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    3-IIM Corporate Law Part1 2022

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    3-IIM Corporate Law Part1 2022

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    15 views22 pages

    3-IIM Corporate Law Part1 2022

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    © All Rights Reserved
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    of 22

    Corporate Law

    Part One – Understand a Corporation

    Prof. Nandimath Omprakash V


    Professor of Law
    National Law School of India
    University, Bengaluru-560072
    [email protected]
    What is a corporation?

    • Corporation or company are


    synonymous terms
    • “Company means a company
    incorporated under this Act or
    under any previous company
    law” – s. 2(20) of Companies
    Act, 2013
    • in a most practical way – a
    company means a company of
    certain persons registered under
    the Companies Act
    ‘the statutes relating to limited
    liability have probably done
    more than any legislation of
    the last fifty years to further
    the commercial prosperity of
    the country. They have to the
    advantage of the investor as
    well as the public allowed and
    encouraged aggregation of
    small sums into large capitals
    which have been employed in
    undertakings of great public
    liability increasing the wealth
    of the country’ – Buckley J., in
    London & Globe Finance
    Corporation Re, (1903) 1 Ch.
    Why establish a 728, 731

    corporation?
    What are the obvious advantages?

    • Independent corporate
    personality
    • Separate property
    • Sue and be sued in its own
    name
    • Limited liability
    • Perpetual existence
    • Transferability of shares
    • Professional management
    Corporate
    personality
    • ‘It is because of incorporation
    that the owner of the business
    ceases to trade in his own
    person. The company carries
    on business, the liabilities are
    the company's liabilities, and
    the former owner is under no
    liability for anything the
    company does, although as
    principal shareholder, he is
    able to take full advantage of
    profits which the company
    makes’ – Palmer on Company
    Law
    Limited liability

    • Member's liability becomes limited or


    restricted to the nominal value of the
    shares taken by them or the amount
    guaranteed by them
    • The company being a separate person is
    the owner of its assets and bound by its
    liabilities
    Perpetual
    existence

    • Membership of the company may


    keep changing from time to time,
    but without affecting the company’s
    existence
    • The death or insolvency of
    individual member does not affect
    the existence of a company
    • “members may come and go, but
    the corporation can go on go on
    forever” - Gower
    Share transferability
    • “the shares or debenture or other interest of any member
    in a company shall be movable property, transferable in the
    manner provided by the articles of the company” – s. 44 of
    Companies Act, 2013
    • This provides liquidity to the investor and stability to the
    company
    Professional
    management
    • “Men of this caliber are not to be
    found every day, but when found
    and supported by capital, they
    are capable of achieving the very
    highest success in commercial
    undertakings” – Palmer’s Private
    Companies
    But there are disadvantages
    too !!
    • Lifting of the corporate veil
    • Determination of character
    • For the benefit of revenue
    • Fraud or improper conduct
    • Government companies
    • Formalities and government supervision
    Kinds of
    corporations
    • Private company
    • Maximum number of 200 members
    • Restriction on transfer of its shares
    • Doesn't invite public to subscribe to its
    shares
    • Public company
    • With 5 lakh or more of paid-up capital
    • One which is not a private limited
    company
    • Government company
    • When more than 50% of shares are held by
    government/s
    • It is governed by the Companies Act unless
    exempted by the Central Government
    • Foreign company
    • Company incorporated outside India but having a
    place of business in India
    • U/s 592 it has to furnish to ROC certain documents
    • Holding & Subsidiary company
    • Holding company holds more than 50% of
    subsidiary company
    • S. 8 company
    • It is for not to profit activity
    • Prohibits payment of any dividend to its members
    but intends to apply its profits or income in
    promotion of its objects
    • One Person Company
    • Registered as a private company with one member
    and one director
    • It's to encourage corporatization of micro business
    and enterprenurship
    Registration &
    Incorporation formalities

    • Mandatory registration
    • The authority to register a corporation – Registrar
    of Companies
    • The application must be accompanied by the
    following documents
    • Memorandum of Understanding
    • Articles of Association
    • The agreement, if any, which the company
    proposes to enter into with any individual for
    his appointment as its managing or whole-
    time director or manager
    • A Certificate of Incorporation – is then
    issued by the Registrar
    • It certifies that “under his hand that
    the company is incorporated”; and
    • In case of limited company – that the
    company is limited
    • The company’s life commences from the
    date mentioned in the Certificate of
    Incorporation and the date appearing on it
    is conclusive even if it is wrong
    Memorandum of
    association
    • “It is a document of great importance, in relation
    to the proposed company. Its importance lies in
    the fact that it contains the following
    fundamental clauses, which have often been
    described as the conditions of the company’s
    incorporation”
    • It will contain
    • Name clause
    • Registered office clause
    • Objects clause
    • Liability clause
    • Capital clause
    Articles of
    association
    • This is a document which contains rules,
    regulations and bye-laws for the general
    administration of the Company
    • Schedule I of the Companies Act, 1956
    contains various model forms of memoranda
    and articles
    • Public companies are free to have or not to
    have articles
    • But they can’t survive without articles
    of association because without any
    rules or regulations they may not be
    able to hold in harmony
    Constructive notice of M/A and A/A
    • These documents are registered with the
    Registrar of Companies – therefore become
    public documents
    • Therefore, it is the duty of every person
    dealing with the company to inspect its
    public documents and make sure that his
    contract is in conformity with their
    provisions
    • This kind of presumed notice is called
    ‘constructive notice’
    • A/A is taken not only to have read those documents, but to have
    understood them according to their proper meaning - Palmer
    • If the contract is consistent with the public
    Doctrine of documents, the person contracting will not be
    prejudiced by irregularities that may beset the
    indoor indoor working of the company
    • The rule had its genesis in Royal British Bank v
    management Turquand, (1856) 119 ER 886
    Exception to the
    Rule
    • Knowledge of irregularity
    • Suspicion of irregularity
    • Forgery
    • Representation through articles
    • Acts outside the apparent authority
    Finally

    The rule is based upon obvious reasons of convenience in business relations.


    The rule is of great practical utility

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