Professional Documents
Culture Documents
Company Law
1 Introduction
1.1 General
(i) The Rights and Duties of a company and its Members are
Different. It is so because the company and its members are
different entities. One cannot be held liable for the acts of
another. Consequently, a company, and not its members, can
enforce its rights. On similar grounds, it alone can be sued for
its debts and obligations and its creditors enjoy no rights
against it members.
(ii) Contracts between company and its members are Possible. It
stems from the fact that a company and its members are
separate entities. As a necessary consequence, they can be
debtor and creditor of each other. The magic of separate
entities of company and each member enables them to be,
master and servant at the same time.
(iii) A Company Enjoys Perpetual Existence Until Dissolved by
Law. Its life remains unaffected by the lunacy, insolvency or
death of its members. “During the ware all the members of a
private company, while in general meeting, were killed by a
bomb. But the company survived; not even a hydrogen bomb
could have destroyed it”. The members may come and go but
the company can go on for ever.
(iv) A Company, Being a Legal Entity, Can Buy and Own Property
in its Own Name. An, being a separate entity, such property
belongs to it alone. Its members are not the joint owners of
the property even though it is purchased out of the funds
contributed by them. Consequently, they do not have even an
insurable interest in the property of the company.
12.5 Limited Liability of Members
The law stipulates that at least two persons are essential to form a
contract. Since a company, before incorporation, does not exist, no
contract can be made by it or by an agent on its behalf.
Accordingly, pre-incorporation contracts are nullity and cannot be
enforced either by or against a company. The board effects of such
contracts are as under:
(i) A company is not bound by pre-incorporation contracts.
(ii) It cannot enforce a pre-incorporation contract against the
other parties.
(iii) The promoters are personally liable on such pre-incorporation
contracts since the Indian Contract Act makes an agent
personally liable for contracts entered into on behalf of a
principal not in existence.