Legal Environment of Business

Section 2(26) of the Companies Act, 1956 defines a managing director as,

“a director who, by virtue of  an agreement with the company, or of a resolution passed by the company in general meeting, or by its  Board of Directors, or by virtue of its Memorandum or Articles of Association, is entrusted with  substantial powers of management which would not otherwise be exercisable by him, and includes a  director occupying the position of a managing director, by whatever name called.”

From the above definition it is clear that a managing director is also a director, but he enjoys  substantial powers to act as the chief executive under the control and supervision of the Board.… Read the rest

Doctrine of Constructive Notice

The Memorandum and Articles, on registration, assume the character of public documents. The  office of the Registrar is a public office and documents registered there are open and accessible to the  public at large. Therefore, every outsider dealing with the company is deemed to have notice of the  contents of the Memorandum and Articles. This is known as Constructive Notice of Memorandum and  Articles.

Under the doctrine of ‘constructive notice’, every person dealing or proposing to enter into a  contract with the company is deemed to have constructive notice of the contents of its Memorandum and  Articles.… Read the rest

The rules and regulations which are framed for the internal management of a company are set out  in a document known as the Articles of Association. The articles are framed to enable the company to  carry out the aims and objects of the company set out in the Memorandum of Association.

Contents of Articles of Association

The regulations and bylaws laid down in the Articles relate to the following:

• Share capital and its subdivision into different classes of shares, rights of shareholders and their  variation;
• The procedure for making allotment, calls on shares and transfer, transmission, forfeiture and  surrender of shares, including lien on shares;  
• Alteration and reduction of capital;
• Borrowing powers;
• Appointment of Manager, Managing Director, Secretary;
• Declaration of dividend;
• Procedure for convening, holding and conducting different kinds of meetings, voting rights and  methods;
• Maintenance of books of account and their audit;
• Share Certificates and Share Warrants, conversion of shares into stock;
• Seal of the company;
• Winding up.

… Read the rest

‘Ultra’ means beyond and ‘vires’ means powers. The term ultra vires a company means that the  doing of the act is beyond the legal power and authority of the company. The doctrine of ultra vires is  important in defining the limits of the powers conferred on the company by its Memorandum of  Association. According to this doctrine, the vires (power) of a company to enter into a contract or  transaction is limited by the ambit of the Objects Clause of the Memorandum and the provisions of the  Companies Act. Whatever is not permitted by the Objects Clause and the Act, is prohibited by the  doctrine of ultra vires.… Read the rest

The Memorandum of Association is the charter of the company, and provides the foundation on  which the structure of the company is built. It defines the scope of the company’s activities as well as its  relation with the outside world.

Section 2(28)of the Companies Act defines a Memorandum as “the memorandum of association  of a company as originally framed or as altered from time to time in pursuance of any previous Company  Laws or of this Act”. Section 13 of the Act specifies the contents of the memorandum.

The importance of the Memorandum is that it lays down the ambit of the powers of the company,  the area within which the company can operate and beyond which it cannot go.  … Read the rest

Concept of Corporate Personality

A company is a legal person, since in the eyes of law it is capable of having legal rights and  obligations just like a natural person. Like any other person it can acquire and own property, transfer  property, enter into contracts and sue and be sued in its own name. Being a legal person, a company has a  separate legal entity, a personality distinct from its members or shareholders.

The concept of separate entity of a company was established in the celebrated case of Salomon Vs  Salomon & Co. Ltd. The facts of the case are that one Salomon, a boot manufacturer, formed a company  with himself, his wife, and daughter and four sons as the sole shareholders.… Read the rest