2. Company…Definition
• A company is a voluntary association of
individuals formed for some common
purpose.
• It has capital divisible into parts, known as
shares.
• Artificial person created by process of law
3. Characteristics of a company
• Separate Legal entity – It has an entity
separate from its members. Any of its
members can enter into contracts with it in
the same manner as any other individual
can. The company’s money & property
belong to the company & not to the
shareholders. Similarly the company’s
debt are the debt’s of the company.
4. Case : Salomon v. Salomon & Co.
Ltd
• S sold his boot business to a newly formed company for
pound 30,000. His wife, one daughter & four sons took
up 1 share of 1 pound. S took 23,000 shares of 1 pound
each and 10,000 pound debentures
( secured) in the company. Subsequently when the
company wound up, its assets were found to be worth
6000 pound & its liabilities amounted to 17,000 pound of
which 10,000 pound were due to S & 7000 pound due to
unsecured creditors. The unsecured creditors claimed
that S & the company were one & the same person &
hence they should be paid in priority to S. Held the
company is a separate legal entity.
5. • Limited Liability – A company may be a
company
1. Limited by shares - the liability of the
members is limited to the unpaid value of
the share.
2. Limited by guarantee – The liability of
members is limited to such amount as
the members may undertake to
contribute to the assets of the company,
in the event of its being wound up.
6. • Perpetual Succession – a company’s
existence persists irrespective of the
change in the composition of its
membership. A company never dies, nor
does its life depend on the life of its
members. It is created by the process of
law & can be put to an end only by the
process of law. Members may come & go,
but company can go on for ever.
7. • Common Seal – Company has no
physical existence, it must act through its
agents & all the contracts entered into by
its agents must be under the seal of the
company.
• Transferability of shares – The capital of
a company is divided into parts known as
shares. These shares are freely
transferable.
8. • Separate Property – Co. is a separate
legal entity so it is capable of owning,
enjoying & disposing of property in its own
name. Although its capital & assets are
contributed by its shareholders.
• Capacity to sue – A company can sue &
be sued in its corporate name.
9. Lifting or piercing the
corporate veil
Protection of revenue- tax
Prevention of fraud- land transfer
Determination of character of company
whether it is enemy- in diff country
Whether the company is a mere cloak or
sham
Company avoiding legal obligations
Company acting as agent of the
shareholders
Avoidance of welfare legislation
Protecting public policy
10. STATUTORY EXCEPTIONS
Number of members below statutory
minimum- below 7 in public and 2 in
pvt more than 6 months
Failure to refund application money-
within 130 days, liable with interest
Misdescription of company’s name
Fraudulent trading with creditors at
winding up
Holding and subsidiary company
