Elements of Company Law: formula sheet

Key formulas

Definition of company

Company = company incorporated under the Companies Act, 2013 or any previous company law (section 2(20))

The test is incorporation, not the number of people or the type of business.

Company limited by shares

Member's liability = amount unpaid on shares held (section 2(22))

If shares are fully paid, the liability is nil.

Company limited by guarantee

Member's liability = amount undertaken to contribute if the company is wound up (section 2(21))

Liability is fixed by the memorandum.

Separate legal entity

Company ≠ its members

Salomon v Salomon & Co. Ltd. is the landmark case.

Perpetual succession

Death or exit of members ⇒ company continues

Only legal winding up ends its existence.

Private company features

Restricts transfer of shares + member limit of 200 (except One Person Company) + no public invitation for securities (section 2(68))

Joint holders count as one member. Present and past employee-members are not counted.

Basic rule

Company = separate legal person; members' liability is limited

This is the default. Lifting the veil is the exception, used only when the company is misused.

Test for lifting the veil

Company used as a cloak for fraud, sham or evasion → veil lifted → real persons liable

Use this one-line logic for most MCQs and written answers.

Fraud under Section 447 (definition)

Any act, omission, concealment of fact or abuse of position, with intent to deceive, gain undue advantage or injure, whether or not there is wrongful gain or loss

Wrongful gain or loss is not required for an act to be fraud.

Punishment for fraud, Section 447 (main rule)

Fraud involving at least ₹10 lakh or 1% of turnover, whichever is lower: imprisonment 6 months to 10 years, and fine from the amount involved up to 3 times that amount

If the fraud involves public interest, imprisonment is not less than 3 years.

Punishment for smaller fraud, Section 447 (second proviso)

Fraud below ₹10 lakh or 1% of turnover, whichever is lower, and no public interest: imprisonment up to 5 years, or fine up to ₹50 lakh, or both

Remember that this is a lighter tier, and it applies only without public interest.

Personal liability after SFIO report, Section 212(14A)

SFIO report shows fraud and undue benefit → Central Government applies to Tribunal → disgorgement and personal liability without limit

The application is made to the Tribunal by the Central Government.

Examination of persons in winding up, Section 300

Tribunal winding up + Company Liquidator reports fraud → Tribunal may direct person to attend and be examined on oath

The examination covers promotion, formation, conduct of business or the person's own dealings as an officer.

Producer company: who can form it (Section 378C(1))

10 or more individuals (each a producer) OR 2 or more Producer Institutions OR a mix of 10 or more individuals and Producer Institutions

The objects must fall within section 378B and the Chapter's requirements must be met.

Producer company: registration and liability (Section 378C(2), (3))

Registrar registers within 30 days of receiving documents; liability limited to the amount unpaid on shares

It is termed a company limited by shares.

Producer company: status (Section 378C(5))

Body corporate like a private limited company, with no limit on members; never a public company

The words "under any circumstance" make this absolute.

Producer company: name (Section 378F(a))

Name ends with "Producer Company Limited"

Each subscriber must take at least one share.

Name endings (Section 4(1)(a))

Public: "Limited"; Private: "Private Limited"; Section 8 company exempt

Exemption applies only to Section 8 companies.

Guarantee company memorandum (Section 4(1)(d))

States the amount each member undertakes to contribute on winding up (while a member or within one year after ceasing to be one)

Contribution covers debts, winding-up costs and adjustment among contributories.

Members: private, public, OPC

Private: 2 to 200 | Public: at least 7, no maximum | OPC: 1

Private company limit of 200 excludes certain employee-members and counts joint holders as one.

Government company

Government holding ≥ 51% of paid-up share capital

Government may be Central, State or both together.

Kinds of share capital (Section 43)

Equity share capital + Preference share capital

Equity includes voting and differential-rights shares.

Where to file (Section 7(1))

Documents → Registrar within whose jurisdiction the registered office is proposed to be situated

Filing is with the Registrar of the proposed registered office's area.

Declaration of compliance (Section 7(1)(b))

By an advocate, chartered accountant, cost accountant or company secretary in practice engaged in formation + by a person named in the articles as director, manager or secretary

Both must declare that all requirements for registration have been complied with.

Declaration by subscribers and first directors (Section 7(1)(c))

Not convicted of offence in connection with promotion, formation or management; not found guilty of fraud, misfeasance or breach of duty in the preceding five years; documents are correct and complete

Earlier an affidavit; now a declaration (substituted in 2018).

Certificate and CIN (Section 7(2) and 7(3))

Registrar registers documents → issues certificate of incorporation → allots CIN

CIN is allotted from the date mentioned in the certificate and is included in it.

Preservation of documents (Section 7(4))

Copies of documents as originally filed kept at registered office till dissolution

The company must maintain them for its whole life.

Effect of registration (Section 9)

Body corporate by name in memorandum + perpetual succession + power to hold property, contract, sue and be sued

The words 'and a common seal' were omitted in 2015, so a common seal is no longer part of the section.

False information (Section 7(5) and 7(6))

False or suppressed information → action under Section 447

Section 7(6) covers promoters, first directors named, and those making the Section 7(1)(b) declaration.

Producer Company (Section 378C)

10 or more individual producers, or 2 or more Producer Institutions, or a combination of 10 or more individuals and Producer Institutions

Registrar registers within thirty days of receiving the documents. It is deemed a private company with no limit on members and can never become public.

Alteration of articles (Section 14)

Alteration of articles = special resolution + filing with the Registrar within 15 days

Alteration must be subject to the Act and the conditions in the memorandum. Alterations are filed together with a printed copy of the altered articles.

Public company to private company

Conversion of public to private company = special resolution + approval of the Central Government by order

Under the proviso to Section 14(1), the alteration is not valid unless approved by an order of the Central Government.

Alteration of memorandum (Section 13)

Alteration of memorandum (save as provided in Section 61) = special resolution + filing of it with the Registrar (Section 13(6)) + registration; no effect until registered (Section 13(10))

Save as provided in Section 61, a company alters its memorandum by special resolution and files that resolution with the Registrar. The alteration has no effect until it is registered. For an alteration of objects, the Registrar registers it and certifies the registration within 30 days from the date of filing the special resolution (Section 13(9)). Some alterations need extra steps, listed below.

Change of name

Change of name = special resolution + written approval of the Central Government

No approval is needed if the only change is adding or deleting the word 'Private' on conversion. The change is complete only when the Registrar issues a fresh certificate of incorporation.

Shifting registered office to another State

Shift of registered office between States = special resolution + Central Government approval

The Central Government must dispose of the application within 60 days. The Registrar of the new State issues a fresh certificate of incorporation.

Noting alterations in copies (Section 15)

Penalty = ₹1,000 for every copy issued without the alteration

Applies to the company and every officer in default.

Effect of registration (Section 10)

Memorandum and articles bind the company and members as if signed by each

Money payable by a member under them is a debt due to the company.

Tribunal orders: filing and later alterations (Section 242)

Certified copy of the Tribunal's order to be filed with the Registrar within 30 days

Two sub-sections give a 30-day period. Section 242(7) covers a certified copy of every order altering, or giving leave to alter, the memorandum or articles. Section 242(3) covers a certified copy of any order of the Tribunal under sub-section (1). Separately, after an order that alters the memorandum or articles, the company cannot make an inconsistent alteration without the Tribunal's leave. If it does, the company is liable to a fine of ₹1,00,000 to ₹25,00,000, and every officer in default to a fine of ₹25,000 to ₹1,00,000 (Section 242(8)).

Two kinds of share capital (Section 43)

Share capital = Equity share capital + Preference share capital

Equity means all share capital that is not preference share capital. It may have voting rights or differential rights.

Preference share test (Section 43)

Preference = preferential right to (dividend) AND (capital repayment on winding up or repayment of capital)

Dividend is a fixed amount or at a fixed rate. Extra participation rights do not remove the preference status.

Voting of equity members (Section 47(1))

Right to vote on every resolution; poll vote ∝ paid-up equity capital held

Applies to members of a company limited by shares holding equity capital.

Voting of preference members (Section 47(2))

Vote only on resolutions directly affecting their rights, winding up, or repayment or reduction of capital

If the dividend on a class is unpaid for two years or more, that class votes on all resolutions.

Securities premium (Section 52(1))

Securities premium account = total premium received on shares issued at a premium

The reduction-of-capital provisions apply to it as if it were paid-up share capital, except as Section 52 provides.

Reduction of share capital (Section 66(1))

Special resolution + confirmation by the Tribunal

Not allowed if the company is in arrears in repaying deposits or interest on them.

Section 408: constitution of NCLT

Central Government + notification → National Company Law Tribunal

The Tribunal is constituted with effect from the date specified in the notification.

Composition of NCLT

President + Judicial members + Technical members

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

Powers and functions

Powers conferred by or under this Act or any other law for the time being in force

Its jurisdiction is not limited to the Companies Act.

Section 410: NCLAT

Central Government + notification → Appellate Tribunal (chairperson + Judicial and Technical Members)

Hears appeals against orders of the Tribunal and of the NFRA under the Act.

Section 419: Benches

Normal Bench = 2 members (1 Judicial + 1 Technical); Principal Bench at New Delhi

A single Judicial Member may sit as a Bench for classes of cases specified by the President.

Quick revision

• A company is a separate legal person from its members.
• Lifting the corporate veil means looking behind the company at the people running it, as an exception to separate personality.
• Companies can be classified by liability, number of members and control.
• Incorporation: documents go to the Registrar, who registers them and issues a certificate of incorporation.
• The Registrar allots a corporate identity number, which is distinct for each company.
• Giving false information or hiding material facts at incorporation can lead to action under section 447.
• The memorandum and articles are signed by the subscribers and filed at incorporation.
• Section 43: share capital of a company limited by shares is equity or preference.
• Preference capital has a preferential right to dividend and to repayment on winding up.
• Section 61: a limited company needs authority in its articles to alter its share capital.
• Cancelling shares not taken by anyone is not a reduction of share capital.
• Section 408: the NCLT is constituted by the Central Government by notification.

Common mistakes

• Saying members own the company's assets. Fix: Remember the company owns its property. Members own shares, not specific assets.
• Thinking limited liability means a member never pays anything. Fix: A member remains liable for the unpaid amount on shares held. Only when fully paid is nothing more due.
• Saying the veil is lifted whenever a company has only one or a few shareholders. Fix: Size or ownership alone is not a ground. There must be fraud, a sham or evasion of obligations.
• Thinking that lifting the veil ends the company's existence. Fix: Only that act or liability is traced to the persons behind it. The company remains a separate legal person.
• Saying a producer company can become a public company Fix: Section 378C(5) says a producer company is treated like a private limited company with no limit on members and can never become a public company.
• Writing that a private company has a minimum of seven members Fix: Private needs at least two, public at least seven. Link 7 with public only.
• Saying the company exists once the promoters sign the memorandum. Fix: A company exists only from the date in the certificate of incorporation.
• Adding 'common seal' to the effects of registration. Fix: Section 9 now says body corporate with perpetual succession; the common seal words were omitted in 2015.
• Saying articles can override the memorandum. Fix: Remember the order: Act first, memorandum second, articles third. Articles must stay within the memorandum.
• Thinking the Central Government approval is needed for every alteration of articles. Fix: A normal alteration needs a special resolution only. Central Government approval is needed for converting a public company into a private company.

Exam tips

• In MCQs, the usual traps are options that make members liable for company debts or say the company ends on a member's death. Reject both.
• Learn the section numbers 2(20), 2(21), 2(22), 2(68) and 2(71). Questions often test them.
• For a written answer, give the feature name, the rule, the application and a short conclusion.
• Read statements with always or never closely. Many features have conditions, such as transfer of shares in a private company.
• In Paper 4 there is no negative marking, so attempt every question, even if you must guess between two options.
• Watch for absolute words like 'always' or 'never' in options on lifting the veil. They are usually wrong.
• Learn Section 447 figures as a small table in your notes: ₹10 lakh or 1% of turnover, 6 months to 10 years, 3 years for public interest, 5 years or ₹50 lakh.
• Do the 1% calculation carefully when turnover is given, and always take the lower figure.