The company legislation in India has run hand to hand with the company legislation in England. The first legislative sanction was passed in the year 1850 for registration of joint-stock companies as same as passed by English companies 1844. Thereafter in 1866, the companies act was passed for colligation and rectifying the law relating to incorporation, regulation and winding up of trading companies. minor amendments regularly passed with a number of times till 1950, major changes were introduced by the companies act 1956 related to company boost and developments, debt and equity of companies for implementation and growth, company meeting and procedure and the presentation of company accounts, their audit, the administration of company law and many more. Hereafter companies act 1956 has been amended a number of times in the year 1960, 62, 63, 64, 65, 67, 69, 74,77,85, 88, 91. Then in the year 1991 due to financial emergency, the government said that many provisions of the companies act were not providential to the advancement of the Indian corporate sector in the dynamic atmosphere. Meanwhile, the president of India promulgated the companies ordinance in 1998, which was later formed by the companies act 1999.
The former company act has now been replaced by companies act 2013, it is way more simplified, rationalized legislation. The companies act 2013 introduced ideas like corporate social responsibility (CSR), class section suits, and fixed term for independent directors. And this act has been beneficial for company shareholders that it permits shareholders agreements providing for ‘ RIGHT OF FIRST OFFER’, OR; RIGHT OF FIRST REFUSAL’ in public and private companies.
The major changes were introduced comes with new companies act 2017 by government official gazette are as follows: REDUCTION IN MINIMUM MEMBERSHIP, SMALL COMPANY, LIABILITY OF DIRECTORS IN CASE OF MISLEADING STATEMENT IN A PROSPECTUS, ISSUE OF SWEAT EQUITY SHARES, VOTING BY POSTAL BALLOT, CONSOLIDATED FINANCIAL STATEMENT AND PARTY TRANSACTION AND MANY MORE.
Table of Contents
DEFINITION OF A COMPANY
A company is a legal entity, an association of people, whether natural, legal, or mixture of both, share a common purpose to achieve specific, declared goals. In simple means, a company may be described as a voluntary association of persons who have come together for carrying on some business and sharing the profits therefrom. The main criteria for forming a company are multifarious and incorporate economic and non-economic objectives. But normally a company is formed for commercial purposes(to gear up a business for profit). Non-economic objectives include the likes of commerce, art, science, sport, religion, or charity incorporated by the companies act 2013.
Here are some definitions that are given by the authorities and famous authors of the company. some of these definitions are :
LORD JUSTICE LINDLEY: “ a company is an association of many people who contribute money or monies worth to common stock and employed in some trade or business and who share the profit and loss arising therefrom.the common stock so contributed is denoted in money and is the capital of the company. The person who contributes to it or to whom it pertains are members. the proportion of capital to which each member is entitled is his share. The shares are always transferable although the right to transfer is often more or less restricted”.
CHIEF JUSTICE MARSHALL : “ A corporation is an artificial being, invisible, intangible, existing only in contemplation of the law . being a mere creation of law, it possesses only the properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence .”
PROF. HANEY: “ A company is an artificial person created by law, having a separate entity, with perpetual succession and a common seal.”
CHARACTERISTIC FEATURES OF A COMPANY
The separate legal entity and limited liability of its members are the most prominent features of the company. and there are some other essentials features of a company are discussed below:
INCORPORATED ASSOCIATION
According to companies act 2013,” a company must be registered and incorporated and the minimum number of members required for this purpose is seven in the case of a public company and two in the case of a private company (SECTION 3).” Formation of ONE PERSON COMPANY is also allowed in section 3 of the companies act of 2013.
SEPARATE LEGAL ENTITY
Why this feature is meaningful is because it differentiates the company from the partnership, the company is distinct from the person who constitutes it. Therefore, what privileges and responsibility are given to the members of a company, which is not in case of the company. even where the entire share capital is held by a single shareholder, a company is to be differentiated from such a shareholder.
CASE LAWS : SOLOMON V. SOLOMONS & CO. LTD. (1897) AC 22
FACTS: in this case a well to do leather merchant whose name Solomon. He converted his business into a small limited company. The company was started by his family and consists of 5 children and his wife. The company purchased his business for 39000 euros and the consideration was paid in terms of 10000 euros debentures delivered a charge over company assets, the said company went into its difficult times within one year of establishment or in a corporation. The company does not have many assets to liberate the debentures.
HELD: The english court unanimously held that the incorporation and formation of a company had been valid, as a company procedure, required that the company must be incorporated by at least 7 members. It said nothing about their being independent or like a balance of power in the constitution of the company. Solomon was its agent, not the company.
THE CONCEPT OF SEPARATE LEGAL ENTITY IS ALSO KNOWN AS SOLOMONS PRINCIPLE.
The first case in which the term separate legal entity was established in KONDOLI TEA CO. LTD. [ 1 ],
in that case a number of persons have shifted tea state business into a company, and they all claimed that they are all shareholders in the company and requisition from ad valorem (according to value), and also insisted that it’s just a transfer of shares from one to himself under name of anyone.
HELD: the court held that “ the company was a definite person, a distinct body altogether from the shareholders and if the partners in a company had been a totally different person then it is much beneficial for a transfer of property of company.
ARTIFICIAL PERSON
The company being a juristic person does not enlist the ingredients of human beings. it be as an ideal of law. being an artificial person, a company has to stoop upon normal people like the directors, company main peoples, steak partners etc. , for doing work outside their capacity. Nevertheless, these individuals only represent the company and in accordance with whatever they do within the scope of the authority vested by the company upon them and in the name and on the behalf of the company, they bind the company and themselves.
DEFINED LIABILITY
It defines that the principal advantage of trading through the company is that the members of the company are only liable to contribute towards the payment of its debts to a defined extent. if the company has their limited shares, then the shareholder’s liable to pay the measured nominal value of the shares he holds. Hereafter once he or someone who held the shares previously has paid that nominal value plus any premium agreed on where the shares were issued, he is no longer liable for further due. In the unlimited liability companies, all members are liable for each penny till all has been paid off.
SEPARATE PROPERTY
Shareholders are not , in the eye of the law, companions of the business. The company has its own separate property. it can own or chuck out the property in its own name.
CASE LAW : BACHA F. GUZDAR V. CIT [2]
In this case, in India this principle of property was laid down by the supreme court by holding that a shareholder is not the part of the company or its property , he is only given certain rights by law , for example , to vote or attend meetings, or to receive dividends.
TRANSFERABILITY OF SHARES
According to section 44 of the companies act 2013, states that “ the shares , debentures or the other interest of any members in a company shall be movable property, transferable in the manner provided by the articles of the company.” in that a shareholder of a company can transfer his part of shares to any person without the consent of any other member. But here is an exception is that in case of association of a public company, he can put up some restriction on the transfer of shares but it cant altogether stop it. The private company is required to put some restriction on transferability of its shares but they also not fully taken away the right to transfer the shares of private companies.
PERPETUAL SUCCESSION
This is a quite distinct term from other essential features of the company. being different from the members, the death, failure of demand, or annulation of its members leaves the company just the same. Being artificial in nature, a company cannot be immobilized by any disease, superannuation and it does not have a lifecycle like a people. Shares of the company may come and go but the company can go forever. It does not matter whether the human member is living or not, it lasts forever. The company is immortal and its members are mortal after death but it continues forever.
One of the cases includes the points that in case of a war-like situation in which all the human members of a company died by heavy war materials, the company exists till forever without any deviation or stand as a pillar [3].
COMMON SEAL
Being a company with artificial nature is not bestowed with a body of natural beings. the company doesn’t have a mind, heart, or limbs of human beings, namely, directors, officers, and employees of the company.
According to section 22, as amended by the companies amendments act 2015, COMPANY LAW
“company may, under its common seal, if any, through general or specific power of attorney empower any person to execute deeds on its behalf in place either in or outside India. It further provides that a deed signed by such an attorney on behalf of the company and under his seal where sealing is required shall bind the company .”
If any case, a company does not have its own common seal, the authorisation under this subsection shall be made by two directors or by a director and the company secretary, wherever the company has appointed a company secretary.
References
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KAPOOR, G.K., COMPANY LAW, TAXMANN PUBLICATION, 2018 EDITION, NEW DELHI, 2018.
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[1]-RE ILR 1886
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[2]- 1955 AIR 740
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[3]- K/9 MEAT SUPPLIERS (GUILDFORD) LTD ., RE [1966]W.L.R. 1112.
Aligarh Muslim University