Company Law

Unlike the partnership firm, a company does not have unlimited liability on its members. The liability of members is limited. 

 Corporations created under the Special legislations of Parliament or State Legislatures are called statutory companies. Life Insurance Corporation of India is an example of a Statutory Company as it was created under a special legislation of Parliament. The act is Life Insurance Corporation of India, 1956.

 It is not necessary to put common seal on memorandum of association. It is like  constitution of company with name clause, objects clause etc..

 The fine may extend to Rs 500 per day by an entity in contravention of law as per section 631 of the Companies Act, 1956. 

 Statement in lieu of prospectus  for invitation of share capital from the private sources is not required to be submitted for registration. Statement in lieu of prospectus is issued only after registration of the company.

 A prospectus is required to be issued when a public company intends to raise or invites subscription to its share capital from public. 

 This privelege is not available to a private company. Whether the company is private or public, it must appoint directors. 

 When a private  company takes its members beyond 50, it is conversion by default. According to Sec3(1)(iii) if a private company takes its members to more than 50, it automatically becomes a public company and it has to fulfill the obligations of a public company.

 Issuing of prospectus is not a stage of formation of a company. A company issues prospectus only after it is formed. Secondly only the public company issues prospectus to raise its capital from the public. Private company does not issue prospectus.

 In order that a public company must become a private company, it is not necessary that the permission of court must be taken. The conversion can take place without the approval of court. 

Dividend clause is not a clause of Memorandum of Association. The provision relating to payment of dividends to shareholders is mentioned in the Articles of Association.  

 Holding and subsidiary company is the type of classification on the basis of control of management. A company is a Holding Company in relation to another company if it possesses control over another company. A company is said to be a subsidiary company if the other controls its composition of Board of Directors, or when the other company holds more than half of its nominal value of equity shares.

 A shelf prospectus is issued when a public company intends to raise money for one or more securities. It is a difficult and expensive task to issue a prospectus every time it seeks to raise money from the public. So a shelf prospectus is issued which allows for more than issue of securities within a year from the date of its first offer.

 CIN stands for corporate identity number. This scheme was started in the year 2000 and the registrar of companies  allots CIN, that is a unique number  to every company registered on or after November 1, 2000.

 The buy-back can be made by purchasing the securities issued to existing employees of the company. So the facility of buy-back of shares is allowed when the company intends to purchase its own shares from its employees.

 The share certificate is to be issued within two months from the date of transfer of such shares according to Sec. 113 of the Companies Act ,1956.

 Share Warrant is a negotiable instrument.  A share warrant shall entitle the bearer thereof to the shares therein specified and shares may be transferred by mere delivery of the warrant. 

 When own shares are purchased by the company from the open market at the prevailing market price as any other person would purchase them, it means that the company has purchased its own shares and it amounts to buy-back of shares.

 Lein is a right of a person over the goods of another person in the form of a security for a claim upon that person. A company may have some claim upon a shareholder in relation to shares, therefore, it may mark its lien on the shares, so lien on shares is a kind of security for a claim against the shareholder.

 The membership of a shareholder does not come to an end when a share certificate is issued. A share certificate is a certificate which certifies that he is the holder of a specified number of stated shares in the company. 

 To vote in general meetings is a collective right of a member, as this is a right in which many members vote collectively according to Sec. 87. So it is not an individual right of a member.

 A company may attract outsiders to join the company and provide intellectual assets like patents, skills etc. in return of shares in the company. Such type of shares are known as sweat-equity shares.

 An offer to public would not be there if it is made to the friends or relatives of the company management. In this the offer is circulated not to the public but to the friends and relatives of company management.

A company enjoys status of a separate legal entity if it issues share certificates to its shareholders within three months after the allotment of shares according to Sec 113. The corporate veil is not lifted.

 According to Sec. 274 of the Companies Act,  a person is eligible to be appointed as a director if he is solvent, that is not insolvent. This means that the person is not bankrupt and can pay his liabilities, so he is eligible to be appointed as a director.