Illegal Association in Company

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Illegal association - Section 11(2) of the companies act 1956 talks about illegal association which states

No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian law.

As important aim of companies act is to eliminate the evils caused by large number of partnerships trading In unincorporated form. A business association consisting of a large number of members, unless incorporated as a company, leads to inevitable confusion and uncertainty concerning the rights and liabilities of members inter se and their relations with others. Its therefore, necessary to provide that every business association having a certain number of members must be registered as a company failing which it shall be regarede as an u\illegal association.

The conditions of illegality under the section are:

1. The membership of the association must be more than twenty

2. The association must have been formed for the purpose of carrying on a business;

3. The object of the association must be to acquire profits for itself or for its members, and

4. The association must not have been registered as a company under the companies act, nor must it have been formed in the pursuance of some other Indian law.

Thus for example, a stock exchange has been held to be not in the purview of the section as it is not formed for the purpose of carrying business much less a business which has for its objectsthe acquisition of gain.

The section however, doesnot apply to a joint hing\du family carrying on business, where a busiess is carried on by two or more joint hindu families, in computing the number of members for the purposes of this section, minor members must be...
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