Incorporated Association

 A company is formed by complying with the

formalities prescribed under the Act.
 Minimum number required for this purpose
1. is 7 for public company
2. 2 in case of private company
3. and 1 in case of One Person Company.
 Artificial Person

 A company is an artificial person.

 But it is not a fictitious person.
 Separate Legal Entity

 A company is a separate entity in the eye of law.

 It has its identity separate from its members.
 Perpetual Succession

 Death, insolvency or insanity etc. Of any member does

not affect the continuity of the company.
 The life of the company does not depend upon the life
of its members.
 Any change in the membership of the company does
not affect the status of the company. Therefore, a
company has perpetual succession.
 Members may come and go, but the company goes on
forever.
 Limited Liability

 The member of the company cannot be held liable for

the debts of the company.
 The extent of the liability of the member varies
according to the nature of the company.
 Common Seal

 It is an official signature of the company.

 Any document, on which common seal is affixed, is
deemed to be signed by the company.
 The name of the company is engraved on it.
 The Article of company usually provides for putting
the seal on the documents.
 It is to be affixed in the presence of at least two
directors & company secretary of the company.
 It should be kept in safe custody of a responsible
official.
 Transferability of Shares

 The shares are moveable property transferable in the

manner provided in the Articles.
 However, in a public company, the shares are freely
transferable.
 Separation of ownership from
management
 The members do not participate in day to day affairs of
the company.
 The management of the company lies in the hand of
the elected representatives of the members, called the
Board of Directors.
 The directors are appointed as well as removed by the
members.
 Separate Property

 A company can own property in its own name.

 No member is the owner or co- owner of the
company’s property during its lifetime or even on its
winding up.
 The assets of the company are not the assets of the
members.
 Capacity to sue & be sued

 A company is a legal person.

 A company acts in its own name, and not as an agent
of its members.
 It has its own rights and obligations. Hence a company
can sue others & be sued in its own name.
 The creditors can make their claims only against the
company and cannot proceed against the
shareholders.
 Saloman Vs. saloman Co. Ltd
FACTS OF THE CASE
 Mr. saloman was carrying on the business of boot manufacturing as a
sole proprietor.
 He incorporated a company named Saloman & Co. ltd. for taking over
its business.
 The Purchase consideration agreed was 38,782 pounds. The
consideration was paids in terms of secured debentures of 10,000
pounds, Fully paid up shares of 1pound each-20,000 & thebalance 8,782
pound in cash.
 The remaining six members of the family of Mr. Salomons were issued
one share each.
 Salomon was the managing director of the company.
 The company borrowed from creditors, an amount of 70000 pounds.
 The company ran into financial difficulties and eventually went into
liquidation. The assets realized only upto 60000 pounds.
 The unsecured creditors contended that Salomon & the company were
one & the same.
 Decisions

 The company was a one man company. As Salomon

was the leading shareholder and all other shareholders
are nominees of Salomon, he was virtually holding the
entire share capital.
 The Court held that it was a real company fulfilling all
the legal requirement. It has an identity different from
its members, and therefore all the secured debentures
even though held by Salomon were to be paid in
priority to the other unsecured creditors.
Lifting or piercing of corporate veil
 CORPORATE VEIL:
By fiction of law, a company is seen as a distinct entity, yet in reality
it is just an association of persons, who are in fact the beneficial
owners of all the corporate property. This fiction is created by
fictional veil, which is the corporate veil.
 EFFECTS
1. The business is carried out by the company and not by the
members or directors.
2. Only a company is responsible for the acts and defaults done in
the name of its company even though the members, directors
or officers have acted on behalf of the company. No member
shall be liable for the acts of the company even if he holds the
entire share capital of the company.
Lifting of corporate veil
 It means ignoring the separate identity of a company.
 It means disregarding the corporate personality and
looking behind the real persons who are in control of
the company.
 The lifting is permissible only if it is permitted by law.
Whether company
is a citizen?
 In India, the citizenship under the citizenship act, 1955
is available only to an individual. Therefore, a company
can’t be a citizen of India.