A General Overview of Company Law

8/11/2019 A General Overview of Company Law

1/6

A General Overview of Company Law

Introduction:

Statutory company legislation in the sub-continent starts actually from 1850 with the passing ofthe British Companies Act in that Year. ollowing the sai! law" a comprehensi#e Companies Act

was passe! in 18$$ which was again recast in 1888. %hereafter se#eral amen!ments were ma!e

an! ultimately the &n!ian Companies Act" 1'1( was passe! consoli!ating the laws relating to

companies.

&n 1'')" the Companies Act which is at present applicable was passe! on the basis of the

structure of the Companies Act" 1'1(.

What is a Company?

A company may be !efine! as a *legal person or legal entity separate from an! capable of

sur#i#ing beyon! the li#es of its members.+,Salomon s Salomon Co" 18'/

Accor!ing to A#tar Singh" two or more persons who are !esirous of carrying on oint business

enterprises may ha#e the choice of forming a company or a partnership. But where the enterprise

re2uires a rather greater mobilisation of capital which the resources of few persons can3t pro#i!e"

the formation of a company is the only choice.

4owe#er" in terms of the Companies Act" 1'')" company means a company forme! an!

registere! un!er the Companies Act.

.Advantages of a Company:

1 Independent corporate e!istence:

A Company is in law a person. &t is a !istinct legal person eisting in!epen!ent of its members.By incorporation un!er the Act" the company is #este! with a corporate personality which is

!istinct from the members who compose it.

" Limited Lia#ility:

%he Company" being a separate person" is the owner of its assets an! boun! by its liabilities.6embers" e#en as a whole" are neither the owners of the company3s un!erta7ing" nor liable forits !ebts. here the subscribers eercise the choice of registering the company with limite!

liability" the members3 liability becomes limite! or restricte! to the nominal #alue of the shares

ta7en by them or the amount guarantee! by them.

1


2/6

$ %erpetual &uccession:

An incorporate! company ne#er !ies. &t is an entity with perpetual succession. 6embership of acompany may 7eep changing from time to time" but that !oesn3t affect the Company3s continuity.

%he !eath or insol#ency of in!i#i!ual members !oesn3t" in any way" affect the corporate

eistence of a company.

' &eparate %roperty:

A company" being a legal person" is capable of owning" enoying an! !isposing of property in its

own name. %he company becomes the owner of its capital an! assets. A member !oesn3t e#en

ha#e an insurable interest in the property of the company.

( )ransfera#le shares:

Another a!#antage of a company is the transferability of its shares. &ncorporation enables a

member to sell his shares in the open mar7et an! to get bac7 his in#estment without ha#ing towith!raw the money from the company. %his pro#i!es li2ui!ity to the in#estor an! stability to the

company.

* Capacity to sue and to #e sued:

A company" being a bo!y corporate" can sue an! be sue! in its own name.

+inds of Companies:

Company may be limite! by shares or limite! by guarantee. &t may be e#en with unlimite!liability. Companies limite! by shares may be of two types9 a :ublic Company an! b :ri#ateCompany.

&n case of pri#ate company" some restrictions are impose! on members3 right to transfer theirshares" the maimum number of members ,up to fifty an! also on the issue of prospectus.

A public company is one which is not a pri#ate company. &n case of public company" the articlesof association !o not contain any such restrictions as foun! in case of pri#ate company.

&t is to be note! here that" the minimum number of members in case of pri#ate company is two

an! in case of public company is se#en.

,emorandum of Association:

%he 6emoran!um of Association is a !ocument which contains the fun!amental rules regar!ing

the constitution an! acti#ities of a company. &t is the basic !ocument which lays !own how the

company is to be constitute! an! what wor7 it shall un!erta7e. %he memoran!um contains rules

;


3/6

regar!ing the capital structure" liability an! obects of the company. %he memoran!um is altere!

only after certain formalities are obser#e!.

Clauses of ,emorandum of Association:

%he main clauses of 6emo are 9

-ame clause:

%his clause contains the name of the propose! company. %he company as a legal person must

ha#e a name to establish its i!entity. A company may choose any suitable name it li7es" but itcan3t be i!entical or too closely resemble to the name of any other eisting company.

.egistered office clause:

%his clause contains the name of the place in which the registere! office of the company is to besituate!.

O#/ects Clause:

%his clause is #ery important as it contains the obects for which the propose! company is to beforme!. &t shoul! be !rafte! #ery carefully. %he obects shoul! not be illegal" or against public

policy" or against the pro#isions of the Companies Act" 1''). &t shoul! not be against the general

law of the lan!.

Capital Clause:

%his clause contains the amount of share capital with which the company is to be registere!. %hisclause also states the number an! #alue of shares into which the capital of the company is

!i#i!e!. %he effect of this clause is that the company can3t issue more shares than are authorise!

by its 6emo.

Lia#ility Clause:

0

%his clause contains the nature of liability of the members of the company. %his clause is mainly

necessary for those companies in which the liability of the members is limite!. %he

6emoran!um of such company must state that the liability of its members is limite!.

Alteration of ,emorandum of Association:

%he 6emoran!um of Association is a #ery important !ocument of a company. &t can3t be altere!by the sweet will of the members of the company. 4owe#er" it may be altere! only by following

the proce!ure as lai! !own in the Companies Act" 1'').


4/6

Articles of Association:

%he Articles of Association is a !ocument which contains rules" regulations an! bye-laws

regar!ing the internal management of the company. Articles must not #iolate any pro#ision of the

6emoran!um of Association or any pro#ision of the Companies Act. %he rules lai! !own in the

Articles of Association must always be rea! subect to the rules containe! in the 6emoran!um.

Legal ffects of ,emorandum 2 Articles of Association:

A company is incorporate! only for the obects an! purposes mentione! in the 6emoran!um of

Association. Any act purporte! to be !one by the company which is beyon! the scope of the

functions of the company as lai! !own in the 6emoran!um of Association is ultra vires i.e."beyon! the powers of the company" as is of no effect.

Section ;; of the Companies Act pro#i!es that subect to the pro#isions of this Act" the6emoran!um an! the Articles shall" when registere!" bin! the company an! the members

thereof to the same etent as if they respecti#ely ha! been signe! by the company an! by eachmember an! containe! co#enants on its an! his part to obser#e all the pro#isions of the

6emoran!um an! the Articles.

3ormation of a Company:

Before a company may be forme!" the following steps must be ta7en9

i %he 6emoran!um of Association an! the Articles of Association must be prepare!.

ii %he Company must be registere! in accor!ance with the pro#isions of the Companies

Act.iii %he prospectus or a statement in lieu of prospectus must be issue! an! registere! with the

=egistrar.

i# %he minimum subscription must be raise! an! thereafter the allotment of shares must be

ma!e.

)he Certificate of incorporation:

%he certificate issue! by the =egistrar after a company is registere! is calle! Certificate of

&ncorporation. &t is conclusi#e on the following points9

1. %hat all the precon!ition i.e." legal re2uirements of registration ha#e been complie! with.;. %hat the company is properly registere!.

(. %hat the company came into eistence on the !ate of certificate of incorporation.

%rospectus:

)


5/6

A prospectus may be !efine! as any !ocument !escribe! or issue! as a prospectus an! inclu!es

any notice" circular" a!#ertisement or other !ocument in#iting !eposits from the public for thesubscription or purchase of any share in" or !ebentures of a bo!y corporate.

&hares and &hareholders:

%he sharehol!ers are the proprietors of the company. %herefore a >share3 may be !efine! as aninterest in the company entitling the owner thereof to recei#e proportionate part of the profits" if

any" an! proportionate part of the assets of the company upon li2ui!ation.

.ights of &hareholders:

i A sharehol!er can atten! an! #ote in the general meeting of the company. 4e is entitle!

to recei#e notice of all such meetings.

ii A sharehol!er has the right to inspect account.iii A sharehol!er has the right to inspect the minutes of the procee!ings of any general

meeting.i# 4e has a right to transfer his shares.

# A sharehol!er has the right to apply for the win!ing up of the company.

,eetings and .esolutions:

,eetings:

%he following are the three 7in!s of meeting that may be hel! by a company9

a4 Annual General ,eeting:

A general meeting of e#ery company shall be hel! within eighteen months from the !ate ofincorporation an! thereafter once at least in e#ery calen!ar year an! not more than fifteen

months after the hol!ing of the last prece!ing general meeting.

#4 &tatutory ,eeting:


6/6

%he !irectors may call an etraor!inary general meeting whene#er they consi!er it !esirable.

urther" the !irectors of the company shall" on the re2uisition of the hol!ers of not less than one-tenth of issue! share capital" call an etraor!inary general meeting.

.esolutions:

i4 Ordinary .esolution:

Any resolution passe! in a general meeting an! re2uiring maority #otes is calle! or!inary

resolution. &t is passe! by simple maority.

ii4 !traordinary .esolution:

&t is a resolution which is passe! by a maority of not less than three-fourths of members entitle!to #ote" as are present in person or by proy" at a general meeting of which notice specifying the

intention to mo#e the resolution has been !uly gi#en.

iii4 &pecial .esolution:

&t is a resolution passe! in the manner for the passing of an etraor!inary resolution at a generalmeeting of which ;1 !ays notice has been !uly gi#en. Special resolutions are necessary when the

Articles" 6emoran!um etc. are to be altere!.

5irectors:

%he !irectors of a company are selecte! accor!ing to the Articles of Association an! thepro#isions of the Companies Act. %hey are in charge of the management of company. %hey are

collecti#ely calle! Boar! of ?irectors. %he Boar! is the company3s eecuti#e authority.

&n a public company" there must be at least three !irectors an! in a pri#ate company" at least two!irectors.

Winding 6p:

%he win!ing up or li2ui!ation of a company means the termination of the legal eistence of the

company stopping its business" collecting its assets an! !istributing the assets among the

cre!itors an! sharehol!ers in the manner lai! !own in the Act.

%here are three metho!s of win!ing up of a company9

i Compulsory win!ing up by the court@

ii oluntary win!ing up by the members themsel#es@iii oluntary win!ing up un!er the super#ision of the court.

$

A General Overview of Company Law

Documents

Transcript of A General Overview of Company Law