Company law

LAW

• Company in general usage term means "A group of persons associated together for the attainment of some common end, social or economical” it has no strictly technical or legal meaning.

• According to sec 3(1)(i) of companies act 1956, company means “a company formed & registered under this act or some company’s act”.

• In common law, a company is a legal person or legal entity , separate form & capable of surviving beyond the lives of its members.

• It has its own rights & duties & enclosed with the potential of perpetual succession.

• Lindley defines a company as “An association of many persons who contribute money or money’s worth , to a common stock, & employ it in some common trade or business & who share the profit or loss rising their form.

The incorporation of a company provides certain advantages they are…

1. Independent corporate existence2. Limited liability3. Perpetual succession4. Separate property5. Transferable shares6. Capacity to sue & to be sued7. Professional management8. Finances.

Independent Corporate Existence• The outstanding features of a company is its

independent corporate existence . A partnership has no existence apart from its members . It is nothing but a coalition of partners while as company is a person according to law

• it is a distinct legal persona & exists independent of its members . No one can say he is the owner of it . On incorporation it immediately starts functioning as a corporate individual. it becomes impersonalized.

LIMITED LIABILITYThe privilege of limiting liability for business debts

is one of the principle advantages of doing business under the corporate form of organisation.

Members even as a whole are neither the owners of its assets nor liable for debts.

No member is bound to contribute anything more than the nominal value of the

shares he holds. The liability is limited to the extent of the shares taken by him or the

amount guranteed by him.

PERPETUAL SUCCESSION• An incorporated company never dies it is an

entity with perpetual succession. any member just holds the share, these shares can be transferred or inherited by others who become new members but the company will remain the same entity.

• it means the members may come and go but the company goes on forever .

SEPARATE PROPERTY • A company being A legal person, is capable

of owning, enjoying & disposing of property in its own name the share holders are not the several or joint owners of the company’s property. No share holder has right to any item of property owned by the company.

TRANSFERABLE SHARES• According to the company’s act , the share or

debentures or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company .

• members can sell his shares in the open market & to get back his investment without having to withdraw the money from the company.

CAPACITY TO SUE & TO BE SUED

• A company being a corporate can sue & be sued in its own name criminal complaint can be filed by a company but through a natural person. A company has the right to protect its fair name it can sue for defamatory remarks.

PROFESSIONAL MANAGEMENT

• The corporate sector is capable of attracting the growing cadre of professional managers. Young management graduates willingly join companies because of the feeling that they would thereby belong to a managerial class . The independent functioning as managers is assured because of the fact that there is no human employer & the share holders exercise only a formative control.

FINANCES• Capital is the life blood of a concern. The company

is the only medium which is given the privilege of raising capital by public subscriptions either by way of shares or debentures.

• Further, public financial institutions lend their resources more willingly to companies than to other forms of business organizations.

DISADVANTAGES OF A COMPANY

1. LIFTING OF A COMPANY VEILa) DETERMINATION OF CHARACTERb) FOR BENEFIT OF REVENUEc) FROD OR IMPROPER CONDUCTd) GOVERNMENT COMPANY

2. FORMALITY & EXPENSES3. COMPANY IS NOT CITIZEN

KINDES OF COMPANIES 1. UNLIMITED COMPANIES2. GUARANTEE COMPANIES3. PRIVATE COMPANIES4. FOREGIN COMPANIES5. GOVERNMENT COMPANIES6. HOLDING COMPANY & SUBSIDIARY

COMPANY.

UNLIMITED COMPANIES• One of the main purpose of a company is to counter upon

the business community the privilege of trading with limited liability but the promoters of the company can have the choice to form the company with unlimited liability .

• Sec – 12 says 7 or more persons or where a company to be found will be a private company any 2 or more persons may form an incorporated company with or without limited liability .

• “a company not having any limit on the liability of its members is an unlimited company”.

• Such companies are rare• An unlimited company should have articles of association

stating the no of members with which company is to REGD….. & If company has share capital, the amount of share capital with which it is to be REGD…

• DISADVANTAGE ; Is that the liability will be unlimited like the partners in a partnership firm.

• The members have to contribute to the assets of the company so as to enable it to meet the debts & the expenses of winding up.

• ADVANTAGES 1. It need not have share capital 2. It can increase & reduce its capital without any

restrictions.3. An unlimited company can get itself re-registered as a

limited liability company under sec-32 the conversion will not effect its debts, liability, obligations or contracts existing at the time of conversion.

GUARANTEE COMPANIES• When it is proposed to register a company with

limited liability, the choice is to limit liability by shares or by guarantee.

• The liability of the members of a guarantee company is limited by a fixed sum which is mentioned in the memorandom,beyond which they cannot be called upon to contribute.

• It is not necessary for a guarantee company to have any share capital.

• It does not have the liberty to purchase its own shares.

PRIVATE COMPANIESA COMPANY IS ONE WHICH HAVE A MINIMUM 1. PAID UP CAPTIAL; OF 1 LAKH RUPEES OR SUCH

HIGHER AMOUNT AS MAY BE PRESCRIBED BY THE ARTICALS

2. RESTRICTIONS ON TRANSFERABILITY OF SHARES; THERE MUST BE SOME RESTRICTIONS ON THE RIGHT OF ITS MEMBERS TO TRANSFER OF SHARES IN THE COMPANY SO AS TO ENABLE DIRECTORS TO MAINTAIN THE MAXIMUM LIMIT OF 50 MEMBERS.

3. RESTRICITIONS OF MEMBERSHIP ;it should not be more than 50