Company Law Notes (VOCABULARY Flashcards)

Vocabulary flashcards covering key terms and concepts from the provided Company Law notes (India).

Definition of a Company

An association for economic purposes, derived from Latin com (with) and panis (bread).

Artificial Person

A company is an artificial person created by law, with a separate entity, perpetual succession, and a common seal.

Body Corporate

Section 2(11) Companies Act 2013: includes companies incorporated outside India; excludes cooperative societies and certain bodies.

Corporate Personality

A company has a separate legal personality, capable of owning property, entering contracts, suing and being sued.

Salomon v. Salomon & Co. Ltd.

Landmark case establishing corporate personality and the separate legal entity of a company.

Limited Liability

Shareholders’ liability is limited to the amount unpaid on their shares.

Perpetual Succession

A company continues to exist despite changes in its membership.

Common Seal

The official seal of a company; its use became optional after the 2015 Amendment.

Public Company

Under Section 2(71): minimum 7 members; minimum 3 directors; may invite public; must hold statutory meetings and obtain certificate to commence business.

Private Company

Under Section 2(68): minimum 2 members, maximum 200; cannot invite public; minimum 2 directors; no mandatory statutory meetings; may commence business with incorporation certificate.

One Person Company (OPC)

Formed by one person with limited liability; governed by Section 3.

Small Company

Defined by Section 2(85): paid-up share capital ≤ ₹50 lakhs and turnover ≤ ₹2 crores.

Holding Company

A holding company controls the board of directors or more than half of the subsidiary’s total share capital.

Subsidiary Company

A company controlled by a holding company.

Government Company

Not less than 51% of paid-up share capital held by the central or state government.

Foreign Company

A company incorporated outside India but having a place of business in India.

Associate Company

Parent company holds 20–50% of the subsidiary’s voting rights.

Producer Company

Focuses on production, procurement, marketing, etc., of primary produce of its members.

Nidhi Company

Promotes thrift and saving among members and accepts deposits for their benefit.

Dormant Company

Formed for future projects with minimal significant accounting activity.

Doctrine of Lifting/Piercing the Corporate Veil

Courts may disregard the separate personality of a company if its structure is used fraudulently or for dishonest purposes.

Corporate Personality (General)

A company is a separate legal entity with its own name, seal, and assets.

Salomon Principle

A company is distinct from its shareholders; shareholders are not the company.

Lee v. Lee’s Air Farming Ltd.

Affirms separate legal personality; a company can employ individuals as employees distinct from its owners.

Kondoli Tea Co. Ltd.

Case recognizing a company’s separate legal entity even when property was transferred among members.

Transferability of Shares

Shares are movable property under Section 44 and are transferable according to the articles.

Promoter

A person who initiates the formation of a company and can enter contracts on behalf of the company before incorporation.

Section 2(69) Promoter

Defines a promoter as someone named in the prospectus, who controls company affairs, or whose advice the Board follows.

Duties of a Promoter

Disclose benefits, disclose material facts, ensure funds are used as stated, offer exit to dissenting shareholders, appoint directors when needed, cooperate with the liquidator.

Liabilities of Promoters (General)

Promoters can be liable for false information, misleading prospectus, fraudulent inducement, private placement violations, and related offences.

Liability for False Information (Section 7(6))

Promoters may be punished for furnishing false or incorrect information during incorporation.

Misstatements in Prospectus (Section 35(1))

Civil liability for false or misleading statements in a prospectus.

Fraudulent Inducement (Section 36)

Liability for inducing investments through false statements.

Private Placement Violations (Section 42)

Liability for contraventions in private placements.

Cooperation with Liquidator (Section 284(2))

Penalties for failing to cooperate with a liquidator.

Public Examination (Section 300(1))

Liability to public examination for fraud.

Deceit/Breach of Duty (Section 340)

Actionable for misapplication or breach of trust.

Criminal Liability (Sections 34, 447)

Penalties for misleading prospectus statements, including fraud.

Formation of a Company

Section 3 of the Companies Act, 2013: formation for lawful public/private purposes; OPC requires one person with a nominee.

Memorandum of Association (MOA)

Constitution or rule book outlining the company’s objects and scope; limits powers.

Contents of MOA

Name, registered office, objects, members’ liability, share capital, and (for OPC) subscriber death beneficiary.

Articles of Association (AOA)

Internal regulations governing the company’s management and operations.

MOA vs AOA Hierarchy

MOA is supreme over the AOA; MOA prevails in case of conflict with articles or law.

Prospectus (Section 2(70))

Official document inviting the public to subscribe to shares or debentures; can include notices, circulars, advertisements.

Essentials of a Prospectus

Invitation to the public; relates to shares/debentures; issued by/for the company; invites public subscriptions.

Types of Prospectus

Red Herring, Shelf Prospectus, Abridged Prospectus, Deemed Prospectus.

Golden Rule of Prospectus

Information in the prospectus must be true, fair, and accurate.

Share (Section 2(84))

A share is a portion of a company’s share capital; includes stock unless distinguished.

Equity Shares (Section 43)

Voting rights; May have differential rights as prescribed.

Preference Shares (Section 43)

Fixed dividends and preferential rights on winding up; non-voting or differential as prescribed.

Share Premium (Section 52)

Premium received on issue of shares must be credited to a share premium account and used as prescribed.

Discounted Shares (Section 53)

Issuing shares at a discount is generally prohibited, except for sweat equity.

Debentures (Section 2(30))

Debt instruments issued by a company; can be secured/unsecured and may bear interest.

Types of Debentures (General)

Based on performance, security, convertibility, record, and coupon rate.

Fully Convertible Debentures (FCD)

Debentures fully convertible into equity shares.

Non-Convertible Debentures (NCD)

Debentures that remain as debt and are not convertible into shares.

Partly Convertible Debentures (PCD)

Part of the debentures convert into equity shares.

Redeemable vs Irredeemable Debentures

Redeemable debentures have a fixed date of redemption; irredeemable (perpetual) debentures do not have a fixed repayment date.

Registered vs Bearer Debentures

Registered debentures are recorded to holders; bearer debentures are transferable by delivery.

Issue of Debentures (Section 71)

Requires special resolution for issuance with an option to convert at redemption.

Directors

Individuals appointed to manage the company on the board.

Board Composition (General)

Public: 3–15 directors; Private: 2–15; OPC: minimum 1; up to 15; more requires special resolution.

Types of Directors

Nominee, Independent, Additional, Alternate, Residential, Women, Small Shareholders.

Meetings of the Board

First meeting within 30 days of incorporation; minimum 4 meetings per year; special rules for OPC/Small/Dormant/Section 8 companies.

Notice of Board Meetings (Section 101)

Minimum 7 days’ notice (14 days for Section 8 company); includes agenda and attendees.

Quorum (Board Meetings)

Public: 1/3 of total members or two directors (whichever is higher); Private: at least two directors.

General Meetings

Annual General Meeting (AGM) and Extraordinary General Meeting (EGM) and other meetings like creditor/debenture holder meetings.

Key Managerial Personnel (KMP)

Section 2(51): Includes CEO, managing director, company secretary, whole-time director, CFO, etc.

Financial Statements (Definition)

Balance sheet, profit and loss account, cash flow statement, statement of changes in equity, notes.

Dividend

Distribution of a company’s earnings to shareholders; board decides timing and amount.

Final vs Interim Dividend

Final dividend declared at AGM; interim dividend declared between AGMs.

Merger/Amalgamation

Combination of two or more entities into one; in India, can be between equals or larger acquisitions.

Winding Up

Ending a company’s existence and liquidating its assets for creditors and shareholders; by court or voluntarily (IBC).

Voluntary Winding-Up Methods

Ordinary or Special Resolution-based liquidation; liquidation overseen by a company liquidator appointed by NCLT.

Company Liquidator

Officer appointed to manage winding up and settle creditors and assets.