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CS Executive · Setting Up of Business, Industrial and Labour Laws

Corporate Entities - Companies for CS Executive Paper 3

Corporate Entities - Companies covers the kinds of companies under the Companies Act, 2013, special forms such as OPC, small, dormant, Nidhi and government companies, foreign companies, lifting of the corporate veil, and investigation of related companies. Learn each type's definition and conditions, then write answers as provision, analysis, conclusion.

What this chapter covers

This chapter is the base of Part I of Paper 3, Setting up of Business. It asks one question: in what legal form can a business run as a company, and what follows from that form? You learn the types of companies, the special categories with their own conditions, and how the law treats a company whose structure is used to hide wrongdoing.

The chapter has three clusters. The first is classification: meaning of a company, types by liability, members and control, then One Person Company, small company, dormant company, government company and Nidhi. The second is foreign companies and how the Act applies to them, including the rule in section 379 and the winding up of foreign companies. The third is enforcement: lifting of the corporate veil and investigation into the affairs of related companies, including section 219.

The chapter links to the rest of the paper. Later topics such as incorporation, memorandum and articles, and the labour laws in Part II all assume you know which kind of company you are dealing with. It also helps in Paper 2 on Company Law, where the same definitions return in administration and meetings.

This chapter gives you definitions and conditions that examiners can test directly, and it suits written answers. Questions often ask you to distinguish two company types, state the conditions for a special company, or apply the veil-lifting principle to a short fact pattern. Because the content is rule-based, careful preparation converts well into marks. The chapter also supports other Paper 3 topics and Paper 2, so time spent here pays back across your preparation.

Corporate Entities - Companies: topics in the order to study them

  1. 1Meaning and Types of Companies under Companies Act 2013Start here because every later topic uses these definitions and the classification by liability, members and control.
  2. 2One Person Company, Small Company and Dormant CompanyThese are the most testable special categories, and they rest on the basic types you have just learned.
  3. 3Government Companies, Nidhi and Other Special CompaniesFinish the classification cluster so you can compare all special companies and their conditions in one go.
  4. 4Foreign Companies and Application of the ActMove from Indian companies to foreign ones; section 379 sets which provisions apply and when a foreign company is treated like an Indian one.
  5. 5Winding Up of Foreign CompaniesIt follows naturally from the foreign company rules and completes that cluster.
  6. 6Lifting of the Corporate VeilYou need the idea of separate legal personality from the basic types before you can learn when courts and statutes look behind it.
  7. 7Investigation into Affairs of Related CompaniesStudy it last, as it builds on holding, subsidiary and group ideas and on the investigation sections 210 and 212 that lead to section 219.

How to prepare Corporate Entities - Companies

Treat this chapter as a set of definitions, conditions and short procedures. Build a clean comparison first, then practise written answers.

  1. Read the chapter once in study order without notes, only to see how the company types connect.
  2. Make a one-page comparison chart of company types: liability, minimum members, transfer of shares, and special conditions for OPC, small, dormant, government and Nidhi companies.
  3. Read the actual sections for foreign companies and investigation. Note who acts, what approval is needed and what the section allows.
  4. For veil lifting, list the grounds in two columns: where the statute allows it and where courts have done it. Add one short example for each ground.
  5. Write three or four answers in full exam style: the provision, the facts or analysis, then a clear conclusion that cites the Act and section.
  6. Practise short distinction questions, such as OPC versus private company, and time yourself.
  7. Revise the chart and your answers twice in the final fortnight.

Common mistakes in Corporate Entities - Companies

  • Mixing up the conditions of OPC, small company and dormant company.

    Fix: Keep a comparison chart and revise each category with its own defining test.

  • Saying the whole Act applies to every foreign company.

    Fix: Write that sections 380 to 386, 392 and 393 apply to all foreign companies, and add the 50% Indian shareholding rule under section 379(2).

  • Treating veil lifting as a general power that courts use freely.

    Fix: State that separate personality is the rule and lifting is an exception, then name the ground that fits the facts.

  • Confusing sections 210, 212 and 219.

    Fix: Link each to its role: 210 for inspectors, 212 for the Serious Fraud Investigation Office, 219 for related companies and persons.

  • Omitting the need for prior Central Government approval under section 219.

    Fix: Always state that the inspector acts subject to prior approval and only so far as the results are relevant to the main investigation.

  • Writing answers as a list of facts with no conclusion.

    Fix: Use provision, analysis, conclusion in every answer and cite the Act and section.

Last-day revision: Corporate Entities - Companies

  • 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.

Corporate Entities - Companies practice questions

Corporate Entities - Companies in other exams

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

Corporate Entities - Companies: frequently asked questions

Which topics in Corporate Entities - Companies should I study first?

Start with the meaning and types of companies, because every other topic uses those definitions. Then do the special companies, foreign companies, veil lifting and investigation in that order.

How do I remember which sections apply to foreign companies?

Remember section 379 in two parts. Sub-section (1) applies sections 380 to 386, 392 and 393 to all foreign companies. Sub-section (2) treats a foreign company with at least 50% Indian-held paid-up capital like an Indian company for its Indian business.

Who can order an investigation under the Companies Act, 2013?

The Central Government orders it under section 210, and it must do so if a court or the Tribunal directs. Under section 212 it can assign the case to the Serious Fraud Investigation Office.

What does section 219 allow an inspector to do?

With prior Central Government approval, the inspector can investigate related bodies corporate, such as subsidiaries, holding companies or companies under common management, and certain persons such as the managing director, manager or employee. This is only so far as the results are relevant to the main investigation.

How should I write answers for this chapter?

State the provision first, apply it to the facts in a few lines, and end with a clear conclusion. Cite the Act and the section where it matters.