Fybms Law Notes
THE COMPANIIES ACT,, 1956 THE COMPAN ES ACT 1956
01
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
01
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