I write articles on the various popular law related topics like, media laws, cyber laws, business laws, etc. This time I thought of taking up company law as my topic. I was going to write on “What must law firm lawyers know about companies laws”. I figured there must be parts of companies laws that these lawyers must be dealing with more frequently than the other provisions.
So to that end, I called up a couple of lawyers working with the law firms, hoping to get direct inputs and insights. After my conversation, I was at a loss! To my dismay, the conversations left me with way more information than I was looking for. It turns out, all of company laws are important for these lawyers! There is no pick and choose of provisions – they have to know it all!
I had no clue where to begin!
Like most law students I had only studied company laws as part of my curriculum. I learnt enough to write assignments and give the examinations. But without the practical application of my knowledge, the little that I knew became distant knowledge. Without practical application it is difficult to retain the theoretical knowledge. One might do company law course to go beyond the theory and gain some real world insights from lawyers practising in this field.
I spoke at length to understand what kind of work these lawyers do. My plan was to change the angle of the article itself. If I know the functions they perform on a regular basis, then maybe some aspects of company laws would be highlighted.
I asked questions like what do law firm lawyers do with respect to companies act? How important is the knowledge of companies act? What provisions of companies laws are more frequently used than the others? Are there any particular segregation when it comes to handling company laws by lawyers? Where can one learn the practical aspects of the company law course?
The lawyers were extremely patient and answered all these questions. They also maintained unequivocally that the companies laws are underlying aspect of corporate law and the knowledge of its is quintessential as it comes forth every now and then. It comes while advising clients, formulating transactions, doing due diligence, prior and subsequent to drafting contracts, while structuring the contracts, etc.
Here is what I learnt:
One of the most important function of a lawyer is advising the client. When it comes to company laws, there’s a requirement for these lawyers to have a thorough knowledge of the laws. It is not like media laws or cyber laws, where you have a focused set of laws governing the field. Company laws are the underlying aspect of the job that you must know in order to perform in your role as a corporate lawyer.
There are memos prepared for advising the clients on different aspects like duties of the directors, their liabilities, oppression and mismanagement, etc. The advise on company laws is a part of the whole work. So for instance, a new director is being added on the board, he must be made aware of the duties and obligations of the role under the Companies Act. In case there are new developments in the laws, the lawyers have to advise the clients accordingly.
Generally the transactions takes place between companies and not individuals. The entire transaction has to be compliant with company laws. For instance if a loan is to be advanced to a director, Section 185 of the Companies Act is attracted. Similarly, when a company is advancing loan or investing in another company, Section 186 is applicable, whereby, a company when making investment, cannot make it through more than two layers of investment, companies, barring some exceptions.
Similarly in cases of related-party transactions, Section 188, requires that such transactions be disclosed in the Board Report for prior approval, along with a justification. If the transactions are beyond the threshold limits, then they need to be disclosed in the General Meeting for approval by special resolution.
From transfer of shares or securities of a company to structuring of deals, everything has to be in compliance of company laws. Recently, Section 90 was amended. According to this article by Khaitan & Co., “Section 90 of the Act requires every individual who, either by himself or with others (including a trust and persons resident outside India), qualifies as a significant beneficial owner (SBO) of a company to make a declaration to that company specifying the nature of his beneficial interest”. This affects the rights of SBOs and therefore require legal expertise in order to provide necessary legal support.
# Due Diligence
Another major aspect of functions in law firms, is conducting due diligence. The lawyers are required to conduct a thorough due diligence of all the necessary books, reports, documents, etc. in case of acquisitions or investments. Moreover, they also help the companies to comply with the provisions and necessary compliances of the Companies Act.
For instance, Section 88 of the Companies Act, requires any company to maintain the registers of its shareholders, debenture holders, security holders. If a company fails to comply with the same, then the company and its officers face penalty under the section.
# Contract Drafting
While drafting contracts, the lawyers need to comply with companies laws as well. There are necessary preconditions and postconditions while drafting contracts. There are plenty questions like whether the necessary regulatory compliances have been met with? Whether the consents have been duly obtained? Whether there are any pending legal requirements or ongoing litigations? Whether the compliances of the pre/post covenants done suitably? Are there any additional agreements to be entered into? Whether the key personnels are retained or not?
The necessary approvals has to be obtained by the board of directors or the shareholders, in a meeting before undertaking certain decisions. For instance, while drafting a shareholders agreement, lawyers have to inform the clients what would be the significance of giving certain rights to the shareholders or curtailing them, etc. In order to do so, the lawyers must possess a thorough understanding of the companies laws, apart from the other aspects.
In my short quest, one thing was amply clear to me, lawyers need to possess a clear understanding and command of companies laws in order to impart advice, conduct due diligence or draft contracts.
You could read the act back to front and memorise it even, but unless you have the practical knowledge, the learning falls short. Therefore, for all those who want to learn a thorough practical knowledge of company laws, you can check this company law course.