Origin of Company Law in India

By Shilpi Agrawal
To make sure that there is no error or irregularity and for the smooth functioning of a
business with transparency and accountability, we need company laws that provides the
instructions and ways in which a company should be managed.
The concept of company law in India was inspired by the English Companies act, 1844. Joint
Stock Companies Act was the first company legislation in India passed in 1850. Joint Stock
Companies Act, 1857 replaced the Joint Stock Companies Act and contained the principle of
limited liability for the first time in India. principle to banking companies was added in the
new modified act of 1860 named Joint Stock Companies Act, 1860. Incorporation, regulation
and winding up of companies were added in 1866. The 1866 was again retasted in 1882 and
was in force till 1913. Then followed by the English Companies Act, 1908, the Indian
Companies Act, 1913 was passed. After many amendments and modifications, the companies
act 1956 was passes which contained 658 sections and 13 schedules and came in to force on
1st April 1956. This was followed by the English companies Act 1943. On 29th August 2013
Companies Act 2013 was passed by Parliament by introducing a new Company Bill.

Under the act in section 2(20) definition of company is provided that is means “association of
a person formed or registered under either present company laws, that is Companies Act,
2013 or previous company laws”
Important features of company law-
1. Separate legal entity – all these years this features of company has been explained by
the Indian courts in many case laws. In Landmark case of Mr. Salomon Vs. Salomon
& Co. Ltd. The court said that after incorporation the company becomes a separate
person and is not the agent of the director or the major shareholder.
2. Perpetual succession – The word perpetual means ‘eternity’. In company law it
means that a company is forever after the death of a shareholder his legal heir takes
his place.
3. Limited lability - Because of it separate legal entity the company can own, buy or
sell any property in its own name and the owner of the company would not be liable
for the debts of the company and vice versa.
4. Common Seal- being the artificial entity the company cannot sign its own name and
therefor it is necessary to have a common seal for the company to represent the
decision made by the company.
5. Transferability of Shares- the shareholders of the company can transfer their share
as per the rules present in the AOA (Article of Association) also called rule book of
the company.

Types of legal entities in India-

Total 7 types of legal entities are recognized in India which are as follows-
1. Private Limited Company- this means that the ownership of the company is private
for this minimum 2 and maximum 200 members are required The prospectus of the
company is not issued in the open market and also t these types of company cannot
accept deposits from the general public. As mentioned in companies act 2013 the
investors have the following options to choose between –
- Company limited by shares
- Company limited by guarantee
- Unlimited company

2. Public Company- company in which the securities are traded on a stock exchange
are public limited company. On the transferability of shares there is no restriction.
With a minimum of 7 members a Public Limited Company can be formed. This
requires more public disclosures. E.g. RBI, SEBI.
3. Sole Proprietorship- This is not a separate legal entity the owner of the business id
liable for the business. This is also the easiest form of business.
4. One Person Company - this concept was first mentioned in Companies act 2013 and
allows a business under sole proprietorship to enter into the cooperate framework.
5. Partnership – it means that a group of two or people have come together to run a
business and have agreed to share the profits and the liabilities arose from the
business. Its definition is present in the section 4 of Partnership Act, 1932,
6. Limited Liability Partnership (LLP)- This is the addition of company and
partnership together and governed by the principles of Limited Liability Partnership
Act, 2008.