Companies Act, 2013

Under the Companies Act, 2013:

• For a Private Company:

  • Minimum Members: Two (2) members are required.
  • Maximum Members: Two hundred (200) members are allowed. This limit excludes persons who are or were in the employment of the company and members who, having been formerly in the employment of the company, were members while in that employment and have continued to be members after the employment ceased.

• For a Public Company:

  • Minimum Members: Seven (7) members are required.
  • Maximum Members: There is no maximum limit on the number of members for a public company.

The concept of 'lifting of corporate veil' refers to situations where the courts or statutory authorities disregard the separate legal entity of a company and look beyond the company to identify the persons who are actually in control of the company. Normally, a company is treated as a separate legal person distinct from its members (Salomon v. Salomon & Co. Ltd.). However, this veil of corporate personality can be lifted in certain circumstances, such as:

1. Fraudulent Conduct: Where the company is used for fraud or improper conduct.
2. Tax Evasion: To prevent tax evasion or circumvention of tax laws.
3. Agency: Where the company is acting as an agent of its members.
4. Evasion of Legal Obligations: To prevent the evasion of legal obligations.
5. Protection of Revenue: In cases involving the protection of government revenue.

The Companies Act, 2013, itself provides for lifting of the corporate veil in specific instances, for example, under Section 7 (for furnishing false information), Section 251 (for fraudulent application for removal of name), and Section 339 (for fraudulent conduct during winding up).

The Memorandum of Association (MOA) and Articles of Association (AOA) are two fundamental documents that govern the constitution and functioning of a company under the Companies Act, 2013.

Memorandum of Association (MOA):

• Significance: The MOA is considered the charter of the company. It defines the company's fundamental conditions and objects, thereby limiting its powers. It governs the relationship between the company and the outside world. Any act done by the company beyond the powers defined in its MOA is considered 'ultra vires' and void.
• Contents: It typically contains six clauses: Name Clause, Registered Office Clause, Objects Clause, Liability Clause, Capital Clause, and Subscription Clause.
• Public Document: The MOA is a public document, meaning anyone dealing with the company is presumed to have knowledge of its contents (Doctrine of Constructive Notice).

Articles of Association (AOA):

• Significance: The AOA contains the rules and regulations for the internal management of the company. It defines the duties, rights, and powers of the management and members, and regulates the relationship between the company and its members, and among the members themselves.
• Contents: It covers matters such as the appointment of directors, conduct of meetings, voting rights, transfer of shares, share capital, etc.
• Subordinate to MOA: The AOA is subordinate to the MOA. Any provision in the AOA that contradicts the MOA or the Companies Act, 2013, will be void.

The doctrine of 'Ultra Vires' is a fundamental principle of company law. The term 'ultra vires' literally means 'beyond the powers'. In the context of the Companies Act, 2013, this doctrine implies that any act performed by a company that is beyond the scope of its objects as defined in its Memorandum of Association (MOA) is considered ultra vires.

Key aspects of the doctrine:

1. Void Ab Initio: An ultra vires act is null and void from the very beginning (void ab initio). It cannot be ratified even by the unanimous consent of all the shareholders of the company.
2. Protection for Shareholders and Creditors: The doctrine protects shareholders by ensuring that their investment is not used for purposes other than those specified in the MOA. It also protects creditors by ensuring that the company's assets are not dissipated on unauthorized activities, thereby safeguarding their claims.
3. Consequences:
   • The company cannot be sued on an ultra vires transaction, nor can it sue on it.
   • Directors may be held personally liable to the company for any funds of the company that have been misapplied in ultra vires transactions.
   • An injunction can be obtained by a member to restrain the company from entering into an ultra vires transaction.

Historical Context: The doctrine was firmly established in the case of Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875), which held that a company could not enter into a contract beyond the objects specified in its MOA. While the Companies Act, 2013, provides for easier alteration of the objects clause, the doctrine itself remains a crucial check on corporate powers.

A One Person Company (OPC) is a type of private company introduced by the Companies Act, 2013, that allows a single person to form a company. Key characteristics include:

1. Single Member: It can have only one person as a member.
2. Nominee: The sole member must nominate another individual who, in the event of the member's death or incapacity, shall become the member of the company. The nominee's written consent is required.
3. Minimum Directors: An OPC must have at least one director, who can be the sole member himself. The maximum number of directors is 15.
4. Conversion: An OPC can be voluntarily converted into a private or public company after two years from the date of incorporation, or if its paid-up share capital exceeds fifty lakh rupees or its average annual turnover exceeds two crore rupees.
5. Limited Liability: It provides the benefit of limited liability to the sole proprietor.

The corporate veil is a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company's debts. Piercing the corporate veil happens when courts ignore this limited liability in cases of fraud.

The Companies Act, 2013, draws a clear distinction between a Private Company and a Public Company based on several criteria:

| Feature | Private Company (Section 2(68))

The Companies Act, 2013, is a comprehensive legislation that governs the incorporation, functioning, and winding up of companies in India. Its primary objective is to simplify regulations, enhance corporate governance, protect the interests of investors and other stakeholders, promote corporate social responsibility, and facilitate ease of doing business in India. It replaced the Companies Act, 1956, to address the evolving economic and business landscape.

The Memorandum of Association (MOA) and Articles of Association (AOA) are two fundamental documents for the incorporation and governance of a company under the Companies Act, 2013.

• Memorandum of Association (MOA): The MOA is the charter of the company and defines its scope of activities and relationship with the outside world. It contains fundamental clauses such as:

  1. Name Clause: Name of the company.
  2. Registered Office Clause: State where the registered office is located.
  3. Objects Clause: The main business activities the company is authorized to undertake.
  4. Liability Clause: The liability of members (limited by shares or guarantee).
  5. Capital Clause: The authorized share capital of the company.
  6. Subscription Clause: Declaration by subscribers to take shares.
     Any act beyond the objects clause (ultra vires) is void.

• Articles of Association (AOA): The AOA are the internal regulations of the company, governing the management of its internal affairs and the conduct of its business. They define the rights, duties, and powers of the management and members. It covers aspects like:

  1. Appointment and powers of directors.
  2. Meetings of the company.
  3. Voting rights of members.
  4. Transfer and transmission of shares.
  5. Declaration of dividends.

Both documents must be filed with the Registrar of Companies during incorporation and are legally binding on the company and its members.

Under the Companies Act, 2013, a public company must have at least three directors, a private company must have at least two directors, and a One Person Company must have at least one director.

A One Person Company (OPC) is a new concept introduced by the Companies Act, 2013, to encourage corporatization of micro-businesses and entrepreneurship. As per Section 2(62) of the Companies Act, 2013, an OPC is defined as a company that has only one person as a member.

Key features and rules for OPCs include:

1. Single Member: An OPC can have only one natural person as a member.
2. Nominee: The memorandum of an OPC must indicate the name of another natural person who shall, in the event of the subscriber's death or incapacity to contract, become the member of the company. The nominee's prior written consent is required and must be filed with the Registrar of Companies at the time of incorporation.
3. Natural Person: Only a natural person who is an Indian citizen and resident in India (stayed in India for not less than 120 days during the immediately preceding financial year) shall be eligible to incorporate an OPC or be a nominee for an OPC.
4. Restrictions: An OPC cannot be incorporated or converted into a Section 8 company (company with charitable objects). It cannot carry out non-banking financial investment activities, including investment in securities of any body corporate. An OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of its incorporation, except where the paid-up share capital or turnover crosses specified thresholds.
5. Private Company: An OPC is essentially a private company, and all the provisions applicable to a private company generally apply to an OPC unless otherwise specified.

Under Section 2(69) of the Companies Act, 2013, a 'promoter' means a person:

1. Who has been named as such in a prospectus or is identified as such in the annual return of the company; or
2. Who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
3. In accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

However, a person acting merely in a professional capacity (e.g., a lawyer, accountant, or consultant advising on incorporation) is not considered a promoter. Promoters play a crucial role in the formation of a company, from conceiving the idea to bringing the company into existence.

A One Person Company is a company that has only one person as a member. It provides the benefits of a corporate framework (limited liability) to individual entrepreneurs.

A company, as defined by the Companies Act, 2013, possesses several distinct characteristics that differentiate it from other forms of business organizations:

1. Separate Legal Entity: A company is a legal person distinct and separate from its members. It has its own identity, can own property, enter into contracts, sue, and be sued in its own name. This principle was established in the landmark case of Salomon v. Salomon & Co. Ltd..
2. Perpetual Succession: The existence of a company is not affected by the death, insolvency, or retirement of its members. Members may come and go, but the company continues to exist until it is legally wound up.
3. Limited Liability: The liability of the members (shareholders) is generally limited to the unpaid amount on the shares they hold or the amount guaranteed by them, depending on the type of company. Their personal assets are typically protected from the company's debts.
4. Artificial Legal Person: A company is created by law and exists only in the eyes of the law. It does not have a physical body or soul but is clothed with legal rights and obligations of a natural person, except for those that are inherently personal (e.g., marrying, taking an oath).
5. Transferability of Shares: The shares of a company are generally freely transferable, subject to the provisions of its Articles of Association. This allows members to sell their shares without affecting the company's existence.
6. Common Seal (Optional): While historically mandatory, the Companies (Amendment) Act, 2015, made the common seal optional. If a company does not have a common seal, the documents requiring its affixation can be signed by two directors or by a director and the Company Secretary.

Under the Companies Act, 2013, the key differences between a Private Company and a Public Company are primarily related to membership, share transferability, and capital requirements:

1. Minimum Members: A Private Company requires a minimum of two members, while a Public Company requires a minimum of seven members.
2. Maximum Members: A Private Company can have a maximum of 200 members (excluding past and present employee members), whereas a Public Company has no such maximum limit.
3. Transferability of Shares: A Private Company restricts the right to transfer its shares, while a Public Company allows free transferability of its shares.
4. Invitation to Public: A Private Company is prohibited from inviting the public to subscribe to its shares or debentures, unlike a Public Company which can invite the public.
5. Minimum Paid-up Capital: While earlier there were specific minimum paid-up capital requirements, these have been removed by the Companies (Amendment) Act, 2015, for both private and public companies.