Company Law

Here are some potential questions and answers for a descriptive,

written law exam in India, based on the uploaded document:

1. Explain the advantages of incorporating a company under Indian

law.

Answer: Incorporating a company under the Companies Act, 2013,

offers numerous benefits, including:

●​ Separate Legal Entity: The company becomes an independent

entity distinct from its owners.
●​ Limited Liability: Protects shareholders' personal assets.
●​ Perpetual Succession: The company continues regardless of
changes in ownership or management.
●​ Ease of Capital Access: Companies can raise funds through
shares, debentures, and loans.
●​ Professional Management: Attracts skilled managers by
separating ownership and management.
●​ Enhanced Credibility: Builds trust with stakeholders and financial
institutions.
●​ Tax Benefits: Offers certain deductions unavailable to individuals
or partnerships.

2. Differentiate between public and private companies.

Answer: Table
Aspect Public Company Private Company

Minimum 7 2
Members

Maximum No limit 200

Members

Share Freely transferable Restricted

Transferability

Inviting Public Can invite the public to Cannot invite public

subscribe subscription

Examples Reliance Industries Ltd. Flipkart Private Ltd.

3. What is the Doctrine of Lifting the Corporate Veil? Explain its

significance.

Answer:

●​ Definition: Courts may disregard a company's separate legal

entity to identify the individuals controlling it.
●​ Purpose: Prevent misuse of corporate personality for fraud or
evading obligations.
●​ Situations: Includes tax evasion, fraud, and determining
nationality.
●​ Case Law: Salomon v. Salomon & Co. established the separate
legal entity principle. Exceptions include cases like Gilford Motor
Co. Ltd. v. Horne where the corporate veil was lifted to prevent
misuse.

4. What is a One Person Company (OPC)? List its features and benefits.

Answer:
 ●​ Definition: A company with a single shareholder and limited
liability, introduced under the Companies Act, 2013.
●​ Features: Single shareholder, limited liability, separate legal
entity, and perpetual succession.
●​ Advantages: Combines sole proprietorship benefits with
corporate advantages, ease of credit, and perpetual existence.
●​ Disadvantages: Limited expansion potential and dependency on
one individual.

5. Discuss the significance of the case Salomon v. Salomon & Co. in

corporate law.

Answer:

●​ Facts: Established that a company is a separate legal entity

distinct from its shareholders.
●​ Judgment: The company itself, not the shareholders, is
responsible for debts.
●​ Principles Established:
○​ Separate legal entity.
○​ Limited liability of shareholders.
○​ Concept of the corporate veil.
●​ Impact: Forms the cornerstone of modern corporate law.

6. What are the different types of companies under the Companies

Act, 2013?

Answer: Companies can be categorized as follows:

1.​ Based on Incorporation: Statutory and Registered Companies.

2.​ Based on Liability: Limited by Shares, Limited by Guarantee,
Unlimited Liability Companies.
3.​ Based on Ownership: Private Limited, Public Limited, OPC,
Government, and Foreign Companies.
 4.​ Based on Purpose: Non-Profit (Section 8), Holding, Subsidiary,
and Dormant Companies.
5.​ Based on Control: Listed and Unlisted Companies.

7. Who is a Promoter? What are their duties and liabilities?

Answer:

●​ Definition: A promoter initiates the formation of a company and

ensures its incorporation.
●​ Duties: Fiduciary duty, disclosure of personal interest, and
avoiding conflicts of interest.
●​ Liabilities: Misstatements in the prospectus, breach of duties, and
personal liability for pre-incorporation contracts unless ratified.

8. Explain the process of registering a company in India.

Answer:

1.​ Obtain a Digital Signature Certificate (DSC).

2.​ Apply for Director Identification Number (DIN).
3.​ Choose a unique company name.
4.​ Prepare foundational documents like MoA and AoA.
5.​ File the registration application using SPICe Form with the
Registrar of Companies.
6.​ Receive the Certificate of Incorporation.

These questions cover major topics such as incorporation, types of

companies, legal doctrines, and case law, making them ideal for a
comprehensive law exam.
Frequently Asked Questions on Company Law

1. What are the primary advantages of incorporating a company?

Incorporating a company offers several significant advantages. Firstly,

it creates a separate legal entity, distinct from its owners, meaning the
company can own property, enter contracts, and sue or be sued in its
own name. Secondly, incorporation provides limited liability to
shareholders, meaning their personal assets are protected from
business debts. Thirdly, a company enjoys perpetual succession,
ensuring its continued existence irrespective of changes in its
ownership or management. Furthermore, incorporation enables easier
transferability of shares, facilitates access to capital through various
financial instruments, promotes professional management, enhances
credibility, offers tax benefits, provides legal protection, and increases
borrowing capacity. Overall, it provides a robust structure for growth
and sustainability.

2. What are the main categories of companies based on different

factors?

Companies can be categorized in several ways. Based on

incorporation, we have statutory companies created by special acts of
parliament, and registered companies formed under the Companies
Act. Based on liability, companies can be limited by shares (common
for public/private companies), limited by guarantee (common for
non-profits), and unlimited liability companies (rare, with higher risk
for members). Based on ownership, there are private limited
companies (restricted shares), public limited companies (freely
transferable shares), One Person Companies (OPC), government
companies, and foreign companies. Based on purpose, we have
non-profit companies, holding companies, subsidiary companies, and
dormant companies. Lastly, based on control, there are listed
companies (traded on stock exchanges) and unlisted companies
(privately held).
3. What is the "Doctrine of Lifting the Corporate Veil," and when is it
applied?

The "Doctrine of Lifting the Corporate Veil" is a legal principle that

allows courts to disregard the separate legal entity of a company and
look at the individuals or entities behind it. This is an exception to the
principle established in Salomon v. Salomon & Co. Ltd. which
recognizes a company as separate from its owners. It is typically
applied to prevent misuse of the corporate structure for illegal or
fraudulent activities. This includes situations involving tax evasion,
fraud or improper conduct, determining the true nationality of a
company, protection of revenue, and certain cases under the
Companies Act. Judicially, it's used to prevent fraud, avoid legal
obligations, in cases where a company is acting as an agent or alter
ego of its shareholders, or when the corporate form is abused to harm
public interest.

4. Who are "Promoters" and what are their main responsibilities?

Promoters are individuals or groups who initiate and facilitate the

formation of a company. They identify the business opportunity,
conduct preliminary work, secure initial capital, enter
pre-incorporation contracts, draft foundational documents, and handle
registration. They have a duty of disclosure, requiring them to reveal
any personal profits or transactions during the promotion phase. They
also have a fiduciary duty to act in good faith, prioritizing the
company's interests. Additionally, they must avoid conflicts of interest
between their personal gains and the company's goals. They can be
held liable for misstatements in the prospectus, breaches of duty, or
pre-incorporation contracts, although they also have a right to
remuneration and indemnity.

5. What is the significance of the Salomon v. Salomon & Co. Ltd. case in
company law?
The Salomon v. Salomon & Co. Ltd. case is a landmark ruling that
established the fundamental principle of separate legal entity in
company law. This principle states that once a company is legally
incorporated, it becomes a separate legal person from its owners
(shareholders or directors). The case confirmed that even if a company
is primarily owned and controlled by one individual, like Mr. Salomon
was, the company has its own distinct identity. This separation ensures
that shareholders generally have limited liability for the company's
debts. This case underpins modern corporate law but does not exclude
situations where the corporate veil may be lifted.

6. What is a One Person Company (OPC), and what are its advantages
and disadvantages?

A One Person Company (OPC) is a type of company specifically

designed for a single individual to operate a business with limited
liability. It provides the benefits of a corporate structure to a sole
proprietor, with a single shareholder who also acts as the director. The
advantages of an OPC include limited liability, perpetual succession,
easier formation and management, complete control and ownership,
and better access to credit. However, it also has disadvantages such as
limited expansion opportunities due to funding constraints, the
burden of compliance, dependency on the single member, and limited
flexibility in share transfer.

7. Can you briefly describe the role and requirements for an OPC
nominee?

In a One Person Company (OPC), the sole shareholder must appoint a

nominee. This nominee is a designated person who will take over the
company in the event of the death or incapacitation of the sole
shareholder. This ensures the company's continuity and enables a
seamless transfer of control without requiring the dissolution of the
company.
8. How does the concept of a separate legal entity, established in
Salomon v Salomon, relate to the potential for lifting the corporate
veil?

The Salomon v. Salomon case established the principle of a company

being a separate legal entity, distinct from its owners. However, this
principle is not absolute. The "Doctrine of Lifting the Corporate Veil"
acts as an exception to this, allowing courts to disregard the separate
legal personality under specific circumstances such as fraud, misuse,
or to prevent evasion of legal obligations. While a company is treated
as a distinct entity under normal circumstances, the potential for
lifting the corporate veil ensures that individuals cannot hide behind
the corporate structure to engage in illegal or unethical practices.

convert_to_textConvert to source

NotebookLM can be inaccurate, please double check its responses.