Corporate Entities - Companies: formula sheet

Key formulas

Classification by incorporation

Company = registered under this Act or earlier company law, or a foreign company

Registration is the point where the company gains separate legal existence.

Classification by liability

Limited by shares | Limited by guarantee | Unlimited

In a company limited by shares, liability is limited to the unpaid amount on shares.

Classification by members

One Person Company | Private company | Public company

Learn the minimum members and minimum directors for each, as taught in the study material.

Classification by control

Holding company | Subsidiary company | Associate company

Control is tested by control over board composition or voting power or significant influence.

Classification by ownership

Government company | Non-government company

Test is the Central or State Government shareholding, as defined in the Act.

Issue of securities, section 23

Public company: public offer, private placement, rights or bonus issue. Private company: rights or bonus issue, or private placement

A private company cannot make a public offer through a prospectus.

Certificate of incorporation, section 7

Documents filed with Registrar → registration → certificate of incorporation → corporate identity number

The company exists from the date mentioned in the certificate.

OPC basic structure

1 member + 1 nominee (named in memorandum, with written consent)

Only a natural person resident in India (120 days or more in the previous financial year) can form an OPC. Check the current rules for the citizenship and one-OPC limits.

Small company test

Private company AND paid-up capital ≤ ₹4 crore AND turnover ≤ ₹40 crore (current limits)

Both limits must be met. Holding companies, subsidiaries, section 8 companies and companies under special Acts are excluded.

Inactive company (s. 455 Explanation)

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

Any one of the conditions is enough.

Significant accounting transaction (s. 455)

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

Only these four are ignored when deciding whether a company is inactive.

Dormant status procedure (s. 455)

Application to Registrar → certificate → entry in register of dormant companies

Under s. 455(4) the Registrar must issue a notice and enter the name of a company that has not filed financial statements or annual returns for two consecutive financial years.

Retaining dormant status (s. 455(5)-(6))

Prescribed minimum directors + prescribed documents + prescribed annual fee

The Registrar strikes off the name from the register of dormant companies if the company fails to comply. A dormant company can become active on application with prescribed documents and fee.

Lesser penalty (s. 446B)

Penalty = lower of (½ × penalty in the section) and cap; cap = ₹2,00,000 for company, ₹1,00,000 for officer in default or other person

Applies to OPC, small company, start-up company and Producer Company.

Strike off for no business (s. 248(1)(c))

No business or operation for 2 immediately preceding financial years AND no application for dormant status within that period

The Registrar sends a notice to the company and all directors and allows 30 days for representations.

Section 379(1) - baseline application

Sections 380 to 386 (both inclusive) + sections 392 and 393 → apply to ALL foreign companies

No shareholding test is needed for this. Section 391 is not in this list.

Section 379(2) - Indian-held foreign company

Indian citizens + Indian-incorporated companies/bodies corporate hold ≥ 50% of paid-up share capital (equity + preference) → comply as if an Indian company

Applies to the business carried on in India, and to such other provisions as may be prescribed. It is in addition to the baseline in section 379(1).

Section 380(1) - filing on setting up

Deliver prescribed documents to Registrar within 30 days of establishing place of business in India

Includes charter or MOA and AOA, registered office address, list of directors and secretary, an authorised person resident in India, address of principal place of business in India, past opening or closing particulars, and a declaration on convictions or debarment.

Section 380(3) - alterations

Alteration in delivered documents → return to Registrar within 30 days

Filed in the prescribed form.

Section 381 - accounts

Every calendar year: balance sheet + profit and loss account in prescribed form; copy to Registrar

Non-English documents need a certified English translation. A list of all places of business in India goes along. The Central Government may relax this by notification.

Section 382 - display of name

Name + country of incorporation: outside every office, and on letters, billheads, notices and publications

Outside offices, also in the local language. If liability is limited, that fact must also be stated.

Section 384 - other provisions applied

s.71 (debentures), s.92 (annual return) and s.135 (CSR), s.128 (books of account), Chapter VI (charges), Chapter XIV (inspection, inquiry and investigation)

Sections 92 and 135 apply subject to exceptions, modifications and adaptations made by rules. Books of account are kept at the principal place of business in India and cover the Indian business only. Chapter XIV applies mutatis mutandis to the Indian business.

Section 391 - prospectus, IDRs, closure

ss.34 to 36 apply to prospectus under s.389 and to IDRs; Chapter XX applies mutatis mutandis to closure if raised monies are unpaid

Closure rule is subject to section 376.

Government company test

Government holding in paid-up share capital ≥ 51%, or subsidiary of a government company

Holding may be by the Central Government, one or more State Governments, or both together. Defined in Section 2(45).

Section 8 conditions

Objects in Section 8(1)(a) + profits applied to objects + no dividend + Central Government licence

All must be satisfied. The name omits "Limited" or "Private Limited".

Section 8 alteration rule

Change in memorandum or articles → previous approval of Central Government

Section 8(4)(i).

Section 8 revocation

Contravention, fraud, acting against objects or prejudice to public interest → licence revoked after hearing

Section 8(6). Central Government may then direct conversion and name change. Winding up or amalgamation under Section 8(7) only if essential in public interest.

Section 8 amalgamation

Amalgamation only with another Section 8 company having similar objects

Section 8(10).

Section 8 default penalty

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

Section 8(11). If affairs are conducted fraudulently, every officer in default is liable for action under Section 447. The penalty is a fine only; imprisonment was omitted in 2020.

Surplus assets on winding up

Transfer to another Section 8 company with similar objects (Tribunal conditions) or sell and credit proceeds to the Insolvency and Bankruptcy Fund

Section 8(9). Members do not take the surplus.

Nidhi core rule

Borrow from members and lend to members only

Purpose: cultivating thrift and savings. Check the Nidhi Rules for detailed limits, as these are not in the text supplied here.

Basic rule

Company = separate legal person, distinct from its members

Salomon v Salomon & Co. Ltd. Members are not liable for company debts beyond their unpaid share capital.

Exception

Veil is lifted where the entity is used for fraud, a sham, or evasion of law

Lifting is an exception. Courts do it only where justice demands it.

Section 341

Order/declaration under s.339 or s.340 against a firm or body corporate → Tribunal may also pass it against any person who was at the relevant time a partner or director

The power belongs to the Tribunal. It covers a partner in the firm or a director of the body corporate at the relevant time.

Section 7(5) and 7(6)

False or incorrect particulars or suppression of material facts on incorporation → liable for action under section 447

Under s.7(6) this covers promoters, first directors and persons making the declaration under s.7(1)(b).

Section 7(7)

Incorporation by false information or fraud → Tribunal may regulate management, make liability unlimited, remove the name, or order winding up

Before any order, the company must be heard and the Tribunal must consider transactions entered into, including obligations contracted or liabilities paid.

Section 147(5)

Auditor firm partners who acted fraudulently or colluded in fraud → liability of those partners and the firm jointly and severally

For criminal liability other than fine, only the concerned partners are liable.

Who can use section 219

Inspector appointed under s.210, s.212 or s.213

The power is attached to the inspector of the main investigation.

Condition for use

Inspector considers it necessary + prior approval of the Central Government

Both are needed. Approval must come before the inspector investigates the other body or person.

Related bodies corporate (clauses a to c)

(a) holding, subsidiary or fellow subsidiary; (b) managed by the company's MD or manager; (c) Board of nominees or accustomed to act on directions

Covers present and past links ('is, or has at any relevant time been').

Related persons (clause d)

Any person who is or was the company's managing director, manager or employee

Clause d covers individuals, not only bodies corporate.

Scope limit

Investigate and report only so far as relevant to the investigation of the company

The inspector reports to the authority that appointed him under the relevant section.

Section 376 rule

Foreign body corporate carried on business in India + ceases to carry on business in India → may be wound up as an unregistered company

Applies even if it has been dissolved or has ceased to exist under its home country's law.

No voluntary winding up (section 375(2))

Unregistered company → winding up by Tribunal only

Voluntary winding up is not allowed for any unregistered company.

Grounds under section 375(3)

(a) dissolved / ceased business / business only to wind up affairs; (b) unable to pay debts; (c) just and equitable

Learn all three. Ground (c) needs the Tribunal's opinion.

Inability to pay debts: creditor demand (section 375(4)(a))

Debt exceeding ₹1,00,000 then due + written demand served + 3 weeks of neglect to pay, secure or compound

The amount must exceed one lakh rupees. It is not 'one lakh or more'.

Inability to pay debts: suit against member (section 375(4)(b))

Suit against a member for company debt + written notice served on company + no action within 10 days

Company must pay, secure or compound the debt, get the suit stayed, or indemnify the defendant.

Other deemed inability (section 375(4)(c), (d))

Execution on a decree or order returned unsatisfied in whole or in part; or otherwise proved to the Tribunal

Four modes in all.

Fraudulent conduct (section 339(1))

Business carried on with intent to defraud creditors or others, or for any fraudulent purpose → Tribunal may declare directors, managers, officers and knowing parties personally responsible without limit of liability

Applicants: Official Liquidator, Company Liquidator, any creditor or contributory. The Tribunal 'may', so it is discretionary.

Criminal consequence (section 339(3))

Every person knowingly a party → liable for action under section 447

Section 339 applies even if the person is punishable under another law (section 339(4)).

Extension to firms and companies (section 341)

Declaration or order against a firm or body corporate → Tribunal may also act against its partners or directors at the relevant time

Covers declarations under section 339 and orders under section 340.

Quick revision

• A company has separate legal personality; members and the company are different in law.
• Types by liability: limited by shares, limited by guarantee, and unlimited.
• Types by members: OPC, private and public company; know each one's conditions.
• OPC, small company and dormant company each have their own defined conditions; learn them from the Act.
• A government company is one where the Central or State Government holds the prescribed share of paid-up capital.
• Nidhi companies are special companies; revise their conditions from the Act and rules.
• Section 379(1): sections 380 to 386, and sections 392 and 393, apply to all foreign companies.
• Section 379(2): if at least 50% of paid-up share capital of a foreign company is held by Indian citizens or Indian companies, it must comply as if it were an Indian company.
• Veil lifting: look behind the company where the form is used for fraud, evasion or improper purposes, or where a statute says so.
• Section 210: the Central Government orders an investigation and appoints inspectors; a court or Tribunal order makes it compulsory.
• Section 212: the Central Government may assign investigation to the Serious Fraud Investigation Office.
• Section 219: with prior Central Government approval, an inspector may investigate related bodies corporate and certain persons such as the managing director, manager or employee, so far as relevant.

Common mistakes

• Treating members and the company as the same person. Fix: State that the company is a separate legal person from registration, and that its members are not liable for its debts beyond their unpaid shares.
• Saying a private company can invite the public to subscribe through a prospectus. Fix: Remember section 23: a private company uses rights or bonus issue or private placement. A public offer through a prospectus is for a public company.
• Saying a small company can be a public company or a subsidiary. Fix: Learn the definition as: private company, within limits, and not a holding company, subsidiary, section 8 company or special Act company.
• Treating an OPC and a small company as the same thing. Fix: Remember the test for each. OPC is defined by the number of members (one). Small company is defined by size (capital and turnover). An OPC can also be a small company if it meets the size limits, but the two are separate categories.
• Saying a foreign company becomes an Indian company whenever it has an Indian place of business. Fix: Say the baseline sections apply to all. Only at 50% or more Indian holding does the company comply as if Indian.
• Treating the test as 'more than 50%'. Fix: The text says 'not less than fifty per cent'. Exactly 50% qualifies.
• Saying a company is a government company because the government controls it, without checking paid-up capital. Fix: Always test the share capital: 51% or more paid-up capital held by the governments, or being a subsidiary of a government company.
• Ignoring State Government holdings when computing the 51%. Fix: Add Central and State Government holdings together. Both count under Section 2(45).
• Saying the veil is lifted whenever the company causes loss to someone. Fix: State that lifting is an exception. It needs fraud, a sham, evasion or a statutory ground.
• Confusing section 341 with section 339 or 340. Fix: Sections 339 and 340 give the declaration or order. Section 341 extends it to partners and directors at the relevant time.

Exam tips

• Write the basis of classification as a sub-heading before listing types. Examiners reward this structure.
• For differences between private and public company, use a short point-wise list of at least five points.
• Cite section 23 for issue of securities and section 7 for incorporation only when you are sure of the point being made.
• In fact-based questions, always state the label you give the company on each basis and end with a conclusion.
• Link this topic with the related topics on One Person Company, small and dormant companies, and conversion, as questions often mix them.
• Write the section number for dormant companies (section 455), for lesser penalties (section 446B) and for striking off (section 248). These are in the official text and examiners expect them.
• For difference questions between OPC and small company, answer in two columns of points: basis of definition, member count, size limits, nominee, conversion and relaxations. Keep each point to one line.
• For dormant company questions, always quote the two limbs: formed for a future project or to hold an asset or intellectual property, and inactive company. Then list the four excluded payments.