Corporate Personality
In this blog we would discuss the basic concepts related to a corporate personality. In order to become a corporate personality, an entity has to comply with the provisions of company law. This means that the provisions enlisted in the Company Act, 1956 should be complied.
This blog would give a brief introduction to Company Law. This includes:
- What is a company?
- What would be the extend and application of Company Act 2013
- Nature of Corporate form
- Advantages and Disadvantages of incorporation
- Kinds of company etc.
Introduction
Organisations require a huge amount of investment. As the investment are big, the risk involved are also very high. While undertaking a big business, the two important limitations of the partnership are the limited resources and the unlimited liability of the partners.
The company forms the partnerships has become popular to overcome the problems of the partnership business. Various MNCs have their investors and customers spread throughout the world.
In order to maximize and utilise the organisation and managerial abilities effectively, it is necessary for a limited liability company to be supported is necessary to have a brief overview of the business organisation from the framework of the company law.
What is the meaning of a company?
A company is an artificial legal entity, which is recognised by law and is able to enter into contracts. According to the Company's Act, 1956:
A company is a person, artificial, invisible, intangible and existing only in the contemporary contemplation of the law.
Being a mere creature of law, it possesses only those properties which is the character of the creation of its creation confers upon in either expressly or as incidental to its very existence.
It can be clearly defined that:
- A company is defined as a group of people that contribute money or the worth of money to common stock to employ it in some trade or business. The people in this group share the profit or loss arising as a result.
- The Common stock is usually denoted in terms of money and is the capital of a company
- The persons who contribute to the common stock are the members.
- The proportion of the capital entitled to each member is called member's share.
- Shares are always transferable subject to the restrictions and the liabilities offered by the rights to transfer shares.
What are the basic characteristics of a company?
Incorporated Association
A company can be created only under the registration of the Company's Act. It comes into existence from the date when the certificate of incorporation is issued. At least seven members are required in case of a public company. At least two members are required in the case of a private company.
These members will subscribe to the memorandum of association and are also to comply with the other legal requirements of the Company Act. This company can be with or without liability.
Artificial Legal Person
A company can be considered as an artificial legal person i.e. a person cannot act with its own will. It has to act according to the will of the board of shareholders i.e. elected or selected by the members of the company. The board of directors work as the brain of the company. It has the right to acquire or disperse the property of the company.
Separate Legal Entity
A company is perceived to be a separate legal entity. It is not dependent on the individual members. Individual members cannot be sued in the company. Similarly, the company in any way is not liable for the individual debt of the members.
The property of the company can only be used for the betterment and development, maintenance and welfare of the company. A member can not claim ownership over the company.
The Income Tax Act also recognises the company. The company is to pay income tax on the profits earned by it,
Perpetual Existence
A company is said to be a stable form of business organisation. A company's life doesn't depend on the death, insolvency or retirement of any of its members or directors.
It is created by law and is only dissolved by law.
Common Seal
A company cannot sign documents by itself. It acts through thr natural persons who are called directors.
A common seal is issued with the name of the company as a substitute for its signatures.To be legally valid, a company should bear the common seal on the contracts entered by it.
Limited Liability
A company may be limited by shares by guarantee. In a company limited by the shares, the liability of the members is limited to the unpaid value of the shares. In a company limited by the guarantee, the liability of members is limited to such an amount as the members may undertake to contribute to the assets of the company.
Transferability of the shares
The shares of the company are transferable in the case of a public company. The right to transfer shares is a statutory right and it cannot be taken away by any provision. The transfer of the shares should be bona fide and with reasonable restrictions on them. The article shall restrict the members from the arbitrary transfer of the shares.
Delegated management
Any company can be considered an autonomous, self-governing and self-controlled organisation. Due to the presence of a large number of members, all the members cannot take part in the management of the affairs of the company. Control and management is therefore delegated to the elected members of the representatives of the company called the directors.
Directors regulate the day to day activities and programs of a company.
Having discussed the major characteristics of a company now we will discuss about the incorporation of a company.
Incorporation of a company
Incorporation of a company in simpler terms means that the government of a country now recognises the existence of a company. Therefore, certain rights would be conferred to that company that is incorporated. We incorporate a company by disclosing its certain set of details to the registrar of the company.
Advantages of Incorporation of a company
It simplifies the procedure
After the company is incorporated, it can be sued in its name. Now, the aggrieved party has not to sue individual members of the company. Similarly, the company also has the right to sue any other person.
Death or withdrawal of members do not change the venture
In case there is any death or the withdrawal of the members of a company, there is no change in the nature of the company.
Can freely dispose off its property in its own name
The property of the company can be clearly distinguished from the property of the shareholders. The shareholders cannot claim on the property of the company.
Has the corporate legal responsibility
In case there is any harm to the environment, the disposition of the houses of the people at the time of incorporating the head office of the company, the company is liable to pay compensation to the aggrieved party.
There are certain additional cess, in case the company's income exceed a certain sum which is prescribed under the Income Tax Act. The company is more accountable to the persons and the investors now.
Development in the National Economy
The produce of the company would be more accountable. The produce of the company would be counted in Gross Domestic Produce and income tax.
Increases the accountability of the company
It increases the answerability of the Company in cases where it has invested in certain schemes, certain avenues etc.
Disadvantages of Incorporation of a Company
Expenses of the procedure of incorporation
- Can be manipulated by the Registrar
- Loss of Privacy
- Difficulty and complex procedure of winding up
- Loss of personal and intimate control over the working and the procedure of the company
- Greater public accountability: Due to this one cannot work against the public interest
- The intervention of regulatory authority
- Control over the economic resources in a few hands
Kinds of Company
Conclusion
Thus we see that with power comes responsibility.
This means that though the incorporation of a company confers certain rights to the company such as to sue the other party, we see that there are certain disadvantages as well. In the next blog, we would discuss the incorporation of a company in detail.
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