Chapter: 3 Company: An Introduction

Company: An Introduction

Historical Background and Introduction

The Companies Act, 1956 is a consolidation of various laws, rules and principles laid down in the judicial decisions in India and England.

The Act is applicable to all trading corporations/ companies incorporated under the Act or existing when the Act was made effective. Organization for business or commercial purposes can also be incorporated under other special acts, such as: Life Insurance Corporation of India has been incorporated for the business of life insurance under the Life Insurance Corporation Act of 1956. The institutions so created are known as "corporations". Business Firms or other institutes incorporated under the Act are known as "companies".

The term company has been described in Section 3(1) of the Act, as "a company Means a company formed and registered under the Companies Act. " In common law company is a "legal person" or "legal entity" separate from, and capable of surviving beyond the lives of, its members. It has its own rights and duties and it capable to sue and be sued in its own name.

Characteristics of a Company

Under the doctrine of Corporate Personality:
1)    A company is a legal entity (legal person/ body corporate) separate and distinct from its members, directors and managerial personnel.
2)    It has its own rights, duties and liabilities.
3)    A company is the beneficial owner of its own property and does not hold its property as a trustee for its member.
4)    An incorporated company is an entity with perpetual succession. Its existence independent of its members.
5)    The doctrine of corporate personality facilitates the transfer of a member's interest without the consent of other company members.
6)    Incorporated company, being a legal person, can sue and be sued in its ownname.
7)    A company being a separate legal entity, its members neither own its asses nor are liable for its debts. Where company is registered with a limited liability, the liability of each of its members is limited to the shares subscribed for.