Increased customer engagement. If you’re using sustainable systems, you should shout it
from the roo ops. Post it on your social media channels and create a story out of your
efforts. Furthermore, you should show your efforts to local media outlets in the hope they’ll
give it some coverage. Customers will follow this and engage with your brand and
opera ons.

 Greater employee engagement. Similar to customer engagement, you also need to ensure
that your employees know your CSR strategies. It’s proven that employees enjoy working
more for a company that has a good public image than one that doesn’t. Furthermore, by
showing that you’re commi ed to things like human rights, you’re much more likely to
a ract and retain the top candidates.

 More benefits for employees. There are also a range of benefits for your employees when
you embrace CSR. Your workplace will be a more posi ve and produc ve place to work, and
by promo ng things like volunteering, you encourage personal and professional growth.

PROVISIONS FOR CSR ACTIVITIES UNDR SCHEDUE VII OF THE COMPANIES ACT2013

Applicability of the CSR:

1. Every Company having – Net worth of Rs. 500 crore or more, or – Turnover of Rs. 100 crore
or more, or – net profit of Rs. 5 crore or more during the immediately preceding financial
year shall cons tute Corporate Social Responsibility Commi ee Mee ng.

Companies are required to spend a minimum of 2% of their net profit over the preceding three years
as CSR.
2. Every Company including its holding or subsidiary, and a foreign company defined under clause
(42) of sec on 2 of the Act having its branch office or project office in India which fulfills the criteria
shall also comply with the provisions of Sec on 135 of the Act.

Cons tu on of Commi ee:

• Every company to which CSR criteria is applicable and having CSR spent more than Rs. 50
lakh p.a. shall require to cons tute a CSR commi ee of the Board.

Corporate Social Responsibility Commi ee of the Board consis ng of three or more directors, out of
which at least one director shall be an independent director.

Du es of CSR Commi ee:

1. As per amendment dated 22/01/2021, CSR commi ee shall formulate and recommend to the
Board an Annual Ac on Plan in pursuance of its CSR Policy, which shall include the following namely;

 Annual Ac on Plan:

 List of CSR Projects or Programmes

 Areas where CSR projects to be implemented

 Manner of execu on

 Modali es of u liza on of funds and implementa on schedule for the projects

 Monitoring and repor ng mechanism for the projects

CSR Policy means a statement containing

1. The approach and direc on given by the Board of a company, considering the
recommenda ons the CSR commi ee.

2. And includes guiding principles for selec on, implementa on and monitoring of ac vi es.

3. As well as formula on of the Annual Ac on Plan. Every Corporate Social Responsibility Commi ee
shall formulate and recommend the Corporate Social Responsibility Policy to the Board for their
approval.

The Corporate Social Responsibility policy must contain the ac vi es as specified in Schedule VII of
the Companies Act, 2013 on which the amount is spend as Corporate Social Responsibility

Amount to be spent for CSR:

 The company spends, in every financial year, at least two per cent. of the average net profits of
the company made during the three immediately preceding financial years.

 Any surplus arising out of the CSR ac vi es shall not form part of the business profit of a
company and shall be ploughed back into the same project or shall be transferred to the Unspent
CSR Account.

 Where a company spends an amount more than requirement, such excess amount may be set
off against the requirement to spend up to immediate succeeding three financial years.