Key Concepts in Indian Business and Corporate Law

Posted on Nov 13, 2025 in Law & Jurisprudence

Partnership Law: Dissolution and Partner Roles

Dissolution of a Firm (Sections 39-47, IPA, 1932)

According to Section 39 of the Indian Partnership Act, 1932, dissolution of a firm means the breaking up or termination of the relationship between all the partners of the firm. Once dissolved, the business ceases, assets are realized, and liabilities are paid off.

This is distinct from dissolution of partnership, which may occur without ending the firm’s existence (e.g., a change in partners). Dissolution of the firm ends the existence of the firm itself.

Modes of Dissolution

1. Dissolution by Agreement (Sec. 40): With the consent of all partners or according to a term mentioned in the partnership deed. Example: Dissolution upon completion of 5 years as stipulated in the deed.
2. Compulsory Dissolution (Sec. 41): When all partners become insolvent, or when the business itself becomes unlawful. Example: Trading in a commodity is banned by the government.
3. Dissolution on Contingencies (Sec. 42):
   • Expiry of fixed term of partnership.
   • Completion of a specific venture or project.
   • Death or insolvency of a partner.
4. Dissolution by Notice (Sec. 43): Applicable only in a “partnership at will.” Any partner can dissolve the firm by giving written notice to all other partners.
5. Dissolution by Court Order (Sec. 44): Grounds include:
   • Partner’s insanity or permanent incapacity.
   • Misconduct of a partner.
   • Persistent breach of the partnership agreement.
   • Business running at a persistent loss.
   • Any other just and equitable ground.

Effects of Dissolution

1. The firm’s existence ends; partners cease business operations in the firm’s name.
2. Assets are sold, and liabilities are paid as per Section 48.
3. Surplus (if any) is distributed among partners according to their capital ratio.
4. Losses are borne by partners in their profit-sharing ratio.

Relevant Case Law

• Khethar v. State Bank of Indore: Confirmed dissolution upon completion of a venture.
• Suresh Kumar Sanghi v. Amrit Kumar Sanghi: Affirmed the Court’s power to dissolve a firm on just and equitable grounds.

The Partner: Definition, Rights, and Duties

Under Section 4 of the Indian Partnership Act, 1932, a partner is a person who has entered into partnership with others to carry on a business and share profits.

Rights of a Partner (Unless Agreed Otherwise)

• Right to participate in business management.
• Right to be consulted on all matters affecting the firm.
• Right to access and inspect the firm’s books and records.
• Right to share profits as per the partnership agreement.
• Right to interest on loans (statutory 6%) and capital (if agreed).
• Right to indemnity for expenses incurred in the ordinary course of business.

Duties of a Partner

• Duty of good faith (acting honestly for the firm’s benefit).
• Duty to carry on business to the common advantage.
• Duty to render true accounts and correct information.
• Duty to indemnify the firm for loss caused by fraud or willful neglect.
• Duty not to compete without the consent of other partners.
• Duty to share losses as per agreement (or equally if not specified).

Relevant Case Law

• Cox v. Hickman: Sharing of profits is an important test for determining partnership existence.

Corporate Structure and Company Law (CA, 2013)

Nature of a Company: Definition, Features, and Types

Definition: Section 2(20) of the Companies Act, 2013 defines a company as “a company incorporated under this Act or under any previous company law.”

Key Features of a Company

• Incorporated Association: Created under the Companies Act.
• Separate Legal Entity: Distinct from its members (shareholders).
• Perpetual Succession: Continues to exist despite changes in members.
• Limited Liability: Members’ liability is limited to their unpaid share capital.
• Separate Property: The company owns its assets, not the shareholders.
• Transferability of Shares: Generally free in public companies.
• Capacity to Sue and be Sued: Can enter into contracts and legal proceedings.

Types of Companies

1. By Incorporation: Chartered, Statutory, Registered.
2. By Liability: Limited by shares, limited by guarantee, unlimited.
3. By Membership: Private Company, Public Company, One Person Company (OPC).
4. Other Categories: Holding & Subsidiary, Government, Foreign companies.

Relevant Case Law

• Salomon v. Salomon & Co. Ltd.: Established the principle of separate legal personality.

Piercing the Corporate Veil

The corporate veil is the legal separation between a company and its members, shielding shareholders from personal liability (established in Salomon v. Salomon & Co. Ltd.). Piercing the veil occurs when courts disregard this separation to identify and hold the controlling individuals personally responsible.

Situations Where the Veil May Be Pierced

1. To Prevent Fraud or Improper Conduct: If the company is used to defraud creditors or avoid obligations.
2. To Avoid Tax Evasion: If the company structure is solely used to avoid paying taxes.
3. Where Company is an Agent or Sham: If the company acts merely as an agent of its shareholders.
4. In Cases of Misrepresentation: Directors may be personally liable for misstatements in a prospectus.
5. For Protection of Public Interest: In cases involving national security or statutory obligations.

Relevant Case Law

• Gilford Motor Co. v. Horne: Veil lifted when a director formed a new company to avoid a non-compete clause.
• Re Sir Dinshaw Maneckjee Petit: Veil lifted when a company was formed solely to evade income tax.
• Delhi Development Authority v. Skipper Construction: Veil lifted due to fraud against the public.
• LIC v. Escorts Ltd.: Veil lifted for foreign exchange law compliance.

Certificate of Incorporation and Its Effects

The Certificate of Incorporation is the legal document issued by the Registrar of Companies (ROC) confirming that the company is duly incorporated under the Companies Act, 2013.

Legal Effects of the Certificate

1. Company becomes a separate legal entity.
2. Perpetual succession begins.
3. Company gains the power to contract, own property, sue, and be sued.
4. The certificate is conclusive evidence of incorporation, even if procedural defects existed.
5. The date on the certificate is the company’s date of birth.

Effects of Non-Registration

• The entity has no legal existence.
• It cannot commence business.
• It cannot sue or be sued in the company’s name.
• Persons acting as a company may face personal liability for debts.
• Contracts entered in the company’s name are void.

Relevant Case Law

• Moosa Goolam Ariff v. Ebrahim Goolam Ariff: Without registration, a company is non-existent in law.
• Jubilee Cotton Mills Ltd. v. Lewis: The certificate is conclusive evidence of incorporation.

Private Placement and Prospectus

Private Placement (Sec. 42, CA, 2013)

Private Placement is the issue of securities to a selected group of persons without inviting the public.

Key Provisions:

• Maximum 200 persons in a financial year (excluding Qualified Institutional Buyers (QIBs) and ESOPs).
• Payment must be received through banking channels (no cash).
• Allotment must occur within 60 days of receiving money; otherwise, refund within 15 days.
• Records maintained in Form PAS-5; Offer letter issued in Form PAS-4.

Procedure: Board resolution → Prepare PAS-4 → File with ROC → Receive funds → Allot within 60 days → File PAS-3 (allotment details).

Prospectus: Types and Liability for Misstatement

A prospectus is a formal document inviting the public to subscribe for shares or debentures.

Types of Prospectus:

1. Red Herring Prospectus: Issued before the price or quantity of securities is determined.
2. Shelf Prospectus: Valid for multiple issues of securities within one year.
3. Abridged Prospectus: A summary containing key facts.
4. Deemed Prospectus: Any document treated legally as a prospectus.

Liability for Misstatement:

• Civil Liability (Sec. 35): Promoters, directors, and experts must compensate investors for losses caused by untrue statements.
• Criminal Liability (Sec. 34): Imprisonment up to 3 years and/or a fine up to ₹50,000 for issuing a prospectus with false statements. Defenses include proving the statement was immaterial or believed true after due care.

Rights and Duties of Company Members

Rights of Members

1. Receive copies of the Memorandum of Association (MOA) and Articles of Association (AOA).
2. Obtain share certificates and transfer shares.
3. Attend and vote at meetings.
4. Receive dividends.
5. Inspect company records.
6. Apply to the court in case of oppression or mismanagement.

Duties of Members

1. Pay money due on shares.
2. Comply with the MOA, AOA, and the Companies Act.
3. Avoid acts detrimental to the company’s interest.
4. Disclose interest in transactions.
5. Maintain secrecy regarding company matters.

Limited Liability Partnership (LLP)

Concept and Advantages of LLP (LLP Act, 2008)

An LLP is a hybrid business form combining features of a traditional partnership and a company. It is governed by the Limited Liability Partnership Act, 2008.

In an LLP, partners have limited liability, meaning their personal assets are protected from the business debts beyond their agreed contribution.

Key Features of LLP

• Separate legal entity.
• Perpetual succession.
• Liability limited to contribution.
• Regulated by the Registrar of Companies (ROC).

Advantages of LLP

1. Limited Liability: Protection of partners’ personal assets.
2. Separate Legal Entity: Can own property, sue, and be sued in its own name.
3. Flexible Internal Structure: Management determined by partner agreement.
4. No Minimum Capital Requirement.
5. Less Compliance: Fewer statutory obligations compared to companies.
6. Tax Benefits: LLP is taxed like a partnership, avoiding dividend distribution tax.
7. Continuity: LLP continues regardless of changes in partners.

Example: Law firms and consulting agencies often operate as LLPs.

Consumer Protection and Intellectual Property Law

The Consumer Protection Act, 2019 (CPA)

Definition of a Consumer (Sec. 2(7), CPA, 2019)

A consumer is a person who:

1. Buys any goods for consideration (paid, partly paid, or promised), but excludes a person buying for resale or commercial purposes (unless for self-employment).
2. Hires or avails any service for consideration, but excludes services for commercial purposes (unless for self-employment).

Who is NOT a Consumer:

• A person obtaining goods free of charge.
• A person buying goods for resale or commercial gain.

Features of the CPA, 2019

1. Expanded Definition: Includes online transactions, teleshopping, and direct selling.
2. Covers Goods & Services: Both tangible products and intangible services.
3. Central Consumer Protection Authority (CCPA): Regulates unfair trade practices and misleading advertisements.
4. Product Liability: Manufacturers, service providers, and sellers can be held liable for defective products/services.
5. E-Filing and Mediation: Provisions for online complaint filing and settlement through mediation.
6. Jurisdiction Based on Value: District Commission (up to ₹1 crore), State Commission (up to ₹10 crore), National Commission (above ₹10 crore).
7. Unfair Contract Provisions: Declares certain contract terms void if unfair to consumers.

Relevant Case Law

• Indian Medical Association v. V.P. Shantha: Established that medical services fall under the definition of “service” in the Act.

Copyright Law: Meaning, Scope, and Rights

Copyright is a legal right granted to creators of original literary, artistic, musical, and other intellectual works. It is governed by the Copyright Act, 1957 (as amended in 2012).

Scope of Copyright

• Protects original expressions, not underlying ideas.
• Covers works such as books, films, music, computer programs, paintings, and choreography.
• Protection period is generally the lifetime of the author plus 60 years.

Contents (Rights Granted)

1. Reproduction Right: Copying the work in any form.
2. Adaptation Right: Creating derivative works.
3. Distribution Right: Making the work available to the public.
4. Public Performance Right: For plays, films, or music.
5. Broadcasting Right: Communicating the work via TV, radio, or online platforms.
6. Moral Rights: Protects the integrity of the work and the author’s reputation.

Example: A musician holds the copyright to their song, preventing unauthorized copying or performance.

Distinction: Partnership vs. Company

Key Differences in Business Structures

Relevant Case Link

• Salomon v. Salomon & Co. Ltd.: Established the company’s separate legal personality, which is the fundamental difference from a traditional partnership.