Introduction:
A company is a legal entity that is separated and distinct from its members and shareholders. Company is enforced by certain rules and regulation of laws for achieving the targeted goal. Without guideline or laws it is directionless and becoming chaotic condition. At first in France the word “company” was used for body of soldiers. After 1500 year, the word company became famous in business. At that time group of businessmen was called company. A company can buy property, making contracts, employing people or being used. According to the law anything that is capable of rights and duties is a person and thus has a personality. According to the law there are two types of person such as- natural and artificial person. Human being s is known as natural person and corporation or companies are known as artificial persons. When a company registered itself by the company act, it can able to achieve the status of a person which has the ability to buy, lend money, defend suit and file, sell goods and also can hold property. We can explain the meaning of company like this-when two person want to do business and are not interested to make partnership because of its liabilities then they can go to the register office of companies fill the company creation form pay the fees. And then registrar will register their company with an independent identity. The first Indian Act, regarding companies, was the Joint Stock Companies Act of 1850. This was based upon the English Act of 1844. In this act the principle of limited liabilities was introduced for the first time in India. The Government appointed in 1950, an expert committee under the chairman of Sric C. H Bhaba to suggest how the Company Law can be formed.
Description:
The term company is used to describe an association of a number of persons, formed for some common purpose and registered according to the law relating to companies. Section 3(1)(i) of the Companies Act, 1956 states that a company means,” a company formed and registered under this Act or an existing company.”
Lord Justice Lindley defines a company as follows: “By a company is meant an association of many persons who contribute money or money’s worth to a common stock so contributed is denoted in money and its 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 in his share.”
Company’s Classification and Characteristics
A company, formed and registered under the Companies Act, is regarded by law as a single person, having specified rights and obligations.[1] In a one-man Company or Family Company a person can holds most of the shares of a company; the company has a legal personality separate and distinct from the owner of the majority of the shares.[2] A person can form a company by getting a few nominees or dummies, get registration and commence business. Salmon v. Salmon & Co. Ltd. On the other hand Statutory Corporation are formed by an Act of the legislature.[3]
A company must be registered under the Companies Act. After registration, the Registrar of the companies issues a Certificate of Incorporation. If any association or company is not registered it should be called unregistered company.
There are various types of company that can be formed in different jurisdictions, but the most common types of companies are:
- Private Company- A private company is one which, by its articles, a) restricts the right of the members to transfer their shares, if any; b) limits the number of its members to 50; and c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company- Sec. 3( 1)(iii).
- Public Company- All companies other than private companies are called public companies. – Sec. 3(1) (IV). Public companies may be classified into three types:
a. Companies Limited by share- In this company there is a share-capital and each share has fixed nominal values which the shareholder pays at a time or by installments. The member is not liable to pay anything more than the fixed value of the share.
b. Companies limited by guarantee- In these companies, each member promise to pay a fixed sum of money in the event of liquidation of the company. This amount is called the Guarantee. Sometimes the members are required to buy a share of a fixed value and also give a guarantee for a further sum in the event of liquidation. There is no liability to pay anything more than the value of the share and the guarantee.
c. Unlimited Company- In these companies the liability of the shareholder is unlimited, as in partnership firms. Such companies are permitted under the companies Act but are not known.
Essential Features of a Company
§ Registration– A Company comes into existence only after registration under the Companies Act. But a Statutory Corporation is formed and commence business as notified or stated in the Act and as passed in the Legislature.
§ Voluntary Association– A Company is an association of many people on a voluntary basis. Therefore a company is formed by the choice and consent of the members.
§ Capital– A Company must have a capital, otherwise it cannot work.
§ Permanent Existence– The company has Perpetual Succession. The death or insolvency of a shareholder does not affect its existence. A company comes into end only when it is liquidated according to provision of the Company Act.
§ Legal Personality– A Company is regarded by law as a single person. It has a legal personality. This rule applies even in the case of “One-man Company.”
§ Limited Liability– The liabilities of shareholders of a company are usually limited. The creditors of a company are not creditors of individual shareholders and a decree obtained against a company can not be executed against any shareholders. It can only be executed against the assets of the company. According to the Company Act 1994 of Bangladesh, the liability of shareholder may be limited by share under section 6(a) (4) or limited by the guarantee under section 7(a)(4).
§ Transferability– The shareholder of a company can transfer its share and ordinarily the transferee becomes a member of the company.
§ Statutory Obligation– A Company is required to comply with various statutory obligations regarding management, e.g., filling balance sheets, maintaining proper account books and registers etc.
§ Common Seal– Company can not sign on any contract because it is artificial person and it works with common seal.
§ Right To Sue– Company can sue on other parties like natural person for protecting its assets and properties. Other persons can also change on the company.
§ Financial Power– A company is given exclusive power and the only medium of organizing business which is given the privilege of raising capital by public subscription either by way of shares or debentures.
Directors and Shareholders
A corporation works through living person not by itself. The human agencies that mainly run by the company’s business are called directors. According to Companies Act-1994
“Director includes any person occupying the position of director by whatever name called” and according to section 90(1), every public company must have at least three directors and every private company must have two directors.
Director as Agent: It is a well established principal that directors are the agents of the company. Where the directors contact in the name of the company and on behalf of the company, it is the company which is responsible on it, not the directors qualities as in Ferguson vs Wilson-1886, ‘ The company has no person; it can act only through directors, merely the ordinary case of principal and agent.
Directors as Trustees: Directors are always measured to be trustees of the assets or worldly goods of the company, which comes to their hand and which is in point of fact under their manage. They are to make good of moneys which they have misapplied as if they were trustees. Again in the case of exercising their powers, they are vault to act like a trustee for the promote of the company.
Shareholders are the genuine title-holder of the company. But when a company is created and registered in the stock exchange under the company Act-1992 it becomes a separate authorized entity or personality.[4] We can say the directors as member of staff of the corporation. They cannot be treated as agent or trustee of the company.
Related Case Reference
Ø The Case of Foss vs Harbottle (1843) 2 Hare 461;67 Er 189 requires the company itself to be the person enforcing the rights. Members cannot normally do this on their company’s behalf even though a company may use and be sued by its own members.
Ø Abdul Aziz Bin Atan & 87 ORS VS Landanga Rengo Malay SDN BHD (1985) 2 MlJ 166 is another case where all the shareholders of the corporation sold and transfer their entire share property to a certain buyer. Therefore, the court had to determine whether a change of employer took place.
Held: An incorporate company is a legal person separate and distinct from its shareholders. The company, from the date of incorporation, has perpetual succession and did not change its identity or personality even though the entire share holdings of the company changed hands.
Conclusion:
At the end, the property of corporate separate personality is far- triumph. A company is regarded as a legal entity in its own right and, as such, its members have imperfect liability for its amount outstanding and obligations. Company has to market in a certain area by agents or subscriber. Their main objective is to achieve the company goal. They are also a major part of the company but not at law in compare with the members of the company. Here the supervisory boss role to implement the laws in proper way to enhance the target. The tendency of human beings to break the rules if not bindings. Finally, an elementary feature of corporate separate traits is that of perpetual succession, which results in a long-term of the company’s survival regardless of its members.
Bibliography
1. The company Act-1994
2. Company and Security law-Dr. M. Zahir
3. Article- What is Company? What are its features?
4. Company law and partnership- Nirmalandhor Dhor
5. Company Law- Avtar Singh
6. Commercial Law and Industrial Law- Sen & Mitra
8. Smith and Keenan’s Company Law 14th Edition
9. Corporate Finance, Ross westerfield Jaffe Jordar
10. Business Dictionary, Perpetual Succession
11. Legal Service India, article, www.legalserviceindia.com
[1] A company, formed and registered under the Companies Act, is regarded by law as a single person, having specified rights and obligations. The law confers on a company a distinct legal personality, with perpetual succession and a common seal. Therefore a company is different from its member and the individuals composing it.
[2] In a one-man Company or Family Company a person can holds most of the shares of a company; the company has a legal personality separate and distinct from the owner of the majority of the shares. A person can form a company by getting a few nominees or dummies, get registration and commence business. Salmon v. Salmon & Co. Ltd.
[3]A company or corporation, formed by an Act of the Legislature, is called Statutory Corporation. The constitution and functions of such companies are laid down by the Act of parliament or State Legislature. Statutory Companies are created and organized for specific public undertakings
[4] Shareholders are the actual owner of the company. But when a company is formed and registered in the stock exchange under the company Act-1992 it becomes a separate legal entity or personality. Then everything goes under the name of the company. No one is liable for any kind of act done by the company. It is totally a different entity.
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