Company Law – All Units (6-Marks
Answers)
Unit 1: Basics of Company Law
Q1. What is the meaning of company? Define its characteristics.
A company is a legal entity formed under the Companies Act, 2013. It is an artificial person
having separate legal identity from its owners (shareholders). It is capable of owning assets,
incurring liabilities, entering contracts, and can sue or be sued in its own name. A company is
created through legal registration with the Registrar of Companies.
Characteristics of a Company:
1. Incorporated Association – It must be registered under the Companies Act to have a legal
existence.
2. Separate Legal Entity – A company is distinct from its members and can hold property in its
own name.
3. Limited Liability – The liability of shareholders is limited to their shareholding in the
company.
4. Perpetual Succession – A company continues to exist regardless of changes in membership.
5. Artificial Legal Person – A company is a legal creation that can act only through agents like
directors.
6. Transferability of Shares – In a public company, shares can be freely transferred without
affecting existence.
Q2. What is the meaning of corporate veil? In which case it is lifted?
The corporate veil refers to the legal distinction between a company and its shareholders. This
veil protects shareholders from personal liability for the company's debts. However, in certain
cases, courts may lift or pierce the corporate veil to hold individuals personally liable.
Cases where the corporate veil is lifted:
1. Fraud or Improper Conduct – When the company is used to commit fraud or illegal acts.
2. Tax Evasion – To prevent misuse of company structure for avoiding taxes.
3. Sham or Shell Companies – If the company exists only on paper without real business.
4. Agency Relationship – If the company is merely an agent for its owners.
5. Public Interest or Enemy Company – In cases like wartime enemy company (e.g., Daimler
case).
The objective is to ensure justice and prevent misuse of the corporate structure.
