INTRODUCTION TO BUSINESS LAW

COURSE CODE: BUS 360

LECTURE 11:
COMPANY LAW: INTRODUCTION
SOURCE: BOOK 11: CHAPTER 1, COMMERCIAL LAW AND INDUSTRIAL LAW, 27 TH EDITION BY
ARUN KUMAR SEN AND JITENDRA KUMAR MITRA
 What is a company?
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An association of many persons who contribute

money or money’s worth to a common stock and
employ it for a common purpose. The common
stock so contributed is denoted in money and is the
capital of the company. The persons who contribute
it or to whom it belongs are members. The
proportion of capital to which each member is
entitled is his share.
 What do we understand by the following statmenets?
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A company formed and registered under the

Companies Act possesses a legal personality. It is
regarded by law as a single person, having
specified rights and obligations. Because the law
confers on a company a distinct personality, a
company is a totally different person or thing or
entity from its members or the individuals
composing it.
 Case: Salomon v. Salomon & Co. Ltd
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Salomon had a business in boot manufacture. He formed a company

called Salomon & Co. (with himself, his wife, daughter and 4 sons as
shareholders) and transferred to it his business. As consideration for
the transfer he received the major portion of the shares of the
company and debentures for £10,000. Later on, the company went
into liquidation. Salomon claimed, out of the assets of the company,
the payment of the amount covered by the debentures (£ 1 0,000). The
unsecured creditors of the company objected on the ground that the
business really belonged to Salomon and he should not be allowed to
claim as a secured creditor. It was held that Salomon, as an individual,
was quite distinct from Salomon & Co. and he could therefore be a
secured creditor of the company, even though he happened to hold
majority of the shares.
 Partnership VS Company
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1. Registration: A company comes into existence only after

registration under the Companies Act. In the case of a
partnership, registration is not compulsory.
2. Minimum no of members: The minimum number of persons
required to form a company is 2 in the case of private
companies and 7 in the case of public companies. The minimum
number of persons required to form a partnership is 2.
3. Max no of members: A public company may have any number
of members. A private company cannot have more than 50
members. A partnership carrying on banking business cannot
have more than 10 members and partnerships carrying on other
types of business cannot have more than 20 members.
 Partnership VS Company
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4. legal status : A company is regarded by law as a single person.

It has a legal personality. A partnership is a collection of
individuals. It is not considered to be a single person.
5. Contractual capacity: The shareholder of a company can enter
into contracts with the company and can be the employee of the
company. Partners can contract with other partners but not with
the firm as a whole.
6. Management: A partnership firm is managed by the partners
themselves. The work of management can be distributed among
them .in any manner they like. A company is managed by the
Board of Directors or Managing Agents or Managing Directors
who are selected in the manner provided by the Act. The
shareholder, as such, cannot participate in the management.
 Partnership VS Company
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7. Length of existence: A company has perpetual

succession. The death or insolvency of a member does
not affect its existence. A partnership, in the absence
of a contract to the contrary, comes to an end when a
partner dies or becomes insolvent.
 
8. Liability of members: The liability of the members of
a partnership for the debts of the firm is always
unlimited. The liability of the members of a company
is usually limited.
 Partnership VS Company
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9. Liability of firm and company: The creditors of a

firm are creditors of the individual partners, and a
decree obtained against a firm can be executed
against the individual partners. The creditors of a
company are not creditors of the individual
shareholders and a decree obtained against a
company cannot be executed against any
shareholder. It can only be executed against the
assets of the company.
 Partnership VS Company
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10. Transferability: A partner of a firm cannot transfer his

interest in the firm to an outsider and make the transferee a
partner without the consent of all the other partners. The
shareholders of a company can ordinarily transfer his share
and the transferee becomes a member of the company.
11. Statutory obligations: A company is required to comply
with various statutory obligations regarding management
e.g., filing balance sheets, maintaining proper account books
and registers. In the case of partnerships there are no such
statutory obligations.
 Partnership VS Company
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12. Authority of members: The property of a

partnership is the joint property of the partners.
Each partner has authority to bind the firm by his
acts. The property of the company belongs to the
company. A shareholder in his individual capacity
cannot bind the company in any way.