Company Act 2013

Company:



The word “Company” is derived from a Latin word “Com” means “together” and “Panis” means “Bread”.
It means, an association of persons had meals together and started discussing on the future venture.

When such association got registered or incorporated as per law, it becomes a company with corporate personality.

As per Sec-2(20) of Company Act 2013, a company means,
A company incorporated under this act or any previous company law i.e. the company established under any existing company law, will continue to be a company.


A company on incorporation becomes a separate legal entity and it is distinct from its members.



A company is an artificial person and is managed by a natural person.
It is vested with many rights, duties and powers as prescribed by the law.

The company is distinct from its members and thus an Imaginary veil separates a company from its members.

According to Justice James, a company is an association a person’s united for a common purpose.

Characteristics:

1) Corporate Personality 2) Limited Liability
3) Perpetual Succession 4) Separate Property

5) Transferability of shares
6) Capacity to sue and be sued
7) Common Seal
8) Corporate finance
9) Centralized/ Professional Management



Corporate Personality:

A company is vested with corporate personality, it bears its own name and its assets are separate from its members.

Solomon V Solomon

Solomon incorporated a company with his wife, daughter and 4 sons. He transferred his leather business to the company and took the compensation in form of the Shares of Rs.20000 and Debentures of Rs.10000.

After sometime the company had to windup.
Then, the company was left with an asset of 6000 and a liability of 17000 (10000 of Solomon and 7000 of Other Creditors).
Solomon took the remaining assets for his debentures.
The other creditors were left with no assets, so they brought a suit saying that Solomon and Co is run by his own family members and so he has to first clear other creditors before claiming his.

But it applied the principle of Corporate Personality where the company is distinct from its member.
So as a member, Solomon has a right to claim for his debentures before other creditors.


Limited Liability:

The company is a separate person, so its members are not liable for its debts. Thus a company with limited shares, the liability of a member is limited to a nominal value of the shares they hold.

Therefore, the creditors cannot take an action against the members if the company goes under liquidation as established in Solomon V Solomon.

J H Rayners (mining lane) Ltd V
Department of Trade and Industry

It was held that the members who created the company were not liable for any debts of the company.



Perpetual Succession:

As a result of corporate personality, the company is a perpetual succession. It means that, a company is everlasting and continues to do business until it is properly windup.

Member comes and goes but the company lives forever.
The saying “King is dead, long live the Kingdom” applies to the company.

Lee
V
Lee Air Farming Ltd

Lee had 2999 out of 3000 shares of the company; he was the Director of the company and became a pilot.
When he died in an Air Crash, his wife successfully received the compensation.

The principle of Perpetual Succession was followed.


Separate Property:

A company being a separate legal person can buy and sell the property in his name.
No member can claim the property, as it does not belong to them but belongs to the company.

Macura
V
Northern Assurance Insurance Co Ltd

M had all the shares in the timber company and was also a creditor. He insured the Companies timber in his own name.

The timber was destroyed in fire.
M’s claim for the insurance was rejected.
The principle applied here was that, no members can claim the property, as it does not belong to them but belongs to the company.


Transferability of Shares:


The transfer of shares is done as given in the Articles of the company. The transfer of shares does not affect the company.


Capacity to Sue and be sued:
A company being a separate legal entity has a capacity to sue and be sued.

Tata Engg and locomotive V
State of Bihar

A company being a separate legal entity has a capacity to sue and be sued.


Common Seal:

A company is an artificial person and is managed by a natural persons like Directors, officers etc.
But it can be bound only by those documents which bear its signature.
So, a common seal is the official signature of the company.


Corporate Finance:

A company can raise its maximum funds in minimum time through transfer of shares or by public issue.


Centralized/ Professional Management:

Share holder’s exercises only formative control.
Thus the management is different from its ownership.
The management’s vests in the Directors who can decide on policy matters.

With the skilled managers supported by financial resources, the company can carry out business.


Disadvantages of a Company:


1) Lifting of corporate veil by the courts on certain occasion like fraud etc


2) Personal liability of a Director or members on the Ultra Virus acts of the

Company.


3) Misdiscription of names


4) Expenses


5) Company is not a citizen.

Nature of the Company:

ECI Ltd
V
Secretary, Revenue Department, AP

Apex court observed that a company registered under the Companies Act is a distinct legal entity that holds its shares.