COMPANY LAW

ASSIGNMENT
ON
COMPANY: DEFINITION AND CHARACTERISTICS

SUBMITTED BY – SANDEEP KUMAR SUBMITTED TO – Prof. ISHA MANCHANDA

SINGH

ROLL NO – 11900043

LLB (2ND) YEAR

SUBJECT – COMPANY LAW (LAW320)

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INDEX :-

1 INTRODUCTION

2 DEFINITION OF A COMPANY

3 CHARACTERISTICS OF A COMPANY

4 DIFFERENCE BETWEEN PARTNERSHIP FIRM & COMPANY

5 CONCLUSION

6 REFERENCE

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 1. INTRODUCTION :-
The word company is a commonly used term in the business world. we may come across sign
board outside office displaying the name of company as “Batliboi and Company” , Sharma and
Company”, etc. People think that these are companies formed under the Companies Act but
actually these are not companies incorporated or registered under the Companies Act.

For example - The companies like Reliance industrial Limited, Tata Iron and Steel Company
Limited, etc. are the company registered under the Companies Act. Hence, usually a company
registered under the Companies act that ends with the word Limited. It is mandatory as per the
rules and guidelines issued by the in the Companies Act Statutes. The word company has no
technical or legal meaning as per the Companies Act 2013 Section 2(20) “company” means a
company incorporated under this act or under any previous company law.

The need for such an organization /person arose due to disadvantages of a partnership firm where
the liability of the partners is unlimited and the resources of the partners are limited .Where the
enterprises requires a rather greater mobilization of capital which the resources of a few persons
cannot provide, the formation of a company is the only choice .Though we have another form of
organization namely “Limited Liability Partnership” LLP, It has its own limitations. Accordingly
the company has become the most dominant form of organization.

02) DEFINITION OF A COMPANY

The word “company” is derived from the Latin word “com” which means coming together and
“panis” Which means bread. Therefore, it means an association of people coming together with
the common objective of earning bread.

According to Justin Lindley- Company is an association of many person who contribute money
or Money's worth to a common stock and employ it in some trade or business and who share the
profit and loss arising there from. The common money contributed is the capital of the company.
the persons who contribute it, are members. The capital is divided into smaller units known as
shares. These share are always Transferable although the right to transfer them may or may not
be restricted depending upon the type of company1.

1
VANDANA BANSAL & ANJALI ARORA, CORPORATE LAW (1th Edn.2015) ,Vikas Publishing House ,NEW DELHI
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 According to professor Haney- A company is an incorporated Association with which is an
artificial person created by law, having separate entity with the perpetual succession and
common seal.

03) CHARACTERISTICS OF A COMPANY

The main characteristics of a company are as follows –

 Incorporated Association- In a partnership firm, registration is not compulsory but for

the creation of a company, it needs to be registered with the registrar of companies the
registrar of companies issue the certificate called the “certificate of incorporation” .The
company comes into existence with the date mentioned in the certificate of
Incorporation.

For the formation of a public limited company- An Association of at least 7 person is

required. For the formation of a private limited company, An Association of minimum two
persons is required. The company after incorporation becomes an artificial person having its
own legal rights, its own obligations, its own property and can sue and be sued .

 Separate legal entity - A company has a separate legal existence it is an artificial person
created by law it can enter into contracts with third parties in its own name and can sue
and be sued in its own name. However it is not a citizen age as it can't enjoy the rights in
the constitution.

Case laws - Salomon VS Salomon & Company Limited 2 - Salomon was the sole
proprietor of a show business, He formed a company Salomon and Company Limited. Mr.
Salomon, his wife, his daughter and his four sons became the member of this company. One
share of $1 each was subscribed by the six member of his family .He sold his sole
proprietorship business to Salomon and Company Limited, the company allotted $20,000
share, $10,000 debentures and the balance in cash to Mr. Salomon towards the Purchase
consideration . The debenture carried a floating charge over the Assets of the company
.Salomon and his two sons became the director of this company. Mr. Salomon was the
Managing Director.

2
http://www.bailii.org/uk/cases/UKHL/1896/1.html
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 After some time, there was a trade depression and unfortunately the company suffered heavy
losses. The company became insolvent and went into liquidation the company had assets
$6,000 and liabilities of $17,000($10,000 Mr. Salomon’s Debentures and $7000 towards
unsecured creditors) .Salomon paid full $6000 to himself and give nothing to the creditor .
Creditors sued Mr. Salomon claiming that Mr. Salomon himself and Mr. Salomon as a
principal shareholder and managing director of the Salomon and company were one and the
same person .Hence , creditors being the outsider had priority over Mr. Salomon for their
claim. But the learnt judge of the House of Lords gave decision in favour of Mr. Salomon.
He said that Mr. Salomon and Mr. Salomon and company were two separate distinct legal
entities. The Asset and the liabilities of the company were its own not of Mr. Salomon. Mr.
Salomon’s Debentures being a secured debt that had priority over unsecured debt .Hence the
full payment be first given to the Mr. Salomon and not to the unsecured creditor.

Case laws3 - Like in the case of Mr. Salomon, Partners of tea Estate firm formed a
company Kandoli Tea Company limited. Kandoli Tea company limited had only these
partners as member. They transfer their tea Estate to the company and claimed exemption
from a ad valorem duty (duty on Transfer of Property from one person to another) on the
ground that they themselves were the share holder in the company it was nothing but a
transfer to themselves and no duty was Payable. The Calcutta High Court observed that the
company was a separate body altogether from its share holder and it was a case of Transfer
of Property to the company has ad valorem duty had to be paid.

 Perpetual existence- In the partnership firm for any change in our constitution for
example that admission, retirement the partnership firm dissolves and then new
partnership has to be created. But in case of company, company does not dissolve in the
change of its members .An incorporated company Never Dies .Members may come and
members may go but the company will go on forever. It is an artificial person created by
law, it is law which gives birth to a company and it is the only law which can put an end
to it by winding up of a company. Its life does not depend upon the death, insolvency or
retirement of any or all shareholder director.

3
AVTAR SINGH,‘COMPANY LAW , (17TH Edition 2018) EASTERN BOOK COMPANY., New Delhi
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 Case laws4 - Guildford limited 1966, In this case during the war all the members of a private
limited company, while attending a General Meeting were killed by a bomb but the company
continued with the legal representative of the Dead members, not even a hydrogen bomb
could have destroyed it.

 Common Seal- A Company being an artificial person has no body similar to a natural
person and as such it cannot sign document for itself. It acts through natural person who
are called it director. The director put the common seal as the official signature of the
company on its every document. This common seal distinguishes the liability of directors
as individuals from the liability of the company.
 Limited liability- The liability of the member of a company is limited to the extent of
unpaid amount remaining of their share. For example if a share holder has paid rupees 7
per on a share of 10 rupees per share, his maximum liability can be only 3 rupees per
share. In most of the companies the liability of a member is limited .The liability may be
limited by guarantee or liability limited by shares, however law does not forbid the
formation of an unlimited company where the liability of its member is unlimited but
such companies are very rare these days.
 Transfer of shares- The share of a company are Transferable. However, whether they
are freely transferable or not depends upon the type of company. The share are easily
Transferable in case of public limited company and can be bought and sold it in open
market in the stock exchange. In case of private limited company the shares are
Transferable though with few restriction.
 Separate property- A company being a legal person is capable of enjoying and disposing
of property in its own name .The shareholders are not joint owners of the company’s
property.

The famous case of Macuara vs Northern Assurance Company Limited 5 - In this case
Mr. Macuara was the principal shareholder in Timber company holding more than 90% of
the paid up share capital of the company. He insured the timber belonging to the company in
his own name .Unfortunately the timber were destroyed by fire Mr. Macuara filed a claim

4
https://swarb.co.uk/gilford-motor-co-ltd-v-horne-ca-1933/
5
https://swarb.co.uk/macaura-v-northern-assurance-company-limited-hl-1925/
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 from the insurance company for the loss which his company had incurred.The Insurance
Company refused to pay any money to Mr. Macuara by citing timber being company
property. Mr. Macuara sued the Insurance Company. The court decided in favour of
insurance companies justifying by saying that the Mr. Macuara has no insurable interest in
the timber. The timber belonged to a company and not to a Mr. Macuara. Hence Mr.
Macuara has not suffered any loss and is not entitled to any compensation.

04) DIFFERENCE BETWEEN PARTNERSHIP FIRM & COMPANY6 –

PARTNERSHIP FIRM COMPANY

Partnership firm can be formed A company can be formed by

REGISTRATION without registration .Though it is registering itself under the
desirable for partners to get it companies act, 2013 or any
registered or not. previous law.
A Partnership is a collection of A company is an artificial person
LEGAL STATUS individual who are the co owners of and is regarded by law as a
the business. separate person.
The liability of the partners for The liability of the members of a
LIABILITY debts of the firm is unlimited and company is limited to the amount
personal assets can be used to pay remaining unpaid on the shares.
off the debts.
Partners can contract with other The shareholders of the company
CONTRACUAL partners but not with the firm as a can enter into contract with the
CAPACITY whole. company and can be employees
of the company.
Minimum 2 members is required to 7 members in case of Public
MINIMUM NUMBER form the partnership firm. company and 2 members in case
OF PERSONS of Private Limited company.

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Dr. HARLEEN KAUR , HANDBOOK ON COMPANY LAW ,(1st EDITION 2019) Wolters Kluwer (India) Pvt. Ltd., New
Delhi
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 There is no requirement of At, least one directors should
DIGITAL SIGNATURE obtaining digital signature. have digital signature.

Not Compulsory Audit of accounts in case of

AUDIT company is compulsory.

The partners are not required to Each director is required to

IDENTIFICATION obtain any identification number. obtain director identification
NUMBER number before being appointed.

05) CONCLUSION

In the past there was too much loop holes in the company law for adjudicating corporate cases
which resulted many corporate cases fraud that shocked the Nation whole wide For Example –

 SARADHA SCAM – It was the scam that took place in west Bengal which wiped out
savings of approximately 4,00,000 people , driving many people to commit suicide .The

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 Saradha Group was into multi - level marketing in which existing members would add
new members in the scheme and get commissions .But the scheme collapsed as the chain
broke down and corporate veil lifted .
 SATYAM SCAM – It was the case of Satyam computers a scam of over Rs. 7,000 crore .
The inspectors also investigated into the affairs of MAYTAS ( Satyam read backwards ),
a company under the same management.

A healthy business can only succeed in a healthy society. Thus, it is in the best interest of a
company to produce goods and services which strengthen the health of the society along with the
supportive efforts of the government to provide and create a conducive environment for the
growth of the companies. In order to maintain good corporate governance in India and keep
check on corporate fraud cases, NCLT (NATIONAL COMPANY LAW TRIBUNAL) and
NCLAT (NATIONAL COMPANY LAW APPELLATE TRIBUNAL) was constituted on 01th
June, 2016 under the Companies act 2013 for adjudicating the Corporate Cases. Any person
aggrieved by any order of the NCLAT may file an appeal to the Supreme Court. At the first time
in INDIA CSR (CORPORATE SOCIAL RESPONSBILITY) was introduced in the year 2013
with the Companies act. The term "Corporate Social Responsibility" in general can be referred to
as a corporate initiative to assess and take responsibility for the company's effects on the
environment and impact on social welfare. The Act encourages companies to spend 2% of their
average net profit in the previous three years on CSR activities. The CSR provisions within the
Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth
of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more. The Act requires companies to
set up a CSR committee which shall recommend a Corporate Social Responsibility Policy to the
Board of Directors and also monitor the same from time to time.

06) REFERNCE:-

1. VANDANA BANSAL & ANJALI ARORA, CORPORATE LAW (1th

Edn.2015) ,Vikas Publishing House ,NEW DELHI
2. http://www.bailii.org/uk/cases/UKHL/1896/1.html

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3. AVTAR SINGH, ‘COMPANY LAW, (17TH Edition 2018) EASTERN BOOK
COMPANY, New Delhi.
4. https://swarb.co.uk/gilford-motor-co-ltd-v-horne-ca-1933/
5. Dr. HARLEEN KAUR , HANDBOOK ON COMPANY LAW ,(1 st EDITION 2019)
Wolters Kluwer (India) Pvt. Ltd., New Delhi

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