Nature of Company: Companies Act 1956

Nature of Company
with reference to
Companies Act 1956
Presented By:
Arnima Srivastava
IMB2010041
Company-
A group of persons associated together
for attainment of a common end, social or
economic.
It represents different kinds of
associations, both business and
otherwise.
Registered company-
The term registered company means a
company incorporated under Companies
Act, 1956 or some earlier Companies Acts.
Companies incorporated under Companies
Act, 1956 are mostly business companies
but they may also be formed for promoting
art, charity, research, religion, commerce,
or any other useful purpose.
DEFINITION OF A
COMPANY
Definition-
“An association of many persons who contribute money or
money’s worth to a common stock, and employ it in some
common trade or business (i.e., for a common purpose),
and who share the profit or loss (as the case may be)
arising therefrom.
The common stock so contributed is denoted in money
and is the capital of the company.
The persons who contribute it, or to whom it belongs, are
members.
The proportion of capital to which each member is entitled
is his share.
Shares are always transferable although the right to
transfer them is often more or less restricted.”
-Lindley, L.J.
Definition-
“A person, artificial, invisible,
intangible and existing only in the eyes of
the law.
Being a mere creation of law, it possesses
only those properties which the charter
of its creation confers upon it either
expressly or as accidental to its very
existence.”
-Chief Justice Marshall
CHARACTERISTICS OF A
COMPANY
Characteristics of a company-
• Separate legal entity
• Limited liability
• Perpetual succession
• Common seal
• Transferability of shares
• Separate property
• Capacity to sue
1) Separate legal entity-
• Independent corporate existence.
• Members can enter into contracts with
the company.
• Liability for the acts of the company.
• Company’s money and property.
Consequences of the principle-
• S has no insurable interest in the property
of S & Co. Limited.
• When S dies, the company continues to
exist. His shares and not the assets of the
company, vest in his personal
representatives.
• The nationality of the company does not
depend on the nationality of S.
2) Limited Liability-
• Limited liability for business debts-
principal advantage.
• The liability of the members of a company
to contribute towards the satisfaction of
the company’s debts and liabilities is
limited (except for an unlimited company).
• A company may be-
A company limited by shares,
A company limited by guarantee.
3) Perpetual succession-
• A juristic person with perpetual succession.
• It never dies; nor does its life depend on the
life of its members.
• Insolvency, mental disorder or retirement of
any of its members does not affect it.
• Created by a process of law and can be put to
an end only by a process of law.
• A COMPANY’S EXISTENCE PERSISTS
IRRESPECTIVE OF THE CHANGE IN THE
COMPOSITION OF ITS MEMBERSHIP.
4) Common seal-
• Official signature of the company.
• Being physically inexistent, company must
act through its agents.
• All contracts entered into by its agents
must be under the seal of the company.
5) Transferability of shares-
• Company’s capital is divided into parts-
SHARES.
• Subject to certain conditions shares are
freely transferable.
• Advantage- No shareholder is
permanently or necessarily wedded to
the company.
6) Separate property-
• Being a distinct legal person from its
members, a company is capable of
owning, enjoying and disposing of
property in its own name.
• Shareholders are not the private and joint
owners of company’s property.
7) Capacity to sue-
• A company can sue and be sued in its
corporate name.
• May also inflict or suffer wrongs.
• Can in fact do or have done to it most of
the things which may be done by or to a
human being.
LIFTING OR PIERCING
THE CORPORATE VEIL
From juristic point of view, a company
is a legal person distinct from its members
[Saloman v. Saloman & co. ltd.]
This principle is referred to as “the veil
of incorporation”
Effect- There is a fictional veil (and not a
wall) between the company and its
members.
• Use of corporate veil as a cloak for fraud
or improper conduct.
• Lifting of the corporate veil by the Courts.
• And while by fiction of law a corporation

is a distinct entity, yet in reality it is an
association of persons who are in fact the
beneficial owners of all the corporate
property.
In United States v. Milwaukee Refrigerator Co.,
the position was summed up as follows-
“A corporation will be looked upon as a

legal entity as a general rule…………but
when the notion of legal entity is used to
defeat public convenience, justify wrong,
protect fraud or defend crime, the law
will regard the corporation as an
association of persons.”
Exceptions to the veil of incorporation-
• Protection of revenue
• Prevention of fraud or improper conduct
• Determination of character of a company
• Where the company is a sham
• Company avoiding legal obligations
• Company acting as agent or trustee of the
shareholders
• Avoidance of welfare legislation
• Protecting public policy
Statutory exceptions to the veil
of incorporation-
• Number of members below statutory
minimum
• Failure to refund application money
• Misdescription of company’s name
• Fraudulent trading
• Holding and subsidiary companies
ADVANTAGES OF
INCORPORATION
Advantages of Incorporation-
• Limited liability
• Transferability of shares
• Separate legal entity
• Control
• Management
• Dealing between members and the
company
COMPANY
DISTINGUISHED FROM
PARTNERSHIP
Principal differences between a
company and a partnership-
• Regulating act
• Mode of creation
• Legal status
• Liability of members
• Management
• Transferability of interest
• Authority of members
Difference continued….
• Powers
• Insolvency of firm & winding up of
company
• Debts
• Dissolution
• Number of members
• Maintenance of books
THANK YOU…………

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Nature of Company

• Lifting of the corporate veil by the Courts.

• And while by fiction of law a corporation

“A corporation will be looked upon as a

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