While the company is a legal person it is not of course a natural one and therefore for a company to do or think anything a human being has to do it on its behalf

While the company is a legal person it is not of course a natural one and therefore for a company to do or think anything a human being has to do it on its behalf


According to Justice Lindley a company is “An association of members, the shares of which are transferable”.A company is an artificial person created by law with continuous succession and common seal[1]. Therefore for a company to do anything, human being has to do it. The law by which a company is formed and guided and regulated in Bangladesh is the Company Act, 1994. The Companies Act, 1994 has been passed consolidating and amending the laws relating to companies and other associations. The present Act is based on the structure of the Companies Act, 1913. In fact the Companies Act, 1994 is a recast of the Companies Act, 1913. Statutory company legislation in the sub-continent starts actually from 1850 with the passing of the first statutory law viz.., the British Companies Act in that year[2]. Following the said law a comprehensive Companies Act was passed in 1866 which was again recast in 1888. Thereafter several amendments were made and ultimately the Indian Companies Act, 1913 was passed consolidating the laws relating to companies and associations.This essay will discuss about the company law prevailing in our country. Also it will focus on how human beings perform the task of the companies.

2. The Companies Act, 1994:

In 1977 the law Reforms Committee in order to remove the lacunae in the law and to meet the course of problems especially with regard to foreign investments suggested reform of the company laws[3]. On the basis the said recommendation the present Act has been enacted.

The object of passing of the Companies Act, 1994, is to ensure the accountability in the workings of the board of directors, to preserve the rights to the minority shareholders, to safeguard the interests of the investors, to open the affairs of the company to the public to specify the relationship between the holding company and subsidiary company, to remove the disparity between the companies in the private and public sector, to make the formation and dissolution of companies in easier and to loosen the governmental control over the affairs of management of the company. The Companies Act, 1994 was passed by the Parliament and published in Bangladesh Gazette Extraordinary dated September 12, 1994 and came into force with effect from the 1st day of January, 1995.

Traditionally, because companies are artificial persons created by operation of law, the law approved what the company could and could not do. Usually this was an expression of the commercial purpose which the company was formed for, and came to be referred to as the company’s objects, and the extent of the objects are referred to as the company’s capacity. If an activity fell outside of the company’s capacity it was said to be ultra vires and void.

By way of difference, the organs of the company were expressed to have various corporate powers. If the objects were the things that the company was able to do, then the powers were the means by which it could do them. Usually expressions of powers were limited to methods of raising capital, although from earlier times distinctions between objects and powers have caused lawyers difficulty. Most jurisdictions have now modified the position by statute, and companies generally have capacity to do all the things that a natural person could do, and power to do it in any way that a natural person could do it.

However, references to corporate capacity and powers have not quite been consigned to the dustbin of legal history[4]. In many jurisdictions, directors can still be liable to their shareholders if they cause the company to engage in businesses outside of its objects, even if the transactions are still valid as between the company and the third party. And many jurisdictions also still permit transactions to be challenged for lack of “corporate benefit”, where the relevant transaction has no prospect of being for the commercial benefit of the company or its shareholders.

As artificial persons, companies can only act through human agents. The main agent who deals with the company’s management and business is the board of directors, but in many jurisdictions other officers can be appointed too. The board of directors is normally elected by the members, and the other officers are normally appointed by the board. These agents enter into contracts on behalf of the company with third parties.

Although the company’s agents owe duties to the company (and, indirectly, to the shareholders) to exercise those powers for an appropriate purpose, usually the third parties’ rights are not impugned if it founds that the officers were acting offensively. Third parties are entitled to rely on the apparent authority of agents held out by the company to act on its behalf. “A line of common law cases reaching back to Royal British Bank v Turquand established in common law that third parties were entitled to assume that the internal management of the company was being conducted properly, and the rule has now been codified into statute in most countries”[5].

Consequently, companies will normally be liable for all the act and omissions of their officers and agents. This will include almost all torts, but the law relating to crimes committed by companies is complex, and varies significantly between countries.

3. Purposes of Company Legislation

The main purposes of statutes relating to companies are as follows[6]:

  • Encourage investments in companies by providing certain facilities, eg- limitation of liability, transferability of shares etc.
  • Ensure due and proper administration of the funds and assets of the companies in the interest of the investing public.
  • Present malpractices by directors and managers.
  • Arrange for investigation into the affairs of companies and provide for effective audit in dealing with cases of dishonesty and fraud in the corporate sector.

A company is different form its members and the individuals composing it. Suppose, A, B, and 50 other persons form a company called XY & Co. The company, XY & Co. is a legal person quite separate from A, B and others. Therefore, A, B etc can enter into contracts with XY & Co.


This principle is illustrated in the case Salomon v. Salomon & Co. ltd[7]. Salomon had a business in boot manufacture. He formed a company called Salomon & Co. (with himself, his wife, daughter and 4 sons as shareholders) and transferred to it his business. As consideration for the transfer he received the major portion of the shares of the company and debentures for $10,000. Later on, the company went into liquidation. Salomon, as a debenture holder, claimed to be a secured creditor and demanded priority in the payment of $10,000, out of the assets of the company. The unsecured creditors of the company objected on the ground that the business really belonged to Salomon and he should not be allowed to claim as a secured creditor of the company, even though he happened to hold the majority of the shares.

One-man Company or Family Company[8]

Even when a single person 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, get registration and commence business. Salomon v. Salomon & Co. ltd can be called a one-man company or individual ownership company.

4. Is a company a property of the shareholders?[9]

A company is not a property. The traditional view that the company is the property of the shareholders is now an exploded myth. A company according to the new socio-economic thinking is a social institution having duties and responsibilities towards the community in which it functions. Maximization of social welfare should be regarded not as proprietors of the company, but merely as suppliers of capital entitled to no more than reasonable return and the company should be responsible not only to shareholders but also to workers, consumers and other members of the community and should be guided by considerations of national economy and progress.

5. Shareholder and Director Power

Under the classic nexus[10] of contracts theory of the corporation, for example, the shareholder is viewed as an investor with restricted participatory rights and power, but greatest interests. Collectivist theories, such as team production theory, go one step further by challenging not only strong participatory rights for shareholders, but also any assumed dominancy of their interests over the interests of other corporate constituencies.

The image of shareholders has been reevaluated in recent times, in the light of international corporate scandals, such as Enron, the demise of the dotcom boom, and the global financial crisis. Ambivalence has emerged concerning the role of shareholders in these events. In one interpretation, boards of directors and gatekeepers bear most responsibility with shareholders seen as victims, together with taxpayers who have funded recent government bailouts[11].

The complex image of shareholder empowerment across common law countries, offers important lessons for corporate governance and future comparative research projects. Ultimately, it highlights the need to consider specific legal rules, and the commercial responses to such rules, rather than resorting to broad generalizations. It has been stated, for example, that it is “somewhat simplistic to view corporate governance change as a monolithic shift from one regime to another where all organizations make a transition from one set of practices to another”[12]. The existence of commercial responses to regulation also suggests that, even if US shareholder powers are significantly strengthened by legislation, this will by no means be the end of the story. As such, there is much scope for future research projects to undertake detailed comparative analysis, not only of the laws that govern shareholder rights, but of their operation in practice. Corporate governance is evolving at a rapid pace, and such studies will provide invaluable guidance to policy makers and legislators.

In most jurisdictions, directors owe strict duties of good faith, as well as duties of care and skill, to safeguard the interests of the company and the members. The standard of skill and care that a director owes is usually described as acquiring and maintaining sufficient knowledge and understanding of the company’s business to enable him to properly discharge his duties. Directors are also strictly charged to exercise their powers only for a appropriate purpose. For instance, a director to issue a large number of new shares, not for the purposes of raising capital but in order to defeat a potential takeover bid that would be an unacceptable purpose. Directors have a duty to exercise reasonable skill care and attentiveness – This right enables the company to seek compensation from its director if it can be proved that he hasn’t shown reasonable skill or concern which in turn has caused the company to incur a loss[13].


So, it can be concluded that the company is an artificial entity. A person has to do its function and should be liable for any wrong doing to the company.


  • Sen A.K., & Mitra J.K., (2009) Commercial Law and Industrial Law, pp-539
  • Sen A.K., & Mitra J.K., (2009) Commercial Law and Industrial Law, pp-542
  • Sen A.K., & Mitra J.K., (2009) Commercial Law and Industrial Law, pp-537
  • Dhar. B.K, (1998) Company Law & Partnership, pp-3
  • Wiley library, 2010, [online, retrieved on 22/11/10], available at:http://onlinelibrary.wiley.com
  • Dhar. B.K, (1998) Company Law & Partnership, pp-1

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[1] See, Dhar. B.K, (1998) Company Law & Partnership, pp-1

[2] See, Dhar. B.K, (1998) Company Law & Partnership, pp-2

[3] See, Dhar. B.K, (1998) Company Law & Partnership, pp-3

[4] See, http://en.wikipedia.org

[5] See, http://en.wikipedia.org

[6] See, Sen A.K., & Mitra J.K., (2009) Commercial Law and Industrial Law, pp-537

[7] See, A.C., (1897) vol:22

[8] See, Sen A.K., & Mitra J.K., (2009) Commercial Law and Industrial Law, pp-539

[9] See, Sen A.K., & Mitra J.K., (2009) Commercial Law and Industrial Law, pp-542

[10] See, http://onlinelibrary.wiley.com

[11] See, http://onlinelibrary.wiley.com

[12] See, http://onlinelibrary.wiley.com

[13] See, http://en.wikipedia.org



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