Title | Company Law - Notes - LLB |
---|---|
Author | rahul singh |
Course | LLB 3 year |
Institution | Dr. Ram Manohar Lohia Avadh University |
Pages | 218 |
File Size | 17.9 MB |
File Type | |
Total Downloads | 60 |
Total Views | 166 |
Download Company Law - Notes - LLB PDF
LESSON : 1 MEANING, CHARACTERISTICS AND TYPES OF A COMPANY STRUCTURE 1.0
Objective
1.1
Introduction
1.2
Meaning of Company
1.3
Characteristics of a Company
1.4
Distinction between Company and Partnership
1.5
Types of Company
1.6
Summary
1.7
Keywords
1.8
Self Assessment Questions
1.9
Suggested Readings
1.0
OBJECTIVE
After reading this lesson, you should be able to: (a)
Define a company and explain its features.
(b)
Make a distribution between company and partnership firm.
(c)
Explain the various types of companies.
1.1
INTRODUCTION Industrial has revolution led to the emergence of large scale business
organizations. These organization require big investments and the risk involved is very high. Limited resources and unlimited liability of partners are two important limitations of partnerships of partnerships in undertaking big business. Joint Stock Company form of business organization has become extremely popular as it provides a solution to (1)
overcome the limitations of partnership business. The Multinational companies l e Coca-Cola and, General Motors have their investors and customers spread thro the world. The giant Indian Companies may include the names like Reli Bajaj Auto, Infosys Technologies, Hindustan Lever Ltd., Ranbaxy La and Larsen and Tubro etc. 1.2
MEANING OF COMPANY Section 3 (1) (i) of the Companies Act, 1956 d
formed and registered under this Act or an exist
ny Of the
act states that “an existing company means
ed under any
of the previous companies laws”. T
al the distinctive
characteristics of a company . Ac
l of USA, “A company
is a person, artificial, invis
nly in the contemplation of
the law. Being a mer
only those properties which the
character of its c
pon it either expressly or as incidental
to its very e clear definition of a company is given by Lord J
meant an association of many persons who contribute o a common stock and employ it in some trade or business, fit and loss (as the case may be) arising there from. The common d is denoted in money and is the capital of the company. The persons bute it, or to whom it belongs, are members. The proportion of capital to each member is entitled is his share. Shares are always transferable although the ght to transfer them is often more or less restricted”. (2)
According to Haney, “Joint Stock Company is a voluntary association f individuals for profit, having a capital divided into transferable shares. The o of which is the condition of membership”. From the above definitions, it can be concluded that a com association which is an artificial legal person, having an indep a perpetual succession, a common seal for its signatures, of transferable shares and carrying limited liability 1.3
CHARACTERISTICS OF A COMP The main characteristics of a co
1.
it is registered under
Incorporated associatio
the Companies Act. It come
tioned in the certificate
of incorporation. It ma
hat Section 11 provides that an
association of mo
business in banking or an association
or more than
y other type of business must be registered
under t
med to be an illegal association, if it is not so
reg company at least seven persons and for a private company persons are required. These persons will subscribe their names um of association and also comply with other legal requirements of spect of registration to form and incorporate a company, with or without liability [Sec 12 (1)]
(3)
Artificial legal person. A company is an artificial person. Negatively speak
2.
,
it is not a natural person. It exists in the eyes of the law and cannot act on its ow to act through a board of directors elected by shareholders. It was right in Bates V Standard Land Co. that : “The board of directors are the brains of the company, which is the body and the company can a them”. But for many purposes, a company is a legal the right to acquire and dispose of the property
has d parties
in its own name, and can sue and be sued However, it is not a citizen a
er the Constitution
of India or Citizenship Act. In
ndia v C.T.O (1963 SCJ
705), it was held that nei
titution nor the Citizenship
Act apply to it. It sho
pany does not possess fundamental
rights, yet it is
n enter into contracts with its Directors,
its memb marked that if all the members are citizens of India, a citizen of India. ntity : A company has a legal distinct entity and is independent creditors of the company can recover their money only from the the property of the company. They cannot sue individual members. the company is not in any way liable for the individual debts of its members. property of the company is to be used for the benefit of the company and nor for
(4)
the personal benefit of the shareholders. On the same grounds, a member cannot cl m any ownership rights in the assets of the company either individually or joint the existence of the company or in its winding up. At the same time th the company can enter into contracts with the company in the sa other individual can. Separate legal entity of the company i Income Tax Act. Where a company is required to pay when these profits are distributed to sharehold shareholders have to pay income-tax on their
the ves that a
company that a company and its shareho The principal of separate of
emphasized in the
famous case of Salomon v Sal The facts of the ca Mr. Saloman
us shoe business, sold his business
for the sum of $
d. which consisted of Saloman himself,
his wife, h
The purchase consideration was paid by the
com
shares and $ 10,000 debentures and the balance in bentures carried a floating charge on the assets of the 1 each was subscribed by the remaining six members of his d his two sons became the directors of this company. Saloman was Director. ter a short duration, the company went into liquidation. At that time the ment of affairs’ was like this: Assets :$ 6000, liabilities; Saloman as debenture
(5)
holder $ 10,000 and unsecured creditors $ 7,000. Thus its assets were running shor f its liabilities b $11,000 The unsecured creditors claimed a priority over the debenture ground that company and Saloman were one and the same person Lords held that the existence of a company is quite independ members and that the assets of the company must b debentures first in priority to unsecured creditors. Saloman’s case established beyond dou entity distinct from its members, even if
any is an the company.
There is no difference in princip
sting of only two
shareholders and a company
mbers. In each case the
company is a separate leg The principle
also been applied in the following:
Lee V. L Forming L beca
A.C. 12 Of the 3000 shares in Lee’s Air voted himself the managing Director and also on a salary. He died in an aircrash while working granted compensation for the husband in the course of that Lee was a separate person from the company he formed, as due to the widow. Thus, the rule of corporate personality enabled
master and servant at the same time. e principle of separate legal entity of a company has been, in fact recognized h earlier than in Saloman’s case. In Re Kondoi Tea Co Ltd. (1886 ILR 13 Cal 43),
(6)
it was held by Calcutta High Court that a company was a separate person, a sepa
e
body altogether from its Shareholders. In Re. Sheffield etc. Society - 22 OBD has been held that a corporation is a legal person, just as much in individu physical existence. The characteristic of separate corporate personality emphasized by Chief Justice Marshall of USA when he de artificial, invisible, intangible and existing only in creation of law, it possesses only those prop confers upon it either expressly or as a
mere creation . [Trustees of
Darmouth College v woodward (18 Perpetual Existence. A
4.
usiness organization. Its
life does not depend upon
ment of any or all shareholder
(s) or director (s). L
n dissolve it. Members may come
and go but the private co surv
“During the war all the member of one ing, were killed by a bomb. But the company b could have destroyed i”. The company may be r where the water keeps on changing continuously, still mains the same. Thus, a company has a perpetual existence, ges in its membership.
on Seal. As was pointed out earlier, a company being an artificial person dy similar to natural person and as such it cannot sign documents for itself. It through natural person who are called its directors. But having a legal personality,
(7)
it can be bound by only those documents which bear its signature. Therefore, the w has provided for the use of common seal, with the name of the company engra as a substitute for its signature. Any document bearing the common seal o will be legally binding on the company. A company may have its ow Articles of Association for the manner of affixing the commo the Articles are silent, the provisions of Table-A (the mo the Companies Act) will apply. As per regulation 84 shall not be affixed to any instrument excep Board or a Committee of the Board auth
any on of the except in the
presence of at least two directors
other person as the
Board may appoint for the pur
nd the secretary or other
person aforesaid shall si
he seal of the company is so
affixed in their pres 6.
y be company limited by shares or a
Limite
company
ny limited by shares, the liability of members
is lim
shares. For example, if the face value of a share in mber has already paid Rs. 7 per share, he can be called an Rs. 3 per share during the lifetime of the company. In a guarantee the liability of members is limited to such amount as the ndertake to contribute to the assets of the company in the event of its nd up. Transferable Shares. In a public company, the shares are freely transferable.
The right to transfer shares is a statutory right and it cannot be taken away by a provision (8)
in the articles. However, the articles shall prescribe the manner in which such tran
r
of shares will be made and it may also contain bona fide and reasonable restri the right of members to transfer their shares. But absolute restrictions o members to transfer their shares shall be ultra vires. However, in t company, the articles shall restrict the right of member to companies with its statutory definition. In order to make the right to transfer shares m
can
apply to the Central Government in case of refu
a transfer
of shares. Separate Property : As a co
8.
t from its members,
it is capable of owning, enjoyi
its own name. Although
its capital and assets are
s, they are not the private and
joint owners of its p
l person in which all its property is
vested and by w 9.
De
gove
and disposed of. oint stock company is an autonomous, selfnization. Since it has a large number of members, the management of the affairs of the company. Actual is, therefore, delegated by the shareholders to their elected ow as directors. They look after the day-to-day working of the
eover, since shareholders, by majority of votes, decide the general policy mpany, the management of the company is carried on democratic lines. ority decision and centralized management compulsorily bring about unity of action.
(9)
1.4
DISTINCTION BETWEEN COMPANY AND PARTNERSHIP
The difference between a company and partnership is as follows:
1. Mode of creation
Company
Partnership
By Registration by
By Agree
Statute. 2. Legal Statute
Legal entity distinct from members, perpetual success
3. Liability
Limite
joint and
m
ral liability of partners
4. Authority
Right to share mana gement, common and t
ownership and
entative anagement
Management. Mutual agency Implied authority.
Public Co.-freely
Ordinarily no right of
transferable; transferee
transfer of share by a
gets all the rights of
partner-limited rights
the transferor
of transferee
(10)
6. Number of members
Private Co-Minimum 2
Minimum 2
and Maximum 50
Maximum 20.
public Co. Minimum7 and Maximum unlimited. 7. Resources
Large and unlimited
Perso
resources 8. General powers
Memorandum defines and confines the s
o
of the compa
he
alterati 9. Legal
St
gal formalities
formalities
Registration not compulsory. No audit, legal
no publication of accounts etc.
10.
cording to the ovisions of law-
Dissolution by agreement by
usually by an order of
notice, by court.
the court.
Death of a partner
Death of a share-
may mean dissolution
holder does not
of partnership
affect the existence of a company. (11)
1.5
TYPES OF COMPANY Joint stock company can be of various types. The following are the impor
of company: 1. Classification of Companies by Mode of Incorporation Depending on the mode of incorporation, there are thr companies. A. Chartered companies. These are incorpor monarch. The East India Company and T chartered incorporated in England. The
by a mples of of a chartered
company are defined by the charte
rtered company has
wide powers. It can deal wit
o any contracts that any
ordinary person can. In c
m its business as prescribed by
the charted, the Sov
close the company. Such companies
do not exist in anies are incorporated by a Special Act passed
B. Statu by t
eserve Bank of India, State Bank of India, Industrial ust of India, State Trading corporation and Life Insurance the examples of statutory companies. Such companies do not dum or articles of association. They derive their powers from the ing them and enjoy certain powers that companies incorporated under panies Act have. Alternations in the powers of such companies can be brought
ut by legislative amendments.
(12)
The provisions of the Companies Act shall apply to these companies also excep n so far as provisions of the Act are inconsistent with those of such Special A 616 (d)] These companies are generally formed to meet social needs and of earning profits. C. Registered or incorporated companies. These are Act, 1956 or under the Companies Act passed ear
ome
into existence only when they are register
ficate of
incorporation has been issued by the Reg the most popular mode of incorpora
mpanies may further
be divided into three categorie mpanies have a share capital
i) Companies limited and the liability of e extent of face v the comp amo
limited by the Memorandum to the m. In other words, during the existence of up, a member can be called upon to pay the ares subscribed by him. Such a company is called company limited by shares may be a public company or are the most popular types of companies.
mited by Guarantee : These types of companies may or may not pital. Each member promises to pay a fixed sum of money specified in orandum in the event of liquidation of the company for payment of the debts liabilities of the company [Sec 13(3)] This amount promised by him is called
(13)
‘Guarantee’. The Articles of Association of the company state the number of mem r with which the company is to be registered [Sec 27 (2)]. Such a company is company limited by guarantee. Such companies depend for their existen and subscription fees. They may or may not have a share capital. member is limited to the extent of the guarantee and the f subscribed by them, if the company has a share capital. be a public company or a private company. The amount of guarantee of each member is in t
s amount
cannot be called upon except in the even
Non-
trading or non-profit companies f
, science, religion,
commerce, charity, sports etc. a
ies limited by guarantee. e to the promoters to form a
iii) Unlimited Compa company with or wit
y not having any limit on the liability
of its members
ny’ [Sec 12(c)]. An unlimited company
may or m or a
has a share capital it may be a public company any has a share capital, the article shall state the which the company is to be registered [Sec 27 (1)] unlimited company shall state the number of member with is to be registered. Basis of Number of Members he basis of number of members, a company may be :
(1) Private Company, and (2) Public Company.
(14)
A.
Private Company According to Sec. 3(1) (iii) of the Indian Companies Act, 1956, a private
is that company which by its articles of association : i)
limits the number of its members to fifty, excluding members or ex-employees who were and conti
ii)
restricts the right of transfer of shares, if
iii)
prohibits any invitation to the publ
s or
debentures of the company. Where two or more persons hold sh
ingle member.
According to Sec 12 of the Co
mber of members to
form a private company is tw
e the word “Pvt” after its
name. any. The main features of a private
Characteristics or of a private co i)
cts the right of transfer of its shares. The shares ny are not as freely transferable as those of public e articles generally state that whenever a shareholder of a ompany wants to transfer his shares, he must first offer them to existing members of the existing members of the company. The price of the shares is determined by the directors. It is done so as to preserve the family nature of the company’s shareholders.
(15)
ii)
It limits the nu...