Definition of Company

The word “Company” is derived from the Latin word ‘Com’ and ‘pany’. ‘Com’
means ‘simultaneously’ and ‘pany’ means ‘livelihood’. So, company is such kind
of business organization where a group of people provides capital for earning
profit and by this profit they maintain their livelihood.

According to Sec 2(1), Company Act, 1994 “Company means a company formed
and registered under this Act or any existing company.”

A prominent jurist named Kimball and Kimball said “A company by nature an

artificial person created or authorized by the legal statute for some specific
purpose.”

L.H. Haney said “A company is an artificial person created by law, having a

separate legal entity, with a perpetual succession and a common seal”.

By analyzing above definitions we have got that company is:

 An artificial entity created by law.

 Has a perpetual succession.
 Has a common seal.

So, the term Company is used to describe an association of a number of persons,

formed for some common purpose and registered according to the law relating to
companies.

Objects of enacting Company Law

The Company is a form of business organization in which the funds of a large

number of investors are managed by a few persons for the purpose of earning
profits which are shared by all the investors. The main objects and purposes of
statutes relating to companies are as follows:
1. Encourage investments in companies by providing certain facilities, e.g.,
limitation of liability, transferability of shares etc.

2.Ensure due and proper administration of the funds and assets of companies in the
interest of the investing public.

3. Preferment malpractices by directors and managers.

4. Arrange for investigation into the affairs of companies and provide for effective
audit in dealing with cases of dishonesty, and fraud in the corporate sector.

Characteristics/Essential elements of a company

Company is such kind of business organization where a group of people provides

capital for earning profit and by this profit they maintain their livelihood. It has
some legal and general characteristics which separate it from other organizations.
The characteristics of a company can be summarized as follows:

1. Created by law: Company is a business organization which is formatted

with the prevalent Company Act of a country. “Company means a company
formed and registered under this Act or any existing company.”
-Sec 2(1), Company Act, 1994.

2. Artificial legal personality: Company is an artificial entity which is created

by law and has its own name and common seal to deal a contract or case
with the third party.

3. Separate legal entity: According to law, company’s entity is distinct from

the owner’s entity. For this distinction, it is not possible to blame the owners
personally for company’s liabilities.

4. Registration: Registration is compulsory for a company. After registration

under the applicable Act, company can start its activities.

5. Perpetual succession: A company’s succession doesn’t depend on the

shareholders’ succession for having separate entity. There is a proverb,
“Members may go, members may come but the company remains forever.”
6. Common seal: Though company can’t give a signature as like as an
individual in case of contracting with third party for that it uses a common
seal in lieu of signature. Here, at least 2 directors have to sign on behalf of
the company.

7. Registered office: Company must have a registered office from where it

conducts its activities. A notice has to published to the people in case of
changing office. (Section-77).

8. Number of members: According to Company Act, in case of Public limited

Co. the minimum number of members is 7 and maximum is limited by
shares. In case of Private limited Co. the minimum number of members is 2
and maximum is 50.

9. Share capital: The total amount of the capital of a company is divided

among many equal portions; every portion of that capital is called a share.
Company collects its capital by selling these shares.

10.Liability of the members: The liabilities of the members of a company are

limited by their purchased shares. But liabilities may also be limited by
assurance. (Section-5).

11.Management & Regulations: The management and ownership of a

company is totally different. The Board of Directors controls the
management. The activities of a company are mentioned in the
Memorandum of Association and Articles of Association.

12. Winding up: Though a company is formatted under an Act as well as it is

also wound up under that Act.

For above characteristics, a company has obtained universally more

acceptability than other organizations.
 Classification of Company

To remove the obstacles of sole proprietorship and partnership business, the

company was implemented. After that, for the growth and expansion of business
sector several types of company was created. Company is classified on the basis of
ownership, liabilities, formation, nature etc. which are described below:

A. Company on the basis of formation: Company is generally three (3) types

on the basis of formation. They are:

1. Chartered Company: It is the most back-dated company. The company

which is formatted by the Head of the Govt. or by the special permission
of the king or queen of a country or by the power of royal registration is
called a chartered company such as East-India Co., the Chartered Bank
Of England, Royal Nepal Airlines etc. This type of company is not seen
right now.

2. Statutory Company: The Company which is formatted and conducted

through special Act of parliament by the govt. for the welfare of people,
then it is called statutory company.
3. Registered Company: When a company is formatted and conducted
under the Company Act, then it is called registered company. Most of the
companies of Bangladesh is registered under Company Act, 1994.
There are 3 kinds of registered company, which are:

I. Company limited by shares: In these companies there is a share-

capital, and each share has a fixed nominal value which the
shareholders pay at a time or by installments. The member is not
liable to pay anything more than the fixed value of the share,
whatever may be the liabilities of the company.

II. Company limited by guarantee: In these companies, each member

promises to pay a fixed sum of money in the event of liquidation of
the company. This amount is called guarantee. Sometimes the
members are required to buy a share of a fixed value and also give
 a guarantee for a further sum in the event of liquidation. There is
no liability to pay anything more than the value of the share and
the guarantee.

III. Unlimited Company: In these companies the liability of the

shareholder is unlimited, as in partnership firms. Such companies
are permitted under the Company Act but are not known.

B. Company on the basis of liability: On the basis of liability of members there

are two types of company(Sec. 5) which are discussed below:

1. Company with limited liability: The liabilities of members of these types

of company remain limited till a fixed area. It has also 2 types:

 Company limited by shares

 Company limited by guarantee.

2. Company with unlimited liability: The Company whose members’

liabilities are unlimited indicates this type of company.

C. Company on the basis of number of members: On the basis of number of

members company can be classified into two categories:

1. Private Limited Company: A private company is just a private affair of

members and public at large is not involved at all. The minimum number
of members is 2 and maximum is 50.

2. Public Limited Company: A public company is a company the

membership of which is open to the general public under the provisions
of its Articles. Its shares are transferable. The minimum number of
members is 7 and maximum number is limited by shares.

D. Company on the basis of Ownership: Company is classified into two

categories on the basis of ownership:

1. Government Company: If the 51% or more shares are owned by the govt.
of a company, then it will be called Government Company. It is also
called Public Sector Company. Though it is formatted under the
 Company Act, but the conduction and management is directly controlled
by the govt. Example: DESA, WASA etc.

2. Non-government Company: The Company in which there is no

interfering of govt. in management and conduction, and then it is called
Non-government Company. It is also called Private Sector Company.
Example: BEXIMCO pharmaceutical ltd., Singer Bangladesh ltd. etc.

E. Company on the basis of Nationality: There are three kinds of company on

the basis of nationality:

1. Domestic Company: The Company which is formatted under the

Company Act of its state, then it is called the domestic company. This
type of company can conduct its business in the country or abroad.

2. Foreign Company: If a company formatted and registered in a company

but runs its business by establishing office and registering in another
country, then it is called foreign company. Example: Pan Pacific, Unicall
etc.

3. Multinational Company: The Company which is formatted and registered

under the ownership of one or more people of different countries is
known as multinational company. Example: Coca cola, HSBC, Unilever
Bangladesh ltd. etc.

F. Miscellaneous Company: There are some other companies except above:

1. Holding Company: The Company which owns more than 50% shares
of another company or control the management of another company,
then that company will be called holding Company.

2. Subsidiary Company: Any company owned or controlled by another

to the extent that it is a mere instrument to carry out the orders of the
owing Company, is called a subsidiary.

There are also some other company except the above such as non-business
company, special company etc.
 Private Ltd. Company VS Public Ltd. Company
Public Ltd. Co. and Private Ltd. Co. both are the companies which are limited by their
shares. Though both have perpetual succession and created under the Company Act but
there are some differences in their formation process and activities. The differences
between them are shown below:

No. Topic Public Ltd. Company Private Ltd. Company

01. Formation The formation procedure is Comparatively its formation
Procedure complex due to the excessive procedure is easy.
legal activities.
02. Number of Minimum 7 and maximum is Minimum 2 and maximum 50.
members limited by shares.
03. Scope & The owners live in a vast area Owners may be limited between
nature of and different kind of people family and friends.
ownership may be its member.
04. Size Normally it is a large sized It is a middle sized business.
business.
05. Secrecy Here maintaining secrecy isn’t Maintaining secrecy of business
possible. information is possible here.
06. Expansion Because of low risk, there is a Though risk is high so that there
facility good opportunity of expansion. is less scope of expansion.
07. Decision For bureaucratic problem the Here it is possible to take
making decision making process is decision and implement it fast.
time-costing.
08. Legal Here it is need to be followed Here the legal restrictimon is
restriction more legal restriction. less than the Public Ltd. co.
09. Safety of For lawful control the safety of Here the safety of members is
members members are more here. less than the Public Ltd. Co.
10. Use of the The word ‘Limited’ is only The word ‘Pvt. Ltd.’ is written
word written after this company. after this company.
‘Limited’
11. Preparation It can use ‘Table A’ instead of It is compulsory for this
of Articles Articles of Association. company to prepare Articles of
Association.
12. Issuing Issuing prospectus is No need to issue prospectus.
Prospectus compulsory here.
No. Topics Public Ltd. Co. Private Ltd. Co.
13. Minimum Public ltd. co. needs to collect Private ltd. co. can distribute
subscription minimum subscription before shares without minimum
distributing shares. subscription.
14. Capital It can collect shares by It can collect shares only from
collection addressing people for the members.
purchasing shares.
15. Share transfer Its shares are transferable. Its shares are not transferable.
16. Share warrant It can issue share warrant with It can’t issue share warrant.
the full value.
17. Issuing It can issue debentures to the It can’t issue debentures to the
debenture public. people.
18. Member’s list It is compulsory to make list if There is no need of keeping the
the number of members exceed member’s list.
over 50.
19. Number of Minimum number of directors Minimum number of directors is
Directors is 3. 2.
20. Director’s Directors are elected by the There is no exact rule to choose
Appointment shareholders through an the directors.
election.
21. Remuneratio Here the directors get the Here the directors get the
n of directors remuneration at a fixed rate. remuneration as they wish.
22. Director’s Here the directors have to take Here there is no regulation like
retirement compulsory retirement for 1/3 this.
portion of a year.
23. Statutory Here it is compulsory to call a Here it is not mandatory to call
meeting & meeting and reporting to the meeting and reporting.
reporting registrar within the determined
time.
24. Audit & It has to audit the annual No need to do these.
submission of accounts and submit one copy
Account to the registrar and
shareholders.
25. Changeability Public Ltd. Co. can’t be But this type of company can be
changed to the other forms. changed to Public Ltd. Co.

By above discussion we have discussed about the differences between Public ltd. Co. and
Private ltd. Co.
Meaning of a corporate veil
The principle of a separate legal entity of a company was recognized in the case of
Salomon v. Salomon and Co. Ltd (1897), which stated that a company has a
separate existence from its members. Thus, this concept protects the shareholders
from being personally liable for any wrong or obligations of the company.

Also, the Supreme Court in the case of Tata Engineering Locomotive Co. Ltd.
v. State of Bihar and others, held that a corporation is a natural person and has its
own existence. However, it is not always that the court is bound to take the
company as a separate legal entity.

Meaning of a corporate veil: a company is a legal person distinct from its members
or shareholders; this concept is the veil of incorporation. The court is usually not
willing to lift this veil to see who is under control. But on some occasions, the
court will disregard the concept of corporate entity and below are some of the
exceptions:

Statutory Provisions for Lifting the Veil-

Under the Statutory Provisions, the court will lift the corporate veil in the
following circumstances:

First, when the number of members becomes less than the required minimum fixed
by the companies Act 1994; if the company runs its business for more than six
months than the company shall be liable for all debts contracted within those six
months. Thus, under section 222 of the companies Act it ensures the right of
creditors seeing the number of members by lifting the corporate veil.

Second, as per section 259 of the companies Act if in the event of winding up of
company it appears that the business was carried out for fraudulent purposes then
the court will lift the veil for a public purpose and bring out the real culprit who
controlled the business fraudulently.

Third, section 225 of the companies Act 1994 provides the rule for authentication
of documents, and in any types of transactions, the name of the company shall be
specifically mentioned. Thus, if any director violates this rule and enters into and
contract without mentioning the name then on the application by the aggrieved
person, the court will make such person or director liable.

Fourth, the directors of a company are jointly and severely liable to repay the
application money with interest if the company fails such to refund of those
applications which have not allotted shares within 130days of issue of prospectus
than the court shall enter into this fact.

And finally, under section 187 the court may treat the subsidiary company as the
only branch of holding company if found any fraud from them. As a general rule,
the subsidiary company and the holding company are treated as a separate legal
entity.

Judicial Provisions or Grounds for Lifting the Veil-

The following instances under the judicial interpretation and case laws regarding
the lifting of the corporate veil:

First, every company must pay taxes as it is the public revenue and if it is found by
the court that the company if formed for evading taxes or ignoring tax obligations
then the court shall lift the corporate veil without taking into consideration its
separate legal entity and hold the persons liable behind this as seen in the case of
Sir Dinshaw Maneckjee petit, (1927) .

Second, law does not permit what is against the public interest. This philosophy is
also applied in relation to the formation of the company. Where it is found that the
machinery of incorporation of a company used to defraud creditors or defeat law
than the court will take legal action against such company by ignoring its separate
legal entity. This principle has been well-founded in Jones vs. Lipman (1962),
where the court looked into the reality of the situation and ignored the transfer for
public policy.

Third, where it is found that the company has incorporated and until then avoided
its legal obligations, the court can disregard the legal personality of the company
and will proceed as if no company existed by that name.
Fourth, if a person controlling the affairs of a company is an enemy of the country,
the court may in its discretion examine the character of the person and may declare
the company to be an enemy company. In Daimler Co. Ltd. Vs. Continental
Tyre and Rubber Co. Ltd. (1916) the court declared a company an enemy
company because the payment of the debt amount to trading with the enemy and
therefore the company was not allowed to proceed with the action.

Fifth, the court will lift the corporate veil where it finds that the company is a mere
cloak or sham. This precedent can be seen in the case of Gilford Motor Co. Ltd.
Vs. Horne (1933) Where the former employee agreed with a company not to
solicit its customers but went on to opening a company and breaching the
agreement as a result. Under the circumstances, the court issued an injunction and
restrained them from carrying on the business.

In conclusion, it can be said that the company enjoys its separate legal entity by
owning or selling properties. It can also be sued and sue if any criminal offence is
committed or made up the by people acting as agents of the company by using the
‘seal of the company’ then the members or shareholders committing fraud or such
acts shall be liable under the Companies Act 1994. As such, when a person
commits offences in the name of a company, the court, where necessary will
uncover the legal personality behind the veil and will make them liable.