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.

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.

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.

3.

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.

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.

3.

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.

Foreign Companies: Means a company incorporated

outside India but having place of business in India.

3.

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.
B.

The other company controls the composition of its board of

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

Private
Company

Public Company

1.

1.

2.
3.
4.
5.
6.

Minimum No. of members

is 2
Maximum No. of members
should not exceed 50.
Right to transfer is
restricted
Prospectus cannot be issued
No. of directors must be at
least 2
Commence business
immediately after getting
the certificate of
incorporation.

2.
3.
4.

5.
6.

Minimum No. of members

is 7
No restriction
Freely Transferable
Through prospectus
general public is invited to
subscribe for shares,
debentures or deposits
Must have at least Three.
Can only start after
receiving the certificate to
commence business from
Registrar Of Companies

Public Company

Public Company

7. Directors consent to work

as a director with the
Registrar is not necessary.
8. Directors can be approved
by single resolution.

7. Necessary

9. No. of directors may be

increased to any number.
10. Directors are not required
to retire by rotation.
11. Managerial remuneration
no restriction.

8. Each directors appointment

requires separate resolution.
9. Not more than 12 without
the approval of the Central
Government.
10. At least 2/3 of directors
must retire by rotation
11. Not more than 11% of the
net Profit ( not more than 5%
to single manager/ director)

Public Company

Public Company

12. Quorum for general

meeting is 2
13. Can be registered with a
paid up capital of Rs. 1
Lakh
14. Exempted from filing of
various returns
15. Cannot accept deposits
from public.
16. Need not hold a statutory
meeting or file a statutory
report.

12. Five members

13. Rs. 5 Lakh
14. Not so exempted
15. Can accept deposits.

16. Must do so.

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.