Basics of Company Law
The word ‘Company’ springs from a Latin word (Com=with or together; panis =bread), and it originally mentioned an association of persons who took their meals together.
A company may be a voluntary association of persons, recognized by law, having a particular name, a standard seal, formed to hold on business for profit, with capital divisible into transferable shares, indebtedness, a company body and perpetual succession.
In terms of the businesses Act, 2013 (Act No. 18 of 2013) a “Company” means a corporation incorporated under this Act or under any previous company law [Section 2(20)].
As the corporate body is creation of law and is not a human being, it is an artificial juristic person clothed by various rights, liabilities, powers and duties prescribed by the law.
1. Artificial person- A company is created by law. It is not a human being but acts through them only. It is referred as an artificial person because it is invisible and intangible.
2. Limited Liability- The principle of limited liability is a feature as well as a privilege of the corporate form of enterprise. In other words, the liability of the members is restricted. It means that the shareholders enjoy immunity from liability up to a certain limit. A shareholder can’t be called upon to pay anything quite the unpaid value of the share that he has undertaken to pay under a contract between himself and therefore the company. Members, whilst an entire, are neither the owners of the company’s undertakings, nor responsible for its debts.
3. Perpetual Succession- a corporation doesn’t cease to exist unless it’s specifically aroused or the task that it had been formed has been completed. Membership of a corporation may keep it up changing from time to time but that doesn’t affect lifetime of the corporate. Insolvency or Death of member doesn’t affect the existence of the corporate.
4. Separate Legal Entity- When a company is incorporated under the law it becomes a separate legal entity which bears its own name, acts under name, has a seal of its own and its assets are separate and distinct from those of its members. It is capable of owning property, incurring debt, and borrowing money, employing people, having a checking account, getting into contracts and suing and being sued separately.
5. Not a Citizen- Although a company is a legal person, it is not a citizen under the Indian Constitution or Citizenship Act, 1955. It can act only though natural persons.
6. Capacity to sue and be sued- To sue means to institute legal proceedings against (a person) or to bring a suit in a court of law. All legal proceedings against the corporate are to be instituted in its name. Similarly, the corporate may bring an action against anyone in its own name.
7. Transferability of shares- The capital of a corporation is split into parts, called shares. The shares are said to be movable property and, subject to certain conditions, freely transferable, in order that no shareholder is permanently or necessarily wedded to a corporation.
8. Act within Limits- the Company cannot go beyond what is mentioned in the Memorandum of Association and Articles of Association. MOA where the main objects of the company are specified and AOA is document in which ways and directions are suggested to get those objectives.
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