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Introduction to Company Law

Overview​

Company law in India is a crucial aspect of business regulation and corporate governance. This guide provides an introduction to the fundamental principles and concepts of company law as per the Companies Act, 2013.

Key Concepts​

Definition of a Company​

A company is defined under Section 2(20) of the Companies Act, 2013 as:

"A body corporate."

This definition encompasses various types of companies, including private limited companies, public limited companies, one-person companies, and unlimited companies.

Types of Companies​

  1. Private Limited Company (Section 2(68))

    • Minimum two directors required
    • Maximum 200 members
    • Can be converted to a public company after five years

  2. Public Limited Company (Section 2(71))

    • Minimum seven directors required
    • No limit on the number of members
    • Must have a minimum paid-up capital of ₹10 lakh

  3. One-Person Company (Section 2(62))

    • A company with only one member
    • Can have up to two directors

  4. Unlimited Company (Section 2(22))

    • Liability of members extends beyond their share capital

Incorporation Process​

To form a company, the following steps must be taken:

  1. Obtain DIN (Director Identification Number)
  2. Apply for Digital Signature Certificate
  3. Choose a unique name for the company
  4. File Memorandum of Association (MoA) and Articles of Association (AoA)
  5. Get the certificate of incorporation from the Registrar of Companies

Case Study: Tata Steel vs. Sterlite Industries (India) Ltd.​

In this landmark case, the Supreme Court of India addressed the issue of whether a company could be held liable for the actions of its subsidiary. The court ruled that a parent company cannot be held vicariously liable for the acts of its subsidiary unless there was fraud or misrepresentation involved.

Legal Section: Section 617 of the Companies Act, 1956 (now repealed)

Corporate Governance​

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It includes:

  • Board composition and independence
  • Audit committee formation
  • Risk management policies
  • Code of conduct for directors and employees

Insider Trading​

Insider trading is prohibited under Section 24 of the Securities and Exchange Board of India (SEBI) Act, 1992. This section defines insider trading as:

"The buying or selling by any person being, or having been, associated with a company of securities of that company while possessing unpublished price sensitive information."

Illustration: SEBI vs. Ramalinga Rju​

In this high-profile case, the founder of Satyam Computer Services Ltd., Ramalinga Rju, was found guilty of insider trading. He had sold shares of his company before announcing financial irregularities, resulting in significant losses for investors.

Legal Section: Section 24 of the Securities and Exchange Board of India (SEBI) Act, 1992

Conclusion​

Understanding company law is essential for both entrepreneurs and legal professionals. As the business landscape continues to evolve, staying informed about changes in legislation and case law remains crucial. This guide serves as a starting point for exploring the complexities of company law in India.

For further study, we recommend consulting the full text of the Companies Act, 2013 and other related statutes such as the Insolvency and Bankruptcy Code, 2016.