M1 T1Introduction to Company.pdf

1. Introduction to
Company

2. Introduction
• Business may be understood as the organized efforts of an
enterprise to supply consumers with goods and services for a
profit.
• Businesses vary in size, as measured by the number of employees
or by sales volume etc.
• But, all businesses share one common purpose that is to earn
profits.
• The purposes of business that goes beyond earning profits are:–
• an important institution in society
• for the supply of goods and services
• creating job opportunities
• offering better quality of life
• contributing to the economic growth of the country

3. • The success of every business depends on adapting itself to
the environment within which it functions.
• change in the government polices, change in the technology,
fashion or customers’ taste.
• Types of business environment:
Internal
External

4. FEATURES OF BUSINESS
ENVIRONMENT
Totality of
External
Forces
Dynamic
Nature
Specific and
General
Forces
Uncertainty
Multi-faceted
Relativity

5. Introduction to Company
• A Company form of business organisation is a voluntary association of
persons to carry on business.
• It is an association of persons who generally contribute money for some
common purpose.
• The money so contributed is the capital of the company.
• The persons who contribute capital are its members.
• The proportion of capital to which each member is entitled is called his
share, therefore members of a company are known as shareholders and
the capital of the company is known as share capital.
• As per Sec. 2(20) of the Companies Act, 2013, ‘company’ means a
company incorporated “under this Act”; or “under any previous company
law”

6. • derived from the Latin word (Com=with or together; panis =bread).
• It originally referred to an association of persons who took their meals
together.
• In the leisurely past, merchants took advantage of festive gatherings,
to discuss business matters.
• Nowadays, the business matters have become more complicated and
cannot be discussed at festive gatherings.
• a company denotes an association of likeminded persons formed for
the purpose of carrying on some business or undertaking.

7. • A company is not merely a legal institution. It is rather a legal
device for the attainment of social and economic end.
• It is, therefore, a combined political, social, economic and
legal institution.
• “It is a means of cooperation and organisation in the conduct
of an enterprise”.
• It is “an intricate, centralised, economic and administrative
structure run by professional managers who hire capital from
the investor(s)”.

8. Features of a Company
• CORPORATE PERSONALITY: bears its own name, acts under name,
has a seal of its own and its assets are separate and distinct from
those of its members.
• a company is recognized as a legal entity distinct from its
members. A company with such personality is an independent
legal existence separate from its shareholders, directors, officers
and creators.
• As a result of corporate personality, a company has perpetual
succession. It simply means the company is everlasting and will
continue to do business until it is properly wound up.
• the entity acts like a natural person but only through a
designated person, whose acts are processed within the ambit
of law [Shiromani Gurdwara Prabandhak Committee v. Shri Sam
Nath Dass AIR 2000 SCW 139]

9. • INDEPENDENT LEGAL EXISTENCE: A company has a legal entity distinct
and separate from its constituent members (shareholders).
• It is an autonomous body, self-controlling and self-governing. It can hold
and deal with any type of property of which it is the owner, in any way it
likes.
• It can enter into contracts, open a bank account in its own name, sue and
be sued (floating Services Ltd v. M. V. San Fransceco Dipalola 2004) by its
members as well as outsiders.
• Saloman v. Saloman & Co 1895 – 99 All ER Rep 33.
• Re Kondoli Tea Co. Ltd, (1886) ILR 13 Cai. 43
• M/s. Electronics Corporation of India Ltd. v. Secretary, Revenue
Department AIR 1999 SC 1734.
• Abdul Haq v. Das Mai AIR 1946 All 200

10. • PERPETUAL SUCCESSION: notwithstanding any change in its members,
the company shall retain as the same entity with the same privileges
and immunities, estate and possessions.
• Perpetual- forever
• the death or insolvency of individual member does not in any way,
affect its corporate existence and the company shall continue its
existence as usual until it is wound up.
• “members may come and members may go, but the company can go
on for ever.”
• It has no allotted span of life.
• Gopalpur Tea Co. Ltd. v. Penhok Tea Co, Ltd (1982) 52 Comp. Out. 238,

11. • SEPARATE PROPERTY: Incorporation helps the property of the
company to be clearly distinguished from that of its members.
• The property is vested in the company as a body corporate, and
no changes of individual membership affect the title.
• In case of a company, it being a legal person is capable of
owning, enjoying and disposing of property in its own name.
• The company becomes the owner of its capital and assets.
• Bacha F Guzdar v. CIT Bombay(1955) 1 SCR 876.
Macaura v. Northern Assurance Co Ltd [12] 1925 AC 619 HL.

12. • COMPANY AS A PERSON: A Company is an artificial person
created by law. It is not a human being but it acts through
human beings.
• It is considered as a legal person which can enter into contracts,
possess properties in its own name, sue and can be sued by
others etc.
• It is called an artificial person since it is invisible, intangible,
existing only in the contemplation of law. It is capable of
enjoying rights and being subject to duties.
• Union Bank of India v. Khader International Construction and
Other [(2001) 42 CLA 296 SC]

13. • Company as a citizen: The company, though a legal person, is
not a citizen under the Citizenship Act, 1955 or the Constitution
of India.
• In State Trading Corporation of India Ltd. v. C.T.O., A.I.R. 1963
S.C. 1811, the Supreme Court held that the State Trading
Corporation though a legal person, was not a citizen and can act
only through natural persons. Section 2(f) of Citizenship Act,
1955 expressly excludes a company or association or body of
individuals from citizenship.
• Nationality and Residence of a Company: Though it is
established through judicial decisions that a company cannot be
a citizen, yet it has nationality, domicile and residence.
• In Gasque v. Inland Revenue Commissioners, (1940) 2 K.B. 88,
Macnaghten. J. held that a limited company is capable of having
a domicile and its domicile is the place of its registration and
that domicile clings to it throughout its existence.
• Tulika v. Parry and Co., (1903) I.L.R. 27 Mad. 315

14. LIFTING UP OF CORPORATE
VEIL
• Corporate Veil: A legal concept that separates the personality of a
corporation from the personalities of its shareholders, and protects them
from being personally liable for the company’s debts and other
obligations.
• Where a false and deceptive utilize is
made of the legitimate entity, the people
concerned won’t be permitted to take
shield behind the corporate personality.
• In this respects, the court will get through the corporate shell and apply
the guideline of what is known as “lifting or piercing the corporate veil.”

15. • It refers to the situation where a shareholder is held liable for its
corporation’s debts despite the rule of limited liability and/of
separate personality.
• two main ways through which a company becomes liable in
company or corporate law:
firstly through direct liability (for direct infringement) and
secondly through secondary liability (for acts of its
human agents acting in the course of their employment).
• possibility of looking behind the company’s framework to make
the members liable, as an exception to the rule that they are
normally shielded by the corporate shell

16. • Life Insurance Corporation of India v. Escorts Ltd. [1986] 59
Comp.Cas. 548 “It is neither necessary nor desirable to
enumerate the classes of cases where lifting the veil is
permissible, since that must necessarily depend on the relevant
statutory or other provisions, the object sought to be achieved,
the impugned conduct, the involvement of the element of
public interest, the effect on parties who may be affected, etc.”

17. Lifting of Corporate Veil under
Judicial Interpretation
• Where the corporate veil has been used for commission of fraud or
improper conduct. In such a situation, Courts have lifted the veil and
looked at the realities of the situation.
• In Jones v. Lipman, (1962) I. W.L.R. 832
• Where a corporate facade is really only an agency instrumentality.
• Re. R.G. Films Ltd. (1953) 1 All E.R. 615
• Where the conduct conflicts with public policy, courts lifted the
corporate veil for protecting the public policy.
• Connors Bros. v. Connors (1940) 4 All E.R. 179
• Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916) 2 A.C. 307

18. • Where it was found that the sole purpose for which the
company was formed was to evade taxes the Court will ignore
the concept of separate entity and make the individuals
concerned liable to pay the taxes which they would have paid
but for the formation of the company.
• Re. Sir Dinshaw Manakjee Petit, A.I.R. 1927 Bombay 371
• Sole purpose for the formation of the new company was to use it
as a device to reduce the amount to be paid by way of bonus to
workmen.
• The Workmen Employed in Associated Rubber Industries Limited,
Bhavnagar v. The Associated Rubber Industries Ltd., Bhavnagar and
another, A.I.R. 1986 SC 1. The Supreme Court of India held that the
new company was formed as a device to reduce the gross profits of
the principal company and thereby reduce the amount to be paid
by way of bonus to workmen.

19. • Liability would arise on its failure to perform the
constitutional duties and the functions of these undertakings.
• Kapila Hingorani v. State of Bihar, 2003(4) Scale 712
• Where the defendant used the corporate structure as a device
or facade to conceal his criminal activities (evasion of
customs and excise duties payable by the company), the Court
could lift the corporate veil and treat the assets of the
company as the realisable property of the shareholder.

20. • US v. Milwaukee Refrigerator Co.
• Gilford Motor Comp v. Horne 1933
• Life Insurance corp of India v. Escorts 1986
• Delhi Development Authority v. Skipper Constructions Ltd
1996
• In order to know the real state of affairs- Subhra case
• Littlewoods Mail order Stores Ltd v. Inland Revenue 1969
• State Trading Corp of India v. Commercial Tax Officer 1963
• TATA e and L Co Ltd v. State of Bihar 1965