CA Foundation Business Laws cheat sheet

Contract = agreement enforceable by law (s.2(h)); agreement = promise or set of promises forming consideration for each other (s.2(e)); promise arises when a proposal is accepted (s.2(b)).

Valid contract essentials (s.10): offer and acceptance, intention to create legal relations, lawful consideration, capacity, free consent, lawful object, and not expressly declared void.

Offer (s.2(a)) must be communicated; acceptance (s.2(b)) must be absolute and unqualified (s.7) and communicated by the acceptor in the prescribed or reasonable mode.

Acceptance by silence is generally invalid; mere mental assent without communication creates no contract.

Consideration (s.2(d)) = act, abstinence or promise at the desire of the promisor; it may move from the promisee or any other person, but not from a stranger to the contract.

Exceptions to 'no consideration, no contract' (s.25): natural love and affection (written and registered), past voluntary services, and promise to pay a time-barred debt.

An offer lapses by revocation before acceptance, rejection, counter-offer, death or insanity of offeror before acceptance, lapse of time, or failure of a condition precedent.

Revocation of acceptance is possible only if the communication of revocation reaches the offeror before or at the same time as the acceptance (s.5).

Capacity (s.11): a person must be of the age of majority, of sound mind, and not disqualified by law; a minor's agreement is void ab initio (Mohori Bibee v. Dharmodas Ghose).

Sound mind for contracting (s.12) requires capacity to understand the contract and to form a rational judgement as to its effect on one's interests.

Free consent (s.14) is absent where consent is caused by coercion (s.15), undue influence (s.16), fraud (s.17), misrepresentation (s.18), or mistake (ss.20-22).

Coercion and undue influence make the contract voidable at the option of the aggrieved party; fraud and misrepresentation also make it voidable, but a bilateral mistake of fact makes it void.

Void agreements (s.2(g)) include agreements in restraint of marriage (s.26), restraint of trade (s.27), restraint of legal proceedings (s.28), uncertain agreements (s.29), wager (s.30) and agreement to do impossible acts (s.56).

Contingent contract (s.31): performance depends on the happening or non-happening of a collateral event; if the event becomes impossible, the contract becomes void (s.32).

Quasi contracts (ss.68-72) rest on unjust enrichment: necessaries supplied to a person incapable of contracting, payment by an interested person, non-gratuitous acts, finder of goods, and money paid by mistake or coercion must be restored.

A wagering agreement is void but collateral transactions (e.g., a loan to fund a wager) are generally enforceable.

Performance may be actual or by offer of performance (tender); a valid tender must be unconditional, made at the proper time and place, and of the whole obligation.

Discharge of contract occurs by performance, mutual agreement, impossibility of performance (s.56), operation of law, or breach.

Supervening impossibility discharges a contract only if the event is beyond the parties' control and the contract's foundation is destroyed; commercial hardship alone does not.

Anticipatory breach (s.39) occurs when a party repudiates before the due date; the aggrieved party may sue immediately or wait until performance is due.

Remedies for breach: rescission, damages (ss.73-74), specific performance and injunction (Specific Relief Act, 1963), and quantum meruit.

Hadley v. Baxendale rule: damages cover natural consequences arising in the usual course plus special loss known to both parties at contract formation; remote loss is not recoverable.

Liquidated damages under s.74 are capped at the sum named; the court awards reasonable compensation not exceeding that amount, and a penalty is not enforced as such.

Duty to mitigate: the aggrieved party cannot recover loss that could have been avoided by reasonable steps.

Contract of indemnity (s.124): a promise to save another from loss caused by the conduct of the promisor or of any other person; the indemnity-holder may recover damages, costs and sums paid under a compromise (s.125).

Contract of guarantee (s.126): a promise to perform the promise or discharge the liability of a third person in case of default; the surety's liability is co-extensive with the principal debtor's (s.128) unless limited.

Discharge of surety: revocation by notice (s.130), death of surety (s.131), variance in terms without consent (s.133), release or discharge of the principal debtor (s.134), and loss of security (s.141).

Bailment (s.148): delivery of goods for a purpose upon a contract that the goods be returned or disposed of as directed; the bailee must take reasonable care (s.151) and not make unauthorised use (s.154).

A gratuitous bailee is liable only for gross negligence; a bailee for reward is liable for ordinary negligence; the finder of goods is treated as a bailee.

Pledge (s.172): bailment of goods as security for payment of a debt or performance of a promise; the pawnee may retain the goods until the debt is paid (s.173) and may sell after notice on default (s.176).

Agency arises by express or implied agreement, ratification, necessity, or estoppel; the agent cannot delegate authority except where the principal permits or the nature of the work requires it.

The agent is bound to act within authority and disclose material facts; a sub-agent is not liable to the principal, whereas a substituted agent is directly responsible to the principal.

Sale (s.4): transfer of property in goods for a price; an agreement to sell transfers property at a future time or subject to a condition, and is a contract, not a sale.

Goods (s.2(7)) include every kind of movable property except actionable claims and money; future goods and contingent goods are recognised categories.

Essentials of a contract of sale: two parties, goods, transfer of ownership, price in money, and the elements of a valid contract under the Indian Contract Act.

Conditions (s.12) are stipulations essential to the main purpose of the contract, breach of which gives a right to repudiate; warranties are collateral, breach of which gives damages only.

Implied conditions include title, sale by description, fitness for purpose, merchantability, and quiet possession; implied warranties include quiet possession and freedom from encumbrances.

The rule of caveat emptor applies unless the buyer relies on the seller's skill or judgement, or the seller's conduct amounts to fraud or concealment.

The unpaid seller has rights of lien, stoppage in transit, and resale, along with a right to sue for the price; an unpaid seller's lien is lost on delivery to a carrier without reserving the right of disposal.

The 'Rule of nemo dat quod non habet' (no one can give a better title than he has) has exceptions: sale by a mercantile agent, sale by a joint owner, sale by a finder of goods, sale in market overt, and sale by a person in possession under a voidable contract before rescission.

Partnership (s.4) is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all; the maximum number of partners is 50 (Companies Act rules).

An unregistered firm cannot enforce its rights in a court of law against third parties or partners, but it may be sued and can enforce rights against third parties in certain suits.

The liability of a partner is unlimited and joint and several; a minor may be admitted to the benefits of partnership with the consent of all partners but is personally liable only for acts after attaining majority.

A partner's implied authority covers acts in the ordinary course of business but not submitting a dispute to arbitration, opening a bank account in the firm's name, or acquiring immovable property.

A partner may be expelled only by a majority of partners in good faith under an express power in the partnership deed.

Dissolution may be by agreement, by notice of a partner at will, by operation of law (insolvency, death, illegality), or by the court on grounds such as misconduct or persistent breach.

On dissolution, the firm's assets are applied first to pay third-party debts, then partners' advances, then capital, and the residue is distributed in profit-sharing ratio; losses are shared in the same ratio.

A retiring partner remains liable to third parties for acts done before retirement unless public notice of retirement is given.

An LLP is a body corporate with perpetual succession and a legal entity separate from its partners, governed by the LLP Act, 2008 and registered with the Registrar of Companies.

Partners' liability is limited to their agreed contribution; a partner is not personally liable for the LLP's obligations except for their own wrongful acts or omissions.

Minimum two partners are required; there is no maximum limit, and at least two designated partners must be individuals, with at least one resident in India.

Every LLP must have at least two designated partners who are responsible for compliance with the Act; a body corporate can be a partner only through a nominee.

An LLP agreement must be filed in Form 3 within 30 days of incorporation; in the absence of an agreement, mutual rights and duties are governed by the First Schedule.

A partner's liability for contribution is a debt due to the LLP and can be enforced on winding up; a partner may be a salaried employee but not a partner in another LLP with the same business.

The LLP must file an annual statement of accounts and solvency (Form 8) within 30 days from the end of six months of the financial year, and an annual return (Form 11) within 60 days of the close of the financial year.

Winding up may be voluntary or by the Tribunal; the LLP is dissolved after winding up, and its name is struck off by the Registrar.

Company (s.2(20)) means a company incorporated under the Act or any previous company law; it is a separate legal entity with perpetual succession and limited liability.

Types include private (max 200 members), public (min 7 members), one-person company, small company, and section 8 (non-profit) companies.

Incorporation requires filing the memorandum, articles, declarations, and fee with the Registrar, who issues a certificate of incorporation, which is conclusive evidence of the company's existence.

The memorandum contains name, registered office, objects, liability, capital, and subscription clauses; the articles contain internal rules and are subordinate to the memorandum.

A prospectus (s.2(70)) means any document inviting the public to subscribe to securities; a red herring prospectus omits the price and a shelf prospectus may be filed by specified issuers.

A public company may make a public offer only after obtaining SEBI approval and filing a prospectus with the Registrar; a private company cannot invite the public to subscribe.

Allotment of securities must be made within 60 days of receipt of application money, failing which the money must be refunded within 15 days with interest at 12% p.a.

A company cannot vary the terms of a contract in the prospectus without the consent of the shareholders; misstatements in a prospectus attract civil and criminal liability under s.34 and s.35.

Share capital may be authorised, issued, subscribed, and paid-up; a company may issue equity shares with differential rights, preference shares, sweat equity, and debentures.

A charge (s.2(16)) is an interest or lien created on the property or assets of a company; it must be registered with the Registrar within 30 days of creation (Form CHG-1).

A member is a person whose name is entered in the register of members; a member may hold shares jointly but only the first-named joint holder has voting rights.

The board of directors must consist of at least 3 directors for a public company, 2 for a private company, and 1 for a one-person company; at least one director must be a resident of India for 182 days.

Dividends may be declared only out of profits of the company for the year or out of undistributed profits of previous years; dividends must be paid within 30 days of declaration.

Unpaid or unclaimed dividend must be transferred to the Unpaid Dividend Account within 7 days of the expiry of 30 days, and amounts unclaimed for 7 years must be transferred to the Investor Education and Protection Fund.

Every company must appoint a statutory auditor for 5 years, subject to ratification at each AGM; the auditor must be a chartered accountant in practice.

Books of account must be kept at the registered office and preserved for 8 years; financial statements are to be filed with the Registrar in Form AOC-4 within 30 days of the AGM.

A negotiable instrument (s.13) means a promissory note, bill of exchange, or cheque payable either to order or to bearer; it is freely transferable by delivery or endorsement.

A promissory note (s.4) is an unconditional undertaking signed by the maker to pay a certain sum to a specified person; a bill of exchange (s.5) is an unconditional order to pay signed by the maker.

A cheque (s.6) is a bill of exchange drawn on a specified banker and payable on demand; it includes an electronic image of a truncated cheque.

A holder in due course (s.9) takes an instrument for consideration, in good faith, and before maturity, and obtains a better title than the transferor.

Endorsement and delivery are required for negotiation of an instrument payable to order; a bearer instrument is negotiated by mere delivery.

A cheque is valid for 3 months from the date of issue; a stale cheque is not payable by the bank.

Section 138 makes dishonour of a cheque for insufficiency of funds a criminal offence, punishable with imprisonment up to 2 years or a fine up to twice the amount of the cheque, or both.

A demand notice under s.138 must be issued within 30 days of receipt of the bank's return memo, and the drawer must be given 15 days to pay; a complaint must be filed within one month thereafter.