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COMPANY LAW

Sec. 3(i) Of the companies act, 1956 merely


states that ,” A company means a company formed and
registered under this Act
Or
An existing company as defined in Sec 3 I (ii) Lays down,”
An existing company means a company formed and
registered under any of the previous companies law.”

A COMPANY is an artificial Legal person created by Law,


having Separate entity, with a perpetual succession and
common seal.
Characteristics Of Company
Law
1.Incorporated Association:
The company must be incorporated or registered
under the companies Act or Prior Company Laws.
2.
3.Artificial Legal Person:
The company, being a juristic person, does not
possess the body of a natural being. It only exist in
contemplation of law.

3. Separate Legal Entity:


Company is distinct from persons who constitute it.
CASE: Salomon Vs. Salomon
CO. Ltd.
Salmon was a leather merchant. He converted his business
into a ltd. Company Salomon CO. Ltd. The comp. so formed
consisted of Salmon , his wife and Five children as members.
The company purchased the business of Salomon for 39,000
Dollars, the purchase consideration was paid in terms of
10,000 dollars debentures conferring a charge over the
companies assets 20,000 dollars in fully paid and 1 dollar
share each and the balance in cash . The company within a
year ran into difficulties and liquidation proceedings
commenced. The assets of the company were not even
sufficient to discharge the debentures ( held entirely by
Salomon). And nothing was left for unsecured credotors. It
was held by the house of Lords that the company was validly
constituted. The business belonged to the company and not to
Salomon.
4. Perpetual Succession :
A company being an artificial Legal; person does not die. Its
life is not dependant on its members.

5. Limited Liability:
The members of the company are liable to contribute towards
payment of its debts to a limited extent, eg.in a company
limited by shares, a members liability is limited to the
nominal value of the share.

6.Transferable Shares:
The company's Shares are capable of being transferable.
They are traded in stock exchange market.
7.Common Seal:
A company can be held bound by all those documents which
bear its signature. Common seal is the official Signature of
the company.

8. Separate Property:
Share holders are not as per law part owners of the company
or its property. A company being a legal person can hold and
own property in its own name.

9. Capacity to sue and being Sued:


A company has a distinct legal personality and hence can sue
and be sued.
Kinds Of Companies
A). On the basis of mode of
Incorporation:
1.Chartered Companies: Like East India Company
Such companies are not in India.
2.
3.Statutory Companies: Which are created by a
special Act like Life Insurance Corporation, State
Bank of India, Unit Trust of India, Reserve Bank of
India.
4.
5.Registered Companies: Are companies
registered under the Act.
B. On the Basis of Liability Of
members:
1.Limited By Shares: Where the liability of
members of a company is limited to the amount
unpaid on shares.
2.
3.Limited By Guarantee: Where the liability of
the members of the company is limited to the
fixes amount which the members undertake to
contribute to the assets of the company in the
events being wound up.
4.
5.
6.Unlimited: Every member is liable for the debts of
the company as in ordinary partnership, in
proportion to his interest in the company.
C. On the basis of Number Of
Members:

Private Companies: Minimum Number is 2 and the


Maximum number is 50.

Public Companies: Minimum Number is 7 and the


Maximum number is limited by number of Shares.
D. Other types of companies
1.Government Companies: Means any company in which
not less than 51% of the paid shares capital is held by the
central Government and partly by one or more state
governments.
2.
3.Foreign Companies: Means a company incorporated
outside India but having place of business in India.
4.
5.Holding and Subsidiary Company: A company is said
to be true holding company of its subsidiary company when
a company shall be deemed to be subsidiary on another if:

A. The other company controls the composition of its board of


directors.
B. The other company holds more than half in nominal value of its
equity share capital.
Public Company
 Public Company

1. Minimum No. of members 1. Minimum No. of members


is 2 is 7
2. Maximum No. of members 2. No restriction
should not exceed 50.
3. Right to transfer is restricted 3. Freely Transferable
4. Prospectus cannot be issued 4. Through prospectus general
5. No. of directors must be at public is invited to
least 2 subscribe for shares,
6. Commence business debentures or deposits
immediately after
getting the certificate of 5. Must have at least Three.
incorporation. 6. Can only start after
7. receiving the certificate
to commence business
from Registrar Of
Companies
Public Company
 Public Company

 
7. Directors consent to work  7. Necessary
as a director with the 

Registrar is not necessary. 


8. Directors can be approved 8. Each director’s
by single resolution. appointment requires
 separate resolution.
9. Not more than 12 without
 9. No. of directors may be
the approval of the Central
increased to any number. Government.
10. At least 2/3 of directors

10. Directors are not required must retire by rotation


11. Not more than 11% of the
to retire by rotation.
11. Managerial remuneration net Profit ( not more than
no restriction. 5% to single manager/
director)
Public Company
 Public Company

 
12. Quorum for general  12. Five members
meeting is 2 
13. Can be registered with a
 13. Rs. 5 Lakh
paid up capital of Rs. 1 
Lakh
14. Exempted from filing of
 14. Not so exempted

various returns
15. Cannot accept deposits
 15. Can accept deposits.
from public. 

16. Need not hold a statutory 

meeting or file a statutory  16. Must do so.


report.
Lifting Of Corporate veil

The main advantage of forming a company is to


have a separate legal entity, the facade of
corporate personality might have to be removed to
identify the persons whop are really guilty This is
known as Lifting Of Corporate Veil.

In case of dishonest and fraudulent use of facility of


Incorporation, the law lifts the corporate veil and
identifies the persons (members) who are behind
the scene and are responsible for the perpetration
of fraud.
Case: Gilford Motor Co. vs.
Horne(1933)1 Ch. 935
Horne, a former employee of the GM CO. had
agreed not to compete with the company for a
given number of years within reasonable local
limits. Horne desirous of re-entering business, in
violation of contractual obligation, formed a
private company with majority share holdings. GM
Co. filed a suit against the company and the court
granted an injunction restraining Horne, and his
company with going ahead in the competing
business .
Case: Delhi Development Authority vs.
Skipper Construction Company(P)
[1996]4 SCALE 202.
The skipper construction company failed to pay full
purchase price of a plot to DDA. Instead construction was
started and the space sold to various persons. The two
sons of the directors who had business in their own name
claimed that they had separated from their father and the
companies they were running had nothing to do with the
properties of their parents. But no satisfactory proof in
support of their claim could be produced. Held that the
transfer of shareholding between the father and the sons
must be treated as same.
The fact that the members of his family had created
several corporate bodies did not prevent the court from
treating all of them as one entity belonging to and
controlled by the director and his family.