Introduction to Company Law: formula sheet

Key formulas

Effect of registration (Section 9)

Certificate of incorporation → body corporate + perpetual succession + power to hold property, contract, sue and be sued

Effective from the date of incorporation mentioned in the certificate. Cite Section 9 for all core features.

Separate legal entity

Company ≠ its members

Basis: Salomon v. Salomon & Co. Ltd. The company owns the assets and owes the debts.

Limited liability (company limited by shares)

Member's maximum liability = unpaid amount on shares held

A fully paid-up shareholder has nothing more to pay to the company.

Common seal position

Common seal optional (omitted from Section 9 by Act 21 of 2015, w.e.f. 29-5-2015)

Section 22(2) proviso: without a seal, authorisation of an attorney is by two directors, or a director and the Company Secretary where appointed.

Contracts by company (Section 22(1))

Bill, hundi or promissory note is the company's if made in its name by a person acting under its express or implied authority

Shows the company acts only through agents.

General rule

Company = separate legal person, distinct from its members

Members' liability is limited to the unpaid amount on their shares, in a company limited by shares.

When the veil is lifted

Fraud or improper conduct + sham or evasion of law, or an express statutory provision, leads to lifting

Courts use this sparingly. The burden lies on the person asking to lift the veil.

Section 184(2) and (3)

Interested director must disclose and not participate; contract without disclosure is voidable at the option of the company

Applies where the director holds more than 2% of a body corporate, or is its promoter, manager or CEO, or is a partner, owner or member of a firm or entity.

Section 184(4) penalty

Contravention of section 184(1) or (2): penalty of ₹1,00,000 on the director

Penalty is on the director personally.

Section 184(5)(b) exemption

No application where the directors hold not more than 2% of paid-up share capital in the other company or body corporate

Applies to contracts between two companies, or between companies and bodies corporate.

Section 376

A foreign body corporate that ceased to carry on business in India may be wound up as an unregistered company, even if dissolved abroad

Shows the Act looking past the home-country dissolution.

Section 23(1): how a public company may issue securities

Public offer through prospectus OR private placement OR rights/bonus issue

For a listed company or one intending to list, SEBI law also applies to rights and bonus issues.

Section 23(2): how a private company may issue securities

Rights issue or bonus issue OR private placement

A private company cannot make a public offer.

Producer company formation (section 378C(1))

10 or more producers (individuals) OR 2 or more Producer Institutions OR a combination of 10 or more individuals and Producer Institutions

Objects must be those specified in section 378B.

Producer company status (section 378C(3) and (5))

Liability limited to unpaid amount on shares; treated as a private limited company; never a public company

No limit on the number of members.

Registration of producer company (section 378C(2))

Registrar registers within 30 days of receiving the documents, if satisfied

Then a certificate of incorporation is issued.

Lesser penalty (section 446B)

Penalty ≤ ½ of penalty specified, subject to maximum ₹2,00,000 for the company and ₹1,00,000 for an officer in default or any other person

Applies to a One Person Company, small company, start-up company or Producer Company.

Government company

Central/State Government(s) hold ≥ 51% of paid-up share capital

Learn the definition as given in section 2(45).

Alteration of articles (Section 14(1))

Special resolution + subject to Act and memorandum conditions

This route covers private to public and public to private conversion.

Public to private conversion

Special resolution + approval by order of the Central Government

Under the second proviso to Section 14(1), the alteration is not valid unless the Central Government approves it by order.

Automatic cessation of private status

Articles no longer contain private company restrictions ⇒ ceases to be private company from the date of alteration

First proviso to Section 14(1).

Filing after alteration (Section 14(2))

Alteration + copy of Central Government order (where applicable) + printed altered articles, to Registrar within 15 days

Registrar registers it. Under Section 14(3), the registered alteration is valid as if it were originally in the articles.

Section 374 obligations of companies seeking registration under that Part

Secured creditors' consent or no objection + newspaper notice (one English, one vernacular) + affidavit from all members or partners + other prescribed conditions

The affidavit must say that the documents needed for dissolution of the earlier entity will be submitted to the authority with which it was registered. An LLP registered as a company under that Part is deemed dissolved under its Act without any further act or deed.

Inter-State co-operative to Producer Company (Section 378J)

Special resolution of not less than two-thirds of total members + application to Registrar; Registrar certifies within 30 days of receipt

The name must include the words 'Producer Company Limited'.

Re-conversion of Producer Company (Section 378ZS)

Application to Tribunal, either after a resolution by not less than two-thirds of members present and voting, or on request of creditors representing three-fourths of the value of total creditors ⇒ Tribunal directs a meeting of members or creditors ⇒ majority in number representing three-fourths in value of those present and voting agree ⇒ Tribunal sanctions ⇒ certified copy of order filed with Registrar

Applies to a Producer Company that is an erstwhile inter-State co-operative society. The application alone does not re-convert the company. The sanction binds all members and creditors and the company, but the order has no effect until the certified copy is filed with the Registrar. Within six months of sanction, the company must apply under the Multi-State Co-operative Societies Act, 2002 or other applicable law for registration, and file a report with the Tribunal and the Registrars concerned.

Section 408 - NCLT

Constituted by Central Government by notification = President + Judicial and Technical members

The number of members is as the Central Government deems necessary. Appointed by notification.

Section 410 - NCLAT

Constituted by Central Government by notification = Chairperson + Judicial and Technical Members

Hears appeals against orders of the Tribunal and of NFRA under the Act, and Competition Act matters under section 53A of that Act.

Section 466 - Company Law Board

Company Law Board stands dissolved on constitution of the Tribunal and the Appellate Tribunal

Until then, eligible CLB members function as President, Chairperson or Member.

Section 132 - NFRA

NFRA = chairperson + other members not exceeding fifteen; head office at New Delhi

Appeal against its penalty or debarment order under section 132(4)(c) lies to the NCLAT under section 132(5).

NFRA penalty on misconduct (section 132(4)(c))

Individuals: not less than ₹1,00,000, up to 5 times the fees received. Firms: not less than ₹5,00,000, up to 10 times the fees received.

Debarment: minimum six months, maximum ten years.

Selection Committee under section 412(2)

Chief Justice of India or nominee (Chairperson) + senior Supreme Court Judge or High Court Chief Justice + Secretary, MCA + Secretary, Ministry of Law and Justice

It recommends Members of the Tribunal and Technical Members of the Appellate Tribunal. The Secretary, MCA is the Convener. The Chairperson has a casting vote if votes are equal.

Appointment after consultation, section 412(1)

President of Tribunal, Chairperson and Judicial Members of Appellate Tribunal = appointed after consultation with the Chief Justice of India

Do not mix this with the Selection Committee route, which covers the other members.

Validity of appointments, section 412(5)

Vacancy or defect in constitution of Selection Committee ≠ invalid appointment

An appointment is not invalid merely for that reason.

Re-opening of accounts, section 130(1)

Application by Central Government, Income-tax authorities, SEBI, other statutory regulator or person concerned + order of court or Tribunal that accounts were fraudulent or affairs were mismanaged, casting doubt on reliability

Without such an order, a company cannot re-open books or recast financial statements. Notice must go to the concerned authorities before the order.

Time limit under section 130(3)

No order for a period earlier than 8 financial years immediately preceding the current financial year

The exception applies where the Central Government has directed, under the proviso to section 128(5), that books be kept for longer. The longer period then applies.

Finality under section 130(2)

Accounts revised or recast under section 130(1) = final

This is without prejudice to other provisions of the Act.

Quick revision

• A company is a separate legal person from its members, with perpetual succession.
• Separate personality lets a company own property, sue and be sued in its own name.
• The veil is lifted only in exceptional cases, either under statute or on judicial grounds such as fraud.
• Lifting the veil looks at the real persons behind the company, not the company alone.
• Classify companies by incorporation, members' liability, number of members and control.
• Always compare private and public companies on members, share transfer and public invitation.
• Section 408: the Central Government constitutes the NCLT by notification, with a President and Judicial and Technical members.
• Section 410: the NCLAT hears appeals against orders of the Tribunal or of NFRA.
• Section 466: the Company Law Board was dissolved on constitution of the Tribunal and the Appellate Tribunal.
• Section 132: NFRA is constituted by the Central Government to deal with accounting and auditing standards.
• NFRA can investigate misconduct of chartered accountants and firms, impose penalties and debar them.
• An aggrieved person may appeal against an NFRA penalty order to the Appellate Tribunal.

Common mistakes

• Writing that a common seal is compulsory for every company. Fix: State that the words 'and a common seal' were omitted from Section 9 in 2015. Seal is optional; Section 22(2) proviso covers companies without one.
• Saying members are never liable at all. Fix: Say liability is limited to the unpaid amount on shares in a company limited by shares. Guarantee and unlimited companies differ.
• Saying the veil is lifted in every case of loss or default Fix: Always start with the general rule. Say the veil is lifted only for fraud, sham, evasion or a statutory ground.
• Citing section numbers from memory that you are unsure of Fix: Cite only sections you know. Section 184 and section 376 are safe examples. Otherwise state the rule in plain words.
• Saying a producer company can become a public company. Fix: Remember section 378C(5): it is treated as a private limited company with no member limit and can never become public.
• Saying a private company may invite the public to subscribe through a prospectus. Fix: Use section 23(2): a private company can issue only by rights, bonus or private placement.
• Treating an LLP as a company governed by the Companies Act, 2013. Fix: State that an LLP is a body corporate under the LLP Act, 2008. Apply the Companies Act only when the LLP seeks registration as a company. Section 374 sets the obligations for that registration, and the LLP is deemed dissolved on registration.
• Writing that a public to private conversion needs only a special resolution. Fix: Add that the alteration is not valid unless approved by an order of the Central Government.
• Saying NCLT is constituted by the President or by Parliament. Fix: Write that the Central Government constitutes it by notification under Section 408.
• Mixing up Sections 408 and 410. Fix: Link 408 with the Tribunal (first-level) and 410 with the Appellate Tribunal.

Exam tips

• Open every answer with Section 9. It is the anchor for most features and examiners look for it.
• Mention that the common seal is no longer compulsory, and cite Section 22(2) proviso. This shows you know the current law.
• Pair separate legal entity with Salomon v. Salomon & Co. Ltd. and give the holding in two lines.
• For problem questions, follow the ICSI style: provision, facts and analysis, then a one-line conclusion.
• Link the topic to lifting of the corporate veil, so you can add the exception when the facts suggest fraud.
• Begin with the separate personality rule and then the exceptions. Examiners reward that order.
• Split your answer into statutory grounds and judicial grounds. It shows structure.
• Use section 184 as your Companies Act example only with its exact conditions: the 2% test, disclosure and non-participation.