Business Law

Companies Act, 1956. Section 3(1) of the Companies Act 1956 defines a company as: “A Company means a company formed and registered under this Act or an existing company.” When a company is registered, it gets a legal personality. It enjoys the same rights and powers as a human being. Its existence is distinct from that of its members. Members may die or change, but the company goes on till it is wound up on the grounds specified by the act. In other words, it means that, company has perpetual succession. A company can own property, open a bank account, raise loans, enter into contracts and incur liabilities. The members of the company can enter into contract with the company, acquire rights against it, or even incur liability to it. For the debts of the company, only the creditors can sue it and not its members. The company is an artificial person. Thus, it can act only through some human agency, that is, the board of directors. The board of directors of the company are not the agents of the members. The company has a common seal to authenticate its acts. Types of companies: Company may be incorporated as a private or a public company, depending upon the number of members joining it. It may either be an unlimited company, or a company limited by shares, or a company limited by guarantee, or both. On the basis of control, companies can be classified as holding company and subsidiary company. The other types of companies are Foreign company, non-profit making company, government company, and one man company. Company limited by shares: When the liability of the members of the company is limited by its memorandum of association, to the amount, if any, unpaid on the shares held by them, it is known as the company limited by shares. It implies that, for meeting the debts of the company, the shareholder may be called upon to contribute only to the extent of the amount that remains unpaid on his shareholdings. His legal property cannot be taken in for meeting the debts of the company. Though shareholder is an of the company, he is not the owner of the company’s assets. The ownership of the assets Of the company remains with the company because of its nature as a separate legal person. The extent of rights and duties is measured by the extent of the holdings of the shareholder.

Company limited by guarantee: