CORPORATE PERSONALITY • • Section 3(i) of Companies Act, 1956: “company means a company formed and registered” under the Companies

Act, 1956. However under common law a company is known as a “legal person”/”legal entity” that is separate from and capable of surviving beyond the lives of its members (as per Salomon v. Salomon 1895-99 All ER Rep 33). • • • Section 3(iii) defines a “private Company” Section 3(iv) defines a “public company” In Re, Telesound India Ltd.(1983) 53 Com Cases 926 at 940 (Del) the Delhi High Court held that the definition of “company” given in Section 3(i) of the Act cannot be used to cut down the scope of the word company as defined in other sections for other purposes. • The Act is not exhaustive of all modes of incorporating business concerns since organisations for business or commercial purposes can still be incorporate by Special Acts of Parliament, eg. LIC under the LIC Act. • • • Companies Act is NOT exhaustive of whole of Company law since it only 1. amends and 2. consolidates certain portions of Company law. Common law still has a huge role to play, for example the duties and social responsibility of corporate directors is still governed by common law. 2 recent Amendments: (1) 1st Amendment of 2002 provided for “producer companies” (2) 2nd Amendment of 2002 replaces the Company Law Board with the National Company Law Tribunal and also creates an Appellate Tribunal Advantages 1. Independent Corporate existence –S. 34 2. Limited Liability 3. Perpetual Succession 4. Separate Property 5. Transferable shares—S.82 6. Capacity to sue/be sued 7. Professional Management 8, Finances ADVANTAGES Disadvantages 1. Lifting the corporate veil 2. Formality & Expense 3. Company—not citizen

1. Independent Corporate Existence— a. Section 34(2) of the Act—becomes a body corporate capable of exercising all functions of an incorporated company and having perpetual succession and common seal. b. PALMER notes (Palmer is an authority in American Company law) (1) owner of business ceases to trade in his own name, (2) no liability for what company does, (3) although, owner-principal shareholder is able to take full advantage of profits which the company makes. c. Salomon v. Salomon company comes into existence on signature of memorandum and registration, it does not require the subscribers of memorandum to be independent or unconnected to it. d. Kondoli Tea Co. Ltd. case ILR (1886) 13 Cal 43—where the Calcutta High Court stated that a company was “a separate person, a separate body altogether from the shareholders in the company”. e. Law recognises the existence of a company irrespective of motives, intentions, schemes or conduct of the individual shareholders (held in Abdul Haq v. Das Mal (1910) and Mamata Papers v. State of Orissa (2000) 99 Com Cas 294 (Ori.)) 2. Limited Liability: It is where the members: a. Are not the owners of the Company’s undertakings b. Are not liable for the company’s debts c. Limited liability no member is bound to contribute more than the nominal value of the shares held by him. 3. Perpetual Succession: The continuity of the company is not affected by change in the membership of the company. Canfield & Wormser haves said that in spite of total change of membership the company will be the same entity with the same privileges and immunities, estates and possessions. 4. Separate Property: The Company is the real person in which all property is vested, the shareholder does NOT have joint or several ownership the company’s property. 5. Transferable shares: a. Governed by Section 82 of the Act, which states that shares, debentures, other interest of any member in a company shall be moveable property, transferable in the manner provided by the articles of the company.

b. This enables a member to sell his shares in the open market and get back his investment without need of withdrawing money from the company c. Hence this provides (1) liquidity to the investor and (2) stability to the company. 6. Capacity to be sue and be sued self-explanatory 7. Professional Management: PALMER “men of caliber…when found and supported by capital…are capable of achieving the very highest success in commercial undertakings. 8. Finance: Primarily 2-fold a. Privilege of raising capital by public subscriptions either by shares or debentures. b. Facility of borrowing and giving security by way of a floating charge (exclusively done by Companies). DISADVANTAGES The primary disadvantage of companies is the requirement at times of lifting the corporate veil. • • • • Corporate veil is lifted when the court ignores the company and concerns itself with the members or managers. There are situations where a court will be compelled to lift the veil of incorporation to examine the “realities” which lay behind. Lifting of the corporate veil may be required by (1) statute or (2) court’s own volition. Canfield & Wormser: “for while, by fiction of law, a corporation is a distinct entity, yet in reality, it is an association of person who are in fact the beneficial owners of all the corporate property” • In the case of Attorney-General’s Reference of 1984 (No. 2. of 1983) the court held “Where the total number of directors and shareholders consent to the misuse of the company’s money, they can be prosecuted for theft because the consent of the whole number may not be the consent of the company”.