Company Law

Definition Registration, Kind of Companies & Promoters

 

The Companies Act 1956, defines ‘company’ as a Company formed and registered under the Companies act. A company is a legal or juristic person, apart from its members, capable of rights and duties of its own, and endowed with the potential or perpetual suc-cession and a common seal. It is not a novelty, but an institution of very ancient date, it can sue or be sued.

It can own and dispose of properties.

 

Registration & Incorporation of Company:

Procedure- An application in the prescribed form is to be filed with the “Registrar of Companies” along with Memorandum of Association (MOA), Articles of Association (AOA). Declaration that all the statutory requirements of Companies Act have been complied with. This must be signed by an Advocate or Chartered  Accountant, and one of the directors, or Secretary. The necessary fee should be paid. If the Registrar is satisfied that all the requirements are com-plied with he registers and places the name of the company on the Register of companies and issues a certificate of incorporation as a Limited Company.

The Company is born on the issue of the certificate. The validity of it cannot be challenged in any court (The remedy is to claim for winding up).

# Private Company: It may start business, soon after incorporation.

# Public Company: It must take out a certificate of commencement of business from the Registrar by filing an application, signed by the Director or the secretary and fulfilling certain statutory conditions.

(I.) Advantage of Registration:

a.] Corporate Personality: The outstanding feature of a company is its status as an independent corporate person. By incorporation, the company becomes vested with the legal personality.

 

The leading case is Solomon Vs. Solomon & Co.

Ltd [1897] AC 22

Facts of the case: Solomon was a boot and shoe manufacturer. His business was sound, he incorporated a Company called Solomon & Co. Ltd., for running the business. The seven subscribers to the Memorandum were Solomon, his wife and a daughter and four sons. Solomon and two sons formed the Board of Directors. The business of manufacturing was transferred by Solomon to the company at a cost £ 40,000.In the company, Solomon had 20,000 shares of one pound each (The company had a debenture of £ 10,000/-to be given to Solomon).Within a year the company went into liquidation. The creditors who had advanced to the Company, sued and claimed that Solomon & Co. was not a ‘Company’.  

Held: Solomon & Co. was a Company as it fulfilled all the legal requirements of an incorporated Company; it was a juristic person different from its subscribers. Its liability is therefore limited.

b.] Limited Liability:

This is a privilege and an advantage, in-as-much as the liability is limited to the extent of the shares held by the shareholders and no liability arises beyond this. The members are not the owners of the company and are not liable to its debts. The company is independent and meets its obligations.

c.] Succession:

There is perpetual succession and the company never dies. The membership may be changing from time to time, but this will not affect the company or its continuity. The death or insolvency of a member will not affect it. Members may come and go but the company goes on forever.

d.] Vested ownership of company: The company as a legal person, may acquire, hold and dispose of the property. It is the owner of all its assets and capital. Hence, the shareholders are not the owners.

e.] Shares are transferable: The shares (and other interests) of any member are movable property and are transferable, as per the Companies Act. Once the Company is incorporated, a shareholder may sell his shares in the open market and get back his investment.

f.] Capacity to sue and be sued:  a body corporate, in its own name, a company may sue or be sued. This is one of the essentials of the legal personality of the compan

Illegal Associations :

Large partnerships trading without registration create confusion and uncertainty and many evils flow from them. Hence, to arrest this activity sn. 11 (2) of the Companies Act provides that if a company, Association or Partnership is formed with 20 or more persons (10 in case of Banking business) to do any business, and acquire gains or profits then it should be registered as a Company under the Companies Act. If not so registered it becomes an “illegal Association”.

Consequences of illegality:

i.)As it has not juristic status, it cannot enter into contract. Each member becomes personally liable and also liable to a fine upto Rs.1000/- ii) No suit or action can be brought in the name of the Company. iii) Winding up provisions are not applicable and hence cannot be wound up under the Act. iv) Claims between members are also not tenable.

Leading case:

Badari Prasad V. Nagarmal: The Supreme Court refused to grant any relief as the Association was illegal.

Dayal Singh V. Des Raj (Punjab): 20 Persons engaged in manufacture of “Trunks” formed an “Association’, applied to the controller for Steel Quota, got the quota and distributed among themselves. It was not a regd. association, The Court held that it was an illegal association and no suit would lie for dissolution and accounts.

Special features and privileges of Private Companies:

Private company also has the MOA and AOA and is to be incorporated. In fact, it is having the advantages of both the privacy of a partnership and origin and performance of a corporate body.

Public Companies– Are like bees working in a glass-hive; but Private Companies can keep the affairs for themselves, because of the encouragement and benediction of the Parliament.

i.)Number: The minimum is two and the maximum is 50. Hence, a Private Company can be formed with two persons (Public company minimum is 7).

ii)Transfer of shares : Restrictions may be imposed regarding transfer of shares. The total membership should not exceed 50. (It becomes public, if it is 50 or above). In it’s AOA, it must prohibit issue of prospectus to the public to subscribe for shares or debentures. Hence, all the procedures regarding issue of prospectus are not applicable to it.

  • Directors : There are many benevolent provisions. It may have only two Directors. They can be permanent life members (14 days notice, as in Public Company, is not applicable. Similarly rule relating to rotation, of directors number of directors. Reporting to the Registrar within 30 days of taking office as Directors, restriction as to remuneration etc., also do not apply), provisions relating to qualification shares do not apply.

 

  1. Statutory Meeting: Whereas this is a must in a Public Company, a Private company is exempted from holding a statutory meeting and of filing its statutory report.

 

  1. An interested director: i.e., a director interested in the subject matter or issue cannot participate and vote in a Public Company, but not so in a Private Company. A director,who is selling his plot of land to the Company, is an interested director. The reason for giving these and other advantages is that no public money is involved, in private companies.

 

  1. A Private Company may commence its business on registration.

 

  • It is exempted from filing with the Registrar a prospectus or a statement in lieu of prospectus.

 

  • Director may vote on a contract in which he is interested. Restriction on remuneration to directors imposed in Public Companies do not apply.

 

  1. Violation of Conditions: The various privileges to a Private Company are available to it, as long as it maintains the status as a Private Company by observing the restrictions and limitations imposed on it. However, if it violates them, it will not be entitled to privileges. The Company Law Board may excuse if failure is accidental or due to some reasonable cause.

 

 

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