Company Law

What is Company Law?

After study you will know about:

  • Law of Company
  • The Memorandum and Articles of Association
  • The Formation of a Company
  • Capital, Shares, and Shareholder
  • Meeting and Resolutions
  • Directors
  • Company Management
  • Accounts and Audit
  • Borrowing Powers and Debentures
  • Control over Companies
  • Winding Up

Definition:

The company is a form of business organization in which the funds of a large number of investors are managed by a few persons for the purpose of earning profits which are shared by all investors.



The term Company is used to describe an association of a number of persons, formed for some common purpose and registered according to the law relating to companies. Section 3(1)(i) of the Companies Act, 1956 states that a company means, “a company formed and registered under this Act or an existing company.”

Lord Justice Lindley defines a company as follows: “By a company is meant associations of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.”

By Law the Company:

1.One man or Family Company

2. Statutory Company

3. Chartered Company

4. Registered Company

5. Unregistered Company

Essential Features of a Company:

Registration: A company comes into existence only after registration under the companies Act.

Voluntary Association: A company is an association of many persons on a voluntary basis.

Legal Personality: A company is regarded by law as a single person. It has a legal personality.

Contractual Capacity: A shareholder of a company, in its individual capacity, cannot behind the company in any way. The shareholder of a company can enter into contract with the company.

Management: A company is managed by the board of Directors, whole time Directors, Managing Director or Manager.  

Capital: A company must have a capital, otherwise it cannot work.

Permanent Existence: The Company has perpetual succession. The death or insolvency of a shareholder does not affect its existence.

Registered Office: A company must have a registered office.

Common Seal: A company must have a common seal.

Limited Liability: The liabilities of shareholder of a company are usually limited.

Transferability: The shareholder of a company can transfer its share and ordinarily the transferee becomes a member of the company.

Statutory Obligations: A company is required to comply with various statutory obligations regarding management, filing balance sheets, maintain proper account books and registers etc.

Not a Citizen: A company is an artificial person, not a natural person. Therefore a company is not a Citizen, although it may have a Domicile.

Residence: A company has a residence. A company does not possess any fundamental rights.

No Fundamental rights: Though a company has no fundamental rights, it can challenge a law as void if the law happens to violate fundamental rights of citizens.

Social Objective: The present view as regard the legal nature of Company Law is that the company is a social institution having duties and responsibilities toward the community, its workers, the national economy and progress.

Centrally Administrated: The administration of Company Law is entrusted to the central Government.

Company and Partnership

The points of difference between a partnership and a company can be summed up as follows;

The companies Act, 1956, while a partnership is regulated by the Indian partnership Act, 1932.

1.Registration:

A company comes into existence only after registration under the Companies Act. In the case of a partnership registration is not compulsory.

*Minimum number of Members:

The minimum number of member of person required to form a company is 2 in the case of private companies and 7 in the case of public companies. The minimum number of persons required to form a partnership is 2.

*Maximum number of Members:

A public company may have any number of members. A private company cannot have more than 50 members. A partnership carrying on banking business cannot have more than 10 members and partnership carrying on other types of business cannot have more than 20 members.

  • Legal Status:

A company is regarded by law as a single person. It has a legal personality. A partnership is a collection of individuals. It is not considered to be a single person.

  • Authority of Members:

The property of a partnership is the joint property of the partners. Each partner has authority to bind the firm by his act. The property of the company belongs to the company. A shareholder in his individual capacity cannot bind the company in any way.

  • Contractual Capacity:

The shareholder of a company can enter into contracts with the company and can be an employee of the company. Partners can contract with other partners but not with the firm as a whole.

  • Management:

A partnership firm is managed by the partners themselves. The work of management can be distributed among them in any manager they like. A company is managed by the board of directors.

  • Length of Existence:

A company has perpetual succession. The death or insolvency of a member does not affect its existence. It comes to an end only when liquidated according to the provisions of the companies Act.

  • Liability of Members:

The liability of the members of a partnership for the debts of the firm is unlimited. The liability of the members of a company is limited.

  1. Liability of firm and company:

The creditors of firm are creditors of the individual partners and a decree obtained against a firm can be executed against the individual partners. The creditors of company are not creditors of the individual shareholders and a decree obtained against a company cannot be executed against any shareholder. It can only be executed against the assets of the company.

  1. Transferability:

A partner of a firm cannot transfer his interest in the firm to an outsider and make the transferee a partner without the consent of all the other partners. The shareholder of a company can ordinarily transfer his share and transferee becomes a member of the company.

  1. Statutory Obligations:

A company is required to comply with various statutory obligations regarding management, filing balance sheet, maintaining proper account books and registers. In the case of partnership there are no such statutory obligations.

Types of Companies

1. Private Company

2. Public Company

Private Company: A private company is one which, by its articles, (a) restricts the right of the members to transfer their shares, (b) limits the number of its members to 50; and (c) prohibits any invitation to the public to subscribe for any shares in the company.

Public Company: All companies other than private companies are called public companies. – sec. 3(1)(iv)

Public companies may be classified into three types:

  1. Companies limited by shares
  2. Companies limited by guarantee
  3. Unlimited companies

Company limited by Shares:

In these companies there is a share capital and each share has a fixed nominal value which the shareholder pays at a time or by installments. The member is not liable to pay anything more than the fixed value of the share, whatever may be the liabilities of the company. Most of the companies in India belong to this class.

Company Limited by Guarantee:

In these companies, each member promises to pay a fixed sum of money in the event of liquidation of the company. This amount is called the Guarantee. Sometimes the members are required to buy a share of a fixed value and also give a guarantee for a further sum in the event of liquidation. There is no liability to pay anything more than the value of the share and the guarantee.

Unlimited Company:

In these companies the liability of the shareholder is unlimited, as in partnership firms. Such companies are permitted under the companies Act but are not known.

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