POST GRADUATE PROGRAMME – I

PGP-I
1

LEGAL ASPECTS OF BUSINESS

(LAB)

Prof. Parul Gupta

PhD (Faculty of Law-JMI, New Delhi), LL.M., PGDBM
Management Development Institute (MDI)
Gurugram

Dr. Parul Gupta

 SESSION 5
2

Legal Status of a Company & Its

Incorporation
 Definition of a company
 Its’ nature & essential characteristics of a
company
 Process of Incorporation of a Company
 Legal Position of Director and his Duties
Quiz Test 1 - Session 1 to 4

Dr. Parul Gupta

 Definition of Company
3

Section 2(20)

“Company is the organisation which is formed and

registered under this law or any previous law”

“A company is meant an association of many

persons who contribute money or money’s worth
to a common stock and employ it in some trade or
business, and who share the profit and loss (as the
case may be) arising there from."

Dr. Parul Gupta

 Essential Features of A Company
4

1. Incorporated association

2. Artificial legal person

A Company can not be given the status of a citizen
under the constitution of India

3. Separate Legal Entity

Case : Lee v Lee’s Air Farming Ltd
Discussion Point
Is the argument of unsecured creditors valid?
Dr. Parul Gupta
 Essential Features of A Company
5

4. Perpetual existence

5. Common seal
Now Optional
6. Limited liability
Case: Re Yee Yut Ee
Discussion Point
Was Yee personally liable for the company’s
debts?

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 Essential Features of A Company
6

7. Transferable shares

8. Separate property
Case : Macaura v Northern Assurance Co Ltd
Discussion Point
Were the insurers liable on the contract?

9. Delegated Management
Case 18.5: Foss v Harbottle
Discussion Point
Examine the legal position of claimants to sue the company
Dr. Parul Gupta directors.
 Company v Partnership
7

a) Regulating Act
b) Registration
c) Number of Members
d) Liability
e) Management
f) Capital
g) Legal status
h) Transfer of shares
i) Insolvency/Death
j) Authority of members
k) Winding up

Limited Liability Partnership

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 PROCEDURE TO FORM A COMPANY
IN INDIA
8

Section 3(1)
i. seven or more persons, where the company
to be formed is to be a public company;
ii. two or more persons, where the company to
be formed is to be a private company; or
iii. one person, where the company to be
formed is to be One Person Company that is
to say, a private company by subscribing
their names or his name to a memorandum
and complying with the requirements of
this Act in respect of registration.
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 Steps to Incorporate a Company
9

1. Application for availability of name of

company- Section 4(4)
i. the name of the proposed company; or
ii. the name to which the company proposes to
change its name.

 Directions for selecting the name of the

company- Section 4(2)

 Allotment of name to the company- Section

4(4)
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 Steps to Incorporate a Company
10

2. Preparation of Memorandum and Articles of

Association
 Memorandum of Association
 The Memorandum of Association is the charter of a
company. It is a document, which amongst other
things, defines the area within which the company
can operate.

 Articles of Association
 the articles of a company must contain the
regulations for management of the company.

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 Steps to Incorporate a Company
11

3. Step Three: Filing of Documents With

Registrar Of Companies- Section 7(1)
(I) Application for Incorporation of Companies
(II) Duly signed Memorandum and Articles of Association of
the company- Section 7(1)((a)
(III) Declaration from the professional- Section 7(1)((b)
(IV) Affidavit from the subscribers to the Memorandum:
Section 7(1)(c)
(V) Furnishing verification of Registered Office: According to
Section 12
(VI) Particulars of subscribers: Section 7(1)(e)
(VII) Power of Attorney

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 Steps to Incorporate a Company
12

4. Step Four: Issue of Certificate of

Incorporation by Registrar - Section 7(2)
 The newly incorporated company is now, capable of
exercising all the functions of an incorporated
company under this Act.
 It can enter into a contract and can sue and be sued,
by the said name. (Section 9)
 After the issue of the Certificate of Incorporation, the
subscribers get the status of the members of the
company.

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 Steps to Incorporate a Company
13

Step Five: Allotment of Corporate Identity

Number - Section 7(3)

 On and from the date mentioned in the

certificate of incorporation issued under
subsection (2), the Registrar allots to the
company a corporate identity number, which
is a distinct identity for the company

Dr. Parul Gupta

 PROMOTER
14

Section 2 (69) , “Promoter” means a person;

i. who has been named as such in a prospectus or is
identified by the company in the annual return referred to
in section 92; or
ii. who has control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise;
or
iii. in accordance with whose advice, directions or instructions
the Board of Directors of the company is accustomed to act.

sub-clause (c) does not apply to a person who

is acting merely in a professional capacity.
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 Legal Position of a Promoter
15

 A company may have many promoters and a

promoter may be a natural person or a company.
 A director/officer/employee having a direct or
indirect control over the affairs of the company,
whether as a shareholder, director or otherwise is
considered as a promoter.
 A promoter can neither be treated as an agent of,
nor a trustee for, the company.

Case : Lindley L.J. in Lydney v Wigpool Iron

Ore Co. v. Bird, (1866)
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 Promoters' Contract and its
Ratification
16
Case: Kelner v. Baxter
 A group of company promoters for a new hotel business
entered into a contract on behalf of the company which was
not yet registered, to purchase wine. After the registration of
the company, it ratified the contract.
 According to the ratified contract the newly registered
company was required to pay for the wine purchased and
consumed before the company was registered. Before the
payment could be made, the company unfortunately went
into liquidation.
 The promoters were sued for the price of the wine
consumed. The promoters argued that liability under the
contract had passed, by ratification, to the company, and they
were not personally accountable.
Discussion Point
Were the promoters liable to pay the price of the wine
Dr. Parul Gupta
consumed?
 Rights of Promoters
17

 Right to receive preliminary

expenses

 Right to recover proportionate

amount from the Co-promoters

Dr. Parul Gupta

 NEXT SESSION - 6
18

Types of Companies
 Classification of Companies on the basis of ;
 incorporation,
 liability,
 number of members,
 control and ownership,

 One person company

 Associations not for profit

Dr. Parul Gupta

 19

Dr. Parul Gupta