Meaning, Nature and Features

of a COMPANY.

Submitted by:
Submitted to:
Ratika Shangari- 8130
Mrs. Mani Purthi
Sarabpreet Batra- 8101
 DEFINITION-
 Section 3 (1)(i), Companies Act- “A Company
formed and registered under this Act or an
existing company.”
Existing Co- A Company formed and registered
under previous Co. laws.
 Chief Justice Marshall of USA- “a corporation is
an artificial being, invisible, intangible and
existing only in the contemplation of the law.
Being a mere creature of law, it possesses only
those properties which the charter of its creation
confers upon it either expressly or as incidental
to its very existence.”
Advantages of Incorporation
Advantages of Incorporation-
1. More suitable where funds involved, operations are
large.
2. Offers the benefit of Limited personal liability.
3. Enjoys autonomy to form policies and implement them(
MOA , AOA)
4. Can hire services of professional management.
5. Collect interest free money from public with issue of
shares.
HOWEVER,--1.Legal formalities are involved.
2. Corporate veil can be lifted and legal entity is lost
3. Members don’t have effective control over its
working.
1. Incorporated association
 Comes into existence- on incorporation or
registration under Co.s Act.
 Either as a Public Co. or Pvt. Co.
 Minimum members for association- Public Co- 7,
in case of Pvt. Co.- 2, Banking- 10, Other
businesses- 20.
 If not registered under the act BECOMES
ILLEGAL.
2. Separate Legal Entity.
 Co. is a DISTINCT LEGAL entity
SEPARATE from its OWNERS.
 Property of the Co is not the property of
the shareholders.
 A shareholder can both own its shares and
be its creditor at the same time.
Leading case- SALOMAN V.
SALOMAN AND CO. LTD (1897)
 Points decided-
(1) Co. is a legal entity distinct from its
owners.
(2) The Co. is not in law the agent of the
subscribers or trustee for them.
Facts of the case-
 Saloman had a boot business. He sold the
business to a CO. named Saloman & Co. LTD
, which HE FORMED. There were 7 members-
his wife, daughter and four sons who took
one share each and Saloman himself took
20000 shares. The price paid by the Co. to
him was £ 30000 but instead of paying him
cash, the Co. gave him 20000fully paid
shares of £ 1 each and £ 10000 in
debentures.
 Owing to strike in the boot business the Co.
was wound up.
 Assets of the Co. amounted to £ 6000
 Debts amounted to £10000 due to Saloman
and secured by debentures and a further
£7000 due to unsecured creditors.
Implications of separate legal entity
 The member has NO insurable interest in the
property of the company.
 When the member dies, Co. continues to exist.
 Nationality of the Co. does not depend on the
nationality of the member.
 The Co. can sue and be sued in its own name.
3. Limited liability
 No member is liable to contribute anything more
than the nominal value of shares held by him.

EXAMPLE- X has 100 shares of Z Co. @ 10

each. He has already paid application @3 and
allotment @ 2 . Balance is Rs. 5.
X’S amt of liability- Rs.5 ONLY nothing more.

 Incase of Co. limited by guarantee- only amount

guaranteed not more at the time of winding up.
 Co.s Act permits Co. with unlimited liability but
they are very rare.
4. Separate property
 Owns, disposes, enjoys property in its own
name.

 A member does not even have an

insurable interest in the property.
Case- MACAURA V NORTHERN
ASSURANCE CO. LTD (1925)
Point decided- shareholder CANNOT insure the
company’s property in his own name even if he
owns most or all of the shares.
CASE-M was the holder of all the shares except
one of a timber co. He was also a substantial
creditor of the company. He insured the
timber in his own name. The timber was
destroyed in fire and M claimed the loss from
the insurance Co. It was held that the
insurance Co. was not liable to pay.
5. Perpetual succession
 Co. Never dies, directors may come and go, the
Co lives on, unaffected by membership, death or
insolvency of members
 River Thames is still river Thames even though
parts that comprise it keep changing.
 Created and wound up by law.
 CASE- where all the shareholders of a Co. were
killed in a bomb explosion- Co. deemed to
survive.
6. Transferability of shares.
 Transferable and can be sold or purchased.
 Shareholder not wedded to the Co.
 Certain restrictions in case of Pvt. Co.s.
 Section 82 of the Co.s Act- “the shares or other
interest of any member shall be movable
property transferable in the manner provided for
in the articles of association.”
 Shareholder ALSO gets a marketable security.
(money cannot be withdrawn without winding up)
7. Common seal
 Artificial person- cannot sign in its name.
 Common Seal used as a substitute.
 Company must have a seal with its name
engraved on it.
 Any agreement b/w the Company and third
parties requires recognition an official seal
unless exempted by the Act.
 Without seal – UNAUTHOTENTIC and NOT
BIDING BY LAW.
8.Capacity to sue and be sued.
 Incorporation- company acquires a
separate and independent legal
personality.
 Can sue and be sued- for infringement of
copy rights, negligence and contempt of
court.
 May be sued for injury done to its business
reputation by defamation.