The document provides an overview of legal aspects related to business in India including contract law, sale of goods act, negotiable instruments act, companies act, consumer protection act, intellectual property rights act, and information technology act. It then focuses on company law covering topics like formation of a company, memorandum and articles of association, prospectus, types of companies, directors, and winding up of a company. Key aspects around each topic like definition, content, alteration, liability are discussed at a high level.

1. Legal Aspects of Business
MBA505B
Dr. Bhagyashri Deshpande

2. I. The Indian Contract Act, 1872& The Sale of Good Act, 1930
II. Negotiable Instruments Act, 1881
III. The Companies (Amendment) Act, 2015
IV. The Consumer Protection Act, 1985 & The Competition Act
V. The Intellectual Property Rights and the Information Technology Act, 2005

3. Unit 3
Company law:
Formation of company
Characteristics of company
Memorandum and articles of association
Prospectus
Meetings
Directors
Oppression and mismanagement and
Winding up of company.

4. Characteristics of company
a. Definition
b. Characteristics
c. Lifting the corporate veil

5. Definition
Section 2(20) of Companies Act, 2013 states that
“a company means any association of person registered under the present or
the previous companies act.”
Company is an association of person who takes their meals together. The term is
derived from the Latin word (“com” meaning “with” or “together”; “panis” that is
“bread”)
Company is defined as “ a voluntary incorporated association which is an
artificial person, created by law, with limited liability, having a common seal and
perpetual succession.”

6. Characteristics
1. Registration
2. Distinct Person
3. Perpetual succession
4. Artificial person but not a citizen
5. Transferable shares
6. Limited liability
7. Common Seal
8. Separate property
9. Capacity to sue and be sued

7. Disadvantages of a corporate personality
 Lifting the corporate veil
a. Company assumes enemy character
b. Company used for tax evasion
c. To circumvent the terms of contract between parties
d. Company acting as an agent
e. Statutory liabilities
 Formality and expense
 Cannot claim citizenship

8. Incorporation of Company
Documents to be filed with the Registrar
a. MoA and AoA signed by all the subscribers to Memorandum
b. Declaration by an advocate, CA, CS, ICWA engaged in formation
c. Affidavit from subscribers to MoA & first directors
d. Particulars of every subscriber of MoA
e. Particulars of first directors mentioned in AoA
f. Consent to act as director
g. Address for correspondence
 Certificate of Incorporation – allotment of corporate identity number
 Effect of incorporation

9. Formation of Company
Section 3 of the Act deals with the formation of a company. A company can be formed for
any legal purpose in the following ways -
 A public company must be formed with seven or more persons (3(1)(a)).
 A private company must be formed with two or more persons (3(1)(b)).
 A one-person company (OPC) is formed with a single person. It is a private company
with a single member which was introduced for the first time via the 2013 Act (3(1)(c)).
The company formed shall either be
• A company limited by shares
• A company limited by guarantee
• An unlimited company

10. Basic types of Companies
1. Private company : According to Sec 2(68), a private company is a company:
 having a minimum paid-up share capital as may be prescribed by the Act and
 restricts the right to transfer the shares;
 limits the number of members to 200 and
 prohibits the invitation to public to subscribe for the securities of the company.
2. Public company : According to Sec 2(71), a company is a public company :
 that is not a private company and
 has a minimum paid-up share capital.
 A public company is an association having 7 members or more and is registered under the Act.
3. One person company OPC:
Under the Act of 2013, a single person can constitute a company.

11. Types of Company
Companies can further be classified into the following heads:
1. On the basis of Incorporation
2. On the basis of Liability
3. Other forms of Companies

12. On the basis of Incorporation
1. Statutory Companies
Statutory companies are those companies that have been constituted by an Act of
Parliament or State Legislature
E.g. RBI, LIC
2. Registered Companies
These are the companies that have been incorporated under the Act of 2013 or under any
previous company law and registered with the Registrar of the Companies.

13. On the basis of Liability
1. Limited Company: A company limited by either shares or by guarantee is termed as a
limited company
Company Limited by Shares:
In a company that is limited by shares, the liability of the members of such a company is
limited to the nominal value of the shares held by them.
Company Limited by Guarantee:
A company wherein the members undertake to contribute to the assets of the company in
the event of winding up, such a company is a company limited by guarantee.
2. Unlimited Company:
A company having no limit on the liability of its members is termed as an unlimited
company. The liability of members herein may stretch to their personal assets in the event
of winding up of the company in order to contribute to the assets of the company.

14. Other forms of Companies
1. Government Company:
A company in which 51% or more of the paid-up share capital is held by either the Central Government or the State
Government(s) or partly by Central Government and partly by the State Government(s), is a government company u/s 2
(45) of the Act of 2013.
2. Foreign Company:
According to Section 2(42) of the Act, a ‘foreign company’ is any company or body corporate that is incorporated
outside India.
3. Holding, Subsidiary and Associate Company: The companies can be classified as holding, subsidiary and
associate companies on the basis of their control.
1. Holding Company u/s 2(46) of the Act means a company or a body corporate that has subsidiary companies.
2. According to section 2(87) of the Act, a company would be a subsidiary company if the holding company has a
control over the composition of the Board of Directors or owns and controls more than half of the share capital of
such a company.
3. An Associate company: Herein, the company has control on a minimum of 20% of share capital, and business
decisions of such associate company under agreement. The parent company owns only a small stake in an
associate company.

15. Memorandum of Association
MOA is document which contains the rules regarding constitution &
activities or objects of the company
 Company is governed by MOA
 Co. is allowed to work within the frame work of MOA & if
crosses the framework, its act will be ultra-vires
 It’s a public document

16. Memorandum of Association - Content
1. Name Clause
2. Registered Office
3. Object Clause
4. Capital Clause
5. Liability Clause
6. Subscription or Association Clause
Each subscriber to the memorandum shall take at least one share.
Difference between Member and share holder

17. Memorandum of Association - Alteration
Alteration involves compliance with prescribed procedure - (Sp. Resolution)
1. Change of name
2. Change in the registered office
3. Alteration of object clause
-- To carry on business more economically/effectively
--To enlarge area of operation
--To amalgamate with any other co.
4.Alteration of capital clause
--Increase of share capital
--Consolidate or sub-divide its share capital
5.Change in liability clause

18. Articles of Association
 It prescribes regulations of the company
 AOA is subordinate to MOA and is under full control of members
 MOA defines the limits & framework beyond which co. cannot
go whereas members make their regulations through AOA
 Alteration by special resolution

19. Effect of MoA & AoA
1. Members and company
2. Members inter se
3. Company & outsiders
Constructive notice of MoA & AoA
Doctrine of Indoor Management
Doctrine of Ultra Vires

20. Prospectus
 A Public company invites public to subscribe towards
its share capital through issue of prospectus
 The invitation/document containing the offer of
shares/debentures for sale is a prospectus
 It provides information like financial background of
co. its activities, future programs, risk involved

21. Prospectus - Contents
1. Important Dates
2. General Information of the company
3. Capital structure of the company
4. Details of company management
5. Details about projects
6. Financial information
7. Issue information
Registration of prospectus
-- Expert Consent
 Now issue of equity shares & debentures are controlled by SEBI
 Consent of SEBI

22. Prospectus – Advertisement & Types
When in any manner the advertisement of a prospectus is published, it is
mandatory to specify :
 the contents of the memorandum of the company regarding the object,
member’s liabilities,
 amount of the company’s share capital,
 signatories and the number of shares subscribed by them and
 the capital structure of the company.
Types of the prospectus as follows.
1. Red Herring Prospectus
2. Shelf Prospectus
3. Abridged prospectus
4. Deemed Prospectus

23. Red Herring Prospectus
Red herring prospectus is the prospectus which lacks the complete
particulars about the quantum of the price of the securities. A company
may issue a red herring prospectus prior to the issue of prospectus when
it is proposing to make an offer of securities.
 When to file? – to be filed with the registrar at least three days prior to
the opening of the subscription list or the offer.
 What to state? - the total capital raised either raised by the way of debt
or share capital.

24. Shelf Prospectus
Means a prospectus in respect of which, securities or class of securities,
included therein, are issued for subscription, in one or more issues, over a
certain period, without the issue of further prospectus.
 Who can issue? – Any class of companies specified in regulations by SEBI
 Validity Period? – One Year
 What to file ? – Information Memorandum

25. Deemed Prospectus & Abridged Prospectus
Deemed Prospectus:
When any company to offer securities for sale to the
public, allots or agrees to allot securities, the document
will be considered as a deemed prospectus through
which the offer is made to the public for sale.
In the case of SEBI v. Kunnamkulam Paper Mills Ltd., it
was held by the court that where a rights issue is made to
the existing members with a right to renounce in the
favour of others, it becomes a deemed prospectus if the
number of such others exceeds fifty.
Abridged Prospectus: Summary of a prospectus

26. Liability & Punishment
Criminal Liability:
Untrue or misleading statement – Fraud u/s 447
Civil Liability:
Person suffers loss – All liable to pay compensation

27. Surprise Test 1

28. Directors
1. Board of Directors
2. Independent Director
3. Interested Director
4. Additional Director
5. Alternate Director
6. Nominee Director
7. Appointment of Directors
8. Retirement of Directors
9. Powers of Directors
10. Duties of Directors
11. Position of Directors
12. Disclosure of Interest by Directors
13. Insider Trading of Securities

29. Board of Directors
Company being an artificial person carries on its business
through individuals called Directors
Directors collectively called as BOD
Min & Max. no. of directors
Director Identification Number
Women Director

30. Independent Director
Meaning – A director other than a managing director or
whole time director or a nominee director.
The Central Government may prescribe the minimum
number of independent directors in case of any of public
companies. The following classes of companies shall have at
least 2 directors as independent directors.
Public companies with paid-up share capital of Rs. 10
crore or more.
Public companies with a turnover of Rs. 100 crore or
more.
Public companies with aggregate outstanding loans,
debentures, and deposits, exceeding Rs. 50 crore.

31. Other Types of Director
Interested Director
Interested in such a contract or arrangement
Additional Director
BoD can appoint if empowered by AoA
Alternate Director
In absence of a director
Nominee Director
Nominated by a financial institution pursuant to any
law, agreement or appointment by any government

32. Appointment of Directors
AoA – first director
OPC
General Meeting
DIN
Declaration
Consent
Retirement of Directors
Retiring by rotation
Every AGM
Not less than 2/3rd of total number

33. Position of Directors
Directors as agents
Directors as trustees
Directors as managing partners
Directors as employees

34. Disclosure of interest by Directors
1. In body corporate – holds more than 2% of shareholding
2. With a firm in which director is a partner
Insider Trading
Insider trading involves trading in a public company's stock by
someone who has non-public, material information about that
stock for any reason.