Corporate law refers to the laws regulating corporations regarding formation, ownership, operation, and management. While corporations can become powerful and monopolize markets, corporate laws create a fair market by keeping all corporations on an even playing field and prohibiting unpredictable behavior. A corporation is considered a separate legal entity from its owners, with its own rights and liabilities distinct from shareholders. This concept of corporate personality is established in corporate law.

1. • Corporate law refers to the laws, rules, and regulations that pertain to corporations. The laws involved regulate
the rights and obligations involved with the business activities of a corporation, including formation, ownership,
operation, and management.
• Corporations are famous for raking in large amounts of money and holding a decent amount of power in a
particular market. As they become more profitable and powerful, corporations can start to monopolize markets,
meaning they become the exclusive provider of a particular trade, product, or service.
• Corporate laws might seem as if they are in place to add hoops for corporations to jump through to do business.
It is actually quite the opposite. Corporate laws are in place to maintain a fair market so new businesses can
enter and compete with others. They keep all corporations on an even playing field by outlawing overly
unpredictable business activities and behavior.
corporate law

2. Concept of Corporate Personality
• Corporate personality is the creation of law. And as per the law, a corporation is an artificial person created by
the personification of a group of individuals. The theory of corporate personality mainly states that a company
has a legal identity different from its member. Both English and Indian laws follow the concept of corporate
personality.
• The creditors of the company can recover their money only from the company and they cannot sue individual
members. In the same way, the company is not in any way liable for the individual debts of its
shareholders/members and the property of the company is only used for the benefit of the company.
• It enjoys certain rights and duties such as the right to hold property, right to enter into contracts, to sue and be
sued in the name of the company. The rights and liabilities of the members are different from the company.
• In short, corporate/legal personality, which the company acquires on incorporation, confers legal personality and
independent status to the company.
• For the first time, this concept was recognized in the year 1867 in the case of Oakes v. Turquand and Harding.
But it was approved and firmly established in the leading case of Salomon vs. Salomon in which it was held that
a company has its own personality which is different from the personalities of the individuals.
Corporate law, Formation of Company

3. • The winding-up of a company is completed through a full-fledged legal procedure. For the existence of a
corporation, three ingredients are necessary:1. A group or body of human being must be associated with the
corporation for certain purpose;2. There must be an existence of organ which through which body or group of
human acts;3. A corporation holds a separate entity distinct from its members and is attributed will by legal
fiction.
• There are two types of corporations
•
1. Corporate Aggregate: It is a group of human beings united for the purpose of the same interest. Number of
people come together to form a corporation and their liability is restricted to the extent of their shareholdings.
People forming a company are its shareholders and contribute to the capital of the company towards the
common goal. The property does not belong to shareholders and rights and liabilities of it are different from its
shareholders. Shareholders hold the right to receive dividends from the company but not the actual company.
• Corporate Sole: As the name suggests, a corporation which has a single legal person. Corporation sole refers
to a corporation where the rights and duties lie in the hands of a single person. He solemnly holds the legal
capacity to exercise in the office. These are the holders of the public office recognized by law. Since in a sole
corporation there is a single owner and thus the right and liabilities on the property does not extinguish with his
death, instead they are vested on the person succeeding to them. It can thus be concluded that the legal
personality in a sole corporation never destroys even if the natural personality does.

4. • Independent Corporate Existence: A company is separate from its members, i.e., it has a separate legal
entity. The existence of the company does not depend on its members. Section 34(2) of the Companies Act
states that upon the incorporation of the company, any person who becomes a member or subscribes to the
memorandum of the company becomes a body corporate, can exercise all the functions of an incorporated
company, having perpetual succession and common seal. The company after incorporation acquires its own
identity. It was in the case of Mangilal v. KrishnRao, the court held that the company cannot be considered as
a business of an individual or of chairman of the Board of Directors. A company has its own existence and
separate entity which is distinct from its members and thus the shareholders can’t be held liable for the acts of
the company, as held in case of Salomon v. Salomon. The principle of Limited liability was also recognized in
the same case.
• Corporate Finance: The company being incorporated holds the transferable shares, i.e., the shares of the
company can be transferred from an individual to other. The company raises capital by the issuance of shares. A
registered company enjoys the privilege of raising its capital by issuance of shares and debentures to the
general public. The company can be granted loans by the public financial institutions which are secured by
floating charges. Any member cannot claim his rights over the property of the company, during its existence or
the winding up.
• Limited Liability: A body incorporated under law holds the privilege of limited liability. Any shareholders who
hold shares in a company are restricted to the amount of the shares. The shareholders at the time of winding up
of the company, are entitled to the liability, in respect of nominal value of the shares held by them. Thus, the
liability is limited by the share whether held by the original shareholders or the transferee. In the case of a
company limited by guarantee, each member is liable to contribute a certain amount to the assets at the time of
winding up. In an unlimited company, the liability of the company is unlimited. In case of J.H. Rayner Ltd. V.
Dept. of Trade and Industry, court held that the members are not liable for anything more than the nominal
value of the shares held by them.
Advantages of incorporation

5. • Separate Property: Company being a separate legal entity holds the property of its own. The property is
vested in the company as a body corporate and thus the activity of any member does not affect its title. The
company being a real person holds the right to enjoy, manage and dispose of its property i.e., assets and
capital, on its own.
• Transferability of Shares: A corporation incorporated by law grants shareholders the right to transfer the
shares. Section 82 of the Companies Act, 2013 empowers the shareholders to transfer their movable property or
any interest, in the manner prescribed by the articles of the company. A shareholder can sell their shares
ensuring liquidity for investors and stability in the company. However, the transferability does not affect the
management of the company. It helps the shareholders to transfer his liability to someone else.
Perpetual Succession: There is a saying, “members may come and go but the company lives on forever.” In
general, this means, even if the members of the company stay or not, the company will stay forever. Company
holds the personality of perpetual succession. If any of the members dies, or sell off his shares, this won’t affect
the life of the company. It’s not that with the death of the shareholder, the company will also die. The company will
not wind up in any conditions except if the law feels the need to
do so and allows it to wind up.
Centralized Management: The shareholders and directors are the one who decides the policy matter of the
company. The management is not the owner or is disassociate with the ownership of the company. They are an
independent organisation working for the same. The main focus of the management is to achieve targets and
maintain prosperity in the company. They are supported by financial resources to ensure that the company runs
effectively. This independence provides the management flexibility and improves their efficiency.

6. • Capacity to sue and be sued: Company being a body incorporated by law holds the characteristics of the
separate legal entity. The company has its own name and can sue and be sued under its own. A company needs
a natural person to represent itself and protect its name. Companies can claim for the damage caused to it
or its name by suing them. It was in the case of TVS Employees Federation v. TVS & Sons Ltd, the
court held that the exhibition of the struggle of the workmen against the management of the company is the
infringement of privacy of the company and should be restrained. The court referred to the case of R. v.
Broadcasting Standards Commission. The court, in this case, held that the company can complain under the
Broadcasting Act, 1996 for the broadcast of anything which is infringement of any policy of the company.
• Disadvantages of Incorporation
• Lifting or piercing of the Corporate Veil: Since a corporation is a body corporate holding a separate legal
entity. The company is a non-juristic person which requires an agent for its functioning, known as members. This
means the company is different from its members. The thing which separates the company from its members is
called corporate veil. The members represent the company and work for the growth and development of the
company. Ultimately, it’s the members who benefit from the functioning of the company. According to the
doctrine of the corporate personality, the members can use this attribute of the company for legitimate purposes
but in some cases, the members use it for some illegitimate purpose like fraud, illegal activity, misconduct,
misuse. In case Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. It was held that the corporate
veil can be lifted in the case when it is essential to determine the real men behind the illegal activity or are
disobeying the procedure established by law. The court in such cases can lift up the corporate veil or pierce it
to find the actual wrongdoer. The members try to hide behind the veil for their misconduct, the court in such a
case can lift up the corporate veil. The veil is pierced to find the root cause of misconduct and to determine
which person has done such an act and to punish them. Section 45, 147, 212, 247, 542 of the Companies Act
talks about the concept of Corporate Veil.

7. • Company is not a citizen: Company being a juristic person cannot be granted citizenship. Neither the
Constitution of India nor the Citizenship Act grants citizenship to an artificial person. The company cannot claim
for the infringement of fundamental rights claimed to the citizens but can claim for the fundamental rights
guaranteed to all citizens or not, as held in case of StateTrading Corporation of India v. Commercial Tax
Officer. The court in the case of Tata Engineering Company v. State of Bihar, held that the members of the
company are the citizens of India and thus can claim for their rights but a company cannot. it doesn’t have its
own domicile, nationality and residence. The residence of the company can be curbed out from the place where
the central management and control of the company is located.3. Expenses and formalism: The incorporation
of the company is an expensive and hectic affair. There are a lot of formalities to be completed for the
incorporation. Since the provisions of the company law are to be strictly followed and the functioning is restricted
to the memorandum, it hinders the growth of the company.

8. • The Companies Act, 2013 details the regulations and company registration papers essential for the
incorporation of a company. In this article, we will understand all such rules and documents listed in the Act. To
begin with, let’s define the promoters of a company.
• 1 Promoters
• 2 Formation of a Company
• 3 Registration or Incorporation of a Company
• 3.1 Filing of company registration papers with the registrar
• 3.2 Issuing the Certificate of Incorporation
• 3.3 Corporate Identity Number (CIN)
• 3.4 Maintaining copies of Company registration papers
• 3.5 Furnishing false information at the time of incorporation
• 3.6 The company is already incorporated based on false information
• 3.7 Order of the National Company Law Tribunal (NCLT)
• 4 Effect of Registration of a Company
Promoters
Sec 2(69) of the companies Act defines promoter as an individual who –
• Who is named as a promoter in the prospectus or in the annual returns of the company
• Controls the affairs of the company directly por indirectly
Registration of a company

9. • Advises , directs or instructs the Board of Directors
Hence, we can say that promoters are people who originally come up with the idea of the company, form it and
register it. However, solicitors, accountants, etc. who act in their professional capacity are not promoters of the
company.
Formation of a Company
Formation of a public company involves 7 or more people who subscribe their name to the memorandum and
register the company for any lawful purpose
Two or more people can form a private company
One person can form a one person company
Registration or incorporation of a Company
section 7 of the Companies Act, 2013, details the procedure for incorporation of a company. Here is the
procedure:Filing of company registration papers with the registrar
Filing of company registration papers with the registrar
To incorporate a company, the subscriber has to file the following company registration papers with the registrar
within whose jurisdiction the location of the registered office of the proposed company falls.
• The Memorandum and Articles of the company. All subscribers have to sign on the memorandum.

10. • The person who is engaged in the formation of the company has to give a declaration regarding compliance of
all the requirements and rules of the Act. A person named in the Articles also has to sign the declaration.
• Each subscriber to the Memorandum and individuals named as first directors in the Articles should submit an
affidavit with the following details:
• Declaration regarding non-conviction of any offence with respect to the formation, promotion or
management of any company.
• He has not been found guilty of fraud or any breach of duty to any company in the last five years.
• The documents filed with the registrar are complete and true to the best of his knowledge.
 Address for correspondence until the registered office is set up
 If the subscriber to the Memorandum is an individual, then he needs to provide his full name, residential
address, and nationality along with a proof of identity. If the subscriber is a body corporate, then prescribed
documents need to be provided.
• Individuals mentioned as subscribers to the Memorandum in the Articles need to provide the details specified in
the point above along with the Director Identification Number.
• The individuals mentioned as first directors of the company in the Articles must provide particulars of interests in
other firms or bodies corporate along with their consent to act as directors of the company as per the prescribed
form and manner.
Issuing the certificate for incorporation
Once the Registrar receives the information and company registration papers, he registers all information and
documents and issues a Certificate of Incorporation in the prescribed form.

11. • Corporate Identity number
• The Registrar also allocates a Corporate Identity Number (CIN) to the company which is a distinct identity for the
company. The allotment of CIN is on and from the company’s incorporation date. The certificate carries this
date.
• Maintaining copies of company registration papers .The company must maintain copies of all information and
documents until dissolution.
• Furnishing false information at the time of incorporation
• During the formation of a company, an individual can:
• Furnish incorrect or false information
• Suppress any material information in the documents provided to the Registrar for the incorporation, on purpose
In such cases an individual is liable for fraud under section 447
The company is already incorporated based on false information
f a company is already incorporated but it is found at a later date that the information or documents submitted were
false or incorrect, then the promoters, first directors, and persons making a declaration is liable for action for fraud
under section 447.
Order of the National Company Law Tribunal (NCLT)
If a company is incorporated by furnishing false or incorrect information or representation or suppressing material
facts or information in the documents furnished, the Tribunal can pass the following orders (if an application is
made and the Tribunal is satisfied with it):

12. • Pass an order to regulate the management of the company. It can include changes in its Memorandum and Articles if required.
This order is either in public interest or in the interest of the company and its members and creditors.
• Make the liability of its members unlimited
• Order removal of the name of the company from the Registrar of Companies
• Order the company to wind-up
• Pass any other order as it deems fit
• Before passing an order, the Tribunal has to give the company a reasonable opportunity to state its case. Also, the Tribunal
should consider the transactions of the company including obligations contracted or payment of any liability.
Effect of Registration of a Company
• According to Section 9 of the Companies Act, 2013, these are the effects of registration of a company:
• From the date of incorporation, the subscribers to the Memorandum and all subsequent members of the company are a body
corporate.
• A registered company can exercise all functions of a company incorporated under the Act. Also, the company has perpetual
succession with power to acquire, hold, and dispose of property of all forms. Also, it can contract, sue and be sued by the said
name.
• Further, the company becomes a legal person separate from the incorporators from the date of incorporation. Also, a binding
contract comes into existence between the company and its members as mentioned in the Memorandum and Articles of
Association. Until the company dissolves or the Registrar removes it from the register, it has perpetual existence.

13. • Definition
• A Memorandum of Association (MOA) is a legal document prepared in the formation and registration process of
a limited liability company to define its relationship with shareholders. The MOA is accessible to the public and
describes the company’s name, physical address of registered office, names of shareholders and the
distribution of shares. The MOA and the Articles of Association serve as the constitution of the company.
• It is often simply referred to as the memorandum. In India, it has to be filed with the Registrar of
Companies during the process of incorporating a company. It is the document that regulates the company’s
external affairs, and complements the articles of association which cover the company’s internal constitution. It
contains the fundamental conditions under which the company is allowed to operate. Until recently it had to
include the “objects clause” which let the shareholders, creditors and those dealing with the company know what
is its permitted range of operation, although this was usually drafted very broadly. It also shows the company’s
Authorised capital.
As per section 2 of the Companies Act, 2013 memorandum means the memorandum of association of a
company as originally framed or as altered from time to time in pursuance of any previous company law or of
this Act.
As Memorandum of Association (MOA) is an important documents which outlines the company laws under
which a company will work and function. It has several clauses which defines some pertinent aspects under
provision of The Companies Act, 2013 which are as follows:-
Memorandum of Association

14. Name clause of memorandum of association
The name of the company should be stated in this clause. A company name should be which is not identical in any
manner to any existing company also, there are some words which are strictly prohibited to be used in names of
company in any manner. The Word “Private/PVT Limited” should be in end of any private company. And the word
“Limited” should be in the end of every public limited Company.
Situation clause of memorandum of association
In this clause the state name of company’s registered office is mentioned. The Company should intimate the
location of registered office to the registrar within thirty days from the date of incorporation in case the permanent
address of company is not given.
Object clause of memorandum of association
Every company have specific business which they will run after a company is incorporated. This clause states all
the business which this proposed company will commence after incorporation that to in detail.
Now as per The Companies Act, 2013 only Main objects and other objects which are ancillary to main objects are
covered.
Any business run apart from this can lead to closure of business. Again, there are some business which are
required approval from different authorities like for loan and capital funding, Reserve Bank of India (RBI) is
required. For commencing insurance business approval from Insurance Regulatory and development authority of
India (IRDAI).

15. Liability clause of Memorandum of association
• This clause states the liability of the members of the company. The Liability can be limited or unlimited which
means at the time of winding up of company, a company with limited liability, members are required to pay
amount up to the value of nominal value of shares taken by them but in case of unlimited members are required
to pay without any limit for the debt or payment which a company is required to pay.
Capital clause of Memorandum of Association
• This clause states the Authorised Capital of the company and total number of shares along with value of per
share. This is the limit a company can raise its capital maximum amount. For example, if company authorised
capital is 10 Lakhs and paid up at the time of incorporation is 1 Lakh, company can raise its capital upto 9 lakhs.
But nothing more than 9 lakhs. There is no limit for amount of authorised capital a company can have in India as
per the companies Act 2013
Subscription clause of Memorandum of Association
It contains the names and addresses of the first subscribers. The subscribers to the Memorandum must take at
least one share. The minimum number of members is two (2) in case of a private company, seven (7) in case of a
public company and one (1) in case of One Person Company as per The Companies Act, 2013.
The above clause are required to be inserted, omission of any of above clause will lead to refusal of company
incorporation by Registrar of Companies.
(MOA) can be altered anytime but there are certain conditions which have to be complied before alteration.

16. • Section 13 of The Companies Act, 2013 governs the process and conditions for alteration in Memorandum of
Association (MOA). The following clauses can be changed as per this section-
• Name clause, situation clause , object clause, capital clause
Subscription clause can never be altered after the incorporation of the company
Different forms are filed to Registrar according the changed MOA clause and all have to be filled within the time
prescribed under the required forms and sections.
As per section 13 of The Companies Act, 2013 until / unless all provisions and forms/ returns are not filled as per
law, the alteration in Memorandum of Association stands nullified.

17. • The Articles of Association (AoA) is the charter document that establishes the legal existence of a company
• This regulatory document defines the purpose of a company and its operation. Regulatory authorities
determine the minimum requirement for its content, also known as articles, for establishing companies within
their jurisdiction. Although this is the baseline to conduct commercial activity as a separate legal entity,
companies can expand beyond to suit the circumstance.
• The Articles of Association (AoA) can be considered the “constitution of a company.” At a minimum, it must meet
the rules and regulations governing the particular business structure within a jurisdiction.
• The articles state the organization’s purpose and broad strategies to accomplish its short-term and long-term
goals.
• Generally, the articles detail a company’s legal form, purpose, capital structure, governance, records, and other
terms of its existence.
Purpose of Articles of Associations
• Companies incorporate for many reasons. Authorities often require the filing of a variety of documents to ensure
companies are rule-abiding. The articles of association are the primary source authorities need to assess
and grant a company a separate legal identity from its stakeholders.
• The whole document is colloquially known as the Articles. The document may detail the name and legal form of
the company, its purpose, capital structure, corporate governance, administration of corporate records, and
other terms of its existence.
• Jurisdictions may also refer to Articles as Memorandum of Association, Articles of Incorporation (AoI)
Memorandum of Incorporation, Constitution, or Articles of Organization, to name a few.
Articles of association

18. • While articles of association are relatively similar in many parts of the world, exact terms will vary across
jurisdictions. In general, it includes the following:
• Company name and form of business
• Purpose of the company
• Capital structure
• Corporate governance
• Administration of corporate records
Company name and form
To be a legal entity, a company must have a distinguishable name. It must be present in the articles of
association. Sometimes an address is included to ensure the registration is attached to a legal address.
jurisdictions may have rules and require suffixes, for example, “Inc,” “Ltd,” and “Plc,” to denote a specific form
of business structure. There are prohibitions for words that may confuse the public or are deemed offensive and
vulgar.
Generally, companies may exist perpetually; however, articles may explicitly limit their duration and outline
how they can cease, depending on the circumstance.
Purpose of the Company
For-profit organizations pursue benefit for their stakeholders by delivering value to society, while non-profit
organizations pursue societal benefit by providing value that may be intangible. Regardless of the pursuit, the
organization’s purpose must be stipulated in the articles of association.
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Common components of the articles of Association

19. • Some jurisdictions allow for general purpose statements, such as “management.” Others require a detailed purpose of an
enterprise, i.e., “the operation and growth of a restaurant chain.”
Capital Structure
• For companies with share capital, the typical structure is via common shares. There may be other classes and categories
of shares; for example, preferred shares having dividend and distribution rights or even liquidation preference.
• Organizations without share capital may be companies limited by guarantee, which may be non-profit companies in some
jurisdictions.
• The capital structure stipulates the relationship with stakeholders of the company. It shows how the company confers the stake in
exchange for stakeholder support.
Corporate Governance
• Directors’ positions and duties, along with the rights and responsibilities of shareholders or members, may be defined under this
category.
• Many jurisdictions have rules for corporate governance Directors are typically the most-directly responsible individuals, as
authorities may permit shareholding or membership by legal entities other than individuals. Directors’ liability varies by
jurisdiction, and their indemnity may be outlined within the articles of association.
• Rules for decision-making by directors, shareholders, and members are set out in writing and are legally binding. Jurisdictions
may state the minimum frequency of meetings, participation, voting, and quorums. It may outline dispute resolution and ways to
address other contestable issues.
Administration of corporate records
A record of directors’ and shareholders’ meetings and decisions, as well as financial and accounting records, is typically required.
Authorities may require submission regularly (e.g., annually or quarterly) and legally compel its retention. Regulators must ensure
the company’s existence is verifiable beyond the individual directors, owners, and members

20. • . One of the most significant principles we encounter when studying Company Law is the notion of Constructive
Notice. Because the AOA of the Company are a public document and are accessible to everyone u/s 399 of the
Companies Act, 2013, the doctrine of Constructive Notice implies that the AOA are well-known by an outsider
who seeks to hold any relationship with the company in the near future.
• The AOA and MOA are regarded as “public documents” from the time the business is registered. They are
openly available to the general public for observation. As a result, it is assumed that everyone interacting with
the corporation is well-versed in its laws and regulations. This assumption is known as the Doctrine of
Constructive Notice.
• The law of constructive notice applies not only to MOA and AOA, but also to all other documentation needed to
be registered with the Registrar of Companies, like special resolutions stated in Section 117. However, the
doctrine of constructive notice doesn’t apply to documents filed with the registrar of companies only for record-
keeping purposes.
• According to Palmer, the concept only applies to documents that impact the company’s rights.
• The idea of constructive liability aims to simplify corporate regulations. It offers organisations with protection
when engaging with outsiders. Nevertheless, this rule was perceived to be doing more harm than good,
reducing its credibility. The courts developed the theory of indoor management to limit the implementation of this
clause where the rule in conflict is internal.
• This English concept was first applied solely in situations of fraud, but it quickly expanded to cases of gross
negligence as well.
Doctrine of constructive notice

21. • Constructive Notice and Actual Notice are frequently used interchangeably. Even though a person does not
have actual notice, he may have constructive notice. Actual notice is when a person has knowledge of an
occurrence or a matter for the first time. Constructive notice, on the contrary, indicates legal notice despite the
fact that no real notice was ever provided. However, under the given circumstances, the individual should be
able to fairly know about the process. For instance, we frequently see legal notices published in newspapers,
etc.
• In Oakbank Oil Co. v. Crum (1882) 8 A.C. 65, it was ruled that everyone who engages with the corporation is
believed to have not only read its MOA and AOA, but also fully comprehended the true meaning of the articles.
This type of notice is known as Constructive Notice.
Characteristics
• Constructive Notice, sometimes known as legal fiction, occurs when courts believe interested parties have
knowledge that they do not truly possess.
• This notification is frequently used when service on an interested party has become difficult because the party is
either ignoring the process server at his door or is unable to be identified when service is tried.
• Constructive notice is considered superior to actual notice; for example, someone to whom the summons is
really served with relevant papers may have the case dismissed on the grounds of lack of notice if the papers
were improperly served. However, in the constructive notice, the person who was duly served and got the
constructive notice but did not receive a physical copy of the summons and accompanying documentation due
to some other reason would be unable to dismiss the case on the grounds of failure of service.
Difference between constructive notice and actual notice

22. • The doctrine of constructive notice is an exception to the principle of indoor management, and it is crucial to highlight that the
doctrine of constructive notice doesn’t enable outsiders to have report or notice of the company’s internal activities. As a result, if
an act is approved by a MOA or AOA, an outsider can presume that all the formalities are followed in carrying out the act, which
is called as the Doctrine of Indoor Managementor “The Turquand Rule”. This is based on the seminal case of The Royal British
Bank vs. Turquand (1856), 6 E&B 327.
• In layman’s language, the theory of indoor management states that the company’s indoor problems are its concern. As a result,
this indoor management principle is critical for those who deal with a firm through its directors or other individuals. They can
presume that the company’s members are acting or executing their responsibilities within the limits of their express authorization.
As a result, if an act authorised by the Articles is carried out in a certain manner, outsiders working with the business might infer
that the director or other officials acted under their authority.
Objectives of the Doctrine
Business is a domain that needs the protection of all contractual parties, and great business can only ensure the growth of the
economy and trade. Though this principle appears to be for the safety of those dealing with the company, its more essential aim is
to encourage corporate investments in order to keep the business and the economy running smoothly.
Exceptions
Knowledge of Irregularity
The principle of indoor management is inapplicable if the person dealing with the irregularity and was unaware of it. This is the first
and most important constraint on the application of this concept. As a result, the presumption of irregularity could not be relied on by
“insiders,” i.e. those who, by virtue of their position in the corporation, are in a position to know whether or not internal regulations
have been followed.
Exception of Doctrine of Constructive notice , Doctrine of Indoor
Management

23. • Suspicion of Irregularity
• Because the words “in the absence of circumstances putting him on inquiry” were used in the Turquand case,
the benefits of this principle are unavailable to the person who had suspicions of irregularity, because in this
scenario he is bound to satisfy himself of the legality of the transaction and all issues pertaining to it.
• The plaintiff accepted the transfer of the property of the company from its accountant in the case of Anand
Bihari Lal V. Dinshaw & Co, Air, 1942 Oudh 417. The transfer was declared null and invalid. In the lack of a
power of attorney, the plaintiff could not have assumed that the accountant had authority to transfer the property
of the company.
Forgery
• The rule of Turquand does not apply to forgery. It is true that people dealing with limited liability corporations are
not required to enquire into their indoor administration and will not be harmed by irregularities of which they are
unaware, as stated in Ruben v. Great Fingall Consolidated, (1906) AC 439, but this does not apply to a
forgery. The plaintiff in this case was the holder of a share certificate issued by the respondent company.
However, this was issued by the company secretary, who attached the corporate seal and forged the signatures
of two directors
Articles as means of representation.
The “power of delegation” is commonly seen in the AOA. Knowledge of the MOA and AOA is required to claim
protection under this rule and under this type of exemption. A person who did not consult with or act in accordance
with its terms is not covered.

24. • Acting apparently beyond the authority of the company’s officer
• This is the exception to the “Turquand rule” that is most easily invoked. It is self-evident that if the act of the
company’s officer appears to be beyond his authority, it must not be relied upon, and if relied upon, the company
cannot be said to be bound by the act.
• The Anand Behari Lal v. Dinshaw and Co. AIR case provided a very clear statement of this rule: “the plaintiff
accepted the transfer of property of the company by an accountant of the firm, which was clearly outside the
capabilities of an accountant, and the company was ruled not to be bound.”
• Conclusion
• Constructive notice is frequently cited as an unrealistic ideology. The reason for this is because the doctrine of
Constructive Notice is a fictitious concept established by courts through judicial pronouncements. In a single
day, a lot of contracts are formed between the outsider and the corporation. The doctrine imposes an obligation
on every outsider to be aware of all of the company’s legal documentation. This is done to ensure that the
business world runs smoothly and efficiently.

25. • What is the Company?
• A company is a legal entity established by a group of individuals to employ in and regulate a business firm. A
company may be coordinated in different ways for financial liability and tax purposes, relying upon the corporate
law of its administration. The line of a business concern in an enterprise is in, will normally ascertain which
business substructure it picks, for instance, a partnership, a corporation or a proprietorship. In such a case, a
company may be contemplated as a business kind.
• Hence, companies can be classified either on the basis of liability of its core members or on the ground of the
total number of members. On the basis of liability of its members, the companies can be categorised into 2
categories :
• Companies Limited by Shares: In this scenario, the liability of its members is restricted to the level of the
nominal value of shares occupied by them. If a shareholder has paid the complete amount of the shares, there
is no liability on his side, whatever may be the debts of the enterprise. He need not pay a single rupee from his
private property.
• Unlimited Companies: When there is no constraint on the liability of its shareholders, such a company is
known as an unlimited company. When the company’s property is insufficient to pay off its arrears (debts), the
private property of its shareholders can be used. To put it in other words, the creditors can ask for their dues
from its shareholders. Such enterprises are not to be found in India though approved by Section 2 (20) of the
Companies Act.
Kinds of company

26. • On the basis of the number of shareholders, enterprises can be classified into 3 kinds of companies :
• Public Company: A public company is an enterprise which :
• Is not a private company
• Is a company which is not an ancillary of any of the private company
• Private Company: A private company is an enterprise, which by its articles :
• Limits the authority to transfer its shares
• It must have at least 2 people, apart from the case of one person company.
• Restricts the number of its shareholders to 200 (excluding its employees)
• One Person Company or OPC: According to Sec.2 (62) of the Companies Act, 2013, ‘company which has only
1 person as a shareholder’. Rule number 3 of the Companies (Incorporation) Rules, 2014 says that :
• Only a natural person who is an Indian citizen and an Indian resident can form 1 person company.
• It cannot execute non-banking financial investment pursuits.
• It is paid-up share capital which is not more than ₹ 50 Lakhs.
• Its aggregate annual turnover of 3 years does not cross ₹ 2 Crores.