Page 202 - DMGT407Corporate and Business Laws

Unit 7: Concept of a Company

Control of composition of board of directors. The composition of the Board of Directors of a Notes
company shall be deemed to be controlled if the latter has the power, without the consent or
concurrence of the other person, to appoint or remove the holders of all or majority of the
directorships.
A company shall be deemed to have the power to appoint a person as a director in other
company in the following cases:
1. Where a person cannot be appointed thereto without the exercise in his favour by the
company of such a power of appointment.
2. Where a person’s appointment or directorship follows necessarily from his appointment
as director, or manager of, or to any other office or employment in the company.

3. Where a directorship is held by an individual nominated by the company or a subsidiary
thereof.
In determining whether one company is a subsidiary of another, following shall be disregarded:

1. Any shares held or power exercisable by the other company in a fiduciary capacity shall
be treated as not held or exercisable by it.
2. Any shares held or power exercisable in a company by any person under provisions of its
debentures or of a trust-deed for securing any issue of such debentures shall be disregarded.
3. Any shares held or power exercisable by, or by a nominee for a company or its subsidiary,
other than as in clause (2) above, shall be treated as not held or exercisable by it if the
ordinary business of that other company is lending money and the shares are held or
power is exercisable only by way of security in the ordinary course of business.
However, shares held or power exercisable by any person as a nominee of that other company
shall be treated as held or exercisable by the said company. Thus, the shares held or power
exercisable by a subsidiary shall be treated as ‘held’ or ‘exercisable’ by the holding company.
For example, ‘B’ and ‘C’, are subsidiaries of company ‘A’, and both of them hold together more
than half of the equity share capital of company ‘D’ then ‘D’ shall be deemed to be a subsidiary
of ‘A’ although it has not made any direct investment nor ‘B’ or ‘C’ singly hold more than 50%
shares, in the company ‘D’.

Did u know? One-man Company
A member may hold virtually the entire share capital of a company. Such a company is
known as a ‘one-man company’. This can happen both in a private company and a public
company. The other member/members of the company may be holding just one share
each. Such other members may be just dummies for the purpose of fulfilling the
requirements of law as regards minimum membership.

7.5.7 Non-trading Company or Association not for Profit

The name of a limited company must end with the word ‘limited’ in the case of a public company
and with ‘private limited’ in the case of a private limited company (s.13). But, s.25 permits the
registration, under a license granted by the Central Government, of associations not for profit
with limited liability without using the word ‘limited’ or ‘private limited’ to their names on
certain conditions. Such a company must have the objects of promoting commerce, arts, science,
religion, charity or any other useful object and must apply its profits, if any, or other income in
promoting its object and must prohibit payment of any dividend to its members. As soon as it
obtains a license and is registered accordingly, it will have the same privileges and obligations

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