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Origin and development of Company Law In India

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.

History:
  • 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 Companies Act.
  • 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 schedules.
  • 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 2013.

Origin:
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.

Meaning:
  • 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.

Definition: 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;
  1. 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.)
     
  2. 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:
Incorporated Association:
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 Succession:
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 succession.

Common Seal:
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.

Separate Property:
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 the property.

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.

Case Laws:
Mr. Salomon Vs. Salomon & Co. Ltd.

Introduction;
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.

Facts;
  • Mr. Aron Salomon has a sole proprietorship of his leather boots and shoes business.
  • 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 liabilities.
  • Salomon's liability 10,000 and Unsecured Creditor's liability 7,000.

Issue Raised:
  • 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?

Arguments;
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.

Judgment;
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 as follows;
    • Royal Charter Company
    • Statutory Companies
    • Registered Companies
       
  • On the basis of liabilities; There are three different kinds of company such as follows;
    • 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 follows;
    • 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

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