This article has been written by Mr. Aman Mishra, a 5th year student studying BALLB, from at IMS Unison University, Dehradun.

Introduction: –

The Companies Act, 2013 was an enacted to consolidate and amend the relating to the companies. The companies Act, 2013 was preceded by the companies Act, 1956 which was preceded by joint stock of companies Act, 1844 (Indian Companies Act, 1844). A corporation is an artificial being, invisible, intangible existing only in contemplation of the law. Being a mere creation of law, it possesses only the properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence

What is Company Law?

The word Company’ has no strict technical or legal meaning. In the terms of Companies Act, a company means a company formed and registered under the Companies Act. A company is a legal person or legal entity, separate from its members, having perpetual succession and limited liability. Company can sue and be sued and can acquire and dispose its property in its own name. The shares of the company are easily transferable.

Thus, the company has a separate corporate personality. But this corporate personality may be used to commit frauds, improper or illegal act. Hence, the doctrine of lifting of corporate veil is incorporated to avoid prevention such illegal acts.

CHARACTERISTICS OF A COMPANY-

Advantages of a Company – 

Incorporated association –

The company must be incorporated or registered under the Companies Act, 2013 or under any previous company law. The Minimum member required for this purpose is seven in the case of a public company and two in the case of a private company and one person in case of One Person Company defined under S. 2(62).

It may also be mentioned that an association of more than ten persons in the case of a banking business and twenty persons in other commercial activities, if not registered as a company or under any other law, becomes an illegal association.

Legal entity distinct from its members –

Unlike partnership, the company is distinct from the persons who constitute it. Hence, it can enjoy rights and of being subjected to duties, which are not the same as those enjoyed or borne by its members.

The first case of the subject, even before the famous Solomon’s case, was that of Konclali Tea Co. Ltd. Re ILR (1886). In this case certain persons transferred a tea estate to a company and claimed exemption from advalarem duty on the ground that they themselves were the shareholders in the company and, therefore, it was nothing but a transfer from them in one to themselves under another name.

Rejecting this, the Calcutta High Court observed – “The Company was a separate person, a separate body altogether from the shareholders and the transfer was as much a conveyance, a transfer of the property as if the shareholders had been totally different persons.

In the well-known case of Solomon v. Solomon and Co. Ltd (1895-99) All. ER 33 (HL), Solomon was a prosperous leather merchant. He converted his business into a Limited Company – Solomon & Co. Ltd. The company so formed consisted of Solomon, his wife and five of his children as members. The company purchased the business of Solomon for £ 39,000/- the purchase consideration was paid in terms of up 10,000/- debentures conferring a charge over the company’s assets £ 20,000 in fully paid-up share each and the balance in cash. The company in less than one year ran into difficulties and liquidation proceedings commenced. The assets of the company were not even sufficient to discharge the debentures, held entirely by Solomon himself, and nothing was left for the unsecured creditors. Hence, the business belonged to the company and not to Solomon. Solomon was its agent. The company was not the agent of Solomon.

Artificial person –

The company, though a juristic person, does not possess the body of a natural being. It exists only in contemplation of law being an artificial person. It must depend upon natural person. namely the directors, officers, shareholders, etc. for getting its various works done. However, these individuals only represent the company and accordingly whatever they do within the scope of the authority conferred upon them and in the name and on behalf of the company, they bind the company and not themselves.

Transferability of shares –

One reason for the popularity of joint stock companies has been that the shares are capable of being easily transferred. The Companies Act, 1956 in S. 82 contemplates this feature by declaring “the shares, 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.” However, in the case of private company’s certain restrictions are placed on right of a member to transfer his shares.

Perpetual succession-

Company being an artificial person cannot be incapacitated by illness and it does not have an allotted span of life. Being distinct from the members, the death, insolvency, or retirement of its members leaves the company unaffected. Member may come and go but the company can go forever. It continues even if all its human members are dead. Even where during the war all the members of a private company while in general meeting were killed by a bomb, the company survived. Not even a hydrogen bomb has destroyed it

Common seal –

A company being an artificial person is not bestowed with a body of a natural being. Therefore, it does not have a mind or limbs of human being. It must work through the agency of human beings, namely, the directors and other officers and employees of the company. But it can be held bound by only those documents, which bear its signature. Common seal and the official signature of a company.

DISADVANTAGES OF A COMPANY

Lifting the corporate veil –

The chief advantage of incorporation from which all others follow is the separate legal entity of the company. However, the business of the legal person is always carried on by, and for the benefit of, some individuals.

It may, therefore, happen that the corporate personality of the company is used to commit frauds or improper or illegal act since an artificial person is not capable of doing anything illegal or fraudulent, the façade of corporate personality might have to be removed to identify the persons who are really guilty. This is known as lifting the corporate veil.

Determination of the enemy character of a company –

Company being an artificial person cannot be an enemy or friend. However, during wat, it may become necessary to lift the corporate veil and see the persons behind as to whether they are enemies or friend. It is because though a company enjoys distinct entity individuals essentially run its affairs. In Daimler Company Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd. (1916) 2 AC 307, a company was incorporated in London for the purpose of selling tyres manufactured in Germany by a German company. Its majority shareholders and all the directors were Germans, on declaration of war between England and Germany in 1914, it was held that since both the decision-making bodies, the Board of directors and the general body of shareholders were controlled by Germans, the company was a German company and hence, an enemy company. Accordingly, the suit filed by the company to recover a trade debt was dismissed on the ground that such payment would amount to trading with enemy.

company is not citizen –

Lastly, it may be added that a company, though a legal person is not a citizen either under the constitution of India or under the Citizenship Act. This has been the conclusion of a special bench of the Supreme Court in State Trading Corpn. of India Ltd. v. CTO. The State Trading Corporation of India is incorporated as a private company under the Companies Act.

Conclusion 

Company is an association of persons for some common objects. In simple terms, company may be described to mean a voluntary association of persons who have come together for carrying on some business and sharing the profits therefrom. Whereas partnership is a relation between persons with each other who have agreed to share profit in a business. Partnership is a relation which subsists between persons carrying on business in common with a view of profit.