Company as Distinguished from other Association of Persons By Ayushi Jain at LexCliq

Introduction

The concept of ‘Company’ or ‘Corporation’ in business is not new, but was dealt with, in 4th century BC itself, at the time of ‘Arthashastra’. It has evolved over time according to the needs of society and business dynamics. The word Company is made of two Latin words “Com” meaning “coming together” and “panis” meaning “bread”. Company originally referred to group of people who took their meal together.

Meaning And Definition of Company

The word ‘company’ is derived from the Latin word (Com=with or together; panis =bread), and it originally referred to an association of persons who took their meals together. In the leisurely past, merchants took advantage of festive gatherings, to discuss business matters. Nowadays, the company form of organization has assumed great importance. In popular parlance, a company denotes an association of likeminded persons formed for the purpose of carrying on some business or undertaking. A company is a corporate body and a legal person having status and personality distinct and separate from the members constituting it. It is called a body corporate because the persons composing it are made into one body by incorporating it according to the law and clothing it with legal personality. The word ‘corporation’ is derived from the Latin term ‘corpus’ which means ‘body’. Accordingly, ‘corporation’ is a legal person created by a process other than natural birth. It is, for this reason, sometimes called artificial legal person. As a legal person, a corporate is capable of enjoying many rights and incurring many liabilities of a natural person.

In terms of the Companies Act, 2013 (Act No. 18 of 2013) a “company” means a company incorporated under this Act or under any previous company law [Section 2(20)].

In common law, a company is a “legal person” or “legal entity” separate from, and capable of surviving beyond the lives of its members. A company is rather a legal device for the attainment of social and economic end. It is, therefore, a combined political, social, economic and legal institution. Thus, the term company has been described in many ways. “It is a means of cooperation and organisation in the conduct of an enterprise”. It is “an intricate, centralised, economic and administrative structure run by professional managers who hire capital from the investor(s)”.

Company as distinguished from the other Associations of Persons

Though there are a number of similarities between a limited company and other forms of associations, there are many dissimilarities. In both the case individuals are the subjects, and trading is generally the object. In the following paragraphs a limited company is distinguished from a partnership firm, a hindu Joint Family Business, a club and a registered society.

Though there are a number of similarities between a limited company and other forms of associations, there are a great number of dissimilarities as well. In both the cases individuals are the subjects, and trading is generally the object. In following paragraphs, a limited company is distinguished from a partnership firm, a limited liability Partnership, a hindu Joint Family business and a registered society.

Distinction between Partnership Firm and Company

The principal points of distinction between a partnership firm and a company are as follows:

  • A partnership firm is not distinct from the several persons who form the partnership. A company is a distinct legal person.
  • In a partnership, the property of the firm is the property of the individuals comprising it. In a company, it belongs to the company and not to the individuals who are its members.
  • Creditors of a partnership firm are creditors of individual partners and a decree against the firm can be executed against the partners jointly and severally. The creditors of a company can proceed only against the company and not against its members.
  • Partners are the agents of the firm. A partner can dispose of the property and incur liabilities as long as he acts in the course of the firm’s business. Members of a company are not its agents. A member of a company cannot dispose of the property and incur liabilities in the course of the company’s business.
  • A partner cannot contract with his firm. A member can contract with his company.
  • A partner cannot transfer his share and make the transferee a member of the firm without the consent of the other partners. A company’s share can ordinarily be transferred.
  • A partner’s liability is always unlimited. The liability of shareholder may be limited either by shares or a guarantee.
  • The death or insolvency of a partner dissolves the firm, unless otherwise provided. A company has perpetual succession, i.e. the death or insolvency of a shareholder or all of them does not affect the life of the company.
  • The accounts of a firm are audited at the discretion of the partners. A company is required to have its accounts audited annually by a chartered accountant.
  • A partnership firm, on the other hand, is the result of an agreement and can be dissolved at any time by agreement among the partners. A company, being a creation of law, can only be dissolved as laid down by law.

Distinction between a Hindu Undivided Family Business and a Company

  • A Hindu Undivided Family Business consists of homogenous (unvarying) members since it consists of members of the joint family itself. A company consists of heterogeneous (varied or diverse) members.
  • In a Hindu Undivided Family business the Karta (manager) has the sole authority to contract debts for the purpose of the business, other coparceners cannot do so. There is no such system in a company.
  • A person becomes a member of a Hindu Undivided Family business by virtue of birth. There is no provision to that effect in the company.
  • No registration is compulsory for carrying on business for gain by a Hindu Undivided Family even if the number of members exceeds twenty [Shyamlal Roy v. Madhusudan Roy, AIR 1959 Cal. 380 (385)]. Registration of a company is compulsory.

Distinction between Limited Liability Partnership (LLP) and a Company

  • LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
  • Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
  • Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
  • Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
  • LLP is a body corporate and a legal entity separate from its partners, having perpetual succession. LLP form is a form of business model which :(i) is organized and operates on the basis of an agreement.(ii) provides flexibility without imposing detailed legal and procedural requirements (iii) enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner.
  • A basic difference between an LLP and a company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act) whereas for an LLP it would be by a contractual agreement between partners.
  • The management-ownership divide inherent in a company is not there in a limited liability partnership. LLP have more flexibility as compared to a company. LLP have lesser compliance requirements as compared to a company.

Distinction between a Company and a Club

  • A company is a trading association. A club, on the other hand, is a non-trading association.
  • Registration of a company is compulsory. Registration of a club is not compulsory.

Distinction between a Company and a Corporation (i.e. Company vis-à-vis Body )

Generally speaking, an association of persons incorporated according to the relevant law and clothed with legal personality separate from the persons constituting it is known as a corporation. The word ‘Corporation’ or words ‘body corporate’ is/are both used in the companies Act, 2013.

Definition of the same which is reproduced below is contained in Clause (11)  of Section 2 of the Act.

“Body corporate” or “corporation” includes a company incorporated outside India, but does not include-

  • A co-operative society registered under any law relating to co- operative societies
  • Any other body corporate (not being a company as defined in this Act)

Which the central Government may, by notification, specify in this behalf

A society registered under the Societies Registration Act has been held by the supreme court in Board of Trustees v. State of Delhi, A.I.R 1962 S.C.458, not to come within the term ‘body Corporate’ under the companies Act, Though it is a legal person capable of holding property and becoming a member of a company.

Conclusion:-

From the above distinctions we can see that there are many other forms of business organisations but company has certain merits that others don’t have for examples corporate personality, Limited Liability, Perpetual succession, separate Property, Common seal which make it different from the other associations of Persons.

 

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