A company or a corporation is an artificial person created by law.
The word “company” means an association of a number of persons, formed for some common purpose and registered according to the law relating to companies. Any formal business entity for profit, which may be a corporation, a partnership, association or individual proprietorship. Often people think the term “company” means the business is incorporated, but that is not true. In fact, a corporation usually must use some term in its name such as “corporation,” “incorporated,” “corp.” or “inc.” to show it is a corporation.1
A Corporation is an entity, having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely; a group or succession of persons established in accordance with legal rules into a legal or juristic apart from them, who make it up, exists indefinitely apart from them, and has the legal powers that is constitution gives it. It is formed with state governmental approval to act as an artificial person to carry on business (or other activities), which can sue or be sued, and (unless it is non-profit) can issue shares of stock to raise funds with which to start a business or increase its capital.
Corporations’ law or corporate law is the field of law concerning the creation and regulation of corporations and other business organizations. A corporation is a legal entity that is legally treated, in certain instances, as a person; the corporation can own property, execute contracts, sue, and be sued. In British practice, corporate law is more often called company law.
Corporate law also includes the law governing the relationships among various constituents of a corporation such as shareholders, directors and management.2
Formation of A Company: A company will come into existence on registration. Several steps should be taken before a company formed. Firstly– Memorandums of association will be abolished for new companies. the memo and articles must be prepared; the company must be registered in accordance with the provision of the company Act 1956. Today, corporations are usually registered with the state, province, or national government and become regulated by the laws enacted by that government. For public company public then the Prospectus must be issued in newspaper & registered with the Registrar. In the prospectus their must be time, particulars ,date, signature of all directors, allotment of shares, statement by expert, registration, terms of contracts ,penalties of non- complies etc.3
3COMMERCIAL LAW AND ISDUSTRIAL LAW, page-587
The Memorandum & Articles of Association: Memorandums of association is the foundation of the company on which the whole structure of the company build up. It contains rules regarding the capital structure, the liability of the members, the objects of the company, and all other important matters relating to the company. Through the memorandum creditors and the public can know what its powers are and what is the range of its activities. Articles of association are the document which has, in the case of some companies, to be registered along with the memorandum. It contains rules, regulations and bye-laws regarding the internal management of the company. It is a subordinate to Memorandum, must be read in conjunction with the articles& the term of Memorandum con not modified by the articles.4
Ownership and control: Shareholders or stockholders are the people who have the right to vote or share in the profit of corporations or a company. In the case of for-profit corporations, these voters hold shares of stock and are thus called shareholders or stockholders. When no stockholders exist, a corporation may exist as a non-stock corporation, and instead of having stockholders, the corporation has members who have the right to vote on its operations. If the non-stock corporation is not operated for profit, it is called a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not provided to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals. In addition to the influence of shareholders, corporations can be controlled (in part) by creditors such as banks. In return for lending money to the corporation, creditors can demand a controlling interest analogous to that of a member, including one or more seats on the board of directors. Members of a corporation (except for non-profit corporations) are said to have a “residual interest.” Should the corporation end its existence, the members are the last to receive its assets, following creditors and others with interests in the corporation. In addition, shareholders receive the benefit of limited liability regulations, making shareholders liable for only the amount they contributed. This only applies in the case of for-profit corporations; non-profits are not allowed to have residual benefits available to the members.5
Directors: There are two broad classes of corporate governance forms in the world. In most of the world, control of the corporation is determined by a board of directors are elected by the shareholders. Directors to have the power to manage the business of the company and do all things necessary for that purpose.
4 Both are the public documents. All types of information like –the total capital, the name and role of the directors, conducting process, the shareholders duty, the regulation of the authority, the punishments, and so on have written, in these documents.
5 From Wikipedia, the free encyclopedia
The number of directors to be appointed to the Board of directors of a Company is determined by the articles. The Act provides that there must be at least 3 directors in a Public Company and at least 2 directors in other Companies.6
Meeting & Resolutions: Statutory meeting, the first meeting of the shareholders of a public company has to be called within the 6 months from the first starting time. Every year the company must be held a Annual General Meeting (AGM) .This AGM is an important institution for the protection of the shareholder of the company .Moreover in this meeting some of the directors will retire & come up for re- elect. It is mandatory for the directors to present in the AGM, other wise he must be penalized. Some other meeting also takes place but for that obviously have to give 21 or 14 days notice.
Accounts & Audit: According to section 209, it will be the duty of every company to produce or maintain a account book, for the company’s daily transitions. Every year the company has to prepare a Financial Statement (Income statement, Cash flow, Balance sheet) at a certain date, & calculate their profit or loss .After that the company called the AGM & decided what amount of dividend will pay to the shareholders .The Auditors of a company are appointed at its AGM. An auditor appointed at once annual general meeting & hold office until next AGM .The Act provides that every audit of a company shall have a right of access at all time to the books, and accounts, vouchers of the company.7
Winding UP: When any shareholders or owner wants to shutdown or the company incurred loses, unable to pay its debt, or any default is found with the Registrar or the vision can’t be achieved then the shareholders can wind up the company by distributing the assets among creditors and shareholders according to the Act. There are three methods of winding up a company. – (a) Compulsory winding up under the order of the Tribunal. (b) Voluntary winding up- member’s voluntary or creditor’s voluntary, (c) Voluntary winding up under the supervision of the court. Any one weather a company or creditor or creditors can apply for winding up. After the justification of the application then Court appointed a liquidator whose duty is to take all charges of the company and complete the whole winding up process. Moreover he does not exist as a legal person until registration.
6A certain minimum numbers shares, which are called “Qualification Shares”, must be had by directors for the appointment. Directors to have the power to declare a dividend and be able to authorize payment of an interim dividend In Articles of association all the task & roles has written for the directors, anything beyond this , he must be liable for that.( Corporations Law Simplification program, Task Force December 1994, Simplification Task Force Attorney General’s Department Barton ACT 2600).
7See COMMERCIAL LAW AND ISDUSTRIAL LAW, page-717-730
A Company is an Artificial Person Created by Law:
From the above discussion we can define a company or a corporation as an “artificial person” which is created and operated under the permission of the state where it is incorporated. It’s a person like us, but only “on paper.” A corporation is brought to life when a person, files a form with the Secretary of State known as the “Articles of Incorporation”.
Corporations, which previously had been considered artificial entities with no rights, were accorded all the rights of persons, and far more, since they are “immortal persons”, and “persons” of extraordinary wealth and power. Furthermore, they were no longer bound to the specific purposes designated by State charter, but could act as they choose, with few constraints. A company can do nothing beyond the Company Act otherwise it will be penalized. Since a company leads its life and follows the regulation based on the corporate law, it has not any independence, so we called the Company is an artificial person.
Finally we can recognize a corporation is simply a non-natural certified structure. It is constituted under the laws. It is neither moral nor immoral. It’s simply what it is. But it tries to act in ways that are sensitive and responsive to a variety of different communities, constituencies and institutions. Since the people who are engaged in it, whether the stockholders, whether the executives in it, whether the employees they all have moral responsibilities. So they will be accountable for each of the action that the corporation or a company does. They are responsive in the same way that politicians in a democratic society are responsive to the environment around them.
4. business law notes from http://www.economic-truth.co.uk by Tim Miller
5. From Wikipedia, the free encyclopedia
6. Corporations Law Simplification program, Task Force December 1994, Simplification Task Force Attorney General’s Department Barton ACT 2600.
7. COMMERCIAL LAW Including COMPANY LAW AND INDUSTRIAL LAW[BUSINESS LAW]-ARUN KUMAR SEN and JITENDRA KUMAR MITRA,26TH EDITION.
8. Class Lectures & slides