The Companies Act, 2013 for CA Foundation
The Companies Act, 2013: meaning and features of a company, kinds of companies, the Memorandum and Articles, and the doctrines of ultra vires, constructive notice and indoor management.
Business LawsPaper 211 MCQs2 lessons2 flashcards3 memory tricks
Practise The Companies Act, 2013 free
What you'll learn
- Company: features and kinds
Identify the features of a company and classify companies. - MoA, AoA and the doctrines
Apply the doctrines of ultra vires, constructive notice and indoor management.
Concepts explained
Features of a company
A company is an artificial legal person, separate from its members, with limited liability and perpetual succession.
What it means
- Separate legal entity: Salomon v. Salomon & Co. Ltd. (1897).
- Limited liability: members liable only up to unpaid amount on shares (or guarantee).
- Perpetual succession: unaffected by members' death or exit.
- Corporate veil can be lifted for fraud, tax evasion, enemy character or to protect revenue.
- A shareholder insures company stock in his own name
Answer: Invalid: he has no insurable interest (Macaura's case)
- Company formed to evade a non-compete promise
Answer: Court looks behind the company
Related terms
- Artificial person: created by law, acts through directors
- Common seal: now optional
Exam tip: Salomon is the rule; lifting the veil is the exception.
Kinds of companies
Companies are classified by members (OPC, private, public), by control (holding, subsidiary, government) and by purpose (Section 8).
What it means
- OPC: 1 member (Indian citizen), 1 director.
- Private: 2–200 members, 2 directors, restricts share transfer.
- Public: 7+ members, 3 directors.
- Government company: govt holds ≥ 51% paid-up capital; Section 8: charitable, no dividends.
- 180 members, transfer restricted
Answer: Private company
- A Ltd holds 60% of B Ltd's voting power
Answer: B is A's subsidiary
Related terms
- Small company: private company within prescribed capital and turnover limits
- Listed company: securities listed on a stock exchange
Exam tip: Remember 1-2-7 members and 1-2-3 directors.
Ultra vires, constructive notice and indoor management
The MoA sets the limits of a company's powers; outsiders are deemed to know the MoA and AoA, but may assume internal procedures were followed.
What it means
- Ultra vires the MoA: void ab initio, can't be ratified (Ashbury Railway v. Riche).
- Constructive notice: MoA and AoA are public documents.
- Indoor management (Turquand): protects outsiders acting in good faith.
- Exceptions to indoor management: knowledge of irregularity, forgery, negligence, suspicious circumstances.
- Company formed to make railway carriages finances a railway line
Answer: Void, even if all shareholders agree
- Directors borrow without the required internal resolution
Answer: Lender can enforce the loan
Related terms
- Ultra vires the articles: can be ratified by altering the articles
- Ultra vires the directors: can be ratified by shareholders
Exam tip: Constructive notice protects the company; indoor management protects the outsider.
Memory tricks
Minimum members: OPC 1, private 2, public 7; directors: 1, 2, 3.
Ultra vires acts void; outsiders deemed to know MoA/AoA; may assume internal formalities complied with.
MoA: charter, objects, external; AoA: internal management.
Try 3 CA Foundation-style questions
Q1. The maximum number of members of a private company (excluding present and former employee-members) is
- 200
- 50
- 7
- Unlimited
Show answer
Answer: (1) 200
Section 2(68): a private company restricts transfer of shares and limits its members to 200, excluding employees who are members.
Q2. A company is a government company if the central and/or state governments hold at least
- 51% of its paid-up share capital
- 26% of its paid-up share capital
- 75% of its paid-up share capital
- 100% of its paid-up share capital
Show answer
Answer: (1) 51% of its paid-up share capital
Section 2(45): a government company is one in which at least 51% of paid-up share capital is held by the central government, state governments, or both.
Q3. Under the doctrine of constructive notice, every person dealing with a company is deemed to know
- the company's internal minutes
- the personal assets of its directors
- the company's future profits
- the contents of its Memorandum and Articles of Association
Show answer
Answer: (4) the contents of its Memorandum and Articles of Association
The MoA and AoA are public documents filed with the Registrar, so outsiders are presumed to know their contents.
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