PROJECT WORK

CORPORATE PERSONALITY

SUBMITTED TO: SUBMITTED BY:

Ms. Disha Dogra Parikshit Singh Rathore
Assiatant Professor Scholar
School of Law School of Law
Raffles University Raffles University
ACKNOWLEDGMENT

I take this opportunity to express our humble gratitude and personal regards to Ms. Disha Dogra
for inspiring me and guiding us during the course of this assignment work and also for his
cooperation and guidance from time to time during the course of this assignment work on the
topic.
I have prepared this assignment not only for marks but also to increase my knowledge.

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INTRODUCTION

In this unit we shall learn the concept and characteristics of corporate personality. Literally the
word company means a group of persons associated for any common object such as business,
charity, sports and research etc. Almost every partnership firm having two or more partners may,
therefore, style itself as a company. But this company is not a company in the legal sense of the
term. We shall be using the word company strictly in legal sense, i.e. a company incorporated or
registered under the Companies Act. We shall also discuss the various circumstances prompting
the courts to lift the corporate veil or break the corporate shell to peep inside and to identify the
actual persons involved in case of fraud or any improper conduct as these members/directors are
the limbs of the company.

Also, we shall discuss the advantages and disadvantages of incorporation.

OBJECTIVES

The main objective of this unit is to understand the concept of corporate personality. After
completing this unit you will be able to:

 Have an idea of the incorporation of a company.

 Learn the characteristic features of a company.

 Understand the circumstances in which the veil of corporate personality can be lifted to
see the actual persons behind the legal façade.

 Understand the distinction between a partnership and a company.

 Get an understanding of advantages and disadvantages of incorporation.

CONCEPT OF CORPORATE PERSONALITY

Company:-

The word ‘company’ has no strict technical or legal meaning literally the word means a
group of persons associated for some common object or objects such as business, sports, charity
etc. But, in common parlance, the word ‘company’ is normally reserved for those associated for

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economic purposes, i.e. to carry a business for gain. Thus it can be said that ‘company’ in simple
terms, may be described as a voluntary association of persons who have come together for
carrying on some business and sharing the profits there from.

Section 3(1) (i) and (ii) of the companies Act, 1956 define a company as “a company formed and
registered under this Act or an existing company.” An existing company means a company
formed and registered under any by the previous company law.

The above definition does not give any indication about the features of a company. In
order to understand the meaning of a company we should have a look at the definition given by
different authorities.

Lord Justice Lindley :- “A company is an association of many persons who contribute money or
monies worth to a common stock and employed in some trade or business and who share the
profit and loss arising there from. The common stock so contributed is denoted in money and is
the capital of the company. The persons who contribute 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”.

A more comprehensive legal definition of a company giving its main essentials has been
given by Prof. Honey – “a company is an artificial person created by law, having separate entity,
with perpetual succession and common seal.”

A company, thus, may be defined as an incorporated association which is an artificial

person, having a separate legal entity, with a perpetual succession, a common seal, a common
capital comprised of transferable shares and carrying limited liability.

CHARACTERISTIC FEATURES OF A COMPANY

1. Incorporated association: - A must necessarily to be incorporated or registered under

the Companies, Act. Minimum number required for this purpose is seven in the case of a
‘Public company’ and two in case of a 'private company' (Section 12). Registration
creates a joint stock company and it is compulsory for all the associations having

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 membership of more then ten persons in the case of banking business and 20 persons in
other commercial activities, otherwise the association would become illegal (Sec. 11).

2. Distinct legal entity: - A company is a legal person having a distinct juristic personality
entirely independent of the individual persons who are for the time being its members.
The first case on the subject (even before the famous soloman’s case) was that of Kondoli
Tea Co. Ltd., Re ILR (1886). In this case certain persons transferred a tea estate to a
company and claimed exemption from ad valorem duty on the ground that they
themselves were the shareholders in the company and therefore, it was nothing but a
transfer from them in one to themselves under another name. Calcutta HC rejected this
contention and observed that the company was a separate person, a separate body
altogether from the shareholders and the transfer was as much a transfer of property, as if
the shareholder had been totally different persons. A Company is not merely the sum
total if its component members, but it is something superadded to them. Even if a
shareholder owns virtually the whole of its shares, the company is a separate legal entity
in the eyes of law as distinguished from such a shareholder. This principle was judicially
recognized by the house of lords in the famous case of Soloman V. Soloman & Co. Ltd,
[1895-99] A11.ER33(HL). In this case Soloman was a prosperous leather merchant. He
converted his business into a limited company – Soloman & Co. Ltd. The Company so
formed has Soloman, his wife and five of his children as members. The company
purchased the business of Soloman for £ 39,000, the purchase consideration was paid in
terms of £ 10,000 debentures conferring a charge over the company’s assets, £ 20,000 in
fully paid £ 1 share each and the balance in cash. The company in less then one year ran
into difficulties and liquidation proceedings commenced. On winding up the state of
affair of company was that it has assets of £ 6000 and liabilities of £ 10,000 towards
Soloman as debenture holder and £ 7,000 towards unsecured emendators. Thus its assets
were running short of its liabilities by £ 11,000. The unsecured creditors claimed priority
over the debenture holder (i.e. Soloman) on the ground that a person cannot own to
himself and that Soloman and the company were one and the same person. They also
conducted that the company was merely agent of Soloman, the business was solely his,
consented solely for him and by him and the Company was a mere sham and raved.

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The house of Lords unanimously held that the company had been validly constituted,
since the Act only required seven members holding at least one share each. It said
nothing about their being independent, or that there should be anything like a balance of
power in the constitution of the company. Hence the business belonged to the company
and not to Soloman. Soloman was its agent. The Company was not the agent of Soloman
Similarly in the case of Lee V. Lee’s Air farming Ltd. [1960] 3A11. ER 420(PC), Lee
formed a company with a share capital of £ 3,000 of which £ 2999 were held by Lee. He
was also the sole governing director. In his capacity as the controlling shareholder, he
exercised full and unrestricted control over the affairs of the company. Lee was a
qualified pilot also and was appointed as the chief pilot of the company under the articles
and drew a salary for the same. While flying the company’s plane he was killed in an
accident. As the workers of the company were insured, workers were entitled for
compensation on death or injury. The question was while holding the position of sole
governing director, could Lee also be an employee of the company. It was held that the
more fact that some one was the director of the company was no impediment to his
entering into a contract to serve the company. If the company was a legal entity, there
was no reason to change the validity of any contractual obligations which were created
between the company and the deceased. The contract could not be avoided merely
because Lee was the agent of the company in its negotiations. Accordingly, Lee was an
employee of the company and, therefore, entitled to the claim of compensation.

It is interesting to note that being a person a company even enjoys fundamental rights
similar to the natural persons. Thus, it was held in Chiranjilal Chauthry V. Union of India
(1951) 21 Comp. Cas 33(SC), that if a fundamental right of a company is infringed, it is
the company and not shareholders which can challenge infringement.

Although a company is a legal person having nationality in accordance with the country
of its incorporation and a domicile in accordance with the place or state of its
incorporation or registration, it is not a citizen State Trading Corporation of India Ltd. V.
Commercial Tax Officer, (1963) S.C.J. 605. A company cannot, therefore, claim the
protection of those fundamental rights which are expressly guaranteed to citizen only e.g.
the right of franchise.

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3. Artificial Person: - The company, through a justice person, does not possess the body of
a natural being. It exists only in the eyes of law. Being an artificial person, it has to
depend upon natural person, namely, the directors, officers, shareholders, etc., for getting
its various works done. However, these individuals only represent the company and
accordingly whatever they do within the scope of the authority confirmed upon them and
in the name and on behalf of the company, they bind the company and not themselves.

4. Limited Liability : - One of the important advantages of formation of a company is that

the members of the company are only liable to contribute towards payment of its debts to
a limited extent. If the company is limited by shares, the shareholders' liability to
contribute towards the debt of the company is limited to the amount unpaid on their
shares howsoever heavy losses the company might have suffered. However, companies
may be formed with unlimited liability of members or members may guarantee a
particular amount, and then their liability is limited to the guaranteed amount.

5. Perpetual Succession :- Since company is an artificial person, it can not be incapacitated

by illness and does not have an allotted span of life. Being distinct from the members, the
death, insolvency or retirement of its members does not affect the Company. Members
come and go but the company can go forever. It continues of may even if all its human
members are dead. Law creates it and law alone can dissolve it. “King is dead, long live
the king” very aptly applies to the company from of organisation.

6. Common Seal :- A company being an artificial person has no body similar to a natural
person. It does not have a mind or limbs of human being. It acts through natural person
namely, the directors and other officers and employees of the company. But it can be held
bound by only those documents which bear its signature. Common seal is the official
signature of a company.

However, in SICAL – CWT Distriparks Ltd. V. Besser concrete systems Ltd. (2003) 46
SCL 196 (Mad.) it was held that it is not necessary that agreement executed on behalf of
company should bear seal of company, but question whether agreement is valid or not
depend upon facts of each case.

7. Transferability of Shares :- The shares of a public company are freely transferable and
members can dispose of their shares whenever they like without seeking any permission

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 from the company or the other members. In a private company, however, some restriction
on the right to transfer shares is essential in its articles as per section 3(i) (iii) of the
companies Act, 1956, but absolute restrictions on the right of the members to transfer
shares contained in the articles shall be void.

DISTINCTION BETWEEN COMPANY AND PARTNERSHIP

The main points of distinction can be summarized as under :-

1. Regulating Act :- A company is regulated by the companies Act, 1956 whereas a

partnership firm as governed by the provisions of the partnership Act, 1932.

2. Number of members :- The Maximum number of members in the case of a firm is fixed
at 10 banking business and at 20 for any other business; but no such maximum limit is
fixed in the case of a public company. However, the maximum number of members of a
private company must not exceed 50 excluding members who are or were in the
employment of the company.

Maximum Number : - The maximum number of members in a public company is seven

and in case of a private company two. In case of a partnership the minimum numbers of
partners is two.

3. Liability :- In partnership each partner has unlimited liability and is personally liable for
all debts of the firm. In a company, a shareholder has limited liability – limited to the
extent of the unpaid amount on the shares held by him or the amount guaranteed by him
to be his contribution.

4. Entity- One important attribute of a company is that it is an artificial person and has a
distinct entity separate from its members. A partnership, on the other hand, does not have
a distinct legal entity separate from the members composing it and an its existence comes
to an end upon the death or lunacy or insolvency of its partners.

5. Capital :- The capital of a firm can be changed by the mutual consent of the partners
while such a change in the case of a company involves certain legal formalities.

6. Management :- All the partners of a firm are entitled to take part in the management of
the business, but in the case of a company management is in the hands of the board of
directors elected by the shareholders.
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 7. Transfer of interest :- A partner cannot transfer his interest in the firm without the consent
of all other partners. In the case of a private company, the transfer of shares requires the
prior permission of the board of directors. But in the case of a public company a
shareholder can transfer his shares freely without restriction and the transferee gets all the
rights of membership.

8. Registration :- A partnership from may or may not be registered but in the case of a
company registration is essential.

9. Audit :- The audit of the accounts of a company is a legal obligation but not so in the case
of a partnership. For partnership audit is essential only if the annual total sales, turnover
or gross receipts in business exceed Rs. 40 lakes.

10. Winding up :- If the partnership is ‘at will’ then it can be dissolved or wound up at any
time without going through any legal formalities, whereas in the case of a company, no
one member can require it to be wound up at will and moreover winding up involves
legal formalities.

DOCTRINE OF ‘LIFTING THE VEIL’ OF CORPORATE PERSONALITY

The main advantage of incorporation from which all others follow is the separate legal
entity. Through a company has a distinct personality apart from its members, but in reality the
business of the artificial person (company) is always carried on by, and for the benefit of some
individual. In the ultimate analysis some individuals are the real beneficiaries of the corporate
advantage. It may, therefore, happen that the corporate personality of the company is used to
commit frauds or improper or illegal acts. Since an artificial person is not capable of doing
anything illegal or fraudulent, the facade of the corporate personality might have to be removed
to identify the persons who are really guilty. This is known as ‘lifting the corporate veil’.

“Thus where the law disregards the corporate entity and pays regard instead to the individual
members behind the legal façade, it is known as lifting the veil of corporate personality” (Gower
L.C. B., The principles of modern company Law”).

The circumstances under which the courts may lift the corporate veil may broadly be grouped
under the following two heads :-

I. Under statutory provisions.

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II. Under judicial interpretations.

I. UNDER STATUTORY PROVISIONS : -

The veil of corporate personality may be lifted in the following cases as per express
provisions of the companies Act, 1956.

1. REDUCTION OF MEMBERSHIP BELOW STATUTORY MINIMUM (SECTION 45).

If, at any time, the number of members of a company is reduced below the statutory
minimum i.e. below 7 in the case of public company, or below 2 in case of a private
company, and the company carries on business for more than 6 months while the number
is so reduced, every person who is a member of the company at the time the company so
carries on business after those 6 months and is aware of the fact shall be severally liable
for the payment of company’s debts, contracted during that time. (Section 45).

Thus the law pierces the ‘corporate veil’ and makes persons behind the company
personally liable, and the privilege of limited liability of shareholders is lost.

2. MISREPRESENTATION IN PROSPECTUS. (SECTION 62 & 63) :-

In case of misrepresentation in prospects, every director, promoter and every other

person, who authorizes such issue of prospectus is liable to the persons who have
subscribed for shares on the faith of untrue statement (Section -62), Also, criminal
liability may be imposed with imprisonment upto 2 years or fine upto Rs. 50,000 or both.
(Sec. 63).

3. FAILURE TO RETURN APPLICATION MONEY:(SEC. 69):-

As per Company Acts:- If the company fails to receive minimum subscription within 120
days after the date of first issue of the prospectus, it most refund the entire application
money within next 10 days failing which it shall have to refund the same with interest @
6%.

SEBI Guidelines have brought in some changes in the above law and can be reread as:-

If the company fails to receive minimum subsection on the closure of the issue, if the
issue is not underwritten and within 60 days closure of issue, if the issue is underwritten,

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 it most refund the entire application money within next 8 days failing which it shall have
to refund the same with interest @15% per Annum.

4. Failure to deliver share certificate etc. Within stipulate time period (Sec. 113).

According to section 113 (2) it a company fails to deliver the share or debenture stipulate
within 3 month of allotment and within 2 months of application for transfer, than the
company as well as every officer of the company who is at felt shall be punishable with
fine up to Rs. 5000 Per day till such default witness.

5. Mis-description of name ( Sec. 147)- where officer of a company signs on behalf of the
company any contract, bill of exchange, hundi, cheque promissory note or order for
money, such person shall be personally liable to the holder if the name of the company is
either not mentioned, or is not properly mentioned.

6. Holding Subsidiary Company. (Sec. 212)- A holding company is required under section
212 of the companies Act, 1956, to disclose to its members the account of its subsidiaries.
It provides that every holding company shall attach to its balance sheet, copies’ of the
balance sheet, profit and loss account, director’s report and Auditor’s report, etc. in
respect of each subsidiary company. It amounts to lifting the corporate veil because in the
eyes of law a subsidiary is a separate legal person and through this mechanism their
identity is known.

7. For facilitating the task of an inspector appointed under section 235 or 237 to investigate
the affairs of the company. (sec.239)-

According to this section, if it is necessary for the satisfactory completion of the task of
an inspector appointed to investigate the affairs of the company for alleged
mismanagement or oppressive policy towards its members, he may investigate into the
affairs of another related company in the same management or group.

8. For investigation of ownership of company (Sec. 247) –

As per section 247, the central Government may appoint one or more inspectors to
investigate and report on the membership of any company for the purpose of determining
the true persons who are financially interested in the company and who control its policy
or materially influence it.

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 9. Fraudulent Conduct (Sec. 542) :- Where in the case of winding- up of a company it
appears that any business of the company has been carried on with intent to defraud
creditors of the company or any other person, or for any fraudulent purpose, those who
are knowingly parties to such conduct of business may, if the count thinks it proper, so to
do, be made personally liable without any limitation as to liability for all or any debts or
other liabilities of the company. Liability under this section may be imposed only if its is
proved that the business of the company has been carried on with a view to defraud the
creditors-Re, Augustus Bannett & sons Ltd. (1986) B CLC 170 Ch.D.

10. Liability for ultra-vires Acts :- Directors and other officers of a company will be
personality liable for al those acts which they have done on behalf of a company if the
same are ultra-vires the company.

11. Liability under other statutes :- The Directors and other officers of the company may be
held personally liable under the provision of other statutes eg. under the income Tax Act,
where any private company is wound up and if tax arrears of the company in respect of
any income of any previous year cannot be recovered, every person who was director of
the company at any time during the relevant previous year shall be jointly and severally
liable for payment of tax. In a similar manner, under Foreign Exchange Management Act,
1999, the directors and other officer may be proceeded individually or jointly for
violations of the Act.

II- Under Judicial Interpretations: - There may be various circumstances under which the court
may feel compelled to lift the corporate veil in its judicial pronouncements. Following are some
of the indicative cases to get an idea as to the kind of circumstances under which the facade of
corporate personality will be removed or the persons behind the corporate entity identified and
penalised, if necessary.

1. Protection of revenue :- In sir Dinshaw Maneckjee Petit, Re AIR 1927 Bom. 371, the
assessee was a millionaire earning huge income by way of dividend and interest. He
formed four private companies and transferred his investments to each of these
companies in exchange of their shares. The dividends and interest income received by the
company was handed back to Sir Dinshaw as a pretended loan. It was held that the

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 company was formed by the assessee only as a means of avoiding tax and company was
nothing more than assesses himself.

2. Prevention of fraud or improper conduct :- Where the medium of a company has been
used for committing fraud or improper conduct, the courts have lifted the veil and looked
at the realities of the situation. A very important case on the point is Gilford Motor
company V. Horne (1933) 1 CH935. In this case ‘Horne’ had been employed by the
company under an agreement that he shall not solicit the customers of the company or
compete with it for a certain period of time after leaving its employment. After ceasing to
be employed by the plaintiff, Horne formed a company which carried on a competing
business and allotted whole of its shares to his wife and an employee of the company,
who were appointed to be its directors. It was held that since the defendant (Horne) in
fact controlled the company, its formation was a mere ‘cloak or sham’ to enable him to
break his agreement with the plaintiff. Accordingly, an injunction was issued against him
and against the company he had formed restraining them from soliciting the plaintiff’s
customers.

3. Determination of the enemy character of a company – Since the company is an artificial

person, it cannot be an enemy or a friend. However , during war, it may because
necessary to lift the corporate veil and see the persons behind as to whether they –our
enemies or friends. It is because, through company enjoys a district legal entity, it affairs
are essentially run by individuals. In Daimler company Ltd. V. Continental Tyre and
Rubber Co, (Great Britain) Ltd. (1916) 2 AC 307, a Company was incorporated in
London for the purpose of selling tyres manufactured in Germany by a Herman
Company. Its majority shareholder and all the directors were Germans. On declaration of
was between England and Germany in 1914, it was held that since both the decision
making belies, the Board of Directors and the general body of shareholders were
controlled by Germans, the company was a German company and hence, an enemy
company. Accordingly, the suit fled by the company to recover a trade debt was
dismissed on the ground that such payment would amount to traveling with enemy.

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 4. In case of economic offences – In case of economic offences a curt is entitled to lift the
veil of corporate empty and pay regard to the economic realities behind the legal façade
Santanu Ray V. Union of Indian (1989) 65 Comp. CFas. 196 (Delhi).

5. Where company is used to avoid welfare legislation – Where the sole purpose for the
formation of the new company was to use it as a device to reduce the amount to be paid
by way of bonus to workmen, the supreme count oplled the piercing of the veil) to look at
the real transaction – workmen of Associated Rubber industry Ltd. V. Associated Rubber
Industry Ltd. (1986) 59 Lone) G.S. 134.

6. To punish for contempt of court. – The case on the point is Jyoti Limited V. Kanwaljit
Kavr Bhasin (1987) 62 Comp. Cas-626 (Delhi) – A firm of two partners agreed to sell
two floors to parties but cancelled the agreement. Litigation followed and the High Court
restrained the firm from selling the property. In the meantime, a private company was
floated by the two partners who being the only two shareholders became the chairman
and the Managing Director respectively and the property was transferred to the Company.
Inspite of the High Court’s restraint order the company sold off the two floors. In
answering to the contempt proceedings, the partners of the firm took the plea that the sale
had been made by the company and therefore the firm had not disobeyed the Court’s
order.

It was hold that – after lilting the corporate veil it has become clear that the orders of the
Court were disobeyed by the respondents. The company was promoted by the respondents alone.
They only were its shareholder and directors. The entire interest in the company was of the
respondent. Thus in reality the order of the court was disobeyed by the respondent.

ADVANTAGES AND DISADVANTAGES OF INCORPORATION

Advantages – An incorporated company has the following advantages when compare to

other types of associations.

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1. Independent Legal Entity :- Being independent legal entity district from its members the
company remains free from the hazards of all personal misfortunes of its members.

2. Limited Liability :- A company can be formed with the liability of its members limited
either to the paid part the share capital held by him (case liability is limited by share) or
to the amount guaranteed by him (in case liability is limited by guarantee).

3. Perpetual Succession:- Section 34(2) declares that an incorporated company has

perpetual succession meaning thereby that motivate intending any change in its members,
the company will be the same entity with the same privileges and immunities, estate and
possessions. It can continue to exist indefinitely till it is wound up in accordance with the
provision of the companies Act, This is a district advantage over a partnership whore the
death, insolvency, insanity or separation of members/partners may result in the
dissolution of the firm.

4. Transferability of Shares :- According to section-82 of the companies Act the shares,

debentures or other interests of any member in a company shall be movable property,
transferable in the manner provided by the articles if the company.

5. Infinite membership – One improvident advantage of incorporation is that there is no

limit to the maximum number of members in a public company. Thus any number of
person may join hands by purchasing shares. As a consequence of this special feature
large amount of capital can be collected by a joint stock company enabling it to undertake
business on a large scale.

6. Separate property :- The property of the company is not the property of the shareholder,
it is the property of the company Gramophone & Typewriter Co. V. Stanley (1906) K.B.
856.

Thus no member or director can use the properties of the company to his own personal
advantage. Even a member holding majority shares or a managing director of a company
is held liable for criminal misappropriation of the funds or property of the company, if he
unauthorized takes it away and uses it his personal purposes.

7. Base in Control and Management :- The company law provides for the management of
joint stock companies through elected representatives of the members know was directors

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 and therefore every shareholder has not to worry about the management of the company.
This is not so in the case of partnership. Also, only majority voting power is needed to
control a company and not by consent of all members as in partnership.

DISADVANTAGE

As against the advantage of incorporation discussed above, there are few disadvantages
also. Some very obvious disadvantages are:-

1. Formality and Expense:- An incorporated company involves a number of formalities and

expense throughout life. The affairs of company have to be conducted strictly in
accordance with the applicable legal provision, non-compliance of which entails penal
conferences. A number of documents are to be filed with the Registrar of companies of
the state in which the registered office is to be situated and necessary stamp duty,
registration fees and filing fees are to be paid at the time of incorporation of a company,
various sections and documents are required to be filed with the Registrar of companies
certain books and registers are compulsorily required to be maintained. Approvals and
section of the company law board, the central Government, the count, the Registrar of
companies or other appropriate authority are required to be obtained for certain corporate
activities. Meetings of the directors or shareholders are to be held and conducted in
accordance with the provision of the Act.

Other forms of business organizations are comparatively free from these legal
compulsions and formalities.

2. Loss of privacy:- Another disadvantage of corporation is loss of privacy. A public

company will have to publish its constitution, directorates, capital structure, charges on
its assets, proceedings of general meetings and final accounts etc., by filling prescribed
documents with the Registrar of the companies. The office of the Registries of companies
is a public office. Any member of the public can, on payment of prescribed fees, inspect
any of the documents filed by a public company with the Registrar y companies. Even in
the case of private companies the same exposure is there though some what restricted.

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 3. Divorce of control from ownership: - Members of a company cannot have as effective
and ultimate control over its working as in partnership or proprietary business. This is
particularly so where the membership of the company is too large. The company
functions through the representatives of the shareholders – the directors. Members,
therefore, do not have any active and complete control over the company’s working, as
the partners may have over the firms affairs or a sole protractor may have in his business.

4. Greater public accountability :- Any company and particularly a public company has
much greater public accountability in as much as, it con not act against public interest. As
and when public interest will come in conflict with the corporate working, intervention
by signatory authorities will come.

5. Possibility of travels:- Since the control of economic resources is in few hands, it is

possible for those few to deferred suspecting other people who have contributed funds to
the company either as shareholder or debenture holder or creditor or lender by diverting
funds of the company to their private channels. By the time the regulatory authorizes or
other common stock holders come to realize the matter, the damage is already clone and
clever manipulation offer makes it difficult to responsibilities and bring to book the
wrong doers.

CONCLUSION

'Company' in simple terms means a voluntary association of persons who have come
together for carrying on same business and sharing the profits there from. Section (1) (i) and (ii)
of the Companies Act defines a company as a company formed and registered under those Act or
an existing company.

From the definitions givens by Lord Justice Lindley, Chief Justice Marshall, Prof. Haney etc we
can gather that the characteristics features of a company are incorporated association, distinct
legal entity, artificial personality, limited liability, perpetual succession, common seal free
transfer of shares.

The 'corporate veil' of the company may be lifted in certain cases to identify the persons who are
guilty of any fraud or improper conduct. There are certain circumstances provided by the statue
itself and certain circumstances provided through judicial pronouncements under which the

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'corporate veil' may be lifted viz. Reduction of membership below statutory minimum,
Misrepresentation in Prospectus, Failure to return application money, Failure to deliver share
certificate etc. Within stipulate time period, Mis-description of name, For investigation of
ownership of company, Fraudulent Conduct, Liability for ultra-vires Acts, Protection of revenue,
Prevention of fraud or improper conduct, Determination of the enemy character of a company,
To punish for contempt of court, etc. The company from of organisation offers certain distinct
advantages over other association of persons. These include: Independent legal entity, limited
liability of members, perpetual succession, transferability of shares, infinite membership,
separate property, ease in control and management.

Company form of organisation is however, not an unmixed blessing Disadvantages of

incorporation include: Formalities and expense, loss of privacy, divorce between ownership and
control, greater tax burden and detailed winding –up procedure.

A 'company' should however, be distinguished from a 'body corporate'. The expression 'body
corporate' is a wider expression than 'company'. 'Body corporate' includes, besides a 'company', a
company incorporated outside India, public financial institutions, nationalized banks and any
other association of persons declared as a body corporate by the Central Government.

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