BASIC BUSINESS REGULATIONS

BASIC BUSINESS REGULATIONS

The chapter examines the relationship between business and government and in particular the government’s role in influencing business decision making.

Government’s Role in Influencing Business

1. Prescribes the rules of the game for business.
2. Purchases business‟ products and services.
3. Uses it contracting power to get business to do things it wants.
4. Is a major promoter and subsidizer of business.
5. Is the owner of vast quantities of productive equipment and wealth.
6. Is an architect of economic growth.
7. Is a financier.
8. Is the protector of various interests in society against business exploitation.
9. Directly manages large areas of private business.
10. Is the repository of the social conscience and redistributes resources to meet social objectives

Roles of Government and Business

•  What should be the respective roles of business and government in our socioeconomic system?
• Given all of the tasks that must be accomplished to make our society work, which of these tasks should be handled by the government and which should be handled by business?
•  How much autonomy are we willing to allow business?

Clash of Ethical Systems

Business Beliefs 

• Maximizes concession to self-interest 
• Minimizes the load of obligations society imposes on the individual (personal freedom) 
• Emphasizes inequalities of individuals

Government Beliefs 

• Subordinated individual goals and self-interest to group goals and group interests 
• Maximized obligations assumed by the individual and discouraging self-interest 
• Emphasized equality of individuals

Roles of Government and Business 

1. National Society 
2. Communal society 
3. Entitlements 
4. Quality of life

Offer and Acceptance

Offer Sec.2(a)

An Offer Can be Defined as follows:

An expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.

Essentials of offer

1. It must be an expression of the willingness to do or abstain from doing something. 
2. Such expression must be to another person. 
3. Such expression must be made with the intention to obtain the assent of the other person to such an act or abstinence.
4. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
5.  E.g. - A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter.

Acceptance: Sec 2(b)

 Acceptance is the second „half‟ of a contract. If Bill offers Ben a bag of sweets for 20p, and Ben says „I accept‟, clearly a contract has been made. The law explains that there must be evidence from both sides of genuine agreement between parties – the old idea of consensus ad idem, or meeting of minds.

Acceptance can be defined as:

Agreement to all terms of an offer by words or conduct. 

Essentials of acceptance 

1. Acceptance must be given only by the person to whom the offer is made.
2. Must be absolute & unqualified.
3. Must be in prescribed mode or reasonable manner. 
4. Must be communicated. 
5. Within reasonable time. 
6. Acceptance must succeed an offer. 
7. Rejected offers can be accepted only if renewed. 

Communication of an acceptance 

The communication of an acceptance is complete, - as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge, of the proposer. 

E.g. : B accepts A's proposal by a letter sent by post. The communication of the acceptance is complete, as against A when the letter is posted as against B, when the letter is received by A.

TYPES OF COMPANIES

ON THE BASIS OF INCORPORATION 

Statutory companies

These are the companies which are created by a special Act of the legislature e.g. RBI, SBI, LIC, etc. These are mostly concerned with public utilities as railways, tramways, gas and electricity companies and enterprises of national level importance.

Registered companies

These are the companies which are formed and registered under the Companies Act, 1956.

ON THE BASIS OF LIABILITY 

1)Companies with limited liability: 

LIMITED BY SHARES: 

Where the liability of the members of a company is limited to the amount unpaid on the shares, it is known as a company limited by shares. If the shares are fully paid, the liability of the members holding such shares is nil. It may be a public or a private company

LIMITED BY GUARANTEE: 

Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of a company in the event of its being wound up, the company is called a company limited by guarantee.

 These companies are not formed for the purpose of profit but for the promotion of art, science, charity, sports or for some similar purposes. They may or may not have a share capital.

2) Companies with unlimited liability 

Sec 12 specifically provides that any 7 or more persons may form an incorporated company with or without limited liability. In such case every member is liable for the debts of the company.

An unlimited company may or may not have a share capital. If it has a share capital, it may be a public company or a private company. It must have its own Articles of Association

ON THE BASIS OF NUMBER OF MEMBERS 

PRIVATE COMPANY

A company which has a minimum paid-up capital of Rs 1,00,000 or such higher paid-up capital as may be prescribed, and by its articles

a.Restricts the right to transfer its shares, if any
b.Limits the number of its members to 50.
c.Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company
d.Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

PUBLIC COMPANY: 

A public company means a company which-
(a)has a minimum paid-up capital of Rs. 5 lakh or such higher paid-up capital, as may be prescribed;
(b)is a private company which is a subsidiary of a company which is not a private company;

Every public company, existing on the commencement of the Companies Act, 2000, with a paid-up capital of less than Rs. 5 lakh, within a period of two years from such commencement, enhance its paid-up capital to Rs. 5 lakh.

ON THE BASIS OF CONTROL 

Holding companies

A company is known as the holding company of another company if it has the control over that other company. A company is deemed to be the holding company of another if, but only if, that other is its subsidiary.

Subsidiary company

A company is known as a subsidiary of another company when control is exercised by the holding company over the former called a subsidiary company.

ON THE BASIS OF OWNERSHIP 

Government company - 

A government company means any company in which not less than 51% of the paid-up share capital is held by
a) The central government, or
b) Any state government, or governments, or
c) Partly by the central government and partly by one or more state government.

Foreign company 

It means any company incorporated outside India which has an established place of business in India. Where a minimum of 50% of the paid-up share capital of a foreign company is held by one or more citizens of India or/and by one or more bodies corporate incorporated in India, whether singly or jointly, such company shall comply with such provisions as may be prescribed as if it were an Indian company.

COMPANIES ACT ESTABLISHED YEAR 1956

COMPANIES ACT ESTABLISHED YEAR 1956

WHAT IS COMPANY:

1. A company is an artificial person created by law. 
2. A company means a group of persons associated With otgehhe attainment of a common end, social or economic. 
3.  Section 3(1)(i) of the Companies Act, 1956 defines a company as: “a company formed and registered under this Act or an existing Company”. 
4.  Existing Company‟ means a company formed registered under any of the earlier CompanyLaws

Characteristics of a company 

1. Separate legal entity 

2. Limited liability 

3. Perpetual succession 

4. Common seal 

5. Transferability of shares 

6. Separate property

SEPARATE LEGAL ENTITY- 

1. 1.A company is in law regarded as an entity from its members. It has an independent corporate existence. 
2. Any of its member can enter into contracts with it in the same manner as any other individual can and he cannot be held liable for the acts of the company even if he holds virtually the entire share capital. 
3. The company‟s money and property belongs to it and not to the shareholders (although the shareholders own the company)

LIMITED LIABILITY- 

1. A company may be a company limited by shares or acompany limited by guarantee. In a company limited by shares, the liability of members is limited to the unpaid value of the shares.

 PERPETUAL SUCCESSION-

1. Being an artificial person a company never dies, nor does its life depend on the life of its members. Members may come and go but the company can go on forever. It continues to exist even if all its members are dead. The existence of company can be terminated only by law. 
2. It means that a company‟s existence persists irrespective of the change in the composition of its membership.

COMMON SEAL 

1.  Act through its agents and all such contracts entered into by its agents must be under a seal of the company. The common seal acts as the official signature of the company.

TRANSFERABILITY OF SHARES 

These shares are, subject to certain conditions, freely transferable so that no shareholder is permanently wedded to the company. When the joint stock companies were established the great object was that the shares should be capable of being easily transferred.

SEPARATE PROPERTY: 

As a company is a legal person distinct from its members, it is capable of owning, enjoying and disposing of property in its own name. Although its capital and assets are contributed by its shareholders, they are not the private and joint owners of its property. The company is the real person in which all its property is vested and by which it is controlled, managed and disposed of.

Void Contracts

Void Contracts

• In fact, these are not contracts at all
• They have no legal effect
• As we will see in later classes, there are a number of things which can make a contract void
– e.g. mistake, illegality
• The important thing to remember is that you cannot enforce a void contract



Void Agreements:

• Agreements in restraint of marriage [Sec. 26]
• Agreements in restraint of trade [Sec. 27]
• Agreements in restraint of legal proceedings [Sec. 28]
• Agreements the meaning of which is uncertain [Sec. 29]
• Agreements by way of wager [Sec. 30]
• Agreements contingent on impossible events [Sec. 36]
• Agreements to do impossible acts [Sec. 56]

Void Contracts - Example

Ram gives his students so much homework that they decide to kill him

Contract of selling illegal goods is void

LAW OF CONTRACT - 1872

LAW OF CONTRACT - 1872


Law is a system of rules and guidelines, usually enforced through a set of institutions. Contract law regulates everything from buying a bus ticket to trading on derivatives markets.

Property law defines rights and obligations related to the transfer and title of personal and real property. If the harm is criminalised in legislation or case law, criminal law offers means by which the state can prosecute the perpetrator.

1. The English Connection: 
2. Common law: precedents & customs. 
3. Equity: natural justice. 
4. Pacta sunt servanda: agreements must be honored. 
5. Stare decisis: settled law should not be disturbed

Definitions. 

• Proposal - When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

• Promise - When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. The person making the proposal is called the "promiser and the person accepting the proposal is called the It promise"

•Consideration - When, at the desire of the promiser, the promisee or has clone or abstained from any other person doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such Act or abstinence or promise is called a consideration for the promise.

• Agreement - Every promise and every set of promises, forming the consideration for each other, is an agreement.
• Contract - An agreement enforceable by law is a contract.
• An agreement not enforceable by law is said to be void.

Contracts

Contracts 

• Contract - An agreement enforceable by law is a contract. 

• All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

What is a contract? Examples

• I promise to bring chocolates to the whole class. Is there a contract? 

• I promise to give you 100 Rs. if ride your bike to Tiananmen Square and back to ICB in less than 2 hours. Is there a contract? 

• I give you 2 Rs. for your Coca-Cola. Is there a contract? 

• I promise to give you a new bicycle if you agree not to eat Chinese food for one year. Is there a contract?

Definition of a contract 

• A legally binding agreement 

• that means there must be some kind of agreement between two parties 

• However, not because not all agreements all agreements are contracts are legally enforceable 

• legally enforceable means that a court will say that an agreement is a contract

• To decide if an agreement is legally enforceable as a contract, a court will apply the rules and principles of the law of contract 

• Therefore, knowing a little about these rules can help businesspeople to create valid contracts

Essential elements of a valid contract: (Sec. 10) 

1. Agreement - Offer & acceptance 
2. Legal consequences - rights & obligations 
3. Capacity of the contracting parties 
4. Consideration 
5. Legal object 
6. Free consent 
7. Certainty 
8. Possibility of performance 
9. Writing & registration 
10. Not expressly declared to be void.