1 - Indian Companies Act, 1956

MODULE – 5 THE COMPANIES ACT, 1956  Amending and Consolidating Act / not exhaustive/ governed by Common Law  Amendment Act 2000, enforceable from Jan 01 -> strengthen corporate governance Changes 1) Makes the Board of Directors an accountable and responsible organ of company 2) Protection of small share holders and small depositors 3) Minimum capital requirement for public and private companies has been prescribed 4) SEBI (Securities Exchange Board of India) can prosecute and penalize Companies for financial irregularities. 5) Introduction of postal ballot system of passing regulations 6) Directorship reduced from 20 to 15 7) Concept of deemed public companies, has been removed, trust holdings and appointment of public trustees 8) The period of distributing declared dividends reduced from 40 to 30 days 9) Companies with Rs. Ten lakhs capital without Company Secretary should submit a Secretarial Compliance Certificate from a Company Secretary of whole time practice. 10) Private circulation of prospectus or offer document to more than 50 persons to be a public issue 11) Restrictions on directors of a Public Company to be appointed in other Public Companies 12) Shareholder can’t be appointed as auditor of Company 

Judicial Activism – Supreme Court – Better protection of share holders and creditors.

CORPORATE PERSONALITY DEFINITION OF COMPANY Company - No legal or Technical Meaning 1.

COMPANIES ACT

- “A Company formed and registered under Companies Act” - Sec. 3(1)

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COMMON LAW

- “A Company is a ‘Legal Person’ or ‘Legal Entity’ and capable of surviving beyond the lives of its members. ‘Like any juristic person a company is legally an entity apart from its members, capable of rights and duties of its own, and endowed with perpetual succession’.

A legal device to achieve a purpose Therefore, a) Company is a means of co-operation in the conduct of an enterprise. b) Corporate device is one form of Associated Enterprise c) An intricate, centralised, economic administrative structure run by Professional Managers who hire capital from the investor. -

2 or more persons

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Company and Partnership i) Greater Capital Mobilization ii) Limits Personal Liability

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Companies are the structural framework of modern business

EVOLUTION OF COMPANIES England  Commercial Revolution  Body corporate by Royal Charter - 17th and 18th Century  Bubbles Act of 190 -> Promoting Companies illegal -> Repealed in 1825  The Joint Stock Companies Act, 1844  The English Act, 1948/1985 and 1989 India  Joint Stock Companies Act, 1850  Companies Act, 1956  Special Act of Parliament eg. Life Insurance Corporation of India, 1956 NATURE OF CORPORATE FORM ADVANTAGES 1. INDEPENDENT CORPORATE EXISTENCE - SEC. 34

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A legal person / corporate personality / body corporate distinct from its members Partnership not distinct from its Partners Case Law - Solomon .Vs. Solomon & Co. Kondoli Tea Co. Ltd. Re Dhulia - Amalner Motor Transport Ltd. .Vs. R.R. Dharamsi LIMITED LIABILITY Shareholder liable only on the nominal value of shares Limits personal risk PERPETUAL SUCCESSION Company never dies Like a River Members may come and go, but Company can go on forever SEPARATE PROPERTY Walton. J - The property of the Company is not the property of shareholders, it is the property of the Company TRANSFERABLE SHARES Sec. 82 - The Shares and Debentures or other interest of any member in a Company shall be moveable property, transferable in the manner provided by the Articles of the Company CAPACITY TO SUE AND BE SUED Can sue and be sued in its own name Criminal complaint Defamation Infringement of privacy PROFESSIONAL MANAGEMENT Independent functioning of Managers assured as there is no human employer FINANCES Raise Capital by Public Subscription

DISADVANTAGES 1. LIFTING THE CORPORATE VEIL Some persons are benefitting behind this legal fiction Case Law - Lee .Vs. Lee’s Air Farming Ltd. - Master and Servant at the same time Conspiracy a. Determination of Character Case Law - Diamler Co. .Vs. Continental Tyre & Rubber Co. Peoples Pleasure Park Co. .Vs. Rohleder 3

b. c. d. 2. 3. -

For Benefit of Revenue Case Law - Dinshaw Maneckjee Petit Re Works like a Boomerang Fraud or Improper Conduct Formed to defeat or Circumvent Law Case Law - Gilford Motor Co. .Vs. Horne Government Companies A Government Company not an Agent of Government Except when performing Government of sovereign and not commercial functions Where no functioning autonomy is granted FORMALITY AND EXPENSE Expensive Affair Lots of formalities Administration as per provisions of Act Formalities with Registrar COMPANY NOT A CITIZEN Under Citizenship Act or Constitution Part - II Case Law - State Trading Corporation of India Ltd. .Vs. CTO Just as you cannot marry a Company Can claim protection of fundamental rights Nationality, domicile and residence - Country of Incorporation

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