Basic Concept Of Company Law

Content:
Definition of a Company
Legal characteristics of a Company
Kinds of Companies
Formation of a Company.

Definition:
General Definition: A company is an association constituted by a group of persons for the purpose of
carrying on a business, with a view to earning profits. Statutory Definition: Section 2(1) (c) of the
Companies Act, 1994 provides, “Company means company formed and registered under this Act or
any existing company.”
Section 2(1) (h) of the Companies Act, 1994 also provides the meaning of Existing
Company as follows,

“Existing Company means a company formed and registered under any law relating to companies
enforce at any law relating to companies enforce at any time before the commencement of this Act,
and is in operation after commencement of this Act.”

Legal Characteristics of a Company:

i. Incorporated Association: A Company is an incorporated association. It comes
into force from the date of its registration. Besides, there are some rules to be maintained for carrying
on a business. According to Section 23 (i) of this Act for establishing a Company as an incorporated
association there must be at least 7 persons in case of public company and at least 2 persons in case of
private company and their names to be included in the memorandum otherwise the institution will not
be regarded as a legal one.

ii. Artificial Legal Person: A company is an incorporated institution created by law.

So it is considered as an artificial legal person which can run business in its own name, it can sue and
be sued. It can not act personally rather is has to act through the Board Of Directors. It has
been observed rightly in the case of Bates v. Standard Land Co.

iii. Limited liability: The liability of the members, however, may be either limited
by shares or by guarantee as provided by memorandum of the company.

iv. Separate property: A company has the right to hold and dispose of property as
it’s necessity and a member does not have insurable interest in the property of company. So, when a
company is incorporated, it belongs to separate property.

v. Perpetual Succession: A company is said to have perpetual succession. It’s

perpetually is not affected in any way by death, insolvency, or exit of any shareholder.

vi. Transferable shares: The transfers of shares of a public company is easily

transferable and a private company is closely restricted. [Section 2(1) (q).]

vii. Common seal: Whenever a company performs any act, a common

distinguished mark with the seal needs to have. Without bearing a common seal witnessing by at least
two directors of the company, no document issued by the directors shall be binding on it.

viii. Capacity to sue & be sued: It can sue & be sued.

ix. Numbers of shareholders: Under companies Act, the minimum number of

share holders is two in case of private company and seven in case of public company & the
maximum number
of shareholder is fifty in case of private company and unlimited number for public company.

x. Separate Legal Entity: As a company has separate legal entity and has own
property so, the creditors can realize their money only from the company. The principle of separate
legal entity has been established by the case of Solomon V. Solomon & Co. Ltd.

Kinds of companies
Classification of companies by mode of in corporation:

i. Chartered Companies: The companies which are under royal charter may
be named as chartered companies. Example: The East India Company and the bank of England.
ii. Statutory Companies: Statutory Companies are the companies formed
under the authority of an Act passed by the parliament. They are formed mainly to meet the social
demands and not for earning profits. i.e., Bd Bank, BD Airlines, BRTC, WASA etc.
iii. Registered or Incorporated Company: The register companies may be
either company Limited by Shares or Company Limited by Guarantee.

Classification on the basis of number of members:

On the basis of numbers a company may be classified either as-

i. Public Company or
ii. Private Company.

Formation of a Company
For forming a company some procedures are to be followed.
Stages of Forming a Company: The stages of forming a company may be divided into the
following stages:

i. Promotion;
ii. Preparation of documents;
iii. Registration or incorporation;
iv. Capital subscription; and
v. Collection of certificate of incorporation.

Promotion: In the stage, at first one or more persons conceive the idea of forming the company.
Then two person in case of forming private company and seven persons in case of forming public
company are required to be made convene for this purpose

Preparation of documents: The promoters have to prepare at least two important documents:
i. Memorandum of Association [Section 6-8] and
ii. Article of Association [section 17(i), 19]

Registration or Incorporation: If the registrar is satisfied that all the provisions of law have
been complied with then he shall register the document within 30 days [section
23(i)]

Capital subscription: A private company rises capital personally but in case of public company
for rising capital issue of prospectus and other activities are to be performed.

Collection of certificate of incorporation: A private company can commence it’s business

immediate after registration but a public company must for commencing its business obtain a
certificate of incorporation.