Introduction:
Corporate law is that segment of law that regulates the formation and workings of corporations, in specific it deals with the rules and proceedings for corporations. Major areas of corporate law include the formation of a corporation, ownership, and management of corporations. A corporate lawyer is a lawyer who helps corporations in negotiation, investment, and business transactions. Corporate law deals with the relationship of corporates, shareholders, employees, partners, and the beneficiaries like consumers. It also regulates the transactions made by the parties. Corporate law is different from business law. Corporate law deals with the validity of an organization and the operations and activities of the same. While business law deals with the legal aspects that are required for the organization. Corporate lawyers deal with the writing of contracts for the corporations whereas business lawyers have the job to review those contracts. There is an inexhaustible list of corporate laws in India and a major part of corporate law is the Companies act of 2013[1].
The main segment of corporate litigation includes deceptive or fraud practices, banking and finance, ICM, and real estate. Deceptive or fraudulent practices include situations when a business uses fraudulent practices to promote its product. Banking and finance are to deal with the banks by making contracts for debt restructuring and acquisition. International capital markets are where corporate lawyers advise on debt securities, exchangeable bonds, and while dealing with venture capitalists. Real estate mainly deals with joint ventures and property dealings.[2]
Meaning of a Corporation and the Five Elements
There are five main elements of a corporation namely: legal personality, limited liability, transferable shares, management under a board structure, and ownership is shared by the contributions made by the capital. These elements generate problems that are dealt with by corporate law. Corporate law mainly deals with organizations that justify these 5 elements.
Under limited Liability, the creditors can only deal with the assets of the corporation and not the assets of the individual shareholders. It protects the assets of the firm owners from the creditors. Transferable shares mean that in a corporation the owners keep on changing which allows the firms to make business deals freely. Management with a board structure means that corporate law deals with the authority over corporate affairs in the board of directors that is elected once in a while. [3]
Introduction of Companies Act
Companies act of 2013[4] was proposed and passed in Lok Sabha. It majorly deals with the formation and regulations of a company or corporation in India. It is a major segment of the Indian Corporate Law. Basically, deals with the issues pertaining to the rules and regulations of a company, its responsibilities and the incorporation of a corporate. Companies act of 2013 amends the companies act of 1956 which was based on the recommendations given by the Bhabha committee. The latest amendment made to this act was in July of 2019. The amendments dealt with various changes in the Schedule VII and 16 minor offences were decriminalized by this amendment.
A company as defined under the companies act of 2013 is any company that is registered under the laws provided in this act. This act deals with a company as though it is a living separate entity. There are different types of companies like private limited, unlimited, public limited, joint Hindu family business, cooperatives, sole proprietorship and limited liability partnership. All these companies deal under this act. The definition of a company has been provided under section 2 of the companies act of 2013.[5]
Section 8 of the Companies Act
Section 8 of the Companies Act deals with companies that are not profit-oriented but are on a charitable basis. Therefore, such companies are called Section 8 companies. By the definition provided under Section 8 of the Companies Act[6], these companies dedicate their profit to their objectives that are in the fields of art, science, research, education, social welfare, or other objectives. These companies do not pay a dividend to the members. Previously, these companies were under the 25th section of the Companies Act 1956[7]. After the amendment more objectives were added under this section. A major example of a Section 8 company is FCCI. The formation of section 8 company is done by an application made to the registrar of companies using the forms concerning the objectives mentioned under Section 8 of the Companies Act. Once it is accepted it is registered by the fee paid by the applicant. These companies can only be limited companies. These companies are under the control of the central government as they are provided a license to work and hence no changes can be made without the permission of the Central Government. Section 8 also specifies the cancellation of the license. The punishment under this section is that if any company contradicts the provisions of this section, they will be liable for a fine ranging from Rs. 10 lakhs to 1 Crore/- Further the heads of the company will be punished for 3 years of imprisonment and liable to pay Rs 25000 to 25 Lakhs. They can also face allegations under section 447[8] which deals with frauds.
Corporate Veil Theory
Corporate veil theory helps the members from the liabilities that would arise out of the company. It separates the identity of both these holdings, the members, and the company. The members are secured from any liabilities made because of the errors made in the company. The corporate veil theory treats the company as a legal person. Piercing the corporate veil means that the court does not look into the factor of a company being a legal person but pays regard to the members of the company. Such a thing is possible when courts need to identify the nature of the company, in matters of taxes and duties, a company created through fraud or deals with improper conduct.
Memorandum of Association and Articles of Association
Memorandum of Association defines the areas of the powers of the company. It is the framework on which the company stands. It includes the product of the company and defines the legal boundaries it cannot cross. It is specified under section 399[9] of the act and therefore any party entering into a contract should know the MOA of that company. MOA does not apply to the companies under section 8 of the companies act. It is important to form this as it mentions the right of the company. It has different contents in respect to the type of the company. It is important to note that MOA cannot be signed by a minor, the guardian of the minor has to sign it in his capacity.
Articles of Association deals with the regulations that pertain to the internal affairs of the company. It specifies the management of the company, its accounts ad audits in relation to the AOA. It has the provisions of entrenchment in relation to the formation of the company, matters of inclusion in matters of management, rules for the management of the company, etc. AOA is specified in Schedule 1 of the Companies Act of 2013.[10]
Other Corporate Laws in India
Competition Act of 2002[11]: It promotes market competition and regulates anti-competitive conduct made by the companies. Anti-competitive agreements are regulated by the 3rd section of this act. It states that the persons, enterprises, or associations should not enter into agreements that would cause an impact on the market competition and such agreements will be considered void. Impact by directly or indirectly determining the sale or prices, control over production, share the market or the source of production by allocation of the geographical area of markets, or by collusive bidding.
Another important act under corporate laws in India is The Foreign Trade Act of 1992.[12] It regulates and develops foreign trade by facilitating imports and exports. Article 1 of this act states the purpose of the expansion of the same, article 2 of this act specifies the meaning of foreign trade and goods. According to article 2 of this act, foreign trade refers to any act of export or import of goods.[13]
The SEBI Act of 1992[14] deals with the establishment of a board that regulates the investments in securities and promotes the development of the same. It provides certain investment rules and monitors the securities market. The purpose of SEBI was to provide an environment where there could be a smooth working of the same. It was through this act that SEBI was founded on April 12, 1992.
Conclusion
Indian corporate law has an unexhausted list of laws under its branch. Corporate law is a branch of law that deals with corporations and their rules and regulations. Indian corporate law is very vast and has numerous aspects attached to it. Corporate lawyers could be working with firms, medium or large law firms, or at regulatory bodies like SEBI or RBI.
References:
[1] The Companies Act, 2013
[2] DeepaKu, All about Corporate Law
[3] John Armour, Henry Hansmann, Reinier Kraakman, The Essential Elements Of Corporate Law: What Is Corporate Law?
[4] The Companies Act, 2013
[5] Ss. 2, The Companies Act, 2013.
[6] Ss. 8, The Companies Act, 2013.
[7] Ss. 25, The Companies Act, 1956.
[8] Ss. 447, The Companies Act, 2013.
[9] Ss. 399, The Companies Act, 2013.
[10] The Companies Act, 1,1956
[11] Competition Act, 2002
[12] Foreign Trade Act, 1992
[13] Foreign Trade Act, 2, 1992
[14] Securities Exchange Board of India Act, 1992
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