Q. Define a Company. Explain the essential features of a Company. Section 3(1) of the Companies Act, 1956 defines a company as “An association of individuals form for some purpose and registered under the present Companies Act or an earlier Indian Companies Act.” The following are the essential features of a company 1) Separate Legal Entity - A company on registration has a separate identity of its own which is different and distinct from the members who constitute it. This principle of independent corporate personality was laid down in the case of Salomon vs. Salomon & Co. Ltd. In this case Mr. Salomon was carrying on shoe manufacturing business on proprietorship basis. He sold his business to a company Salomon & Co. Ltd. for 30,000 pounds. Salomon received consideration in the form of shares for 20,000 pounds of one pound each and got debentures worth 10,000 pounds. The company had seven members, consisting of Mr. Salomon, Mrs. Salomon, four sons and a daughter. All the other members of the company had only one share each. After sometime the company had to be wound up on account of financial difficulties. The assets realized were 6,000 pounds while the liabilities were 10,000 pounds to Salomon as a secured creditor and 7,000 pounds to outsiders who were unsecured creditors. The creditors claim priorities over Salomon (Secured Creditor) on the ground that Salomon and Salomon & Co. were one and the same. It was however, observed that the company on incorporation has a different personality different from the subscribers. Therefore the identity of the subscriber is immaterial. Hence Mr. Salomon was paid first as he was a secured creditor. 2) Limited Liability – The liability of the shareholders is limited to the face value of the shares held by them. Once the full amount of the shares is paid, they cannot be called upon to bare the loss from there personal property. 3) Artificial Legal Person – Company on registration becomes a legal person capable of entering into contracts in its own name. 4) Perpetual Succession – A company enjoys perpetual existence. Its is created by law and can be put to an end only by the process of law. Professor Grover highlights these feature by saying that even a bomb cannot destroy a company. 5) Holding and Disposal of Property – A company can hold and dispose of property in its own name. Property of the company cannot be treated as members property and vice versa.
THE COMPANIIES ACT,, 1956 THE COMPAN ES ACT 1956
6) Transferability of Shares – The shares of a company are freely transferable in case of a public limited company. 7) Capacity to sue and to be sued – A company having its own independent existence, can sue in its name to enforce any of its statutory or contractual rights and be sued in its name by others, if it commits breach of contract or fails to discharge its duties.
Q. Explain the various types of Companies
The companies may be classified into the following :1) Chartered Companies :- These are the companies which are incorporated under a special charter granted by the King or Queen or the Head of the State. For e.g. East India Company these are no longer present in India. 2) Statutory Companies :- These are companies which are created by a special act of the legislature. For e.g. Reserve Bank Of India. 3) Registered Companies :- These are companies which are formed and registered under the Companies Act, 1956 or some earlier Companies Act. They are :a) Companies limited by shares :- In these companies there is a share capital and each share has a fixed value. The liability of each member is limited to the face value of the share he holds. A company limited by shares may be a public company or a private company. b) Companies limited by guarantee :- Where the liability of a company is limited by the memorandum to such an amount as the members undertake to contribute to the assets of...