Probable company law topics for an examination.

Companies act 1956

A company is a company registered under the companies’ act 1956, also included is an existing company registered under any previous acts. The essential of a company is the registration under this act.

Advantages of a registered company:

Any business cannot be a company. As discussed above only a company registered under the companies act can be a company. A registration gives many advantages to a company, which it would not be available otherwise.

1)  Independent corporate existence:

 

A company enjoys an independent corporate existence. It enables a separate existence of the company from its owners. A company stands out as a separate individual and can carry out its business.

2) Limited liability:

A limited liability ensures that the liability of the members are only limited to the extent of their contribution to the share capital of the company. The company’s capital is divided into shares and each members subscribes to such shares and their liability is limited only to such amount of subscription. On winding up the subscriber shall only pay such amount as subscribed and nothing more. It is an advantage as compared to partnership where the liability can be unlimited, that is even the personal assets of the partners can be made liable to meeting liabilities on winding up.

3) Perpetual succession:

A company has no life span like a human being. It does not cease to exist. The members of the company can die but the company cannot die. Even if there is a war and an atomic bomb is dropped on a company killing all its members, the company would not cease to exist.

4) Separate property:

A company can have separate property from its members. It has a separate legal entity as a result of which it can have a separate property from its members. A company can buy, sell and insure its own separate property.

5) Access to money market:

A company has access to money market, through which it can raise capital by issuing shares to the public who would subscribe to such share by paying the application money. This is a feature which would not be available in the case of a partnership firm, where the shares are only held by individual members.

6) Transferable shares:

The shares purchased by the public from the money market can be easily transferred from person to person without any restrictions. That is a person can buy a share of the company from the money market and can subsequently re sell the share to another individual in the open market. There is no impact on the share capital of the company, it would remain the same.

7) Capacity to be sued and be sued:

 

A company can sue in its own name and be sued in its own name as well. This enables a company to seek legal remedy in case of breach of contract, breach of trust etc. At the same time it makes the company liable for its ultra vires acts and it can be sued in its own name for the same.

From the above points we can see as to how incorporation of a company is advantageous to it. At the same time there are disadvantages due to the incorporation which are as follows.

1)                 Lifting the corporate veil:

An independent corporate existence gives the company a corporate veil that is the members are different from the company and the company is liable for all its acts. But at the same time such corporate veil can be lifted under certain circumstances. After all it’s the humans that run the company and they must not be allowed to escape for illegal acts done in the name of the company.

Following are the circumstances under which corporate veil can be lifted up:

1)      Illegal objects.

2)      Objects are against public policy.

3)      Tax evasion.

4)      When the company has a enemy character.

5)      When the company is created for objects different from the ones mentioned in the memorandum of association.

6)      When the company is a sham

2)     Expenditure and formalities :

A company has to undergo various formalities with the registrar of companies and submit various documents. And it must also incur various other expenses related to such formalities.

      3)     Company is not a citizen:

A company only gets the rights of a person who is not a citizen; it is not entitled to the fundamental rights given in the constitution of India.