Business Law Book Summary And Important Keywords For Mcq Plus Descriptive Answer

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Book summary of Business Law

Law is defined as a rule of conduct of persons, imposed upon and enforced among the members of a given state. Ignorance of law is no excuse.
A contract is an agreement enforceable by law.
All agreements are not contracts, but all contracts are agreements.
All agreements are contracts, if they are made by free consent of parties, competent to contract, for a lawful consideration, and with a lawful object, and are not expressly declared by law to be void.
Contracts may be classified in terms by their (a) validity or enforceability (b) mode of formation and (c) performance.
Offer or proposal is the basic building block of a contract. It is made with a view to obtaining the assent of the offeree.
When the person to whom the offer is made signifies his assent thereto, the offer is said to be accepted.
It is necessary to communicate offer to the offeree and the acceptance to the offeror.
A contract with a minor is void as he is not competent to contract.
Consideration is what a promisor demands as the price for his promise.
When two or more persons agree upon the same thing in the same sense, they are said to consent.
For a contract to be valid it is not only necessary that the parties consent but also that they consent freely.
Coercion is committing or threatening to commit any act forbidden by the Indian Penal Code.
Misrepresentation is also known as simple misrepresentation whereas fraud is known as fraudulent misrepresentation.
Mistake may be defined as an erroneous belief on the part of the parties to the contract concerning something pertaining to the contract.
A contract of guarantee is defined as a contract to perform the promise, or discharge the liability of a third person in case of his default.
The rights of a surety may be against the creditor, the principal debtor; and co-sureties.
The liability of surety under a contract of guarantee comes to an end under certain circumstances.
A contract of indemnity is a contract whereby one party promises to save the other from loss caused to him the promise by the conduct of the promisor himself or by the conduct of any other person.
In a contract of indemnity, there are only two parties, indemnifier and indemnified.
The contract of bailment is defined as the delivery of goods by one person to another for some purpose, upon an agreement that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
A contract of bailment terminates under certain circumstances.
Agent is a person employed to do any act for another or to be represent another in dealings with third persons.
The person for whom or on whose behalf he acts is called the principal.
The function of an agent is to bring about contractual relation between the principal and a third party.
Any person who is of the age of majority according to the law to which he is subject and who is of sound mind, may employ agent.
A contract of agency may be created by an express agreement or by implication or by ratification.
Where agent is appointed to do a particular act, agency terminates when that act is done or when the performance becomes impossible.
The contract of bailment is defined as the delivery of goods by one person to another for some purpose, upon an agreement that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
A contract of bailment terminates under certain circumstances.
Agent is a person employed to do any act for another or to be represent another in dealings with third persons.
The person for whom or on whose behalf he acts is called the principal.
The function of an agent is to bring about contractual relation between the principal and a third party.
Any person who is of the age of majority according to the law to which he is subject and who is of sound mind, may employ agent.
A contract of agency may be created by an express agreement or by implication or by ratification.
Where agent is appointed to do a particular act, agency terminates when that act is done or when the performance becomes impossible.
A negotiable instrument means a promissory note, a bill of exchange or a cheque.
A promissory note is an instrument in writing (not being a bank or a currency note), containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain person or to the bearer of the instrument.
A bill of exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order, a certain person, or to the bearer of the instrument.
A cheque is a bills of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation of the instrument’.
Instruments payable to a specified person or to the order of a specified person can be negotiated only by endorsement and delivery.
Crossing is a unique feature associated with cheques affecting to a certain extent the obligation of the paying banker and also its negotiable character.
A cheque may have what is known as ‘not negotiable’ crossing.
A person who takes such a cheque shall not have and shall not be capable of giving a better title to the cheque than that which the person, from whom he took it in the first instance, had.
A contract of sale is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.
Sale is to be distinguished from an agreement to sell.
Where under a contract of sale, the property in goods is transferred from the seller to the buyer, it is a called a sale. On the other hand, an agreement to sell means a contract of sale under which the transfer of property in goods is to take place at a future date or subject to conditions thereafter to be fulfilled.
Goods may be classified as existing, future and contingent.
In contract of sale, parties make certain stipulations. All stipulations are not treated on the same footing. These stipulations are technically known as conditions and warranties. These conditions and warranties may be express or implied.
The doctrine of caveat emptor is a fundamental principle of the law of sale of goods. There are however, certain exceptions to the doctrine.
The Act contains a number of rules for passing the property in the goods from the seller to the buyer.
The contract of sale of goods is to be performed, as any other contract.
The act provides for the duties of the seller and the buyer, and rules regarding delivery of goods.
In case the buyer fails or refuses to pay for the goods, the seller is known as unpaid seller, and he is given certain rights by the law.
A partnership is defined as the relationship between persons who have agreed to share profits of a business carried on by all, or by any of them acting for all.
A partnership firm may be registered at any time by post, or delivering to the Registrar of Firms of the area in which any place of business of the firm is situated or proposed to be situated but the Registration of Firms is Optional.
Persons, who have entered into partnership with one another are called individually ‘partners’ and collectively a ‘firm’ and the name under which their business is carried on is called the ‘firm name’
A written agreement between the partners which covers the various clauses is called Partnership deed. The partnership deed is required to be stamped according to the provisions of the Stamp Act, 1899.
The relation of the partners of a firm to one another arises through an agreement between them. Such an agreement may be express or may be implied from the course of dealings between them.
An outgoing partner means a partner who has retired from a firm. The firm is reconstituted by the remaining partners.
The dissolution of partnership between all partners of a firm is called dissolution of the firm but if the dissolution of partnership is not between all the partners, it would not amount to dissolution of firm, it is called dissolution of partnership.
In case of company limited by shares, the liability of the members is limited to the nominal value of shares held by them.
Fully paid shares leads to nil liability.
LLC is only for the limited liability but not for the unlimited liability
A company is an association of many persons who contribute money or money’s worth to a common stock, and employs it in some business, and who share the profit and loss arising there from.
Shares in a company are transferable.
An association of persons, once incorporated under the Companies Act, 1956 become a legal entity, having its own entity separate from its members.
The company, being a separate person, its members are not as such liable for its debts.
A company limited by shares is a registered company having the liability of its members limited by its memorandum of association to the amount, if any, unpaid on the shares respectively held by them.
The advantages of incorporation are allowed to be enjoyed only by those who want to make an honest use of the ‘company’.
In case of a dishonest and fraudulent use of the facility of incorporation, the law lifts the corporate veil and identifies the persons who are behind the scene and are responsible for the perpetration of fraud.
If such an association is formed and not registered under the Companies Act, it will be regarded as an ‘Illegal Association’ although none of the objects for which it may have been formed is illegal.
Where a company has control over another company, it is known as the Holding Company and the company over which control is exercised is called the Subsidiary Company.
Foreign Company is a company incorporated in a country outside India and has a place of business in India.
Promotion is a term of wide importance denoting the preliminary steps taken for the purpose of registration and floatation of the company.
The persons who assume the task of promotion are called promoters.
Promoters have been described to be in relationship of trust and confidence with the company.
Where there are more than one promoters, they are jointly and severally liable and if one of them is sued and pays damages, he is entitled to claim contribution from other or others.
For purpose of registration of company, three documents required to be presented to the registrar are (i) the memorandum (ii) the articles, if any; (iii) the agreement, if any, which the company proposes to enter into with any individual for appointment as its managing or whole-time director or manager.
A company cannot be registered by a name, which in the opinion of the Central Government is undesirable.
The certificate of incorporation is conclusive evidence that all the requirements of the Companies Act in respect of registration and of matters precedent and incidental thereto have been complied with.
When a company has been registered and has received its certificate of incorporation, it is ready for ‘floatation’, that is to say, it can go ahead with raising capital sufficient to commence business and to conduct it satisfactorily.
In the case of every public company having a share capital, it is absolutely necessary to obtain a certificate to commence business. This certificate can be obtained only after ‘floatation’ of the company.
The certificate to commence business entitles the company to commence business given in the main objects clause of the memorandum.
The memorandum serves a two-fold purpose. It enables shareholders, creditors and all those who deal with the company to know what its powers are and what is the range of its activities.
The memorandum is to be printed, divided into paragraphs, numbered consecutively and signed by at least seven persons (two in case of private company) in the presence of at least one witness.
The objects clause defines the objects of the company and indicates the sphere of its activities.
Liability clause states the nature of liability of the members.
The company’s activities are confined strictly to the objects mentioned in its memorandum and if they go beyond these objects, then such acts will be ultra vires.
In case a company is about to undertake an ultra vires act, the members of a company can get an order of injunction from the court restraining the company from going ahead with the ultra vires act.
The liability of a member of a company cannot be increased unless the member agrees in writing. The consent of the member may, however, be given either before or after the alteration.
Section 17 empowers a company by a special resolution duly confirmed by the Central Government, to alter the objects or to change the place of its registered office from one State to another.
If the proposed name of a company differs from the name of an existing company merely in the addition or subtraction of word like New, Modern etc., then the new name should not be allowed.
Any name for the proposed company which connotes government participation or patronage is considered undesirable unless circumstances justify.
The articles of association of a company are its bye laws and regulations, which govern the management of its internal affairs and the conduct of its business.
The articles of a company must be printed, divided into paragraphs, numbered consecutively and signed by subscribers to the memorandum in the presence of at least one witness who shall attest the signatures.
A company may, by special resolution alter or add to its articles, subject to the provisions of the companies Act and to the conditions contained in company’s memorandum.
An alteration of articles to effect a conversion of a public company into a private company cannot be made without the approval of the Central Government.
The articles are the regulations of the company binding on the company and on its shareholders.
The articles bind the members inter se, i.e., one to another so far as rights and duties arising from the articles are concerned.
The memorandum or articles do not confer any contractual rights to outsiders against the company or its members, even though the name of the outsider is mentioned in the articles.
The memorandum and articles, when registered, become public documents and then they can be inspected by anyone on payment of a nominal fee.
Every person dealing with the company is presumed to have read the articles and memorandum and, understood them in their true perspective. This is known as ‘Doctrine of Constructive Notice’.
The doctrine of indoor management allows all those who deal with the company to assume that the provisions of the articles have been observed by the officers of the company.
A share is a share in the share capital of a company. It is a movable property transferable in the manner provided by the articles of the company.
A share carries certain right and is subject to some obligations.
The share capital of a company means the capital of a company, or the figure in terms of so many rupees divided into shares of a fixed amount, or the money raised by the issue of shares by a company.
Companies limited by shares have to issue shares to raise the necessary capital for their operations.
A copy of the prospectus duly signed by every director or proposed director must be delivered to the registrar before its publication.
Sections 100-105 provide for the reduction of share capital. A company limited by shares, if so authorised by its articles, may, by special resolution, which is to be confirmed by the Court
If a public company makes a private arrangement for raising its capital, then it must file a statement in lien of prospectus with the registrar at least three days before any allotment of shares of debentures can be made.
In response to the issue of the prospectus the company receives applications for shares.
A company, being an artificial person, acts through human agency.
Every company is required to have a Board of Director for managing the affairs of the company.
The Act has made provision for the appointment of a managing director or a manager.
The Act has regulated the remuneration which can he paid to the managerial personnel.
A meeting of the Board of Directors of every company must be held at least once in every three months and at least four such meetings must be held in every calendar year.
It has provides for liabilities and duties of directors.
It provides that every public company, having a paid up share capital of ` 5 crore or more shall constitute a committee of the Board of Directors known as Audit Committee.
Act has made provision for the appointment of a Company Secretary.
The different provisions of the Companies Act empower shareholders to exercise their rights therein at general meetings consequently, the act provides for calling and conducting meetings of members.
A statutory meeting is required to be held once in the life of a company, which is a public company having a share capital.
Statutory meeting must be held within a period of not less than one month and not more than six months from the date the company is entitled to commence business. The Bond of Directors should get a report, called the statutory report, sent to each member with the notice of the meeting.
An Annual General Meeting (AGM) is to be held by every type of company.
An extraordinary general meeting is convened for transacting some special or urgent business that may arise in between two annual general meetings.
A number of members of any body sufficient to transact business at a meeting is a quorum.
A point of order deals with the conduct or procedure of the meeting.
Minutes are a record of business transacted at meetings.
The winding up or liquidation of a company is the process whereby its life is ended and its property administrated for the benefit of its creditors and members.
The term contributory means every person liable to contribute to the assets of a company in the event of its being wound up, and includes the holder of fully-paid up shares.
A company may be wound up in three ways which are Compulsory winding up under an order of the court, Voluntary winding up and Voluntary winding up under the supervision of the court.
In the event of winding up, certain payments are to rank in priority to others. The payments to be so made first are called preferential payments.
The order of priority in paying off debts in a winding up shall be: (i) Workmen’s dues and debts due to secured creditors, (ii) Costs and expenses of winding up, (iii) Preferential debts, (iv) Floating charge; and (v) Unsecured creditors
In case of winding up of a company for realising and distributing assets among the debenture holders, creditors, shareholders etc. somebody has to act as agent of company which is called liquidator.
After the winding up procedure is completed, the company is dissolved.
A company is said to be dissolved when it ceases to exist as a corporate body.

Important Keyword glossary of business law

Agenda: The word agenda indicates the business to be transacted at a meeting.
Agent: He is a person who is employed to do any act for another or to represent another in dealings with third persons.
Ambiguous Instrument: It is an instrument which may be construed either as a promissory note or as a bill of exchange.
Articles of Association: They are basic internal rules of operation for a business that govern what tasks need to be done, what positions are required to perform and how the processes in place are to be performed.
Bailment: It is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
Bill of Exchange: It is a written order by the drawer to the drawee to pay money to the payee.
Bonus Share: The company pays a bonus to its shareholders in the form of shares; a free share thus issued.
Capital Clause: This clause deals with alteration of share capital.
Certificate to Commence Business: A certificate that entitles the company to commence business given in the main objects clause of the memorandum.
Cheque: It is a is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified demand account held in the maker/depositor’s name with that institution.
Coercion: It is (i) the committing or threatening to commit any act forbidden by the Indian Penal Code, or (ii) the unlawful detaining or threatening to detain any property to the prejudice of any person whether with the intention of causing any person to enter into an agreement.
Common Seal: It is the official signature of a company.
Compensation: It is the remuneration provided to the directors for their services.
Concealed Principal: Where an agent conceals not only the name of the principal but the very fact that there is a principal, the principal is called a concealed principal.
Condition: It is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.
Consideration: When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such actor abstinence or promise is called consideration for the promise.
Continuing Guarantee: It is a guarantee which extends to a series of transactions.
Contract of Indemnity: It is that contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person.
Contributory: It means any person who is liable to contribute to the assets of a company in the event of its being would up.
Crossing: Crossing on cheque is a direction to the paying banker by the drawer that payment should not be across the counter.
Deferred Shares: They are normally held by promoters and directors of the company & are of smaller denomination, say one rupee each.
Delivery: It is defined as a voluntary transfer of possession from one person to another.
Director: A director is any person occupying the position of director, by whatever name called.
Dissolution of the Firm: The dissolution of partnership between all the partners of a firm is called the dissolution of the firm.
Dissolution: A company is said to be dissolved when it ceases to exist as a corporate body for all practical purposes.
Doctrine of Constructive Notice: This doctrine enunciates that any person dealing with the company is presumed to have read its memorandum and articles.
Doctrine of Indoor Management: This doctrine enunciates that any person dealing with the company is entitled to assume that he provisions of the article have been observed by the company.
Economic Interest: It means a member’s share of the profits and losses of an LLC and a member’s right to receive distributions of the LLC’s assets.
Employee Stock Option: It means the option given to the directors, officers or employees of a company to purchase or subscribe at a future by a date, the securities offered company at a predetermined price.
Endorsement: It is the mode of negotiating a negotiable instrument.
Express Contract: It is that contract the terms of which are expressly agreed upon (whether by words spoken or written) at the time of its formation.
Floatation: It means company can go ahead with raising capital sufficient to commence business and to conduct it satisfactorily.
Foreign LLC: It means an LLC formed under the laws of any foreign jurisdiction.
General Offer: It is that offer which is made to the public at large.
Goods: It means every kind of movable property, other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to severed before sale or under the contract of sale.
Goodwill: It is an accounting concept meaning the value of an entity over and above the value of its assets.
Holder: A holder is a person who is entitled in his own name to the possession of a negotiable instrument and to receive or recover the amount due thereon from the parties thereto.
Holding Company: Where a company has control over another company, it is known as the Holding Company.
Implied Contract: It is that contract which is inferred from the acts or conduct of the parties or the course of dealing between them.
Instrument: It means any written document by which a right is created in favour of some person.
Inter se: The provision of articles which bind the members one to another so far as rights and duties arising from the articles are concerned.
Liability Clause: A clause in the memorandum of association that states the nature of liability of the members.
Lien: It is a right in one person to retain that which is in his possession, belonging to another, until some debt or claim is settled.
Liquidator: In case of winding up of a company for realising and distributing assets among the debenture holders, creditors, shareholders etc. somebody has to act as agent of company which is called liquidator.
LLC: Limited Liability Company
LLP: It is the partnership where all or some partners have limited liability.
Manager: He is an individual who, subject to the superintendence, control and direction of the board of director, has the management of the affairs of the company.
Managing Director: He is ‘director’ who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors.
Memorandum of Association: The document that governs the relationship between the company and the outside and one of the documents required to incorporate a company.
Negotiable Instrument: It is a specialized type of contract for the payment of money that is unconditional and capable of transfer by negotiation.
Negotiation: The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation’.
Objects Clause: The objects clause defines the objects of the company and indicates the sphere of its activities.
Office or Place of Profit: A director is deemed to hold an office or place of profit under the company if the director holding an office obtains from the company anything by way of remuneration.
Ordinary Resolution: When a motion is passed by simple majority of the members voting at a general meeting, it is said to have been passed by an ordinary resolution.
Ownership: It is described as a bundle of rights in rem, having certain characteristics, namely the right of unspecified duration, and use, and generally being inheritable and transferable.
Partnership Deed: It is an agreement between the partners which covers the various clauses required for management of the firm.
Power of Attorney: It is an instrument or a deed by which a person is empowered to act for and in the name of the person executing it.
Preference Share: A preference share is one which carries the following two rights over holders of equity shares: (i) a preferential right in respect of dividends at a fixed amount or at a fixed rate, and (ii) a preferential right in regard to repayment of capital on dividing up.
Preferential Payments: In the event of winding up, certain payments are to rank in priority to others, they are called preferential payments.
Principal: He is a person for whom or on whose behalf an agent works.
Promoter: The persons who assume the task of promotion are called promoters.
Prospectus: It means any document described or issued as prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporates.
Proxy: Every member of a company entitled to attend and vote at a meeting has the right to appoint another person, whether a member or not, to attend and vote for him. The term proxy is applied to the person so appointed.
Public Company: It means a company which is not a private; has a minimum paid-up capital of ` 5 lakhs.
Quorum: A quorum is the minimum number of persons whose presence is necessary for the transaction of business at a meeting.
Secretary: A secretary is defined as a company secretary within the meaning of the Company Secretaries Act, 1980 and includes any other individual possessing the prescribed qualifications and appointed to perform the duties which may be performed by a secretary.
Share Certificate: It is a certificate, under the common seal of the company, specifying any shares held by any member.
Share: A share is a share in the share capital of a company and includes stock except where a distinction between stock and share is expressed or implied.
Special Resolution: A resolution is a special resolution when the number of votes cast in favour of the resolution is three times the number cast against it.
Specific Guarantee: It is a guarantee which is intended to be applicable to a particular debt; and comes to an end on its repayment.
Specific Offer: It is that offer which is made to a definite person or a group of persons.
Sub-agent: He is a person who is a appointed by an agent to work in the matter of agency, and therefore can bind the principal by his acts.
Subsidiary Company: The Company over which control is exercised is called the Subsidiary Company.
Ultra Vires: The Company’s activities are confined strictly to the objects mentioned in its memorandum and if they are beyond these objects, then such acts are known as ‘ultra vires’.
Underwriting: It consists of an undertaking by a person that if the public fails to take up the issue, he will do so.
Undisclosed Principal: Where an agent, though discloses the fact that he is agent working for some principal, conceals the name of the principal, such a principal is called an undisclosed principal.
Undue Influence: A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other, and uses that position to obtain an unfair advantage over the other.
Unlimited Company: It is a company not having any limit on the liability of its members.
Unpaid Seller: A seller of goods is an unpaid seller when (i) the whole of the price has not been paid or tendered, or (ii) a bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.
Voidable Contract: It is that contract which may be repudiated at the will of one or more of the parties, but not by others.
Warranty: It is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

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