Legal Status and Types of Registered Companies: 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

Operates from the date of incorporation mentioned in the certificate.

Separate legal personality

Company ≠ its members

Company's assets and debts belong to the company, not to its shareholders.

Limited liability

Member's maximum liability = unpaid amount on shares held

Applies to a company limited by shares. A company limited by guarantee works differently, and an unlimited company has no such limit.

Common seal

Words "and a common seal" omitted from Section 9 (2015)

A common seal is not now a statutory feature of incorporation.

Minimum members on registration of existing entity (Section 366(2))

Two or more members; fewer than seven must register as a private company

Applies to entities registering under Part XXI as companies.

General rule

Company = separate legal person; members' liability limited to unpaid share amount

Salomon v Salomon & Co (1897). Always start your answer with this rule before the exceptions.

Statutory grounds (examples)

False information at incorporation (Section 7(7)); misstatement in prospectus (Sections 34 and 35); fraudulent trading (Section 339); misdescription of name; reduced membership below the legal minimum

Under these, the persons responsible face personal liability, penalty or prosecution. Quote the section only where you are sure of it. For others, state the rule in plain words.

Judicial ground: fraud or improper conduct

Company used as a cloak to avoid an existing legal obligation → veil lifted

Gilford Motor Co v Horne (1933); Jones v Lipman (1962). In both, a company was formed to evade a personal obligation.

Judicial ground: sham or tax evasion

Company formed to avoid tax → income treated as the individual's

Re Dinshaw Maneckjee Petit (Bombay, 1927); Juggilal Kamlapat v CIT (SC, 1969).

Judicial ground: enemy character

Company's character decided by who controls it, in wartime

Daimler Co v Continental Tyre Co (1916): a company registered in England but controlled by enemy-country shareholders was treated as having enemy character.

Judicial ground: group and public interest

Companies of a group treated as one economic unit; fraud on the public or revenue

State of UP v Renusagar Power Co (SC, 1988); Delhi Development Authority v Skipper Construction Co (SC, 1996).

Limit on lifting

Veil is lifted only in exceptional cases, not merely because a company is closely held

Tata Engineering and Locomotive Co v State of Bihar (SC, 1964) refused to treat a company's shareholders as the company for a fundamental-rights claim.

Classification by liability

Limited by shares | Limited by guarantee | Unlimited

Shares: liability is the unpaid amount on shares. Guarantee: the amount the member undertook to contribute on winding up. Unlimited: no limit.

Subsidiary holding shares in holding company (Section 19(1))

No holding by the subsidiary, directly or through nominees; no allotment or transfer to the subsidiary; any such allotment or transfer is void

Applies to the subsidiary's holding in its own holding company.

Exceptions to Section 19(1)

(a) legal representative of a deceased member | (b) trustee | (c) already a shareholder before becoming a subsidiary

Voting is allowed only for shares held as legal representative or trustee, not for the (c) shares.

Company limited by guarantee or unlimited, without share capital (Section 19(2))

'Shares' = interest of members, whatever its form

Used when the holding company has no share capital.

Registration of existing companies (Section 366(2))

Company formed under another law + two or more members → may register as unlimited, limited by shares or limited by guarantee

A company with less than seven members registers as a private company. Companies registered under the 1882 Act, 1913 Act or 1956 Act cannot register under this section.

Majority for assent under Section 366(2)(iv) and (v)

Majority of members present in person or by proxy | At least three-fourths if the company is not already limited by any law and registers as a limited company

A general meeting must be summoned for the purpose.

Minimum members

Private company = 2; Public company = 7; One Person Company = 1

Members are the minimum required at incorporation. An OPC also names a nominee.

Maximum members

Private company ≤ 200; Public company = no limit; OPC = 1

For the private company limit of 200, employee-members and certain ex-employee members are not counted. Joint holders count as one member.

Minimum directors

Private = 2; Public = 3; OPC = 1

A One Person Company needs at least one director.

Three features of a private company

Restricts share transfer + limits members to 200 + prohibits public invitation to subscribe

These come from the articles and the definition. Mention all three in your answer.

Small company test

Private company AND paid-up capital ≤ ₹4 crore AND turnover ≤ ₹40 crore, but NOT a holding company, subsidiary company, section 8 company or company under a special Act

The limits are prescribed and can be revised, so state them as currently prescribed.

Lesser penalty under section 446B

Penalty = lower of (½ × specified penalty) and the cap; cap = ₹2,00,000 for the company, ₹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. The text reads 'not more than one-half' subject to the maximum.

Directorship limit (section 165)

Maximum 20 companies in all; maximum 10 public companies

Alternate directorships count. Private companies that hold or are subsidiaries of a public company count toward the public limit of 10. A dormant company is not counted in the 20.

Penalty for breaching section 165

₹2,000 per day after the first day of violation, maximum ₹2,00,000

It falls on the person who accepts the appointment in violation.

Three tests for a Section 8 company

Charitable objects + profits applied to objects + no dividend to members = Central Government licence

All three conditions in Section 8(1)(a) to (c) must be met.

Name of a Section 8 company

Licence allows omission of "Limited" or "Private Limited" from the name

Section 8(1). On revocation, the company must add the words back (Section 8(6)).

Alteration of MoA or AoA

Previous approval of Central Government required

Section 8(4)(i). Ordinary companies do not need this approval for every alteration.

Penalty for default under Section 8

Company: fine ₹10,00,000 to ₹1,00,00,000. Officer in default: fine ₹25,000 to ₹25,00,000

Section 8(11). Imprisonment was removed in 2020. Fraud makes the officer liable under Section 447.

Amalgamation of a Section 8 company

Only with another Section 8 company having similar objects

Section 8(10).

Inter-State co-operative to Producer Company

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

Section 378J(2)(a) and (4). Name must include "Producer Company Limited" (Section 378J(3)).

Merger with a foreign company

Prior approval of the Reserve Bank of India; consideration in cash, Depository Receipts or both

Section 234(2). Applies to a merger either way, into an Indian company or vice versa.

Assets on winding up of a Section 8 company

Transfer to another Section 8 company with similar objects, or sell and credit proceeds to the Insolvency and Bankruptcy Fund

Section 8(9). Tribunal may impose conditions on the transfer.

Who may apply (Section 455(1))

Company for future project / to hold asset or IP, with no significant accounting transaction, OR an inactive company

The application goes to the Registrar in the prescribed manner.

Inactive company test

No business or operation, OR no significant accounting transaction, OR no financial statements and annual returns filed, during the last 2 financial years

Any one limb is enough. Do not write "and".

Significant accounting transaction

Any transaction other than: Registrar fees; payments to meet legal requirements; allotment of shares to meet the Act; payments to maintain office and records

These four are excluded, so they do not count as significant.

Registrar's role (Section 455(2), (3))

Allow status + issue certificate; maintain register of dormant companies

Form of certificate and register is as prescribed.

Suo motu entry (Section 455(4))

No financial statements or annual returns for 2 consecutive financial years → Registrar issues notice and enters name in dormant register

Here the company need not have applied.

Retaining status (Section 455(5))

Prescribed minimum directors + prescribed documents + prescribed annual fee

The Act leaves the numbers to the rules. Do not quote a number unless you are sure of the rule.

Reactivation and strike off (Section 455(5), (6))

Active again: application with prescribed documents and fee. Non-compliance: Registrar strikes name off the register of dormant companies

Striking off here is from the dormant register, as stated in the section.

Quick revision

• A company is a separate legal person, distinct from its members, with perpetual succession.
• Lifting the veil means looking at the real persons behind the company, used for fraud, evasion of obligations or where a statute allows it.
• Classify companies by incorporation, liability, number of members, control and ownership.
• Private, public and One Person Company differ in members, share transfer and public invitation; learn them in a comparison table.
• Section 8: objects like commerce, art, science, sports, education, research, social welfare, religion, charity or environment protection.
• Section 8 company must apply profits to its objects and must not pay any dividend to members.
• Section 8 licence is granted by the Central Government; the name drops 'Limited' or 'Private Limited'.
• A Section 8 company cannot alter its memorandum or articles without the previous approval of the Central Government.
• Section 8 default penalty: company fine of ₹10 lakh to ₹1 crore; directors and officers in default ₹25,000 to ₹25 lakh.
• Section 378C: a Producer Company needs ten or more individuals who are producers, or two or more Producer Institutions, or a combination of ten or more individuals and institutions.
• A Producer Company is a company limited by shares and can never be or become a public limited company.
• Section 455: dormant status is for a future project, holding an asset or IP with no significant accounting transaction, or for an inactive company.

Common mistakes

• Writing that a common seal is a necessary feature of a company. Fix: State that the words "and a common seal" were omitted from Section 9 in 2015. Mention the seal only as a historical point.
• Saying limited liability applies to every company. Fix: Say it applies to a company limited by shares or by guarantee in its own way. An unlimited company has no such protection.
• Writing that the veil can be lifted whenever a company is owned by one person or a few people Fix: State that lifting needs fraud, evasion, sham or a statutory provision. Cite Salomon and Tata Engineering v State of Bihar to show ownership alone is not enough.
• Mixing up statutory and judicial grounds in one list Fix: Use two clear headings. Put sections of the Act under statutory and case-based grounds under judicial.
• Treating the classes as mutually exclusive, for example saying a company is either public or limited by shares. Fix: Remember that each test is separate. Say which test you are using, and note that one company can fall into several classes.
• Saying a subsidiary can never hold shares in its holding company. Fix: State the three exceptions in Section 19(1): legal representative, trustee, and shareholding that existed before it became a subsidiary.
• Saying a private company can have unlimited members. Fix: Remember the pair: private company ≤ 200 members, public company no limit. Also state which members are excluded from the 200.
• Treating a public company as the same thing as a listed company. Fix: A public company is defined by what it is not (not a private company) and by its freedom to invite the public. Listing is a separate step.
• Saying a Section 8 company cannot earn a profit. Fix: It may earn profit. It must apply that profit to its objects and cannot pay dividend to members.
• Saying a Section 8 company is not subject to company law obligations. Fix: Section 8(2) says it enjoys all privileges and obligations of limited companies.

Exam tips

• Open every answer with Section 9 and the words "body corporate". It anchors your answer to the Act.
• In a fact question, name the feature being tested before applying it. Examiners look for the link between fact and feature.
• For a comparison, use a point-by-point layout: personality, liability, continuity, property. Four clear points beat a long paragraph.
• Mention that the common seal was omitted from Section 9 in 2015. It shows you know the current law.
• Cite a case only if you are sure of its name and holding. A correct provision with sound reasoning earns marks without it.
• Expect a 4 to 6 mark question asking for the grounds of lifting the veil, or a short fact scenario. Prepare both the list and two or three applied cases.
• Learn one-line holdings: Salomon (separate person), Gilford (cloak for covenant), Jones v Lipman (sham to avoid sale), Daimler (enemy character), Dinshaw Maneckjee Petit (tax evasion), Tata Engineering (veil not lifted).
• Keep statutory and judicial grounds under separate headings. Add Section 7(7), Sections 34 and 35, and Section 339 only if you are sure of them.