Formation of a Company

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FORMATION AND INCORPORATION OF
COMPANIES
L Meaning of Company

L Advantages of Certificate of Incorporation

L Characteristics or Essential Features
of a Company

L Effect of Certificate of Incorporation
L Floatation of Company

L Types of Companies
• Chartered Companies

L Certificate of Commencement of
Business

• Statutory Companies

L Memorandum of Association

• Registered Companies

L Contents of Memorandum of Association

L Introduction

Companies Limited by Shares
Companies Limited by Guarantee
Unlimited Companies
• Foreign Companies
L Formation of Company
L Promotion of Company
L Incorporation or Registration of Company

L Articles of Association
L Alteration of Memorandum of Association and Articles of Association L Check Your Understanding
L Pick up the Right Answer
L Discuss Legal Implications
L Descriptive Questions

1.1 INTRODUCTION
The Companies Act of 1956 sets down rules for the establishment of both public and private companies. The most commonly used corporate form is the limited company, unlimited companies being relatively uncommon.

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Business Legislation

1.2 MEANING OF COMPANY
In common usage, ‘Company’ means an association of persons associated for some common purpose. The common object may be business, charity, research etc. The persons are united for achieving a common objective, normally, for earning profits, which are shared by the investors. Definition of Company: Section 3 (1) (i) of the Companies Act, 1956 defines a company as: “A company registered and formed under this Act or an existing company.” The above definition does not give clear description about the company. The definition provided by Haney gives a better view about the essential elements of a company. According to Haney, “A company is an incorporated association which is an artificial person created for by law, having a separate entity, with a perpetual succession and a common seal.”

The characteristics of the company give a better picture about the essential elements mentioned in the above definition. Let us discuss those characteristics that describe the company, comprehensively.

1.3 CHARACTERISTICS OR ESSENTIAL FEATURES OF A COMPANY
1.
2.

3.

Registration: A company is to be compulsorily registered under the Companies Act. Artificial Person: A company is an artificial person. “Company is an artificial person, invisible, intangible and existing only in the eyes of law.” It is created under the law, not itself a human being. It is called a person as it is clothed with certain rights and obligations. Separate Legal Entity: A company can enter into contracts with its directors, its shareholders and outsiders. It functions through its board of directors. A company is a distinct person, with its own independent identity.

One Man Company: When a single person holds almost all the shares of the company, it is called ‘One Man Company’. Such a company has a legal personality, if it complies with the necessary requirements of registration (Solomon Vs A. Solomon & Co. Ltd.). Such companies may be public or private companies. Usually, they are private companies.

Solomon Vs A. Solomon & Co. Ltd.: In Solomon Vs A. Solomon & Co. Ltd. (1897) AC 22, it has been held that in common law, a company is a ‘legal person or has a legal entity separate from its members and is capable of surviving beyond the lives of its members.’ In this case, one Solomon was a shoe manufacturer. He incorporated a company named Solomon and Co. Ltd. He took over the entire business of a running concern. Solomon and the

Formation and Incorporation of Companies

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seven subscribers to the memorandum were he and his family members. Solomon and his two sons were the Directors of the Company. The business of the company was transferred for £30,000. Solomon took 20,000 share of 1 £ each and debentures worth 10,000 in consideration. The Company went into liquidation, within a year. On winding up,...
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