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CORPORATE PERSONALITY AND

ADVANTAGES OF INCORPORATION
The corporate personality and the nature and advantages of a company
can best be understood by looking at its following characteristic features.
1. Indepenflent corporate existence.-By registration under the
Companies Act, a company becomes vested with corporate personality
which is independent of, and distinct from, its members. A company is a
legal person. The decision of the House of Lords in Salomon v Salomon & Co
Ltd is a well-known authority of this principle: One S incorporated a com-
pany to take over his personal business of manufacturing boots and shoes-
The seven subscribers to the memorandum were all the members of his
own family, each taking only one share. The company's Board of Directors
was composed of S, as the managing director, and his four sons. Through
this Board, S's business was transferred to the company at an agreed price
in payment of which S was allotted 20,000 shares of f I each and deben-
tures worth f 10,000 creating a charge on the company's assets. Within a
year the company came to be wound up and the state of affairs was like
this. lssets: f 6000; Liabilities: (l) debenlure creditors f 10,000, (2) ordinary
creditors f 7000. It was argued on behalf of the unsecured creditors that,
though incorporated under the Act, the company never had an independ-
ent existence. It was S himself trading under another name. But the House
of Lords held that Salomon & Co must be regarded as a separate person
from S. "When the memorandum is duly signed and registered, the sub-
scribers are a body corporate capable forthwith of exercising all the func-
tions of an incorporated individual. It is difficult to understand how a body
corporate thus created by statute can lose its individuality by issuing the
bulk of its capital to one person. The company is at law a different person
altogether from the subscribers of the metnorandutn'"
In the 13th century, Pope Innocent IV espoused the theory of legal fic-
tion by saying that corporate bodies could not be excommunicated because
they existed only in abstract. The Supreme Court regarded this enuncia-
tion as the foundation of separate entity principle '
2. Limited tiability.-Limitation of liability is another major advantage
of incorporation. The company, being a separate entity, leading its own
business life, the members are not liable for its debts. If the liability of
members, as is usual , is limited by shares, each member is bound to pay
the nominal value of the shares held by him and his liability ends there.
3.Perpetual succession,;tt/ly1 incorporated company never dies." In the
words of Professor Gower: "Members may come and go, but the company
can go on for ever. During the war all the members of one private com-
pany, while in general meeting, were killed by a bomb. But the company

l. 1897 AC22 (1895-99) All ER Rep 9 (HL)'

2. Vorlq/bne Internarional Holtlings BV v tJnion ttf India, (2012) 6 SCC 613: (2012) 3 SCC (Civ)
867 (2012) 170 ComP Cas 369.
I

survived; not even a hydrogen bomb courd have destroyed

death or insolvency of members does it.,,, Thus, the
not affect the continued existence
the company. The company remains of
the same entity ,,in the like manner
as
river'
:l: :'ffiJ:;i:H:lll#;'"me 'h;;;;;;;parts which compose it
4. Transferabre shqres.*when joint stock
companies were established
the great object was that the shares
shourd b"
ferred. Section 44 gives expression "uputr" of being easiry trans_
to this principre
shares or other interest of any member by providing that ,,the
shali be movabre property transfer_
able in the man.ner provided by the
articles of the company,,. The unique
advantage of this is that a member
may se, his shares in the open market
and get back his money without affecting
the capitat structure of the com_
pany. The shares of a pubtic company
are freely transferable.
5 ' separate property'-The
property of
is vested in the corporate body. The companyan incorporated company
enjoying property in its own ,,u-". No is capable of hording and
member, not even ail the members
can claim ownership of any jtem of
the compary,. urr"ts. Thus, where a
substantiar sharehorder insurLd the
company,s timber in his own name,
could not recover indemnity when the he
timber was burnt by lire as he had
no insurable interest in the company,s property..
6.A company can sue and be stted in ils corporate
natne.
7. A compsny afiracts professional management.
8' A company ge-ts' the privitege
oJ collecting interest-Jree monqt
the public -for its business by *i*ing from
a pubrii issne or through private
placement of shares and other secnrities.
Disadvantages
l' Lifting the corporate veir.-A, the abovenoted
poration folrow from the principre that advantages of incor_
for ail purposes of law a com_
pany shourd be regardecl as a separate
entity from its sharehorders. But
sometimes it may become necessary to
look at the persons behind the
corporate veil and then some of those
advantages disappear. The separate
entity of the company is disregarded and
the schernes and intentions of
the persons behind are expos"a to. fu, view.
liable for using the company as a vehicre
They are made personary
for undesirabre purposes., This is
usually done in the following cases:
(a) when it becomes necessary to determine
a corporotion--Thus it has been herd by the House the regar character oJ.
co Ltd v continentar Tyre & Rubber co (Great of Lords in Daimrer
Britain) Ltd that a company,
3. L.C.B. Gower, MODERN COMPANy LAW (2nd
Ectn. 1957) 71.
4. Macaura v Northern Assurance Co Ltd, 1925,AC
619 (HL).
5' Jai Narain Parasrampuria v Pushpa Devi saraf, (2006)
the company for furtherance oftheir personal
7 scc zso, promoters-directors used
objects.
6. (1916) 2 AC 307: (1916-17) Ail ER Rep l9t (HL).
 .

though registered in England, would

"assume an enemy character
persons in de facto control of its when
affairs, are residents in an enemy
or' wherever re^sident, are acting under country
the control of enemies." on the
other hand, an American court, refused
to hold that a company consisting
of Negroes would become a black
company.
(b) For beneJit of revenae.-The
separate existence of a company
be disregarded when the only purpose may
for which it appears to have been
formed is the evasion of taxes.^Benefits
under excise law were denied to
a company when it was found that it
was a pa.t of a group of three
panies which were related not onry com_
in financial
managerial personner. They were intertwined contror but arso through
operation' Their production had to_be in their management and
crubbed together so as to see
it was withi, exemption limits.- This principre whether
reveal that the companies (hording is appried where the lacts
and subsldiary) are indurging in
ous methods for tax evasion.,, dubi-
(c) llhen company conceivecr on.d
brought forth Jbr
poses---Thus a company was restrained fraucrulent pur_
shareholder was bound by a restraint
from *ting when its principal
covenant and had incorporated the
company only to escape the covenant.,,
(d) Agency or trust and Government
Company._The separate exist_
ence of a company may be ignored
where it i;;;i"g used as an agent
trustee' The qourts insist upon very or
strong evidence for this purpose. For
example' a Governrnent comparry ir ro,
regarded u, u, agent or trustee of
the State unless it is perfor-irrg sovereign
functions
mercial functions'" The p.op"rty of a Government as opposed to com_
held to be not that of State.'' A transport company has been
company in which ail the shares
were held by the Transport Commission
was heri to be not acting as an
agent for the commission.'' A craimant
entered into a contract with a com_
pany because of misrepresentations
made by third parties who controiled
the company. The court refused to rift the
corporaie veil in order to dis-
cover such persons and hold them liabre
for breach of the agreement.," A

7' People's preusure park co, rnc v Rohreder,

r09 va 439: 6r sE 794 (r90g).
Ltd v commr ofcustoms and centrot Excise, (2010)'i+
' '''
i{r:1;?;';." scc 378: (2012) r scc

' v
{"i:.wr';:";;"ilI{!::Tir.u, Irnion qf rndia, (2012) 6 SCC 613: (2012) 3 SCC (civ)
l0' Gilford Motor co Ltd v Home, 1933 ch 935 (cA);
Atur Gupta v Trident projects Ltd, ArR
NoC 384 (Del), Iifting when there is fraud, misrepresentation, 20lo
ll' see, Praga Toors cyln v cA Manual, (1969) r diversion of funds.
SCC 585: 39 comp cas 889: AIR 1969
1306; Som prakash Rekhiv rJnion oJIndia, (r98r)
comp cas 7l' where a Government underiaking
l SCC449:rosr icc (L&S) 200: (r98r) sc 5r
which Burmah-shell was
held to be amenable to writjurisdiction. ""q,ii."o
12. Bharat Alutninium Co Ltd v Speciol Area Development Authority, (l9g
l ) 5l Comp Cas
184 (MP).
13. Ebbw Vale \JDC v South Wales TralJic Area Licensing
Authorig,
14. VTB Capital Pic v Nutritek Internatio,nal Corpn, (2013) UKSC (1951) 2 KB 366 (CA).
5: (2013) Z WLR 398.
 wholly owned subsidiary company is arso
viewed to be as distinct from its
parent as any other company.'' Thus
power generating unit created
company for its own exclusive supply by a
was not"regarded as a separate
for the purposes of excise."'The court entity
pierced
found that the Area Deveropment corporationthe veil of incorporation and
ity tho,gh the Governmentlnvestment in was infact a public author_
it was only 17.4 percent. It was
created under pubric-private-participation
water supply and sewerage treatment
to b"il;, operate and transfer
system.,,
Lifting the veil is not arways to the- iisudvurrtuge
moters- The supreme court rooked through of the company,s pro_
joint-venture sponsors of the company the ieil and finding that the
were qualifiecl for participating in
a Government tender, held that their
company srrourd arso be treated as
qualified tenderer.,' a

(e) under statutory provisions.-Besides

personal liability in certain cases this, the Act itserf imposes
upon persons crothed behind the cor_
poration' For exampre, where business
is carried on beyond six months
after knowledge that the membership
statutory minimum rs. a6al; or a contract
of the company has gone below
name of the company [s. 12]; or the
is rnade by misdescribing the
business is carried on onry to defraud
creditors [s' 339], members or officers
who are parties to such transactions
are personaily riabre. Under Section
r3g read with secti on 14r, Negotiabre
Instruments Act, rggr, directors, etc,
of a company can be herd criminaily
liable for dishonour of the company's chequ".
punished for it under attribution of directors, r*," company can also be
intent to it. ,
A company cannot escape crirninar liabirity orrry
provision for punishment by way of imprisonment o""uuse there is a
mens rea on the part of the acting director, and fine. If there is
it becomes attributable to the

15. h.eewheels (p) Ltd v Veda Mitro, (1969)

39 Comp Cas l: (t969) I Conrp LJ I3g:
258, except when the parent controls its AIR 1969 Del
activities in all respect s. F G Films Lttl, re, (1953)
I WLR483.
16' stote ofuP
v Renusagar Power co, (1988) 4 SCC 59: AIR 19g8
India, (2003) 5 scc r63: 2003 scc sc 1737; AK Bindal v union oJ.
1r-as; 620: (2003) l r4 comp cas 590, Government not
liable to pay salary of a Government Company,s
staff.
17. New Tirupur Area Deveropment corpn Ltcr v
state of rN, AIR 2010 Mad 176: (2010)
nr}; Bharar steer rubes Ltd v IFC| Ltd, (201r; tr sic :as, 4 MLJ
j j scc (civ) 689: (201)
comp cas 283: AIR 2011 sc 2568, it is not necessary lzorr 163
for a public Financial Institution
under s' 2(72) that rhe Government shourd hord 5r'p".
more paid up capitar.
Dalco Engg (p) Ltd "*ior
v satish prabhakar padhye, (2010) 4 sic:za, (2010) l SCC (L&S) 1052:
AIR 2010 sc 1576, a company is not an entity established
under the
companies Act for
the purposes of Persons with Disabilities (Equal
opportunities, protection of Rights
and Full Participation) Act, 1995' Such.o*puni..
a,lonly registered and incorporated
under the Act and not establr'shed.
18' New Horizons Ltd v o/rndia, (r995) r SCC 47g: (rgg7) gg cornp
.tinion
19. Aneeta Hada v Grdfather cas g49.
Travers Tours (p) Ltd, (2012)'5 scb oot : (2012)
(2012) 172 comp cas 75: AIR 2012 sc 2795. 3 scc (civ) 350:
A company is not imnrune from criminal
liability' The plea that a company cannot possess crlminal
intent is not tenable as the
criminal intent of persons guiding the company gets imputed
to the company.
/ company.r' A company is not capabre
of suffering mental agony and hard_
ship. It can only suffer financial io.r"..,,
A holding company means a company which has the
trol the composition of another company,s Board power to con-
majority of its shares. Such a controlred company
of Directors or holds a
is known as a ,,subsidi_
ary". ordinariry even a 100 per cent subsidiary
and its hglding company
are regarded as two separate regal entities..,
tain statutory provisions such colpanies have
iut under the force of cer_
to present a joint picture of
their accounts and financiar position.
ts.
controls the whole conduct of its subsidiary,
129] whlre the hording company
it *uy incur liabirity for such
condtt c t.''
2. Fonnality aner expense.-Incorporation is
It requires a nlmber of formarities to u. .orrptieda very expensive aftair.
formation of the company and administration with both as to the
"iii, "r"rr...
3. Company is not citiTen.*[,qs1Jy, a company,
is not a citizen-" It can have the benefit of though a legal person,
only such fundampntal rights
as are guaranteed to every "person"
whether a-citizen or not. A company
does, however, have a nationality,
and residence. A company
incorporated in a particurur.o.,rt.y.domicile
has the
though, unlike a natural person, it cannot ""rior"riry of that country,
change its nationatirf :..

- REGISTRATION AND INCORPORATIO.N

Formation of Company IS.3I
A company may be formed for any lawful purpose of
types:
the following

(a) Public company.-Any seven or

more peisons when the company to
be formed is a public company.
(b) Private compsny'- Any two or more persons
when the company to
be formed is a private company.
(c) One man company.-Any one person
company, when the company
to be formed is ,'one person company,,, i.e. u prirut"
company with one
member.
They have to subscribe their name to the memorandum
of the company.
The memorandum of "one person company,, has
to indicate the name
of the person, with his prior written consent in the prescribed
form. Such
20. Iridiun India Terecom Ltdv Motorora tnc, (20r r scc 74: (2010)
CompCas I47:AIR20l I SC20.
) 3 scc (cri) r20r: (2010) 160
2l' Best sellers Retair {!y!a {4 Lrd v Aditva Birra Nuvo Ltd, (2012) 6 scc 792:
(Civ) 1044: (2012) I 15 ArC t. (2012) 3 scc
22. Freewheers (p) Lrd v veda Mitra, (1969) 39 comp cas r: (1969)
Del 258
r comp LJ r38: AIR 1969
23. Alembic Glass Industries Ltd v cCE & Customs, (2002) g
SCC 463: (2002) lr 2 comp cas 3.r9.
24. State h'ading cdrpn oflndia Lrd v cTo, (1963) 33 comp
cas 1057: AIR 1963 sc 18il.
25' Ga'rquev IRC' (1940) 2 KB 80; Dhodha House v SKMaingi, (2006) g
SCC 4l: AIR 2006 SC 730.
 person is to becotne a member of the cornpany
in the event drhe subscrib-
er's death or his incapacity to contract. Such person,s
written
to be filed with the Registrar at the time of incorporation consent has
company a10ng with its memorandum and articles.
of one person
such perso, *uy with_
draw his consent in accordance with the prescribed
manner. The member
of such company may also change the name of such person
the prescribed procedure. He has to intimate the
by folowing
change to his nominee
by indicating in the memorandum or otherwise. The company
has then
to notify the Registrar of the change. Such change is not
to be taken as an
alteration of the memorandum.
A company formed under this section may be either a company
by shares or a company limited by guarantee or an rimited
unlimited company.
Registration of a company is obtained by firing an
apprication rvith the
Registrar of companies. [S. 7] The application shourd
be accompanied by
the following documents: (l) memorandum of
associatio n; (2) articles of
association; (3) a copy of the agreement, if any, whiclr
the company pro-
poses to enter into with any individual for his
appointment as managing or
whole-time director or manager; and (4) a declai-ation
that aI the require_
ments of the Act have been complied with.,"
Section 7, 2ol 3 Act introduces certain new requirements.
has to be filed by each of the subscribers to the
An affidavit
and
named as the first directors, if any, in the articre-emo.andum
persons
that he has not been con_
victed of any offence in connection with the promotign,
formuiiorr",-o.'rrur_
agement of any company or found guilty of any fraud
or misfeasance or of
any breach of duty to the company under the Act or preceding
company
law during the preceding five years and that the documents
filed for regis-
tration contain correct and complete information and true
knowledge and belief; the address for correspondence
to,h;l;r; o-inr,
registered office is established; the particulars of name,
tiil the company,s
including surname,
or family name' residential address, nationality and such
other particulars
of every subscriber to the memorandum arong with proof of
may be prescribed. where the subscriber is a uoay corporate,
identity as
such particu_
lars have to be discrosed as may be prescribed; the particulars
of persons
mentioned in the articres as the first directors of the tompuny,
their names
including surnames or family names, Director Identification
Number, res_
idential address, nationality and such other particulars including
proof of
identity as may be prescribed; and particulars of interests
of persons men-
tioned in the articles as the first directors of the company
in such form and
manner as may be prescribed. tS. 7(l)]
The company has to maintain and preserve at its registered
office copies
of all the documents and information as originalty filed
under section 711)
till its dissolution under the Act.

26. This declaration should be signed by an advocate, or any proposed

director, manager or
secretary ofthe company or by a secretary or cost accountant,
or chartered accountant
who is in whole-time pracrice in India.
tS. 7(l)(b)l