.

Legal Aspects of
Business
CHAP 3 –COMPANIES ACT
(Prof. Raghunandan Helwad
e)
 New Act

Companies Act 1956

Amended in 2015
 Objects
To encourage
investments
To ensure proper
administration
To prevent malpractices
To allow for investigations
 What is Company?
“ A company means a company formed & registered under company A
6 or existing company”
Def: “ A company means an association of persons associated for
some common purpose”.
“ A voluntary incorporated association which is an artificial person, cr
by law with limited liability having a common seal &
perpetual succession”
“ A joint stock company means a company having a permanent paid u
ominal share capital of fixed amount divided into shares also of fixe
unt, or held and transferable as stock or dividend”
 Introduction
English Companies Act 1844, Indian companies act 1913
Co. Act is enacted as per the recommendations made by B
HABHA committee
Largest statute ever passed by parliament (658 sections & 1
2 schedules)
SEBI is entrusted with powers to administer in case of list
ed public companies regarding public issues and transfer
s.
2003 amendment-Formation of National company law trib
unal
2015 Amendment
 CLASSIFICATION OF COMPANIES
1) ON THE BASIS OF LIABILITY----
a)Companies limited by shares—companies limited by shares
are the commonly found companies . It is in the light of this typ
e of company that the term company has been defined and used
in companies act.
sec.12(2)-that ways limited to the extent of the amount unpaid on his shares
,it must be noted that a company limited by shares may be a private compan
y.
b)Company limited by guarantee---the liability of members of
such company is always limited to a fixed agreed by its member
s to contribute towards the assets of the company.
C)unlimited company—where the liability of the members of a c
ompany is unlimited.
 2)on the basis of mode of incorporation
A)chartered companies—Royal charter
B)statutory companies—RBI, LIC,SBI,UTI,IFCI,FCI,STC.
C)Registered companies under the act—all companies registered
under companies act.
3)on the basis of ownership-----
a)private company –which has a minimum paid up capital of Rs.1
Lakh or such higher paid up capital as may be prescribed by its ar
ticles
B)Public company—which is not private company and has a mini
mum paid up capital of Rs. 5 Lakh or such higher paid up capital.
C)Government company—any company in which less than51% of
the paid up share capital is held by the central or state govt.
4) on the basis of jurisdiction of Functioning —
A)national company—where operations of company are confin
ed only within boundaries of the country in which it is registered .
B)Multinational company—extended beyond boundaries of co
untry.
C)Foreign company—incorporated outside India but place of b
usiness in India
5)On the basis of control and or share holding
A)Holding company—company is deemed to be holding compa
ny of another if that other is its subsidiary.
B)subsidiary company—a company is a subsidiary of a holding
company if a holding company controls the majority composition
of its directors.
6) other types of companies
a)one man company—usually a private company where
n one man practically holds the whole of the share capital
f company , to meet statutory requirements certain person
are invited to become members who may hold a few share
.e.g .’x’ hold a Rs.6990/- & ‘y’ hold Rs.10 only.
 b)association not for profits— limited companies can
e formed for promoting commerce ,art science , religion ,c
arity.
C)Existing company—a company formed and registered
under previous companies laws.—1866,1882,1913,1942,
 THE COMPANIES ACT 1956--------------------MAIN CHARA
CTERISTIC-FEATURES OF A COMPANY
1)An incorporate association –A company is required to be registere
d under companies act.
2)Separate legal entity ----Co. is distinct person, possess own identity ,own
ndependent existence. Distinct entity separate from its members. No member can
be held liable for the acts of his co. even if he holds the entire share capital of the
co. He can enter in contracts with his co. in same manner as other individuals.
3)AN ARTIFICIAL PERSON BUT NOT A CITIZEN ---Lifting or pier
cing of corporate veil-------
a) to investigate the real ownership of shares and controlling power ov
er the co.–
b) to investigate the affairs of the co. when the co. is used for evading
the taxes or for circumventing tax obligations.---
a) c) to investigate into affairs where there exists a move to establish monopoly.---
d) to investigate mismanagement and oppression by the majority.—
e) to investigate lawful or unlawful objectives of the company .
f) to investigate the names and members of the co.
 g) to investigate whether the co. is acting as an agent for
its a members or shareholder.
h) to investigate the affairs of the co. whether formed for
fraudulent purpose ,to defeat the provisions of any law or
to defraud its creditors or to avoid valid obligations.
i) to investigate whether the co. is sham.
j) to investigate whether a co. is enemy. If it is so, the cou
rt may examine the character of a person or persons in re
al control of the co.
k) to investigate whether the doctrine or the principal of
corporate veil conflicts with the public policy .In such cas
es ,the courts lift the corporate veil In order to protect th
e public pubic policy.
4)Perpetual succession-----Co. has continuity of life ,long & sta
ble life , life is not affected by death, insolvency, retirement of its
shareholders or directors. Members may come & go but co. can c
ontinue its existence till it is wound up. On winding up it ceases
to exist .During war all members of a Pvt. co. killed, while they w
ere in general meeting in bomb attack but co. Survived still co. ex
ist ,bomb cannot destroy co.
 5)Common seal---Co. is not a natural person, cannot sign documents hence
every co. must have common seal on which its name is engraved. All contracts
with others entered into by the agents of co. must be under seal of co. Seal giv
es co. independent existence.
6)Separate name ----co. must have specific name, must be regist
ered ,must be painted or affixed on the outside of every office or
place of business in a conspicuous position in letters easily legible
in the language in general use in the locality. Name of co. must b
e engraved on the seal and mentioned in all notices ,advertiseme
nts , negotiable instruments and other publications. No co. shall
be registered by the name which in the opinion of govt. is undesir
able.
7)Limited liability-----Liability of member is limited up to face v
alue of share or up to unpaid amount on the shares, e. g. the face
value of share is Rs.10/- which has been fully paid by its share-hol
ders. On winding up of co. shareholder cannot be asked to pay a
ny amount .But if the share-holders have paid Rs.6/-only ,they ha
ve to pay the balance i.e.4/-only and not more than that. A co. ca
n be a co. limited by share or limited by guarantee. If limited by g
uarantee, the liability of its members is limited to that amount as
the members may undertake to contribute towards the assets of c
o. in event of wound up. In India principal of limited liability was
1st introduced by co. act 1857.Limited liability secures the member
s &also encourages large scale investment in an incorporated for
m of Organisation.
8)Separation of ownership and management-- In co. Organis
ation , ownership & management are separated shareholders of c
o. are well scattered all over country or outside . But right to man
age the co. affairs is vested in hands of directors who are elected
by shareholders of co. thus ownership and management are separ
ated.
9)Transerability of shares---The Ownership capital of co. is div
ided into no. of shares ,such shares are transferable. For transferri
ng shares , shareholders have to follow the procedure laid down i
n co. act. U /s. 82—the shares or the other interest of any membe
r in a co. shall be moveable property ,transferable in the manner
provided by the articles of co. In private limited co. certain restric
tions are placed on transferability of its shares .
10)Separate property-Co. is separate distinct ,legal personality
& can .
11)Number of members---In Pvt. limited co. minimum no. of m
embers is 2 maximum is 50, but in Public limited minimum no. is
fixed 7 and there is no limit on maximum membership.
12)Shareholders are Actual owners—Shareholders contribute t
owards capital of co.& are actual owners of co. & they participate
in management of co. directly or indirectly.
13)Rising of capital on the large scale—A co. can raise the capi
tal as the large scale by selling the shares to the people.
14)Capacity to sue—A co. Can sue and also can be sued in its co
rporate name as any natural person can.
15)Rigidity of objects—Nature of business in which co. would p
articipate is required to be mentioned in object clause of memora
ndum of association .To make necessary changes in object clause ,
co. has to follow the provisions of co. act without changing the ob
jective clause ,no co. can take any new business activity.
16)Statutory requirements --Co. can conduct only that busines
s which is stated in the memorandum of association, a co. is gove
rned by the provisions of co. act . A Co. has to carry on its busine
ss according to the statutory requirements which brings some sor
t of discipline in its management & working.
17)Company is a body corporate ---Body corporate or
corporation is used for co. corporation derived from Lat
in word “corpus” means– “body”
u/s.2(7)’—”Body corporate or corporation includes a
co. incorporated outside India but does not include a) a
corporate sole, b) a co-operative society registered unde
r any law relating to co-operative societies c) any other
body corporate ,not being a co. as defined in this act wh
ich the central government may by notification in the of
ficial gazette ,specify in this behalf the term corporate s
ole ‘implies as corporation constituted in a single person
who has corporate status in right of some office or funct
ion. Perpetual office such as the president ,governors ,p
ublic trustees ,ministers are examples of corporate sole.
Diff. Between Pvt Ltd & Public Ltd
S.No Private Ltd Public Ltd

1 members 2-50 Min 7 & Max

Unlimited
2 Last word Pvt. Ltd Ltd

3 IPO Can not Can

4 Directors Min 02 Min 03

5 Paid Up Capital Min 01 Lakh Min 5 Lakh

Difference-Partnership Firm (1932) & Company
1. Registration
2. Members
3. Legal status
4. Property
5. Contracts with partners/shareholders
6. Management by partners/BOD
7. Perpetual existence
8. Liability
9. Creditors
10. Death of partner-dissolution of firm
11. Law of Agency
Registration & Certification
Members- Min. 02/07
Separate Legal Existence, After registration
Process
Application for availability of name
Filing of MOA & AOA with necessary stamp duty
Declaration by Adv. Of S.C./HC/CA/Director/CS
Certificate of Registration & Certificate of Commence
ment of Business
Advantages of Incorporation
Legal Existence
Liability
Transferable shares
Perpetual Succession
Can sue & Can be sued
Management
Separate property
Contract
 Promoter
A person who conceives the idea of formation of the compan
y, enters into preliminary contract & purchases the property i
n his own name & hands it over to the company on its incorp
oration
Promoter can be any individual or corporate body
Has no right to receive remuneration but can receive lumsu
m amount
Duties & Liabilities
Should not make a profit, if made will have to surrender
Must disclose all facts relating to the property & contract
Must ensure that the prospectus does not contain any mislea
ding statement
He may be sued for the damages for breach of duty
Memorandum of Association
MOA is document which contains the rules regarding
constitution & activities or objects of the company
Company is governed by MOA
Co. is allowed to work within the frame work of MOA
& if crosses the framework, its act will be ultra-vires
It’s a public document
 Contents of MOA
1. Name Clause
2. Registered Office
3. Object Clause
4. Capital Clause
5. Liability Clause
6. Subscription or Association Clause
Each subscriber to the memorandum shall take atleast o
ne share.
Difference between Member and share holder
 Articles of Association
It prescribes regulations of the company
AOA is subordinate to MOA and is under full control
of members
MOA defines the limits & framework beyond which c
o. cannot go whereas members make their regulations
through AOA
 Contents of AOA
Share capital & alteration
Payment, transfer, forfeiture, Lien of shares
Share certificates
Rights of share holders
Meeting of the co.
Appointment, remuneration, qualification, Powers of
BOD
Accounts & audit
Dividends
Winding up
 Alteration of MOA
Alteration involves compliance with prescribed proce
dure
1. Change of name (Sp. Resolution)
2. Change in the registered office (1 City-other-SR & CLB)
3. Alteration of object clause
-- To carry on business more economically/effectively
--To enlarge area of operation
--To amalgamate with any other co.
4.Alteration of capital clause
--Increase of share capital
--Reduction in share capital
5.Change in liability clause
 Doctrine of Ultra vires
Ultra vires means act done by the company beyond its legal
powers and authority as per MOA and companies act.
The doctrine of ultra vires, as per Companies Act, refers to the pri
nciple that limits the powers of a company to only those specified
in its memorandum of association. The term "ultra vires" is derive
d from Latin, meaning "beyond the powers.“
A company should perform according to
--MOA ( Object Clause)
-- Company Act

Any ultra vires act by company will be void

The principle of ultra vires prevents a company from engaging
in activities that are not specified in its memorandum of assoc
iation.
If a company engages in activities that are beyond the scope o
f its memorandum of association, any contract or transaction
entered into by the company would be considered void or
unenforceable. This means that the company cannot rely on
the contract or transaction to claim any rights or obligations
under it.
The doctrine of ultra vires is important because it ensures tha
t the company operates within its legal boundaries and avoids
engaging in activities that are not authorized by its memoran
dum of association. This protects the interests of the compan
y's shareholders and other stakeholders by preventing the co
mpany from taking risks that are not in their best interests.
vires might apply in a real-world sce
nario:
Let's say that a company's memorandum of association specifie
s that its main objective is to manufacture and sell furniture. Ho
wever, the company decides to invest in a technology startup wi
thout updating its memorandum of association to reflect this ne
w activity.
This investment in the technology startup would be considered
ultra vires, as it is not within the scope of the company's
memorandum of association. Any contracts or transactions
entered into by the company for the investment in the
technology startup would be considered void or unenforceable.
In other words, if the investment in the technology startup
doesn't work out, the company would not be able to claim
any rights or obligations under the contract or transaction it
entered into to make the investment. This is because the
investment was made outside the company's legal
boundaries, as defined by its memorandum of association.
To avoid such situations, companies should regularly review
and update their memorandum of association to reflect any
changes in their objectives and activities. This helps ensure
that the company operates within its legal boundaries and
avoids acting ultra vires.

 Prospectus
A Public company invites public to subscribe towards
its share capital through issue of prospectus
The invitation/document containing the offer of shar
es/debentures for sale is a prospectus
It provides information like financial background of c
o. its activities, future programes, risk involved
Any written invitation inviting a person for purchasin
g of shares for cash is a prospectus
 Contents
1. Dating
2. General Information of the company
3. Capital structure of the company
4. Details of company management
5. Details about projects
6. Financial information
7. Issue information
8. Registration of prospectus
-- Expert Consent
 Now issue of equity shares & debentures are controlled by SEBI
 Consent of SEBI
 Initial offer of Securities
Every listed company making IPO for a sum of Rs. 10
Cr/more, shall issue the same in only dematerialized f
orm by complying requisite provisions of Depositories
Act 1996
Depository means company formed & registered unde
r company Act. 1956 & registered under SEBI act 1992
Depository– Broker
Beneficial Owner- Buyer
Issuer- Company
 Membership of a company
Who are members
1.Subscribers to the MOA
2.Every other person who agrees in writing to be member
3. Person who holds equity shares
--If share capital, members & shareholders are same
--If unltd co./co. ltd by guarantee, not having share capital, on
ly members
4. By succession
5.On insolvency, Receiver
 How membership Ceases
By transfer
By forfeiture
By surrender
By insolvency
By death
By repudiation of contract on the ground of misrepresentatio
n
When co. redeems its redeemable pref. shares
On winding up
 Who can be member?
1. Minor
2. Another Company
3. Holding Company & subsidiary company
4. Trust (can not)
5. Partnership Firm (not a legal person. cant)
6. Society
7. NRI (with the permission of RBI)
 Rights
Rights & Liabilities of member/shareholder
1. To receive notices of General meeting
2. To attend, vote, appoint directors & auditors
3. To receive copies of co. accounts
4. To inspect minutes of proceedings of gen. meeting
5. To transfer his shares
6. To receive share certificate
7. To receive dividends in case of pref. shares
8. To make application to central govt./Court in case of mismanagement for investigation
9. To file a petition in the court for the winding up of company
Liabilities
1. To pay full nominal value of shares held by him
2. To pay all the debt of company in case of Unlimited company
 Shares
Meaning: A share is the interest of a shareholder in a definite
portion of a capital.
1. Equity shares
2. Preference shares
Meaning: Preferential rights as to a payment of dividends at a fixed rate & in case of win
ding up, there should be preferential rights to the repayment of paid up capital.
 Redeemable preference shares
 Nonredeemable preference shares
 Cumulative preference shares
 Non cumulative preference shares
 Ex: Tata Secu.
 Difference between shares and stock
 A share may be either partly or fully paid,
but a stock is always fully paid or in other words only fully paid up s
hares can be converted into stock.

Shares can be issued directly to the public

whereas stock cannot be directly issued to the public.

A share cannot be transferred into fractions

while stock can be transferred in different fractions

Public and private equity

 Corporate Management
Company being an artificial person carries on its busine
ss through individuals called Directors
Directors collectively called as BOD
Max. no. of directors should be 12
Directors are not servants/employees
They are trustees of Company’s money & property
Qualification shares-Not obligatory-AOA
DIN
Remuneration-Should not exceed 11%of net profit
 Appointment
Appointment in General Meeting
Appointment in Board Meeting
Additional Directors
Alternate Directors

Consent of Directorship
Share qualification of director
No. of directorship
 Duties/Responsibilities
governing the organization by establishing broad policies
and objectives;
selecting, appointing, supporting and reviewing the perfo
rmance of the chief executive
ensuring the availability of adequate financial resources;
approving annual budgets;
accounting to the stakeholders for the organization's perf
ormance;
setting the salaries and compensation of company manag
ement
 Removal of Directors
1. By shareholders
2. By central Govt.
3. By company law board
Disqualification of Directors
If he has been of unsound mind by the court
If he is an insolvent/applied for the insolvency & his a
pplication is pending
He has been convicted by the court for not less than 0
6 months
He has been declared disqualified by the court
key aspects related to company
registration in the event industry
Legal Structure: Decide on the legal structure for your company,
whether it's a sole proprietorship, partnership, limited liability
company (LLC), corporation, etc. Each structure has its own
registration requirements and implications.
Business Name Registration: Choose a unique and suitable name
for your event company and register it with the appropriate
government authority. Ensure the name isn't already in use by
another business.
Obtain Necessary Permits and Licenses: Depending on your
location and the nature of events you plan to organize, you may
need specific permits or licenses. These could include event
planning permits, alcohol licenses, health and safety permits, etc.
Tax Registration: Register for taxes with the relevant tax
authorities. Obtain a tax identification number or any other
necessary tax-related documentation.
Employer Identification Number (EIN): If you plan to hire
employees, you may need an EIN from the tax authorities.
Register with Regulatory Bodies: In some cases, event
companies may need to register with industry-specific
regulatory bodies or associations.
Business Bank Account: Open a business bank account to
keep your personal and business finances separate.
Insurance: Consider obtaining liability insurance and other
types of coverage relevant to the event industry.
Legal compliance in the event industry
Permits and Licenses: Events often require various permits
and licenses depending on their nature, location, and scale.
Examples include:
Event Planning Permits: Many cities or municipalities require
permits for organizing events in public spaces.
Alcohol Licenses: If the event involves serving alcohol,
obtaining the necessary alcohol licenses is crucial.
Health and Safety Permits: Large events may need permits
ensuring compliance with health and safety regulations,
especially when dealing with food service, fire safety, crowd
management, etc.
Noise Permits: Events with loud music or late hours might need
permits to regulate noise levels and timing.
Contracts and Agreements: Clear and comprehensive
contracts are essential in the event industry. Examples
include:
Vendor Contracts: Contracts with vendors, suppliers, and
service providers outlining services, payments, and liabilities.
Venue Rental Agreements: Agreements with venues
specifying terms, responsibilities, and liabilities of both
parties.
Participant Waivers: For events involving activities with
inherent risks (like sports events, adventure activities),
waivers might be necessary to release the event organizer
from liability.
Intellectual Property Rights: Ensure compliance with
intellectual property laws regarding logos, branding,
music, and other creative content used in events.
Accessibility Compliance: Events need to comply with
accessibility laws to ensure they are accessible to
individuals with disabilities. This includes wheelchair
access, sign language interpreters, etc.
Data Protection and Privacy Laws: Compliance with data
protection laws when collecting attendee information,
ensuring proper consent, and safeguarding personal data.
Insurance: Obtaining appropriate insurance coverage for
events to mitigate risks and liabilities. For instance, liability
insurance to cover accidents or damages during the event.
Labor Laws and Employment Regulations: Compliance with
labor laws when hiring staff or temporary workers for events,
including fair wages, working hours, and safety regulations.
Environmental Regulations: Some events might need to
comply with environmental regulations regarding waste
management, energy use, and sustainability practices.
Compliance with these legal aspects ensures smooth
operations, mitigates risks, and protects both organizers and
participants.