A company is an association of both individual and natural
persons incorporated under the existing law of a country. in terms of the companies act,1956 it is defined as: "a company means a company formed and registered under this act or any existing Company "sec 3(1). ‘Existing Company’ means a company formed and registered under any of the earlier Company Laws. Association of individuals formed for some common purpose It has capital divisible into parts known as shares
It is an artificial person created by law
It has perpetual succession and common seal
THE INDIAN COMPANIES ACT, 1956 Objectives -
Development of a company
Protect the interests of share holders
Safe guard the interests of the creditors
Protect the interests of the consumer, labors and suppliers.
Economic wellbeing of the country
Salient Features (as mentioned under Sec 34) Incorporated Association Artificial person Separate Legal Entity- member can enter into contract with company, Individual cannot held liable for the acts of the company Salomon V Salomon &co ltd – 23000 shares, His wife, daughter, four sons took up one share and 10000 debentures, 17000 liability (10000 secured debentures) Assets 6,000 Ram has no insurable interest in the property of Ram&co When Ram dies, The company continue to exist Nationality of company does not depend upon nationality of Ram Perpetual Succession i.e. continued existence Limited Liability Common Seal Transfer of Shares Separation of ownership from its management Salient Features- Separate legal entity A company is an separate legal entity means it is different from its members. It works as a individual body. It can make contracts, open a bank account, can sue and be sued by others. The law has recognized that even if a person holds virtually all the shares, the right and obligations of the company shall be different from its members. Artificial Person A company is a purely a creation of law. It is invisible, intangible and exists only in the eyes of law. It has no soul, no body, but has a position to enter or exit into a contract, to appoint a people as its employees Salient Features- Perpetual existence [sec 34(2)] Section 34(2) of the act states that an incorporated company has perpetual life. The life of the company is not related to the life of the members . Law created the company and law alone can dissolve it. The existence of the company is not affected by death, insolvency, retirement or transfer of share of members. Limited liability It means that the liability of a member shall be limited to the value of the share held by him, he cannot be called upon to bear the loss from his personal property. Common seal A company being an artificial person can not work as a natural being.
Therefore, it has to work through its directors, officers and other
employees. Common seal is used as a official signature of a company. THE INDIAN COMPANIES ACT, 1956 Transferability of shares sec(82) The share of a company are freely transferable. The shareholder can transfer his share to any person without the consent of other members. A company cannot impose absolute restrictions on the rights of member to transfer their shares Capacity to sue and be sued When a company is incorporated it acquires a separate and independent legal personality. As a legal person it can sue and be sued in its own name. Lifting Or Piercing the Corporate Veil Distinct person “ Veil of Incorporation Using this a cloak for fraud or improper Conduct Break, lift the corporate veil or crack the shell and look at the persons behind the company Protection of revenue Prevention of fraud or improper conduct Statutory Exceptions Number of Members below statutory minimum – Carries on business after six months – severally liable for the whole of debts Failure to refund application money –within 130 days – directors are jointly and severally liable to pay application money with interest Misdescription of company’s name – enters into contract without fully or properly mentioning the company’s name Fraudulent trading – intent defraud creditors Partnership and Company Regulating act Mode of creation – registration Legal status – Not a person Liability of members- partners are liable without limit to contribute towards payment of partnership debts Management – Managed by its directors, Every member may take part Transferability – cannot transfer without consent of other partners – can assign – assignee merely entitled to financial benefits Authority of members – Partner is an agent of partnership Powers – can do anything which partners agree, object clause Restriction of powers – available in Partnership agreement will not avail against outsiders - AOA Debt – company owes debt, he can claim out of assets of company, partners can prove in competition with outside creditors Insolvency of firm, means insolvency of all partners, winding up Dissolution – fixed period, at will at any time, death or insolvency Number of members – Minimum and Maximum Maintenance of books – company bound to maintain – audited by qualified auditors