COMPANY AND ITS FORMATION

INTRODUCTION

THE COMPANYS ACT 1956

DEFINITION OF COMPANY

CHARECTERISTICS OF COMPANY KINDS OF COMPANIES

Partnership Firm

COMPANY DISTINGUISHED FROM PARTNERSHIP

INTRODUCTION
The company legislation in India has developed on the lines almost parallel to English company law. The companies act passed from time to time in India have been following the English Companies Act with certain modification to suit Indian condition. The English companys Act of 1844 is entitled to be the first enactment modern system of Joint stock enterprise. The first Indian companys Act providing for the registration of Joint Stock Companies was passed in the year 1850.

THE COMPANYS ACT 1956

The Indian Companies Act, 1913 was repealed by the present Companies Act, 1956 which came into force on 1st April 1956. The present Companies Act is based largely on the recommendation of the company Law committee which submitted its report in March 1952. This Act is the largest statute ever passed by our parliament. It consist of 658 section & schedules. The act was amended several times since 1956. the latest amendments were effected in 2000 & 2001.

DEFINITION OF COMPANY
to Sec.3(1)(i) of the Companies Act 1956 a company means "A Company formed and register under the companies Act or on existing company. An association of many person who contribute money or moneys worth to a common stock and employed with a common purpose. Lord Justice Lindley.

According

CHARACTERISTICS

Separate legal Entity

A company formed and registered under the companies Act is a distinct legal entity. It is a creation of law and is sometimes called artificial person being invisible and intangible. It is a fiction of law with legal, but no natural or physical existence. The principles that a company is a legal entity separate from the individuals who compose it.

Perpetual succession

Unlike a natural person a company never dies. It is an entity with a perpetual succession. Its existence is not affected by the lunacy and insolvency of its member.

Limited liability

Limited liability of member is another most important. Their liability is limited to the face value of shares characteristic of

Transferability of Share

The share of Company are freely transferable can be sold or purchased in the share market sec. 82 of the companies Act recognizes the right of transferability of shares & provide that, the share or other interest of any member shall be movable property transferable in the manner provided for in the articles of the company.

Capacity to sue and sued

On incorporation a company acquired separate and independent legal personality. As a legal person it can sue and be sued in its own name.

Not a citizen

Although a company is a legal person having both nationality and domicile, it is not a citizen. As such a company cannot, therefore, claim protection of those fundamental right which are explicitly guaranteed to citizens only, namely, the right of franchise.

Companys Action Limited

The company can not go beyond the power of its charter the memorandum of Association. But once the power have been laid down it can not go beyond unless Memorandum of Association is it selves altered prior to going so.

Separate Property

As a legal person a company can own enjoy and dispose of any property in its own name. No member can claim himself to be the owner of the companys property. The property of the company is not the property of the shareholder; it is the property of company.

KINDS OF COMPANIES
q Chartered Companies q Statutory companies q Registered Companies q Public companies q Private Companies q Holding company & subsidiary Company q Government Company q Foreign company

Chartered Companies
The crown, in the exercise of the royal prerogative, has the power to create a corporation by the grant of a charter to person assenting to be incorporated. Such companies or corporation are know as chartered companies . Example are Bank of England, East India company. The power and the nature of business of chartered company are defined by the charter which incorporates it.

Statutory Companies

A company may be incorporated by means of a special act of the Parliament or state legislation. Such companies are called Statutory companies. They are generally formed to carry out some special public undertaking. Example are Railway, Gas, Electricity. Instances of statutory companies (which are also known as public corporation) in India (RBI), (LIC). Statutory companies are governed by the Act creating them they are not required to have any memorandum of article of association. Changes in their structure are possible only by amendment in the Act creating. The annual report on the working of each statutory company is required to be placed before the parliament or state legislation. A statutory company though owned by the Government has a separate legal entity. It can not be regarded as department of government.

Registered companies

Companies registered under the companies Act, 1956, or the earlier companies Act are called registered companies. Such companies comes in existence when they are registered under companies act and a certificate of incorporate is granted to them by registrar. Section 12(2) provide that a company limited by guarantee, company limited by share, unlimited company

Public Companies

A public company means a company which is not a private company. There must be at least seven person to form a public company, however, there is no maximum limit as to its number of shareholder or member . The article of a public may however, contain restriction on the issue or transfer of share. The company remains a public company despite such restriction, only the share of a public company are capable of being dealt in on a stock exchange.

Private companies
A private company means a company which by its article (i) Reserve the right to transfer its share (ii)Limits the number of its member is fifty excluding member who are or were in the employment of the company (iii)Prohibits any invitation to the public to subscribe for any share or debenture of the company section3(I)(iii)

Holding and Subsidiary Company

A company which control another company is known as the holding company and The company so controlled is term as Subsidiary company A holding company is one of it. (i)control the composition of board of director of another company, (ii)holds more than of the nominal value of equity share capital of another company, (iii)control more than of the total voting power of the other company, (iv)is a subsidiary of any company which is turn a subsidiary of another company. Illustration : company B is a subsidiary of A, and company C is subsidiary of company B. company C will be a subsidiary of company A.

Government Company

Section 617 of the Company act defines a government company as a company in which is not less than fifty one per cent of the paid up share capital held by the Central Government or by any state Government , or partly by the Central government and partly by one or more state government. It also include a company which is subsidiary of Government company.

Foreign Company

A company incorporated outside India & having a place of business in India. The companies amendment act, 1974 provides that where not less than 50% of the share capital hold by Indian citizen and/or companies incorporated it shall have to comply with such of the provision of the act as may be prescribed as if it were a company incorporated in India.

WHAT IS PARTNERSHIP?

Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually partners and collectively a firm (sec. 4 of the Indian Partnership Act, 1932).

COMPANY DISTINGUISHED FROM PARTNERSHIP

OR

DIFFERENCE BETWEEN COMPANY & PARTNERSHIP

1.
2.

Regulating Act

A company is regulated A partnership is by the companies act, governed by the Indian 1956. partnership act, 1932. A company comes into Registration is not existence after compulsory in the case registration under the of a partnership. companies act, 1956. A company has a legal A firm is not a person in personality distinct the eyes of the law; it is from that of its made up of the several members. persons who compose it [Salomon v.are liable a) The liability of the a) Partners Salomon, members of a company (1897)A.C.22] BY (RESPONSIBLE (except an unlimited LAW) without limit to company) to contribute contribute towards towards satisfaction of payment of the the companys debts and partnership debts and liabilities is limited. liabilities. b) The creditor of a b) The partners are company is the creditor jointly and severally not of shareholders but liable to the creditors of of the company, who are the firm. A creditor not directly liable to obtaining judgment him. He can do so only against the firm can against the property of proceed against and the company. attach property of any of the partners in the firm.

Mode of creation

3.

Legal status

4.

Liability of members

5.

Management

6.

Powers

The affairs of a Every member of a company are managed partnership firm may by its directors, or by take part in its managing director or management unless the manager, and its partnership agreement member have no right to provides otherwise. take part in the management. powers are A partnership firm can A companys limited to those allowed do anything which the by the objects clause in partners agree to do and its memorandum of there is no limit tp its association. activities. Shares in a company are A partner cannot freely transferable transfer his share unless its articles without the consent of otherwise provide. the other partners. When shares are transferred, the transferre becomes a member of the company Each partner is an agent .A shareholder is not an and succeeds to all agent of the company of partnership firm to rights of the transferor. make contracts and and has no such power to bind the company by incur liabilities. So long its acts(1870) ch. App. as he acts in the ordinary 725. course of the firms business.

7.

Transferability of interest

8.

Authority of members

9.

Insolvency of firm and The winding up of an winding up of a insolvent company does company not make the members insolvent.

The insolvency of a partnership firm means insolvency of all the partners.

10.

Debts

If company owes debt to any of his members he can claim payment out of its assets when it is wound up rateably with its other creditors.

A partner who is owed money by his firm cannot prove against the firms asset in competitionwith its other creditors.

11.

Dissolution

12.

Arrangements

A company has a Unless a partnership is perpetual succession. No entered into for a fixed personal circumstances period . It may be affecting a member such dissolved at any time by as death insolvency, will any , and the affect its existence. It partnership will comes end only when it automatically dissolved is wound up according by the death or In the provision of the Partner may make any to company, some insolvency of a partner. arrangements between private arrangements companies act, 1956. its member are not among themselves. allowed, eg; the company cannot buy the shares of its members.

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