A corporation is an artificial being, invisible, intangible and exiting only in contemplation of law. It has neither mind nor body of its own”. -Explain and illustrate
Question:
A corporation is an artificial being, invisible, intangible and exiting only in contemplation of law. It has neither mind nor body of its own”. -Explain and illustrate.
1. INTRODUCTION:
As we all know that, any entity engaging in business, such as a proprietorship, partnership, or corporation is known as company.
A company can be defined as an “artificial person”, invisible, intangible, created by Law, with a discrete legal entity, perpetual succession and a common seal. It is not affected by the death, insanity or insolvency of an individual member[1].
The English word has its origins in the Old French military term compaignie (first recorded in 1150), meaning a “body of soldiers”[2].
In English law, and as a result in the Commonwealth realms, a company is a form of body corporate or corporation, usually registered under the Companies Acts or similar legislation. It does not include a partnership or any other unincorporated collection of persons.
2. TYPE OF COMPANIES:
I found that, there are various types of corporation that can be formed in different jurisdictions, but the most common forms of company (generally formed by registration under applicable company’s legislation) are:
a. Private Companies:
Private companies are defined by reference to public limited companies. All companies that are not public companies are private companies. A private company is not permitted to offer its shares to the public.
b. Public Companies:
A public company must be limited by shares; the memorandum must explicitly state that it is a public company. The name must end with “public limited company” or the abbreviation “PLC”[3].
c. A company limited by guarantee:
It is frequently used where companies are formed for non-commercial purposes, such as clubs or charities.
d. A company limited by shares:
The most common form of company used for business ventures. Specifically, a limited company is a “company in which the liability of each shareholder is limited to the amount individually invested” with corporations being “the most common example of a limited company.”
e. A company limited by guarantee with a share capital:
A hybrid entity is usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return.
f. A limited-liability company
A company—statutorily authorized in certain states—that is characterized by limited liability, management by members or managers, and limitations on ownership transfer”.
g. An unlimited company with or without a share capital
A hybrid entity, a company where the liability of members or shareholders for the debts (if any) of the company are not limited.
There are less commonly seen types of companies. These are given to the below:
h. Companies formed by letters patent
Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.
Before the passing of modern company’s legislation, these were the only types of companies. For example, the Bank of England is a corporation formed by a modern charter.
j. Statutory Companies
Relatively rare today, certain companies have been formed by a private statute passed in the relevant jurisdiction.
3.CHARACTISTIC OF A COMPANY:
A company as an entity has many distinct features which together make it a unique organization. These are given to the below:
a. Separate Legal Entity
Under Incorporation law, a company becomes a separate legal entity as compared to its members[4].
b. Limited Liability:
A member is liable to pay only the uncalled money due on shares held by him[5]
c. Perpetual Succession:
A company does not cease to exist unless it is specifically wound up or the task for which it was formed has been completed.
d. Separate Property:
A company is a distinct legal entity. The company’s property is its own. A member cannot claim to be owner of the company’s property during the existence of the company.
4.TRAFARIBILITY:
Shares in a company are freely transferable, subject to certain conditions, such that no share-holder is permanently or necessarily wedded to a company[6].
a. Common Seal:
Acts through its Board of Directors for carrying out its activities is entering into various agreements. Such contracts must be under the seal of the company[7].
b. Capacity to sue and being sued:
A company can sue or be sued in its own name as distinct from its members.
c. Separate Management:
A company is administered and managed by its managerial personnel i.e. the Board of Directors. The shareholders are simply the holders of the shares in the company and need not be necessarily the managers of the company.
d. One Share-One Vote:
The principle of voting in a company is one share-one vote i.e. if a person has 10 shares; he has 10 votes in the company.
5.CAN A COMPANY BE CONVERTED FROM ONE TYPE TO ANOTHER?:
A company can be converted from one type to another by re-registration within the terms of the Act. On re-registration the company keeps its original company number and remains the same corporate identity. Re-registration does not affect any existing rights or liabilities of the company.
6.CONVERSION OF A PUBLIC COMPANY INTO PRAIVATE COMPANY:
Under the Companies Act (Section31), all public companies, whether originally incorporated as a public limited company or at any time converted into a public limited company (under section 44 of the Act), may be converted into a private limited company, if the members so desire.
The essential conditions for such a conversion are:-
a. The company must not be listed on any recognized stock exchange.
b. Shareholders’ approval by special resolution for alteration of Articles of Association for incorporation of the definition of a private company.
c. No resolution amending the Articles, which has the effect of converting a public company into a private company, shall be effective unless it has been approved by the Central Government[8].
7.CONVERSION OF A PRAIVATE COMPANY INTO PUBLIC COMPANY:
The essential conditions for such a conversion are:-
a) Convene a meeting of the Board of Directors and pass a resolution approving the conversion of the company from private limited into public limited;
b) Convene a General Meeting of the members of the company for alteration of name clause of the Memorandum of Association and the Articles of Association by special resolution.
c) Make an application to the concerned Registrar of Companies for approving conversion to public company[9].
8.GOVERNMENT COMPANIES:
If 51 per cent or more of the paid-up share capital of a company is held by the Central Government and/or any one or more State Governments, the company becomes a Government company. A subsidiary of a Government company is also a Government company. The holding of shares by municipal and other local authorities or statutory corporations is, however, not to be taken into consideration for calculating the extent of Government shareholding. A Government company may be a private company or a public company. Law requires minimum of two members to float a private company, one of whom can be the President or the Governor, as the case may be, and the other any officer of the Government. All Government companies are treated as public sector companies.
•Under section 620 of the Act, the Central Government may, by notification in the Official Gazette, exempt any Government company from complying with such provisions of the Act as may be specified in the notification.
•The auditors of a Government company has to be appointed or re-appointed by the Controller and Auditor-General of India who can conduct supplementary/test audit also[10].
9.FOREIGN COMPANIES:
A foreign company is a company which is incorporated in a country outside India under the law of that other country and has a place of business in India. Sections 591 to 602 of the Act deal with such companies.
Foreign Companies are of two classes namely:
Companies incorporated outside India, which have established a place of business in India after April 1, 1956; and
Companies incorporated outside India, which have established a place of business in India before that date and continue to have an established place of business in India.
Part XI of the Companies Act, 1956 containing Section 591 to 608 deals with the Companies incorporated outside India i.e. a “Foreign Company.” The provisions of this part of the Companies Act, 1956 prescribes that its Sections 592 to 602 shall be applicable to Companies who are incorporated outside India which after the commencement of the Companies Act, 1956 establishes a place of business within India and Companies incorporated outside India having established place of business within India prior to the commencement of the Companies Act, 1956 and continue to have the said establishment[11].
10.COMPANY LAW BOARD
The Company Law Board (‘CLB’ for short) has been constituted under Sec.10E of the Companies Act[12]. The CLB shall exercise and discharge such powers and functions as may be conferred on it by or under the Companies Act or any other law, and shall also exercise and discharge such other powers and functions of the Central Government under the Companies Act or any other laws as may be conferred on it by the Central Government, by notification in the Official Gazette under the provisions of the Companies Act or that other law[13].
Sec. 10E (4C) provides that every bench formed under sub section 4B shall have powers which are vested in a Court under the Code of Civil procedure, 1908 while trying a suit, in respect of the following matters, namely:-
a. Discovery and inspection of documents or other material objects as evidence.
b. Enforcing the attendance of witnesses and requiring the deposit of their expenses.
c. Compelling the production of documents or other material objects producible as evidence and impounding the same.
d. Examining witnesses on oath.
e. Granting adjournments.
f. Reception of evidence on affidavits[14].
11.CONCLUSION:
A corporation is a legal entity created through the laws of its state of incorporation. Individual states have the power to promulgate laws relating to the creation, organization and dissolution of corporations. Many states follow the Model Business Corporation Act.
So finally we can say that, a corporation is an artificial being, invisible, intangible and exiting only in contemplation of law. It has neither mind nor body of its own”.
BIBLIOGRAPHY
1. Mr. S. Nagabushanam, Procedure for Conversion of a Private Company into a Public Company, retrieved on 27 March 2011 from, http://caalley.com/ca/caart0426.html
2. Mr. M. GOVINDARAJAN, WHETHER THE COMPANY LAW BOARD HAS POWER TO DECIDE PRELIMINARYISSUES?, retrieved on 20 March 2011 from, http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=634
3. Unknown Author (n.d). In Retrieved March 29 2011 from
http://topics.law.cornell.edu/wex/corporations
4. Unknown Author (n.d). In Retrieved March 29 2011 from
http://www.companyformationsindia.com/characteristics-of-a-company.html
5. Unknown Author (n.d). In Retrieved March 25 2011from
http://www.company-formation.co.in/characteristics-of-a-company.php
6. Unknown Author (n.d). In Retrieved April 1 2011from
http://www.legalserviceindia.com/company%20law/com.htm
7. Unknown Author (n.d). In Retrieved April 2 2011from
http://www.caclubindia.com/forum/different-types-of-company–113761.asp
8. Unknown Author (n.d). In Retrieved March 24 2011from
http://www.companylawclub.co.uk/topics/types_of_companies.shtml
9. Unknown Author (n.d). In Retrieved April 4 2011from
http://www.ukincorp.co.uk/s-6-uk-company-formation-law.html
10. Unknown Author (n.d). In Retrieved March 29 2011from
http://www.scribd.com/doc/4675477/A-Company-is-the-Property-of-the-Shareholders-is-an-Exploded-Myth
11. Unknown Author (n.d). In Retrieved April 5 2011from
http://corporatelawcorpus.blogspot.com/2010/03/can-trust-under-indian-trusts-act-1882.html
12. Unknown Author (n.d). In Retrieved March 29 2011from
13. Unknown Author (n.d). In Retrieved April 2 2011from
http://www.vakilno1.com/bareacts/companiesact/s4.htm
14. Unknown Author (n.d). In Retrieved March 25 2011from
http://www.vakilno1.com/legal-faq/company/public-private-limited-company.php
15. Unknown Author (n.d). In Retrieved April 3 2011from
http://www.caclubindia.com/articles/conversion-of-a-public-company-into-a-private-company-5710.asp
16. Unknown Author (n.d). In Retrieved March 22 2011from
http://business.gov.in/closing_business/public_pvt.php
17. Unknown Author (n.d). In Retrieved March 23 2011from
http://www.vakilno1.com/bareacts/companiesact/s10.htm
18. Unknown Author (n.d). In Retrieved March 26 2011from
http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=634
[1] See, http://en.wikipedia.org/wiki/Company#cite_ref-3
[2] Originally taken from the Late Latin word companio “companion, one who eats bread with you”, first attested in the Lex Salica as a calque of the Germanic expression *gahlaibo (literally, “with bread”), related to Old High German galeipo “companion” and Gothic gahlaiba “messmate”. By 1303, the word referred to trade guilds. Usage of company to mean “business association” was first recorded in 1553 and the abbreviation “co.” dates from 1769.
[3] The share capital must not be less than £50,000. At least one-quarter of each share’s nominal value and the whole of any premium on it must be paid before it can be allotted.
[4] The company is distinct and different from its members in law. It has its own seal and its own name, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, and borrowing money, employing people, having a bank account, entering into contracts and suing and being suede separately.
[5] If the assets of the firm are not sufficient to pay the liabilities of the firm, the creditors can force the partners to make good the deficit from their personal assets. This cannot be done in the case of a company once the members have paid all their dues towards the shares held by them in the company
[6] When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares.
[7] The common seal is the official signature of the company. The name of the company must be engraved on the common seal. Any document not bearing the seal of the company may not be accepted as authentic and may not have any legal force.
[8] After the alteration has been approved, a printed copy of the Article shall be filed with the Registrar of Companies within one month of the date of receipt of the order of approval. The name of the company shall be amended to include the word ‘private’ on all its documents.
[9] Mr. S. Nagabushanam, Procedure for Conversion of a Private Company into a Public Company, retrieved on 27 March 2011 from, http://caalley.com/ca/caart0426.html
[10] See, http://www.caclubindia.com/forum/different-types-of-company–113761.asp
[11] It says that a Company incorporated outside India and having an established place of business in India in which 50% or more paid up share capital is held by Indians then provisions of those sections shall apply to such Companies also.
[12]Mr. M. GOVINDARAJAN, WHETHER THE COMPANY LAW BOARD HAS POWER TO DECIDE PRELIMINARY ISSUES?, retrieved on 20 March 2011 from, http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=634
[13] Sec.10E (5) provides that the CLB shall in exercise of its powers and the discharge of its functions under the Companies Act or any other law be guided by the principles of natural justice and shall act in its discretion. Sec. 10E (6) provides that the CLB shall have power to regulate its own procedures subject to the provisions of the Companies Act. The CLB framed regulations of its own called as Company Law Board Regulations, 1991.
[14] Sec.10E (5) provides that the CLB shall in exercise of its powers and the discharge of its functions under the Companies Act or any other law be guided by the principles of natural justice and shall act in its discretion. Sec. 10E (6) provides that the CLB shall have power to regulate its own procedures subject to the provisions of the Companies Act. The CLB framed regulations of its own called as Company Law Board Regulations, 1991.