A company can be understood as a form of business organization, which is an

association of persons, set up with an aim of undertaking business. It possesses a

legal status distinct from its members and governed by the Companies Act, 2013. It
is an artificial person, having perpetual succession and a common seal. It is
commonly confused with the corporation, which is nothing but a body corporate,
registered within or outside the nation.

Generally, corporations used to mean big business houses, whose presence is all
over the world. On the other hand, the company has a limited scope as it indicates
the business entity which is present in the country in which it is registered. To
understand the two terms clearly, read out the given article which incorporates the
difference between company and corporation.

Comparison Chart
BASIS FOR
COMPANY CORPORATION
COMPARISON

Meaning A company which is created The company which is formed

and registered under the and registered in or outside
Indian Companies Act, 2013 India is known as a
is known as a Company. Corporation.

Defined in section Section 2 (20) of Indian Section 2 (11) of Indian

Companies Act, 2013 Companies Act, 2013

Incorporated In India In and Outside India

Minimum As per the rules 5 crores

Authorized Capital

Scope Comparatively less Wide

Definition of Corporation

The term Corporation as defined in section 2 (11) of the Indian Companies Act,
2013 as a body corporate, which is incorporated inside or outside the country, but
excludes co-operative society, corporation sole and any corporation which is
formed by the notification in the Official Gazette by the Central Government.

A corporation is a business organization having a separate legal entity, i.e. its

identity is distinct from its owners. It can sue or be sued in its name, with limited
liability i.e. the liability of the members is limited up to amount unpaid on shares
held by them, having authorized capital of at least five crores, and continued
existence. Corporate Tax is levied on the income of the corporation under the
Income Tax Act, 1961.

Definition of Company

The term Company is defined in section 2 (20) of the Indian Companies Act, 2013
as a company formed and registered under this Act or any other previous acts. A
company is a voluntary association of two or more than two persons joined for a
common objective, treated as a distinct legal personality and perpetual succession.

The company is considered as an artificial person having a common seal and

registered head office. As similar to a Corporation, the company has a right to sue
or be sued in its own name.

The company can be of the following types:

 A company limited by shares

 Limited Liability Company (LLC)
 A company limited by guarantee.
 A company limited by both share and guarantee.
 Unlimited Company.

Key Differences Between Corporation and Company

The points given below are important, so far as the difference between corporation
and company is concerned:

1. The word Corporation is defined in section 2 (11) of the Companies Act

while the term Company is defined in section 2 (20) of the Companies Act.
2. The corporation came into existence if it is incorporated in or outside India
whereas a company came into existence when it is incorporated under the
Indian Companies Act, 2013.
 3. The Corporation should have a minimum authorized capital of Rs.
5,00,00,000. Conversely, the Company should have a minimum authorized
capital of Rs 1,00,000 in the case of private company and Rs. 5,00,000 in the
case of public company.
4. The Corporation is a larger term as compared to the Company.
Similarities

 Separate Legal Entity

 Perpetual Succession
 Right to sue and be sued
 Limited Liability
 Artificial Legal Person

Conclusion

The difference between Company and Corporation is subtle but still the scope of
the word Corporation is larger than the Company. Corporate Tax is levied on both
the entities as per the Income Tax Act, 1961. Hence, we can say that the terms
cannot be used synonymously.

Promoter

Meaning:
A promoter is someone, who has been connected with the business from the start.
He can also be referred to as the starter of a business or the founder. He is
responsible for raising capital from various sources and entering into the first
agreements for the start of a business and incorporation of a company.
SEBI’s Substantial Acquisition of Share Takeover Rules state that a Promoter is 1)
He is someone at the cusp of a company 2) A person whose name is there in any of
the filing papers of the company or according to the shareholding pattern filed by
the company.

Definition
The concept of promoters is explained in the Indian Companies Act, 2013. Before
2013 there was no legal position defined in the Old Version of the Act of 1956. In
the Old Act, the subscribers to the M.o.A was regarded as the promoters since they
had subscribed to the company from its inception.

Section 2(69) of the Companies Act, 2013 defines promoter as:-

Promoter” means a person-

(a) someone whose name is in the AR of the company or in the prospectus referred
to in Sec 92; or
(b) Someone who has influence over the BoD as a shareholder or a director and is
able to control the affairs; or
(c) As per the accordance to his guidance, advice and instructions, the BoD are
supposed to act: Provided that nothing in sub-clause (c) shall apply to a person
who is acting merely in a professional capacity;[6]

Types of Promoters
A promoter can be a person or a corporation/association etc.

Professional Promoters: They give back control of the company to the

shareholders as soon as the company starts its day to day workings. There are
many such companies in developed countries like the UK, US and Germany who
do investment banking as promoters of a company. There aren’t many promoter
companies in India as it is a developing country.

Occasional Promoters: They help the companies to remain afloat. They don’t have
long term interest but they help the company to sustain and then get out with some
profit and get back to their earlier business.

Financial Promoters: They help financial institutions by promoting them. They

manage companies and have an important task in promoting new companies and
getting agency rights.

Functions of Promoters
A promoter has the most major role in the incorporation of a company from a mere
business idea. They perform the following functions to set it on a course of
development:

 They are the first to get the idea of the business

 They find out where a profitable business venture can be shelved and then
analyse the situation in the market.
  After that, they organize the whole process of turning an idea into a reality
by doing the work of inception of a company.
 They also decide the name of the company which has to be accepted by the
registrar of companies and decide on where the registered office is to be
situated.
 Then they do the work of formation of AoA and the Memorandum.
 The Board of Directors, the bankers, auditors are nominated by the
promoter.
 And then they file for incorporation.

In this way, a promoter can be regarded as a founding father of the company. They
seek people to become the first directors of the company. In case the proposed
company is a public company, the promoter’s duty is to get all the articles and the
prospectus distributed. They have to recruit a whole team of bankers, auditors,
solicitors to assist them to incorporate a company. In order to get the first capital
issue, they also have to appoint underwriters and brokers. They also have to buy
assets such as land for factory, machinery, the hiring of key employees. Sometimes
they also do a takeover of the existing company before the incorporation of the
said company.

Duties of a Promoter
Duty to disclose secret profits
He is allowed to make profits but not secretly which will be harmful to the
company. He can profit only with the consent of the company which makes this a
fiduciary relationship as that of a principal-agent.
The duty of Disclosure of Interest
He must also declare his interest in every transaction that the company and he
himself enters into. He must also request the company’s consent when he shows
his interest.
Duty under the Indian Contract Act
As said by the courts in due course of time, there is a business relationship between
a company and a promoter, therefore a contract before incorporation with a
promoter shouldn’t be depended upon. Thus his liabilities come within the purview
of the ICA, 1872.
Termination of the Promoter’s Duties
The duty of a promoter doesn’t end even after he has appointed the Board of
Directors or he himself is on the board. It ends when the capital has been acquired
(First Call) and the BoD have taken the control and have started managing. That is
when his fiduciary relationship with the company ends.
Liabilities of a Promoter
He is supposed to give full disclosure to the company and therefore is liable to pay
secret profits acquired. He is liable under various provisions of the Companies Act,
2013:

 Sec 26[7]. It states the matters to be issued in the prospectus. He can be held
liable if he fails to follow the rules of this section.
 Sec 32 & 35. A Promoter can also be found guilty of false statements in the
prospectus for somebody who has bought shares or debentures. Such
people can sue the promoter.[8]
 Sector 63 and 68. There is criminal liability for misrepresentation and there
is a heavy penalty on promoters for making untrue statements in the
prospectus.
 Section 543. A company can even go against a promoter for breach of duty
where the promoter can be found guilty of wrongful contract in relation to
the company.[9]

In Prabir Kumar Misra v Ramani Ramaswamy[10], the Madras High Court stated
that there is a fix on the liability of a promoter. Not compulsory that his sign is
supposed to be on the MoA/AoA or a Shareholder or in the BoD. His guilt and
liability also depend on his conduct and the contracts that he has entered into
during the pre-incorporation stage as an agent or a trustee.

Remuneration of a Promoter
As he has a fiduciary relationship with the company so generally there is no issue
with regard to his remuneration. The Chancery Court in the Re English & Colonial
Produce Co.[11] Case held that a promoter is not entitled to claim expenses in his
duty unless there is an express provision to do so but he is entitled to a reasonable
remuneration as stated in the Article of Association.

In Touche v Metropolitan Rly Warehousing Co.[12] Lord Hatherly highlighted the

importance of remuneration saying that the help of the promoter is unique which
requires great efficiency, power and which is employed in developing a business
plan and making it so to the best benefit and thus should be given his fees.

He can get remuneration by:

1. If he states that he sold the property for cash or stock options.[13]
2. An option to buy further shares.
3. Charges on shares sold.
4. Lumpsum remuneration.
5. As stated in the Article of Association provided that the promoter hasn’t made
the AoA in his favour.[14]
6. There can also be a written contract.

Status of Pre-Incorporation Contracts

The promoter is supposed to bring a company to its legal incorporation and
therefore to make sure that the company becomes successful he enters into a
contract with the company itself. This type of contract is called ‘Pre-Incorporation
Contract’. This contract is different from the normal contract as the normal
contract is between 2 parties while this contract has the feature of a tripartite
contract. Because the contract is made between the interested party and the
promoter but this contract is helpful to the prospective company which is not a
party but just a beneficiary. One can say that if the company benefits from such a
contract then why wouldn’t it be a party to the contract. The answer to this is that
there is no legal standing of a company before its incorporation and thus is not a
part of any agreement.

Before the S.R.A came into existence, the view of India on the ‘pre-incorporation
contract’ was the same as that of the law of England. This had the provision where
the company is not a party to the contract as it is yet to achieve a legal existence
and so only a promoter can solely be made liable to the pre-incorporation contract.

After the Specific Relief Act, 1963, there were provisions that made the pre-
incorporation agreements valid i.e. Sec. 15h and Sec.19e where they deviate from
the British Common Law.

Section 15(h) talks about the Scope of the Memorandum of Association while 19
(e) talks about the other party that can enforce the pre-incorporation contract
against the company.

Case Analysis
1. Weavers Mills Ltd. v Balkies Ammal[15], The Madras High Court extended the
scope of Section 19(e). In this case, the promoter had entered into a contract to
purchase some assets on behalf and for the company. It was held that, on the
incorporation of the company, also when the property is not present, you cannot
ignore the company’s title over the said property.
2. Kelner v. Bexter[16], It happened that the promoter on behalf and for the un-
formed company accepted Kelner’s proposition to enter into the wine business.
The company did not give remuneration to Kelner. ERLE, CJ held that the
fiduciary relationship cannot come into existence before the incorporation of the
company and therefore the company can’t be held liable or take any liability by
ratifying or adopting the contract because, at the time when the agreement was
made, the company was not born (a non-existent state). And so the promoters are
to be held liable for any of the pre-incorporation agreements because they were the
agreeing party.

3. Newborne v Sensolid (Great Britain) Ltd,[17] This case developed the principle
laid down in Kelner v Bexter.

4. Seth Shobhag Mal Lodha v Edward Mill Co. Ltd[18], The Rajasthan High Court
followed the approach of the Common Law approach discussed in the cases before.
This was criticised by A. Ramaiya as he noticed that the Judge, in this case, failed
to look into the Specific Relief Act.

4. Howard v Patent Ivory Manufacturing[19], It was observed by the court that even
though the promoter is personally liable for the pre-incorporation contract, he can
shift his liability to the company. This novation of contract principle was later
incorporated into the Specific Relief Act, 1963.

5. Twycross v. Grant[20]. In this case, a promoter is described as someone who

undertakes the responsibility to form a company in reference to a given project
who sets the plan going and takes necessary steps to accomplish it.

6. In Lagunas Nitrate Co. v Lagunas Syndicate[21], it was stated that to be a

promoter, one doesn’t need to necessarily be associated with the initial formation
of a company, the people who also help in the floatation of the company can
equally be regarded as a promoter.

We can say that, for all types of pre-incorporation contracts, the promoters can be
held liable because at the time of incorporation of contract the company has yet to
come into existence and only after the Specific Relief Act, 1963 the company was
enabled to ratify or do a novation of contract where it would take the rights and the
liabilities of the promoter.
Conclusion
It can be said the word ‘promoter’ is used in common to address any individual,
association or a company who take necessary steps to create a company and get it
going. The promoter originated for the incorporation of the company from a
business idea to make it a reality by bringing together a business plan by making a
memorandum, drafting up of the prospectus, getting it registered, bringing bankers,
auditors and solicitors into the foray and then to look for subscribers. While doing
this he also appoints a board of directors. He has to do all this with legal
compliance. He does all the technical and the non-technical work and also does the
registration of the company.

There is no legal position of a promoter as he only has a fiduciary relationship with

the company as he is neither an agent nor a director or an employee. He cannot
make secret profits or else he will be held accountable. Therefore there are many
liabilities on him as he does the duties of the drafting of the prospectus, entering
into pre-incorporation agreements etc and thus if found guilty there are both civil
and criminal liabilities on him.

Therefore we can conclude that the promoter is at the helm of getting a company
into existence, moulding it and giving it a shape to help it to come into existence.
Private Limited Company VS Public Limited Company
18th Jun 2019 12:34 pm Company Registration Leave a comment
There are many types of companies, the most popular form are; private limited
and public limited company. Both have its own advantages and disadvantages.
Therefore, an entrepreneur will have to choose the type of company depending
upon the funding plans.

According to the Companies Act, 2013, 'private company' means a company

which, by its articles;
1. restricts the right to transfer its shares, if any;
2. limits the number of its members to fifty not including

In simple words, the private limited company is a joint stock company.

However, it is governed under the ambit of the Indian Companies Act, 2013. It
is formed by voluntary association of persons with a minimum paid up capital of
1 lakh rupees. While the maximum number of members is 200, it does not
include the current employees or ex-employees who were members during their
employment terms. Employees may continue to be the member after their
termination of employment in the company. Transfer of shares is restricted. It
prohibits the entry of public through subscription of shares and debentures. The
term private limited is used at the end of its name.

According to the Companies Act, 2013, 'public company' means a company

which is not a private company.

A public limited company is a joint stock company. It is governed under the

provisions of the Indian Companies Act, 2013. While there is no limit on the
number of members, it is formed by the association of persons voluntarily with
a minimum paid up capital of 5 lakh rupees. Transferability of shares have no
restriction. The company can invite public for subscription of shares and
debentures. The term public limited is added to its name at the time of
incorporation.

Key points of difference between a private limited and a public limited

company are:

1. A public limited company is a company listed on a recognized

stock exchange and the stocks are traded publicly. On the other
hand, a private limited company is neither listed on the stock
exchange nor are they traded. It is privately held by its members
only.

2. The minimum number of members required to start a public

company is seven. As against this, the private limited can be started
with a minimum of two members.

3. In case of a public company, it is compulsory to call a statutory

general meeting of members. There is no such compulsion in case
of a private company.
4. The issue of prospectus or statement is mandatory in case of public
company. However, this is not the case of a private company.

5. The public company will require a certificate of commencement

post incorporation to begin its operation. In contrast to this, a
private company can start its business right after its incorporation.

6. The transferability of shares is restricted completely in private

limited company. While the shareholders of a public company can
transfer their shares freely.

7. Since there is a limited number of people and fewer restrictions, the

scope of a private limited company is limited. In contrary, the scope
of a public company is vast. This is because the owners of the
company can raise capital from the general public and have to abide
by may legal restrictions.

8. There is a greater regulatory burden on a public limited company.

This is because a great amount of information has to be made
available to the public who are shareholders or prospective
shareholders. A lot of money has to be invested in order to prepare
reports and disclosures that match with the regulations provided by
SEBI.

9. A signed written resolution is received by holding general meetings

of a private limited company.

10. While it mandatory for public companies to appoint a

company secretary, private companies may choose to do so only at
their will.
Depending upon one's need a type of company is chosen to be registered.
However, the principal reason for choosing a public company is to have the
ability to offer shares to the public. One has to pay a price for this by complying
with a greater number of restrictions and considerable loss of privacy.

Here is a list of features that differentiate a public company from a private

limited company:

Features Public Limited Private Limited Company

Company
Minimum members 7 2
Minimum directors 3 2
Maximum members Unlimited 200
Minimum capital 5,00,000 1,00,000
Invitation to public Yes No
Issue of prospectus Yes No
Quorum at AGM 5 members 2 members
Certificate for Yes No
commencement of business
Term used at the end of Limited Private limited
name
Managerial remuneration No restriction Can not exceed more than
11\\\% of net profits
Statutory meeting Yes No
(mandatory)

In situations where a public company no longer wishes to operate within the

business model, there is an option for it to return to the private limited company.
This can be done by buying back all outstanding shares form the current
shareholders. The company is delisted from the stock exchange where it has
registered once this purchase is done. It will then return to operate as a private
limited company. Recent finance Bill has further added a new clause relating to
the value of assets held by private companies. According to this, prior to three
years of converting a private limited company, the value of assets as detailed in
the books of accounts should not exceed 5 crore rupees.

In situations where a private limited company thinks of converting into a public

company, it will make the compliances easier and a company will exercise
greater control. This means a company would no longer hold a meeting of
shareholders and pass a special resolution regarding part related transactions.
Recent trends revealed by Ministry of Corporate Affairs show a sharp increase
in the number of companies that have rushed to become private entities. This
has been the scenario ever since the enactment of the Companies Act, 2013.

Registration and Incorporation of a Company

The Companies Act, 2013 details the regulations and company registration papers
essential for the incorporation of a company. In this article, we will understand all
such rules and documents listed in the Act. To begin with, let’s define the promoters
of a company.

Promoters

Section 2(69) of the Companies Act, 2013, defines promoters as an individual who:-

 Is named as a promoter in the prospectus or in the annual returns of

the company.
 Controls the affairs of a company, directly or indirectly.
 Advises, directs, or instructs the Board of Directors.
Hence, we can say that promoters are people who originally come up with the idea of
the company, form it and register it. However, solicitors, accountants, etc. who act in
their professional capacity are NOT promoters of the company.
Formation of a Company

Section 3 of the Companies Act, 2013, details the basic requirements of forming a
company as follows:

 Formation of a public company involves 7 or more people who subscribe their

names to the memorandum and register the company for any lawful purpose.
 Similarly, 2 or more people can form a private company.
 One person can form a One-person company.
Registration or Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for incorporation of a
company. Here is the procedure:

Filing of company registration papers with the registrar

To incorporate a company, the subscriber has to file the following company
registration papers with the registrar within whose jurisdiction the location of the
registered office of the proposed company falls.

1. The Memorandum and Articles of the company. All subscribers have to sign on
the memorandum.
2. The person who is engaged in the formation of the company has to give a
declaration regarding compliance of all the requirements and rules of the Act. A
person named in the Articles also has to sign the declaration.
3. Each subscriber to the Memorandum and individuals named as first directors in
the Articles should submit an affidavit with the following details:
i. Declaration regarding non-conviction of any offence with respect to the
formation, promotion, or management of any company.
ii. He has not been found guilty of fraud or any breach of duty to any company
in the last five years.
iii. The documents filed with the registrar are complete and true to the best of his
knowledge.
4. Address for correspondence until the registered office is set-up.
5. If the subscriber to the Memorandum is an individual, then he needs to provide
his full name, residential address, and nationality along with a proof of identity.
If the subscriber is a body corporate, then prescribed documents need to be
provided.
6. Individuals mentioned as subscribers to the Memorandum in the Articles need to
provide the details specified in the point above along with the Director
Identification Number.
7. The individuals mentioned as first directors of the company in the Articles must
provide particulars of interests in other firms or bodies corporate along with their
consent to act as directors of the company as per the prescribed form and
manner.
Issuing the Certificate of Incorporation
Once the Registrar receives the information and company registration papers, he
registers all information and documents and issues a Certificate of Incorporation in
the prescribed form.

Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to the company
which is a distinct identity for the company. The allotment of CIN is on and from the
company’s incorporation date. The certificate carries this date.

Maintaining copies of Company registration papers

The company must maintain copies of all information and documents until
dissolution.

Furnishing false information at the time of incorporation

During the formation of a company, an individual can:

 Furnish incorrect or false information

 Suppress any material information in the documents provided to the Registrar
for the incorporation, on purpose
In such cases, the individual is liable for action for fraud under section 447.
The company is already incorporated based on false information
If a company is already incorporated but it is found at a later date that the information
or documents submitted were false or incorrect, then the promoters, first directors,
and persons making a declaration is liable for action for fraud under section 447.

Order of the National Company Law Tribunal (NCLT)

If a company is incorporated by furnishing false or incorrect information or
representation or suppressing material facts or information in the documents
furnished, the Tribunal can pass the following orders (if an application is made and
the Tribunal is satisfied with it):

 Pass an order to regulate the management of the company. It can include

changes in its Memorandum and Articles if required. This order is either in
public interest or in the interest of the company and its members and creditors.
 Make the liability of its members unlimited
 Order removal of the name of the company from the Registrar of Companies
 Order the company to wind-up
 Pass any other order as it deems fit
Before passing an order, the Tribunal has to give the company a reasonable
opportunity to state its case. Also, the Tribunal should consider the transactions of the
company including obligations contracted or payment of any liability.

Effect of Registration of a Company

According to Section 9 of the Companies Act, 2013, these are the effects of
registration of a company:

 From the date of incorporation, the subscribers to the Memorandum and all
subsequent members of the company are a body corporate.
 A registered company can exercise all functions of a company incorporated
under the Act. Also, the company has perpetual succession with power to
acquire, hold, and dispose of property of all forms. Also, it can contract, sue and
be sued by the said name.
 Further, the company becomes a legal person separate from the incorporators
from the date of incorporation. Also, a binding contract comes into existence
between the company and its members as mentioned in the Memorandum and
Articles of Association. Until the company dissolves or the Registrar removes it
from the register, it has perpetual existence.

Differences between a Company and Partnership

The special features of a joint stock company can be well understood if we
compare the features of a company form of organization with that of a
partnership firm. The important points of distinction between
the company and partnership are given below:
Definition
Any voluntary association of persons registered as a company and formed
for the purpose of any common object is called a company. But a partnership
is the relation between two or more individuals who have agreed to share the
profits of a business carried on by all or any of them acting for all.
The partners are collectively called as a firm.
2. Law
A company is regulated and controlled by the Companies Act. But a
partnership firm is regulated by the Partnership Act, 1932.
3. Registration
A company should be compulsorily registered under the Companies Act. Its
formation is very difficult. But registration of a partnership firm is not
compulsory under the Partnership Act. The firm is based on the partnership
deed. Its formation is very easy.
4. Legal Position
A company is a body corporate and a legal person having a corporate
personality distinct from its members. The members are not liable for the
acts of the company. But a partnership has no legal existence distinct from
its members. Partners are liable for the acts of the firm.
5. Life Time
A company is a mere abstraction of law. So its existence is not affected by
the change of membership or death or insolvency of its members. But a
partnership is a mere aggregation of individuals. So the life of a partnership
ends on the death or insolvency or insanity of any one partner.
6. Liability
The maximum liability of the shareholders, in case of a limited company, is
limited to the face value of the shares purchased by them. In case of
companies limited by guarantee, the liability of the shareholders will be up
to the amount guaranteed by them. But in case of a partnership. the liability
 of the partners is unlimited. The partners are jointly and severally liable for
all the debts of the partnership firm.
7. Transferability of Shares
Shares of a company are freely transferable unless restricted by the Articles.
But a partner cannot transfer his share without the consent of all other
partners.
8. Contract
A member of a company can enter into a contract with the same company.
But a partner of a firm cannot enter into contract with the same partnership
firm.
9. Number of Members
A private company should have a minimum of 2 members and can have a
maximum of 50 members. A public company should have a minimum of 7
members and there is no maximum limit. But a partnership should have a
minimum of 2 and can have a maximum of 20 persons [10 in the case of
banking business].
10. Audit
The accounts of a company should be audited by a qualified auditor. But in
the case of a partnership, the accounts need not be audited. Even though the
partners decide to arrange for the audit of their firm, the auditor need not be
a qualified person. The powers, duties and liabilities of an auditor of a
company are regulated by the Companies Act.

But in the case of a partnership audit, the duties are governed by the
provisions of the contract entered into by the partners with the auditor.

 11. Implied Agency

In case of a company, a shareholder is not regarded as its agent in dealing
with third parties. But in case of a partnership, a partner is an agent of the
firm and of all other partners in dealing with third parties.

 12. Good Faith

Since they are more in number, most of the shareholders of the company
may not know each other. We cannot expect that all the shareholders are just
and honest to one another. But in the case of a partnership, the partners
know each other thoroughly. The partnership agreement is based on utmost
good faith. So the partners are to be just and honest to one another.
 13. Management
The management of a company is in the hands of a group of elected
representatives of the shareholders. Even this group finds it difficult to
administer the day-to-day affairs of the company. It is carried on mostly by
salaried people. Such people cannot be expected to take active part in the
management as the owners.

But in the case of a partnership, the management is in the hands of the

partners themselves. They work in absolute sincerity. They can give
personal attention to the customers and thus strengthen the customer-firm
relationship.

 14. Decision-Making
 In case of companies, taking decisions on important issues requires a fairly
long time. But in case of a partnership firm, quick decisions are possible.
 15. Issue of Debentures
Joint stock company is the only business organization which is authorized to
borrow money through the issue of debentures. A partnership firm cannot
issue debentures.
 16. Restrictions
The outsiders who deal with a company should be aware of the provisions of
its Articles of Association. This is because, the restriction on directors affect
the outsiders. But in case of a partnership, restriction on any partner does not
affect the outsiders. So they need not be aware of the provisions of the
partnership deed.
 17. Secrecy
The companies have to file their documents, returns, reports, balance sheet,
profit and loss account etc. with the Registrar. Some of them are open to
public. So, there is no secrecy at all in case of companies. But in case of a
partnership, the firm need not prepare and file such documents. So its secrets
are not leaked out. Outsiders cannot know the in and outs of the firm.

 18. Capital Formation

Even people with limited resources can become the shareholders of a big
company. This tempts them to save something out of their income for future.
This is a green signal for capital formation in the country. Such a capital
formation is not possible in the case of a partnership.
  19. Dissolution
A company, being a creature of law, can only be dissolved as laid down by
law. A partnership firm, on the other hand, is the result of an agreement and
can be dissolved at any time by agreement.

NATURE OF A COMPANY
A company is a business entity registered under the Companies Act.
It is a legal entity with a separate identity from those who are its members or
operate it. Therefore it can be considered as an artificial person created by the
law.In terms of the Companies Act, 2013 (Act No. 18 of 2013) a “company”
means a company incorporated under the Act [i.e Companies Act, 2013] or under
any previous company law [Section 2(20)].
According to Chief Justice Marshall of USA, “A company is a person, artificial,
invisible, intangible, and existing only in the contemplation of the law. Being a
mere creature of law, it possesses only those properties which the character of its
creation confers upon it either expressly or as incidental to its very existence”.
Another comprehensive and clear definition of a company is given by Lord
Justice Lindley, “A company is meant as an association of many persons who
contribute money or money’s worth to a common stock and employ it in some
trade or business, and who share the profit and loss (as the case may be) arising
there from. The common stock contributed is denoted in money and is the capital
of the company. The persons who contribute it, or to whom it belongs, are
members. The proportion of capital to which each member is entitled is his share.
Shares are always transferable although the right to transfer them is often more or
less restricted”.
According to Haney, “Joint Stock Company is a voluntary association of
individuals for profit, having a capital divided into transferable shares. The
ownership of which is the condition of membership”
The advantages of incorporating a company (i.e registering a company under the
Companies Act) are as under:
1. Separate Legal Entity
A company is perceived to be a distinct legal entity. Once incorporated under the
Act, the company is vested with a corporate personality which does not depend on
its members. The money credited by the creditors of the company can be recovered
only from the company and the properties owned by the company. Individual
members cannot be sued. Similarly, the company in any way is not liable for the
individual debts of the members.
The company bears its own name, acts under its own name, has a seal of its own
and its assets are separate and distinct from those of its members. It is a different
‘person’ from the members who compose it. Therefore it is capable of owning
property, incurring debts, borrowing money, having a bank account, employing
people, entering into contracts and suing or being sued in the same manner as an
individual. A shareholder cannot be held liable for the acts of the company even if
he holds virtually the entire share capital. The shareholders are not the agents of
the company and so they cannot bind it by their acts. The company does not hold
its property as an agent or trustee for its members and they cannot sue to enforce
its rights, nor can they be sued in respect of its liabilities. Thus, ‘incorporation’ is
the act of forming a legal corporation as a juristic person. A juristic person is in
law also conferred with rights and obligations and is dealt with in accordance with
law. In other words, the entity acts like a natural person but only through a
designated person, whose acts are processed within the ambit of law [Shiromani
Gurdwara Prabandhak Committee v.Shri Sam Nath Dass AIR 2000 SCW 139].
The principal of separate of legal entity was explained and emphasized in the
famous case of Solomon v Solomon & Co. Ltd.
The facts of the case are as follows :
Mr. Soloman, the owner of a very prosperous shoe business, sold his business
for the sum of $ 39,000 to Soloman and Co. Ltd. which consisted of Soloman
himself,his wife, his daughter and his four sons. The purchase consideration was
paid by the company by allotment of & 20,000 shares and $ 10,000 debentures and
the balance in cash to Mr. Soloman. The debentures carried a floating charge on
the assets of the company. One share of $ 1 each was subscribed by the remaining
six members of his family. Soloman and his two sons became the directors of this
company. Soloman was the managing director. After a short duration, the company
went into liquidation. At that time the statement of affairs’ was like this: Assets: $
6000, liabilities: Soloman as debenture holder $ 10,000 and unsecured creditors : $
7,000. Thus, its assets were running short of its liabilities by $11,000.
The unsecured creditors claimed a priority over the debenture holder on the ground
that company and Soloman were one and the same person. But the House of Lords
held that the existence of a company is quite independent and distinct from its
members and that the assets of the company must be utilized in payment of the
debentures first in priority to unsecured creditors.
Soloman’s case established beyond doubt that in law a registered company is an
entity distinct from its members, even if the person holds all the shares in the
company.
2.Limited liability
Limited liability means the company's debts are its own and members are protected
from personal liability unless they are negligent or gave personal guarantees. A
company may be limited by shares or by guarantee. In a company limited by
shares, the liability of members is limited to the unpaid value of the shares. If the
shares are fully paid i.e if the amount has already been fully paid to the company,
then the member need not contribute any more towards the company’s debts. If the
amount has not been fully paid, then the member’s liability is limited to the unpaid
amount. For example, if X holds shares of the total nominal value of Rs.10,000 and
has already paid Rs.5000/- (or 50% of the value) as part payment at the time of
allotment, he cannot be called upon to pay more than Rs.5000/-, the amount
remaining unpaid on his shares. If he holds fully-paid shares, he has no further
liability to pay even if the company is declared insolvent.
In the case of a company limited by guarantee, the liability of members is limited
to a specified amount of the guarantee mentioned in the memorandum.
3.Perpetual Existence.
Perpetual succession means that the membership of a company may keep changing
from time to time, but that shall not affect its continuity.
Its life does not depend upon the death, insolvency or retirement of any or all
shareholder (s) or director (s). Law creates it and law alone can dissolve it.
Professor L.C.B. Gower rightly mentions, “Members may come and go, but the
company can go on forever. During the war all the members of one private
company, while in general meeting, were killed by a bomb, but the company
survived — not even a hydrogen bomb could have destroyed it”.
4. Separate Property: As a company is a legal person distinct from its members,
it is capable of owning, enjoying and disposing of property in its own name.
Although its capital and assets are contributed by its shareholders, they are not the
private and joint owners of its property. The company is the juristic person in
which all its property is vested and by which it is controlled, managed and
disposed of.
5. Shares: In a public company, the shares are freely transferable.
The right to transfer shares is a statutory right and it cannot be taken away by a
provision in the articles. However, the articles shall prescribe the manner in which
such transfer of shares shall be made and it may also contain bona fide and
reasonable restrictions on the right of members to transfer their shares. But
absolute restrictions on the rights of members to transfer their shares shall be
ultra vires. However, the law allows, in the case of a private company to have such
articles which restrict the right of member to transfer his shares in company.
6.Capacity to Sue and Be Sued
A company being a body corporate can sue and be sued in its own name. All legal
proceedings against the company are to be instituted in its name. Similarly, the
company may bring an action against anyone in its own name. A company’s right
to sue arises when some loss is caused to the company, i.e. to the property or the
personality of the company. Hence, the company is entitled to sue for damages in
libel or slander as the case may be [Floating Services Ltd. v. MV San Fransceco
Dipaloa (2004) 52 SCL 762 (Guj)]. A company, as a person distinct from its
members, may even sue one of its own members.
7. Common Seal

A company cannot sign documents by itself. It acts through natural

persons who are called its directors. A common seal is used with the
name of the company engraved on it as a substitute of its signature. To
be legally binding on the company, a document has to carry the company
seal on it.