Company Law — CS Executive: Chapter Flashcards Flashcards

Front

Corporate personality

Back

A company is a separate legal entity distinct from its members, capable of owning property, entering contracts, and suing or being sued. This principle was established in Salomon v. Salomon & Co. Ltd. and underpins company law. (Fundamental concept)

Front

Limited liability

Back

Shareholders' liability is limited to the unpaid amount on their shares, protecting personal assets from company debts. Exceptions arise where statutory provisions or fraud justify holding members liable. (Key feature)

Front

Perpetual succession

Back

A company continues to exist irrespective of changes in membership until it is lawfully wound up. This ensures stability and continuity of business operations. (Characteristic of company)

Front

Separate property

Back

A company owns property in its own name and members cannot claim proprietary rights in company assets. Members’ rights are limited to their shareholding and membership entitlements. (Illustrative principle)

Front

Transferability

Back

Shares are movable property and generally freely transferable, subject to restrictions in the Articles for private companies. Transfer rules ensure liquidity while protecting company structure. (Share characteristic)

Front

Lifting veil

Back

Courts may lift the corporate veil to hold individuals accountable where the company’s separate personality is abused for fraud or evasion. Landmark cases outline circumstances like tax evasion and sham transactions where veil piercing is justified. (Doctrine)

Front

Companies Act 2013

Back

The Companies Act, 2013 modernized company law introducing concepts like one-person companies, independent directors, and CSR obligations. It emphasizes enhanced disclosure, accountability, and compliance mechanisms. (Statutory framework)

Front

One-person company

Back

A one-person company (OPC) allows a single individual to form a company with limited liability and separate legal status. OPCs simplify incorporation and governance for solo entrepreneurs. (Company type)

Front

Share capital

Back

Share capital represents the funds contributed by shareholders in exchange for shares and determines members’ economic rights. Companies must disclose subscribed and paid-up capital and face penalties for non-compliance. (Regulatory requirement)

Front

Equity shares

Back

Equity shares confer ownership, voting rights, and participation in residual profits but do not guarantee dividends. Equity shareholders elect directors who manage the company on their behalf. (Share type)

Front

Preference shares

Back

Preference shares carry preferential rights to dividend and capital repayment but typically lack voting rights except in limited circumstances. They may be redeemable subject to statutory conditions and timelines. (Share type)

Front

Allotment

Back

Allotment is the Board act of allocating shares to applicants; it must be absolute, unconditional, timely, and properly communicated. Allotments that are invalidly made can often be ratified if lawful authority is later conferred. (Share procedure)

Front

Share certificate

Back

A share certificate evidences title to shares and states the number of shares and amount paid; it is prima facie proof of ownership. Companies must issue certificates within prescribed timeframes and may issue duplicates if originals are lost. (Document)

Front

Differential rights

Back

Equity shares with differential voting rights may be issued if authorized by the Articles and an ordinary resolution, subject to statutory limits. Such shares vary voting power or dividend entitlements among equity holders. (Capital structure)

Front

Redemption rules

Back

Redeemable preference shares must be redeemed within statutory time limits, and redemption premiums must be covered from profits or securities premium. Companies cannot issue irredeemable preference shares and must follow prescribed procedures for redemption. (Preference share rules)

Front

ESOP basics

Back

Employee Stock Option Plans (ESOPs) grant employees the right to buy shares at a future date at a predetermined price; options are non-transferable until exercised. ESOP schemes require shareholder approval and specified disclosures, and listed companies must comply with SEBI rules. (Employee benefits)

Front

Vesting rules

Back

ESOPs must normally have a minimum vesting period of one year, though terms may vary by special resolution. Unvested options typically lapse on resignation while vested options may be exercisable within set timeframes. (ESOP condition)

Front

Preferential issue

Back

A preferential allotment issues shares to a select group after passing a special resolution and meeting valuation requirements; pricing must be fair and disclosed. The process includes statutory filings and compliance with timelines to protect existing shareholders. (Securities issuance)

Front

Private placement

Back

Private placement offers securities to a limited group of identified persons and must comply with caps on the number of invitees and prescribed documentation. Allotment must occur within statutory timelines or application monies must be refunded. (Offer mechanism)

Front

Public offer

Back

A public offer invites subscriptions from the general public and requires a prospectus with full disclosures, regulatory filings, and often SEBI approvals for listed issuances. Minimum subscription conditions must be met before allotment. (Capital markets)

Front

Prospectus types

Back

Types of prospectuses include red herring and shelf prospectuses, each serving different fundraising needs with specific disclosure requirements. Accurate prospectus content is essential to avoid liability for misstatements. (Disclosure document)

Front

Minimum subscription

Back

Allotment cannot proceed until the minimum subscription specified in the prospectus is received; otherwise refunds must be made. This safeguard protects applicants and ensures adequate capitalization. (Allotment condition)

Front

MCA21 & XBRL

Back

MCA21 is the Ministry of Corporate Affairs’ electronic filing portal for statutory filings and compliance under the Companies Act; XBRL is the structured reporting format for financial statements. Company secretaries must be proficient in these systems to ensure timely filings. (Practical requirement)

Front

Board powers

Back

The Board is the primary decision-making body vested with management powers subject to articles and statute; it can delegate to committees as permitted. Directors must exercise powers in the company’s best interest and comply with statutory duties. (Governance)

Front

Key managerial

Back

Key Managerial Personnel (KMP) include roles like the CEO, CFO, and Company Secretary and have enhanced statutory responsibilities under the Act. The company secretary is recognized as a KMP in many companies, increasing their regulatory obligations. (Corporate role)

Front

Board meetings

Back

Board meetings must be held at prescribed intervals with proper notice, quorum, and minutes; company secretaries facilitate compliance and record keeping. Failure to comply with meeting norms can attract penalties and invalidate decisions. (Procedural law)

Front

General meetings

Back

General meetings like AGMs and EGMs allow shareholders to exercise governance rights, approve accounts, and pass resolutions; secretarial functions include notices, proxies, and minutes. Statutory timelines and notice requirements must be strictly followed. (Shareholder forum)

Front

Virtual meetings

Back

Virtual meetings and e-voting frameworks permit remote shareholder participation subject to legal safeguards for notice, identification, and recording. The Companies Act and rules set conditions for valid virtual conduct and voting. (Contemporary practice)

Front

Secretarial standards

Back

Secretarial Standards issued by the Secretarial Standards Board prescribe best practices for meetings, records, and compliance; company secretaries must ensure adherence. They strengthen governance and help meet statutory obligations. (Professional duty)

Front

CSR obligation

Back

Certain companies must adopt CSR policies and spend a specified percentage of profits on approved social activities under the Companies Act, 2013. Compliance includes board-level oversight and disclosure in annual reports. (Statutory duty)

Front

Auditor rotation

Back

The Act mandates rotation and eligibility norms for auditors to enhance audit independence and quality. Companies must comply with specified tenure rules and disclosures regarding audit appointment. (Accounting governance)

Front

Class action suits

Back

Class action suits allow a group of shareholders or depositors to sue companies or auditors for misstatements or fraud under the Act. This remedy enhances collective enforcement of statutory and fiduciary obligations. (Remedial measure)