COMPANY LAW
What is Company?
Company The word ‘Company’ is very popular and
almost known to each person. Generally, it is meant to
be a collection of many individuals united in an
association for a specific purpose. When many
individuals together make an agreement to carry out a
business or trade, then such a group is understood by
the public as a company. In view of the law, its
definition may be somewhat different.
Definition
According to Section 2(20) of the Companies Act, 2013,
“Company means a company incorporated under this
act or under any previous company law”.
But this definition is neither complete nor satisfactory
because it does not disclose the actual meaning and
form of the company. To assimilate the meaning of
‘Company’, it will be appropriate to mention here the
definitions of various Jurists.
According to Lord Justice Lindley, a “ Company is an
association of many persons who contribute money or
money’s worth to a common stock and employ it for a
common purpose”.
According to Chief Justice Marshal, “Company is a
person artificial, invisible, intangible and existing only
in the eyes of law. Being a mere creation of law, it
possesses only those properties which the charter of its
i
, creation confers upon it either expressly or as incidental
to its very existence.
According to Halsbury, “Company is an association of
many individuals united into one body under a specific
denomination having perpetual succession under an
artificial form and vested by the policy of the law with
the capacity of acting in several respects as an
individual, particularly of taking and granting property
of contracting obligations and of suiting and being sued,
enjoying privileges and immunities in common, and of
exercising a variety of political rights, more or less
extensive according to the designs of its institution or
the powers conferred upon it, either at the time of its
creation or at any subsequent period of its existence.”
From the above definitions, it may be concluded that the
company is such Voluntary organization or association
of many persons which is created for a particular object
or purpose and its each member contribute money or
money’s worth to a common stock. In the eyes of law, it
is an artificial person or body.
Characteristics The following characteristics of a
company reflect from its various definitions-
(1) Voluntary Organization
The first characteristic of a company is its formation as
a voluntary organization or association. Its creation is
made under a contract in which the inclusion of persons
ii
, by their own free consent. No boundation is there to
become a member of the company.
(2) Independent Legal
Identity The second characteristic of a company is of its
independent or separate legal entity. The entity of the
company is separate from the entity of its members.
This is the reason that the rights and liabilities of a
company are separate from those persons by whom the
company has been created. In the subject matter,
‘Salomon Versus Salomon & Company’ (1897 A.C.22)
is an illustrative case. In this case, the company has
been considered a separate entity. Under it, a company
namely, “Salomon and Company” was created by a
person of a name- Salomon whose members were his
family.
(3) Perpetual Succession
The third characteristic of the company is its perpetual
succession. It has permanent existence. From resigning
from membership, becoming bankrupt, on the death of a
member, or becoming vacant for other reasons, the
existence of a company does not come to an end.
(4) Common Seal
All works of the company are carried out by the
‘Common Seal’. From the signatures done by the
directors on the common seal of the company, the acts
and liabilities of directors are considered as the acts and
liabilities of a company. Although, the company is an
iii
, artificial person, but its all acts are being done by
natural persons under the force of the common seal.
(5) Limited Liability
The liability of members is limited to the shares
purchased by them or in other words, it may be said that
the liability of shareholders of the company is only to
the extent of payment of the value of their shares.
(6) Transferability of Shares
Under section 44 of the Companies Act, 2013 it has
been that “the shares or other interest of members in the
company are movable property, which is transferable in
the manner as provided by the Articles of the company.
If any restrictions are imposed by the shareholders
under an agreement then they are required to be in
accordance with the Article of Association. If there are
in contravention of the Articles of Association then that
will be null & void and the company or shareholder will
not be bounced by them. (V.V. Rangraj Versus V.V.
Gopal Krishnan, 1992 SCC 160) The transfer is
required to be made in lieu of adequate compensation. (
John Tinson and Company Versus Surjeet Malhan, AIR
1997 SC 1411)
(7) Institution of Suit
In this, a suit can be instituted against and by the
company. In case of any infringement of interest or
rights of a person by the company, a suit may be
instituted against the company and if the rights of the
iv
What is Company?
Company The word ‘Company’ is very popular and
almost known to each person. Generally, it is meant to
be a collection of many individuals united in an
association for a specific purpose. When many
individuals together make an agreement to carry out a
business or trade, then such a group is understood by
the public as a company. In view of the law, its
definition may be somewhat different.
Definition
According to Section 2(20) of the Companies Act, 2013,
“Company means a company incorporated under this
act or under any previous company law”.
But this definition is neither complete nor satisfactory
because it does not disclose the actual meaning and
form of the company. To assimilate the meaning of
‘Company’, it will be appropriate to mention here the
definitions of various Jurists.
According to Lord Justice Lindley, a “ Company is an
association of many persons who contribute money or
money’s worth to a common stock and employ it for a
common purpose”.
According to Chief Justice Marshal, “Company is a
person artificial, invisible, intangible and existing only
in the eyes of law. Being a mere creation of law, it
possesses only those properties which the charter of its
i
, creation confers upon it either expressly or as incidental
to its very existence.
According to Halsbury, “Company is an association of
many individuals united into one body under a specific
denomination having perpetual succession under an
artificial form and vested by the policy of the law with
the capacity of acting in several respects as an
individual, particularly of taking and granting property
of contracting obligations and of suiting and being sued,
enjoying privileges and immunities in common, and of
exercising a variety of political rights, more or less
extensive according to the designs of its institution or
the powers conferred upon it, either at the time of its
creation or at any subsequent period of its existence.”
From the above definitions, it may be concluded that the
company is such Voluntary organization or association
of many persons which is created for a particular object
or purpose and its each member contribute money or
money’s worth to a common stock. In the eyes of law, it
is an artificial person or body.
Characteristics The following characteristics of a
company reflect from its various definitions-
(1) Voluntary Organization
The first characteristic of a company is its formation as
a voluntary organization or association. Its creation is
made under a contract in which the inclusion of persons
ii
, by their own free consent. No boundation is there to
become a member of the company.
(2) Independent Legal
Identity The second characteristic of a company is of its
independent or separate legal entity. The entity of the
company is separate from the entity of its members.
This is the reason that the rights and liabilities of a
company are separate from those persons by whom the
company has been created. In the subject matter,
‘Salomon Versus Salomon & Company’ (1897 A.C.22)
is an illustrative case. In this case, the company has
been considered a separate entity. Under it, a company
namely, “Salomon and Company” was created by a
person of a name- Salomon whose members were his
family.
(3) Perpetual Succession
The third characteristic of the company is its perpetual
succession. It has permanent existence. From resigning
from membership, becoming bankrupt, on the death of a
member, or becoming vacant for other reasons, the
existence of a company does not come to an end.
(4) Common Seal
All works of the company are carried out by the
‘Common Seal’. From the signatures done by the
directors on the common seal of the company, the acts
and liabilities of directors are considered as the acts and
liabilities of a company. Although, the company is an
iii
, artificial person, but its all acts are being done by
natural persons under the force of the common seal.
(5) Limited Liability
The liability of members is limited to the shares
purchased by them or in other words, it may be said that
the liability of shareholders of the company is only to
the extent of payment of the value of their shares.
(6) Transferability of Shares
Under section 44 of the Companies Act, 2013 it has
been that “the shares or other interest of members in the
company are movable property, which is transferable in
the manner as provided by the Articles of the company.
If any restrictions are imposed by the shareholders
under an agreement then they are required to be in
accordance with the Article of Association. If there are
in contravention of the Articles of Association then that
will be null & void and the company or shareholder will
not be bounced by them. (V.V. Rangraj Versus V.V.
Gopal Krishnan, 1992 SCC 160) The transfer is
required to be made in lieu of adequate compensation. (
John Tinson and Company Versus Surjeet Malhan, AIR
1997 SC 1411)
(7) Institution of Suit
In this, a suit can be instituted against and by the
company. In case of any infringement of interest or
rights of a person by the company, a suit may be
instituted against the company and if the rights of the
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