Law study session

1. INTRODUCTION TO BUSINESS LAW
COURSE CODE: BUS 360
SECTION: 07
Course Instructor: Afnan Ashfaque
LECTURE 10:
COMPANY LAW: INTRODUCTION
SOURCE: BOOK 11: CHAPTER 1, COMMERCIAL LAW AND INDUSTRIAL LAW, 27TH EDITION
BY ARUN KUMAR SEN AND JITENDRA KUMAR MITRA

2. What is a company?
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An association of many persons who contribute
money or money’s worth to a common stock
and employ it for a common purpose. 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.

3. What do we understand by the
following statmenets?
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A company formed and registered under the
Companies Act possesses a legal personality.
It is regarded by law as a single person,
having specified rights and obligations.
Because the law confers on a company a
distinct personality, a company is a totally
different person or thing or entity from its
members or the individuals composing it.

4. Case: Salomon v. Salomon & Co.
Ltd
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Salomon had a business in boot manufacture. He formed
a company called Salomon & Co. (with himself, his
wife, daughter and 4 sons as shareholders) and
transferred to it his business. As consideration for the
transfer he received the major portion of the shares of
the company and debentures for £10,000. Later on, the
company went into liquidation. Salomon claimed, out of
the assets of the company, the payment of the amount
covered by the debentures (£ 1 0,000). The unsecured
creditors of the company objected on the ground that the
business really belonged to Salomon and he should not
be allowed to claim as a secured creditor. It was held
that Salomon, as an individual, was quite distinct from
Salomon & Co. and he could therefore be a secured
creditor of the company, even though he happened to
hold majority of the shares.

5. Partnership VS Company
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1. Registration: A company comes into existence only
after registration under the Companies Act. In the
case of a partnership, registration is not compulsory.
2. Minimum no of members: The minimum number of
persons required to form a company is 2 in the case
of private companies and 7 in the case of public
companies. The minimum number of persons
required to form a partnership is 2.
3. Max no of members: A public company may have
any number of members. A private company cannot
have more than 50 members. A partnership carrying
on banking business cannot have more than 10
members and partnerships carrying on other types
of business cannot have more than 20 members.

6. Partnership VS Company
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4. legal status : A company is regarded by law as a
single person. It has a legal personality. A partnership
is a collection of individuals. It is not considered to be
a single person.
5. Contractual capacity: The shareholder of a company
can enter into contracts with the company and can be
the employee of the company. Partners can contract
with other partners but not with the firm as a whole.
6. Management: A partnership firm is managed by the
partners themselves. The work of management can
be distributed among them .in any manner they like. A
company is managed by the Board of Directors or
Managing Agents or Managing Directors who are
selected in the manner provided by the Act. The
shareholder, as such, cannot participate in the
management.

7. Partnership VS Company
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7. Length of existence: A company has perpetual
succession. The death or insolvency of a
member does not affect its existence. A
partnership, in the absence of a contract to the
contrary, comes to an end when a partner dies
or becomes insolvent.
8. Liability of members: The liability of the
members of a partnership for the debts of the
firm is always unlimited. The liability of the
members of a company is usually limited.

8. Partnership VS Company
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9. Liability of firm and company: The creditors of
a firm are creditors of the individual partners,
and a decree obtained against a firm can be
executed against the individual partners. The
creditors of a company are not creditors of the
individual shareholders and a decree obtained
against a company cannot be executed
against any shareholder. It can only be
executed against the assets of the company.

9. Partnership VS Company
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10. Transferability: A partner of a firm cannot
transfer his interest in the firm to an outsider and
make the transferee a partner without the consent
of all the other partners. The shareholders of a
company can ordinarily transfer his share and the
transferee becomes a member of the company.
11. Statutory obligations: A company is required to
comply with various statutory obligations
regarding management e.g., filing balance sheets,
maintaining proper account books and registers.
In the case of partnerships there are no such
statutory obligations.

10. Partnership VS Company
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12. Authority of members: The property of a
partnership is the joint property of the partners.
Each partner has authority to bind the firm by
his acts. The property of the company belongs
to the company. A shareholder in his individual
capacity cannot bind the company in any way.