Company and Formation

8/6/2019 Company and Formation

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COMPANY AND ITS FORMATIONCOMPANY AND ITS FORMATION


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INTRODUCTION

THE COMPANYS ACT 1956

DEFINITION OF COMPANY

CHARECTERISTICS OF COMPANY KINDS OF COMPANIES

Partnership Firm

COMPANY DISTINGUISHED FROM PARTNERSHIP


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INTRODUCTION

The company legislation in India hasdeveloped on the lines almost parallel toEnglish company law. The companies actpassed from time to time in India have

been following the English CompaniesAct with certain modification to suit Indiancondition. The English companys Act of1844 is entitled to be the first enactment

modern system of Joint stock enterprise. The first Indian companys Act providing for

the registration of Joint Stock Companieswas passed in the year 1850.


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THE COMPANYS ACT1956

The Indian Companies Act, 1913 wasrepealed by the present Companies Act,1956 which came into force on 1st April1956.

The present Companies Act is based largelyon the recommendation of the companyLaw committee which submitted its reportin March 1952. This Act is the largeststatute ever passed by our parliament. It

consist of 658 section & schedules. Theact was amended several times since1956. the latest amendments wereeffected in 2000 & 2001.


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DEFINITION OFCOMPANY

According to Sec.3(1)(i) of theCompanies Act 1956 a companymeans "A Company formed and

register under the companies Act or onexisting company.

An association of many person whocontribute money or moneys worth to a

common stock and employed with acommon purpose.

Lord Justice Lindley.


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CHARACTERISTICS

Separate legal Entity

A company formed and registered underthe companies Act is a distinct legal entity.

It is a creation of law and is sometimescalled artificial person being invisible andintangible. It is a fiction of law with legal,but no natural or physical existence. The

principles that a company is a legal entityseparate from the individuals whocompose it.


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Perpetual succession

Unlike a natural person a company never dies. It is an entity

with a perpetual succession. Its existence is not affected bythe lunacy and insolvency of its member.

Limited liability

o

Limited liability of member is another most important. Theirliability is limited to the face value of shares characteristic of


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Transferability of Share The share of Company are freely transferable can

be sold or purchased in the share market sec. 82 ofthe companies Act recognizes the right of

transferability of shares & provide that, the share orother interest of any member shall be movableproperty transferable in the manner provided for in thearticles of the company.

Capacity to sue and sued On incorporation a company acquired separate

and independent legal personality. As a legal person itcan sue and be sued in its own name.

Not a citizen Although a company is a legal person having both

nationality and domicile, it is not a citizen. As such acompany cannot, therefore, claim protection of thosefundamental right which are explicitly guaranteed to

citizens only, namely, the right of franchise.


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Companys Action Limited

The company can not go beyond the powerof its charter the memorandum of Association.But once the power have been laid down it cannot go beyond unless Memorandum ofAssociation is it selves altered prior to going so.

Separate Property

As a legal person a company can own enjoyand dispose of any property in its own name.No member can claim himself to be the ownerof the companys property. The property of thecompany is not the property of the shareholder;it is the property of company.


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KINDS OF COMPANIES

qChartered Companies

qStatutory companies

qRegistered Companies

qPublic companies

qPrivate Companies

qHolding company & subsidiary Company

qGovernment CompanyqForeign company


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Chartered Companies

The crown, in the exercise of the royalprerogative, has the power to create acorporation by the grant of a charter to personassenting to be incorporated. Such

companies or corporation are know aschartered companies . Example are Bank ofEngland, East India company.

The power and the nature of business ofchartered company are defined by the charterwhich incorporates it.


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Statutory Companies A company may be incorporated by means of a

special act of the Parliament or state legislation. Such

companies are called Statutory companies. They aregenerally formed to carry out some special publicundertaking. Example are Railway, Gas, Electricity.

Instances of statutory companies (which are also known

as public corporation) in India (RBI), (LIC). Statutorycompanies are governed by the Act creating them theyare not required to have any memorandum of article ofassociation. Changes in their structure are possible onlyby amendment in the Act creating. The annual report onthe working of each statutory company is required to beplaced before the parliament or state legislation. Astatutory company though owned by the Government hasa separate legal entity. It can not be regarded asdepartment of government.


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Registered companies

Companies registered under thecompanies Act, 1956, or the earliercompanies Act are called registered

companies. Such companies comes inexistence when they are registered undercompanies act and a certificate ofincorporate is granted to them by

registrar. Section 12(2) provide that acompany limited by guarantee, companylimited by share, unlimited company


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Public Companies

A public company means a company which isnot a private company. There must be atleast seven person to form a publiccompany, however, there is no maximum

limit as to its number of shareholder ormember . The article of a public mayhowever, contain restriction on the issue ortransfer of share. The company remains a

public company despite such restriction,only the share of a public company arecapable of being dealt in on a stockexchange.


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Private companies

A private company means a companywhich by its article (i) Reserve the right totransfer its share

(ii)Limits the number of its member is fiftyexcluding member who are or were in theemployment of the company

(iii)Prohibits any invitation to the public tosubscribe for any share or debenture ofthe company section3(I)(iii)


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Holding and SubsidiaryCompany

A company which control another company isknown as the holding company and Thecompany so controlled is term as Subsidiarycompany A holding company is one of it.(i)control the composition of board of director of

another company, (ii)holds more than of thenominal value of equity share capital of anothercompany, (iii)control more than of the totalvoting power of the other company, (iv)is asubsidiary of any company which is turn a

subsidiary of another company.Illustration : company B is a subsidiary of A, and

company C is subsidiary of company B.company C will be a subsidiary of company A.


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Government Company

Section 617 of the Company actdefines a government company as acompany in which is not less than fifty

one per cent of the paid up share capitalheld by the Central Government or byany state Government , or partly by theCentral government and partly by one or

more state government. It also include acompany which is subsidiary ofGovernment company.


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Foreign Company

A company incorporated outside India &having a place of business in India. Thecompanies amendment act, 1974

provides that where not less than 50% ofthe share capital hold by Indian citizenand/or companies incorporated it shallhave to comply with such of the provision

of the act as may be prescribed as if itwere a company incorporated in India.


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WHAT ISPARTNERSHIP?

Partnership is the relation betweenpersons who have agreed to share theprofits of a business carried on by all or

any of them acting for all. Persons whohave entered into partnership with oneanother are called individually partnersand collectively a firm (sec. 4 of the

Indian Partnership Act, 1932).


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COMPANYCOMPANY

DISTINGUISHEDDISTINGUISHEDFROM PARTNERSHIPFROM PARTNERSHIP

OR

DIFFERENCE BETWEENCOMPANY & PARTNERSHIP


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. Regulating Act A company is regulatedby the companies act,1956.

A partnership isgoverned by the Indian

partnership act, 1932.

2. Mode of creation A company comes intoexistence afterregistration under thecompanies act, 1956.

Registration is notcompulsory in the caseof a partnership.

3. Legal status A company has a legalpersonality distinctfrom that of itsmembers.

A firm is not a person inthe eyes of the law; it ismade up of the several

persons who compose it[Salomon v. Salomon,(1897)A.C.22]

4. Liability of members a) The liability of themembers of a company(except an unlimitedcompany) to contributetowards satisfaction of

the companys debts andliabilities is limited.

b) The creditor of acompany is the creditornot of shareholders butof the company, who arenot directly liable tohim. He can do so onlyagainst the property of

the company.

a) Partners are liable(RESPONSIBLE BYLAW) without limit tocontribute towards

payment of the

partnership debts andliabilities.

b) The partners arejointly and severallyliable to the creditors ofthe firm. A creditorobtaining judgmentagainst the firm can

proceed against and

attach property of anyof the partners in thefirm.


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5. Management The affairs of acompany are managed

by its directors, or bymanaging director ormanager, and itsmember have no right totake part in themanagement.

Every member of apartnership firm maytake part in itsmanagement unless the

partnership agreementprovides otherwise.

6. Powers A companys powers are

limited to those allowedby the objects clause inits memorandum ofassociation.

A partnership firm can

do anything which thepartners agree to do andthere is no limit tp itsactivities.

7. Transferability of interest

Shares in a company arefreely transferableunless its articles

otherwise provide.When shares aretransferred, thetransferre becomes amember of the companyand succeeds to allrights of the transferor.

A partner cannottransfer his sharewithout the consent of

the other partners.

8. Authority of members .A shareholder is not anagent of the companyand has no such powerto bind the company byits acts(1870) ch. App.725.

Each partner is an agentof partnership firm tomake contracts andincur liabilities. So longas he acts in the ordinarycourse of the firms

business.


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9. Insolvency of firm andwinding up of acompany

The winding up of aninsolvent company doesnot make the membersinsolvent.

The insolvency of apartnership firm meansinsolvency of all the

partners.

10. Debts If company owes debtto any of his membershe can claim paymentout of its assets when itis wound up rateablywith its other creditors.

A partner who is owedmoney by his firmcannot prove against thefirms asset incompetitionwith itsother creditors.

11. Dissolution A company has aperpetual succession. Nopersonal circumstancesaffecting a member suchas death insolvency, willaffect its existence. Itcomes end only when itis wound up accordingto the provision of thecompanies act, 1956.

Unless a partnership isentered into for a fixed

period . It may bedissolved at any time byany , and the

partnership willautomatically dissolved

by the death orinsolvency of a partner.12. Arrangements In company, some

arrangements between

its member are notallowed, eg; thecompany cannot buy theshares of its members.

Partner may make anyprivate arrangements

among themselves.


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Company and Formation