INSTITUTE : University School of

Business
DEPARTMENT : Commerce
Bachelor of Commerce
Company Law & Secretarial Practice
21CMT-210
Lecture 1

Characteristics of a company DISCOVER . LEARN . EMPOWER

 Company Law &
Secretarial
Practice
Course Outcome
CO Title Level
Number
CO-1 The student will acquaint himself/ herself with Understandi
company laws and its relevance ng
CO-2 The student will also get overview about new Understandi
and contemporary developments in Indian ng
Corporate Law and will have in-depth
knowledge about the share capital Law and will
have in-depth knowledge about the shares
CO-3 Understandi
The student will be able to demonstrate
knowledge of the theories, concepts and
ng https://thumbs.dreamstime.com/b/lawyers-office-
findings of the various specializations in background-law-symbols-composition-gray-stone-
designing different policies and strategies of 131743757.jpg 2
various types of organizations
 Company and its
Characteristics H

Section 2(20) of the Companies Act,

2013 ,definitions, nature and its
characteristics .

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building-corporate.jpeg 3
Unit I
• Nature of a company: Definition of a company, Characteristics of a
company, lifting the corporate veil, Company distinguished from
partnership. Kinds of companies: Classification on the basis of
Incorporation; Classification on the basis of Liability ; Classification on
the basis of number of members ;Classification on the basis of
Control ;Classification on the basis of Ownership. Formation of a
company: Steps involved in the formation and incorporation of a
company.

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Unit II
Memorandum of association: Meaning and Importance, Form and
Contents, Alteration of Memorandum.
Articles of association: Meaning, Relationship of and distinction
between MOA and AOA. Prospectus: Meaning, Definition and contents,
statutory requirements in relation to prospectus. Share capital: Kinds of
share capital, Alteration of share capital, Ways for raising share capital,
Allotment of shares, share certificate and share warrant.

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Unit III
Company Management: Online application at MCA, Definition of Director,
appointment of director, position of a director, Restrictions on the appointment of
director, Disqualifications of director, DIN, Meetings of directors, powers of
directors, duties and liabilities of directors. Meetings: General meetings of
shareholders, requisites of a valid meeting, proxies, voting and poll.Winding Up:
Meaning of winding up; modes of winding up; consequences of winding
up;procedure of winding up by the court; voluntary winding up.

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TEXT BOOKS
• T1 Kapoor, N.D.; Elements of Company Law; Himalyan Publishing
House, Mumbai.
• T2 Kuchhal, M.C. : Company LawAvtar Singh, Company Law, Eastern
Book Company, Lucknow
REFERENCE BOOKS
• R1 PathakAkhileshwarGarg, Chawla, Sareen, Mercantile Law, Kalyani
Publication, New Delhi
• R2 Singh Avtar: Company Law; Eastern Book Co., Lucknow.

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 Introduction of Companies Act, 2013
• The Companies Act 1956 has been repealed by the new Companies act
2013. As it was amended several times in the past, with many of its
provisions found to be outdated and inadequate.

• The new Act comprises of 29 chapters, 470 Sections and 7 Schedules

as against 658 sections and 14 Schedules in the Companies Act, 1956.
In 470 Sections the word “as may be prescribed” has been used at
around 336 places.

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https://accountlearning.com/wp-content/uploads/2016/04/Company-Meaning-Definition-
Characteristics.jpg
 Meaning of a company
• The word ‘company’ was derived from the Latin words

• Com=with or together : Panis =bread

• The term company means an association of a group of persons who

have come together for a common purpose that is to do business and
earn profit.

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DEFINITION OF A COMPANY
• As per Sec. 2(20) of the Companies Act, 2013, ‘company’ means a
company incorporated “under this Act”; or “under any previous
company law”.

• A company is an artificial person created by law, having “separate

legal entity ” with “perpetual succession” and common seal .

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Definition of the company as given by lord
justice Lindley
• A company is an association of many persons who contributed money
or moneys worth to a common stock and employ it in some trade or
business and who share profit and loss arising therefrom.

• According to Chief Justice Marshall of USA, “A company is a

person, artificial, invisible, intangible, and existing only in the
contemplation of the law. ... The persons who contribute it, or to
whom it belongs, are members.

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NATURE OF A COMPANY
• A company has a dual nature, as an association of its members but also
as a person separate from its members. As soon as necessary
formalities of incorporation are satisfied, a new entity comes into
existence which is separate and distinct from its directors and
shareholders.

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Contd.
• Since a corporate body (i.e. a company) is the creation of law, it is not
a human being, it is an artificial juridical person (i.e. created by law)
and it is clothed with many rights, obligations, powers and duties
prescribed by law.
• The most striking characteristics of a company are discussed below:

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https://image.slidesharecdn.com/labpresentation-161208140817/95/nature-and-definition-of-a-company-4-638.jpg?
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Characteritics of a Company
• Incorporated association
• Separate legal entity
• Limited liability
• Perpetual succession
• Common seal
• Transferability of shares
• Separate property
• Capacity to sue and be sued
• Artificial person
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•
INCORPORATED ASSOCIATION
Every company must be compulsorily registered or incorporated under
the company’s Act , 2013.

According to sec 3 the minimum number of persons required for

forming a private company is two, seven for a public company and
one for one person company. These persons are also known as the
subscribers to the memorandum.

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SEPARATE LEGAL ENTITY
• A company is in law regarded as an entity separate from its member. It
has an independent corporate existence

• Any of its member can enter into contract with it in the same manner
as any other individual can and he can not be held liable for the acts of
the company even if he holds virtually the entire share capital

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Case: Solomon Vs Solomon & Company
limited (1897)
• Transfer of sole proprietorship business to company. Mr. Salomon was
carrying on the business of boot manufacturing as a sole proprietor. He
incorporated a company named Salomon & Co. Ltd. for the purpose of
taking over this business.
• Payment of purchase consideration by the company.
• (a) Total consideration £39,000
• (b) Cash Paid £ 9,000
• (c) Fully paid shares of £ 1 each issued to Salomon £ 20,000
• (d) Secured debentures issued to Salomon £10,000.

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Contd.
• . Constitution of Salomon & Co. Ltd. The 6 members of the family of
Mr. Salomon were issued one share each. Salomon was the managing
director of Salomon & Co. Ltd. Salomon & Co. Ltd. is commonly called
as “one man company’.
• Inability to pay debts by the company in liquidation. In the course of
business, the company borrowed from creditors to the extent of £ 7,000.
Due to trade depression, the company ran into financial difficulties and
eventually went into liquidation. The assets realized only £ 6,000.
• Contention of unsecured creditors - one man cannot owe money to
himself. The unsecured creditors contended that Salomon was carrying
on business in the name of Salomon & Co. Ltd. Thus, Salomon and Co.
Ltd. was a mere agent for Salomon.
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Contd.
• Decision of the Court.

• It was held that Salomon & Co. was a real company fulfilling all legal
requirements. It had an identity different from its members, and
therefore, the secured debentures were to be paid in priority to
unsecured creditors.

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LIMITED LIABILITY
• In a company limited by shares, the liability of member is limited to
the unpaid value of the shares.

• Company limited by guarantee is a incorporated firm without share

capital, and in which the liability of its members is limited to the
amount each one of them undertakes to contribute at the time the firm
is wound up.

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PERPETUAL SUCCESSION
• Member may come and go but the company can go on forever. It
continues to exist even if all its members are dead. The existence of
company can be terminated only by law

• Ex:- All members of a private company were killed by a bomb while

in a general meeting held, The company continues to exist through the
legal heirs of the deceased parties or member.

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COMMON SEAL
• Common seal is the official signature of the company.

• Any document on which common seal is affixed, is deemed to be

signed by the company.

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TRANSFERABILITY OF SHARES

In case of a public company the shares are freely transferable but in the
case of a private company there will be certain restriction on the
transferability of shares.

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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 owner of its property.

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CAPACITY TO SUE AND BE SUED

• A company being a separate legal entity has the legal entity to sue
others such as members, directors, debtors, outsiders etc. Similarly, a
company may also be sued by others such as members, directors,
creditors, outsiders.

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ARTIFICIAL PERSON

• A company is not a natural person. Consequently, a company cannot

fall ill, or die or be declared as insolvent.

• A company is an artificial person.

• But it is not a fictitious person. A company does exist but only in the
eyes of law. In other words, a company exists only in contemplation of
law.

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SEPARATION OF OWNERSHIP FROM
MANAGEMENT
• The members do not participate in day-to-day affairs of the company.
The management of the company lies in the hands of elected
representatives of members, commonly called as Board of directors or
directors of simply the Board.

• The directors are appointed as well as removed by the members.

Thus, the Act has ensured the ultimate control of members over the
company.
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Summary

In this lecture we have studied the meaning of company and its

characteristics.

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Assessment Pattern

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 APPLICATIONS

Helps in understanding the role of company.

It helps to impart skills to understand the characteristics of a company.

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 REFERENCES
Text Books:
1.  Buy book ,Taxmann , “Companies Act 2013”ISBN-13: 978-
9350713143,Taxmann Publications Private Limited; 2013 edition (29 August
2013).
2.      Buy book Avtar Singh, “Introduction to Company Law”, 12th ed., Eastern
Book Company, Lucknow , ISBN: 9789351453505, 9789388822480.
• Website:
• https://www.toppr.com/guides/business-laws/companies-act-2013/
• Journal--
• Journal of corporate law studies.

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THANK YOU

For queries
Email: geetika.e5562@cumail.in