CA Intermediate · Corporate and Other Laws

Preliminary (Companies Act, 2013) for CA Intermediate

Preliminary is the opening chapter of Company Law in CA Intermediate Paper 2. It covers what a company is, its key definitions, separate legal personality, lifting the corporate veil and types of companies. Solve it by naming the rule, applying it to the facts, and stating a clear conclusion.

What this chapter covers

The Preliminary chapter sets the base for all of Company Law. It tells you where the Companies Act, 2013 applies, what a company is in law, and why a company is treated as a person separate from its members. It then shows when courts and the statute ignore that separation, and how companies are sorted into types.

The Act extends to the whole of India. It applies to companies incorporated under the Act or under any previous company law. It also applies to insurance, banking and electricity companies, and to companies governed by a special Act. For these, the Companies Act applies except where it is inconsistent with their own law (Banking Regulation Act, 1949, Insurance Act, 1938 and IRDA Act, 1999, Electricity Act, 2003, or the special Act). This is stated in Section 1(4). Know the list, because it is easy to frame as a short question.

The rest of the paper builds on this chapter. Incorporation, share capital, directors, meetings and winding up all assume you know the type of company and its separate legal personality. Definitions from this chapter also keep reappearing in later chapters. A body corporate that is a member acts through a representative authorised by a board resolution (Section 113), which only makes sense once you accept that a company is a separate person. The Central Government also prescribes accounting standards as recommended by ICAI, in consultation with NFRA (Section 133), which links this paper to Advanced Accounting.

This chapter is concept-heavy and the answers are short, so it is one of the more scoreable parts of Paper 2. Features of a company, lifting the veil and classification suit both MCQs and descriptive case-study questions, and you can answer them with the provision-facts-conclusion format. The ideas also carry into every later chapter, so a weak base here costs you marks elsewhere. With 30 marks of MCQs and no negative marking, clear definitions and company types help you eliminate wrong options quickly.

Preliminary: topics in the order to study them

1Introduction to Companies Act 2013 and Key DefinitionsStart here to learn where the Act applies and the vocabulary that every later topic uses.
2Meaning and Characteristics of a CompanySeparate legal entity, perpetual succession and limited liability must be clear before you can study exceptions to them.
3Lifting the Corporate VeilThis is the exception to separate personality, so you need the general rule first.
4Classification of CompaniesStudy this last, as it uses the definitions and features from the earlier topics and is mostly comparison and recall.

How to prepare Preliminary

Treat this chapter as concepts plus cases. Learn each rule in your own words, attach one case or example to it, and practise applying it to facts.

Read the application of the Act (Section 1(4)) and write the list of company types it covers, with the Act each one must also follow.
Make a one-page list of key definitions in your own words. Revise it daily until you can recall each without looking.
Learn the features of a company with one case per feature, such as Salomon v A Salomon & Co Ltd for separate legal entity and Macaura v Northern Assurance for the shareholder having no insurable interest in company property.
Split the veil-lifting grounds into two columns: statutory and judicial. Add one case or example to each ground, for example Gilford Motor Co v Horne for fraud or sham, and Daimler v Continental Tyre for enemy character.
Build a classification chart by incorporation, liability, number of members, control and ownership. Add minimum members and basic features to each type.
Solve past and practice MCQs on each topic. Then write two or three short case-study answers in the format: provision, facts, conclusion.
Do a final revision of the definitions list, case names and classification chart in the last week.

Common mistakes in Preliminary

Confusing a company's separate personality with the idea that members never face any liability.
Fix: Always add: liability is limited, not nil, and the veil can be lifted in defined situations such as fraud or sham.
Quoting a veil-lifting case without linking it to the ground.
Fix: Write each case as: ground, facts in one line, outcome. Match the case to the facts given in the question.
Mixing up the classification bases, for example treating a private company and an OPC as the same.
Fix: Use a chart with one basis per row. Note that a company can be, for example, private, limited by shares and a subsidiary at the same time.
Overstating how the Companies Act applies to banking, insurance and electricity companies.
Fix: State that it applies except in so far as it is inconsistent with the relevant special law.
Writing descriptive answers without a conclusion on case-study questions.
Fix: Follow provision, facts, conclusion. End with a clear one-line answer to the question asked.
Remembering numbers such as minimum members or the 51% government holding loosely.
Fix: Keep them on a one-page revision card and recall them from memory every few days.

Last-day revision: Preliminary

A company is an artificial legal person with a separate legal existence from its members.
Separate personality: the company owns its property, and members do not own company assets (Salomon, Macaura).
Perpetual succession: the company continues despite the death, insolvency or exit of members.
Limited liability: a member's liability is limited to the unpaid amount on shares, or the guaranteed amount in a company limited by guarantee.
The veil can be lifted by statute or by the courts, for example for fraud, sham, evasion of obligations, agency or enemy character.
Section 1(4): the Act applies to insurance, banking, electricity and special-Act companies except where inconsistent with their own Act.
One Person Company has one member, a private company has at least two, and a public company has at least seven.
A private company restricts transfer of its shares and has a limit of 200 members, with certain exclusions such as employees.
By liability, companies are limited by shares, limited by guarantee or unlimited.
A holding-subsidiary relationship is about control of the board or of more than half the voting power.
A government company is one in which not less than 51% of paid-up share capital is held by the Central or State Government, or both.
A foreign company is incorporated outside India but has a place of business in India.

Preliminary practice questions

Preliminary in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Preliminary: frequently asked questions

Is the Preliminary chapter important for CA Intermediate?

Yes. It is the base for the whole of Company Law, and its ideas are tested in both MCQs and case-study questions. It is also relatively short, so it rewards focused preparation.

Which cases should I learn for this chapter?

Learn a few cases well rather than many loosely. Salomon v A Salomon & Co Ltd and Macaura v Northern Assurance for separate personality, and Gilford Motor Co v Horne and Jones v Lipman for sham or fraud. Daimler v Continental Tyre covers enemy character.

How should I answer a lifting the corporate veil question?

State the general rule of separate legal entity first. Then name the ground that applies to the facts, such as fraud or sham, and cite the matching case. Finish with your conclusion on whether the veil would be lifted.

How do I remember the classification of companies?

Use a chart with one basis per row: incorporation, liability, members, control and ownership. Add the key features and minimum members to each type, and revise the chart often.