Company Law is a wider concept based on commercial law. It states about all
legal rights, relation, and conduct of a persons, companies, organizations &
businesses and its formation, funding, governance & death of a corporation.
- The concept of company act taken from English Companies Act, 1844.
- The first company legislation in India was passed in 1850 known as a Joint Stock
- This Act was replaced by the Joint Stock Companies Act, 1857 which introduced
the principle of limited liability for the first in India.
- This act again as a Joint Stock Companies Act, 1860 modified by addition the
principle to banking companies.
- In 1866 the first comprehensive Act provided for the incorporation, regulation
and winding up of companies.
- The 1866 Act was recast in 1882 and remained in force till 1913.
- Later on the Indian Companies Act, 1913 was passed followed by the English
Companies Act, 1908.
- After that this act was amended and recasted several times almost every year.
- Finally the Companies Act, 1956 was passed and came into force 1st April 1956
based on the English Companies Act, 1943. It consists of 658 sections and 13
- After 25 amendments the Companies Act, 2013 passed by Parliament by
introducing a new Company Bill. It came into force on the 29th of August
The word "company" is derived from two Latin words that are "com" & "panis"
which means "together" & "bread" respectively. So it literally means that a
company is an association of a person who took their meals together.
- Company simply means an incorporated association of a person.
- Here, person means there are two types of person;
- Natural Person - It is created by nature for example; human beings.
- Artificial or Legal Person - It is created by law for example; firms, companies,
trusts, LLP etc.
According to section 2 clause 20 of the Companies Act, 2013 a "company" means
association of a person formed or registered under either present company laws,
that is Companies Act, 2013 or previous company laws, that is Indian Companies
Act, 1956/1913/1882 etc.
Here, Association of Person (AOP) belong to two different types;
- Incorporated AOP:
A single person distinct from the members constituted it.
Having such legal rights to make a contract and also can purchase any property
etc. It can come into existence through either the company legislation (ex- RIL,
TCS, SAIL, TATA etc.) or by special act of Parliament called statutory
corporation (ex- LIC, GIC, SIDBI, ICSI, ICAI etc.)
- Unincorporated AOP:
Mere collection/aggregation of individuals for example
partnership firms. Means that are not registered under the act and don't have
any legal identity.
According to Haney, A company is an artificial person created by law having a
separate entity with a perpetual succession and common seal.
Important features of a company under Company Law:
Means it must be registered under present Companies
Act, 2013 or previous Indian Companies Act, 1956 and others.
Separate Legal Entity:
It means an independent person who acquires such rights
and powers as a human being. Every company, whether private limited or public
limited, must be registered and get its own legal identity. And there are veils
between the company & its members.
Perpetual means 'forever'. So that Once a company is
created by process of law it can be ended only by the process of law. Members of
a company may transfer their shares, and the name of the transferee is entered
in the register a member may die, then his successor occupies his place, same in
the case of Insolvency. This character of the company is called perpetual
It is nothing but an official signature of a company just like a
stamp. Company seal is affixed on the document of the company. It can be used as
evidence to sue in court.
Limited Liability: Liabilities of members in a company are always limited upto
their shares in the company. Here liability means a legal responsibility or
obligation to do a thing or to refrain from doing something.
A company can hold property, acquire, sell, lease, mortgage,
gift or otherwise transfer a property in its own name because of its legal
identity. It simply means that a company can be transferor or a transferee of
Company can sue or can be sued:
A company is a legal person who can file a suit
against another and against whom a suit can be filed in his name. Any one can
sue the company and the company can also sue others.
Mr. Salomon Vs. Salomon & Co. Ltd.
This is a landmark case under UK company law. To uphold doctrine of corporate
personality under Companies Act, 1862.
In this case it established the concept of separate legal personality of a
company that allowed shareholders to carry on trading with minimal exposure to
the risk of personal insolvency in the event of collapse.
- Mr. Aron Salomon has a sole proprietorship of his leather boots and shoes
- Later on he turned the business into a limited liability company at � 38,000.
Total shares of the company � 40,000 and value of one share � 1.
- There are total 7 subscribers;
- Salomon - owner of 20,000 shares and 10,000 debentures, his Wife has 1 share,
One Daughter has 1 share, and Four Sons has 1 share each.
- After one year the company was liquidated with � 6,000 assets and � 17,000
- Salomon's liability � 10,000 and Unsecured Creditor's liability � 7,000.
- Was the formation of Salomon's company a fraud intended to defraud the creditor?
- Whether the company is considered to be an artificial person created by law?
- Whether the person can be liable for debts of the company?
- Whether the company purchases its own separate properties?
- Whether the limited liabilities of a company falls to whom?
Unsecured creditor claim as a first right to receive because there is no
separate legal existence and the company was acting as Salomon's agent.
The court said that on incorporation the company becomes an independent legal
person and not an agent of Salomon. Salomon, as a debenture holder of the
company, was ought to get priority in payment over the unsecured creditor.
Kinds Of Company:
There are a variety of companies in the Indian market which may contribute to
economic growth and development towards the nation. According to section 2 of
the Companies Act, 2013 defines the various kinds of Company and their
classification based on factors such as incorporation, liabilities, number of
members, control, transferability of shares etc.
- On the basis of incorporation; There are three different kinds of company such
- Royal Charter Company
- Statutory Companies
- Registered Companies
- On the basis of liabilities; There are three different kinds of company such as
- Companies Limited by Shares
- Companies Limited by Guarantee
- Unlimited Liability Companies
- On the basis of number of members; There are three different kinds of
company such as follows
- Public Company
- Private Company
- One Person Company
- On the basis of domicile; There are two different kinds of company such as
- Foreign Company
- Indian Company
- On the basis of other new kinds of company; There are eight different kinds of
company such as follows;
- Section 8 Company
- Government Company
- Small Company
- Subsidiary Company
- Holding Company
- Associate Company
- Producer Company
- Dormant Company