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1. Incorporated association :
Registration creates a company and it is compulsory for all associations. A company has to be incorporated or registered under the prevalent Company Law.
2. Voluntary association :
A company is voluntary association of individuals for profits having divided into transferable shares of a fixed face value. Either company act or any authorized person of the company cannot force any person for member in a company.
Company can select any type of Common Seal. It has no specific shape. Name of the company and its types of liability should be mention. Generally regional language is used in Companies Common Seal. Seal when to be used All products of the company All formal documents Power of attorney Deed of lease Share certificates Debentures and Debentures Trust Deed Agreement of hypothecation and loan Contract of employment
5. Perpetual existence :
Companys life does not depend upon the death, insolvency or retirement of any one or all shareholder(s) or director(s). The life of a company depends on the term of its memorandum of association. Law creates it and law alone can dissolve it. 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. Thus, a company has a perpetual existence.
6. Limited liability :
It is one of the important features of the company. In the case of a company limited by shares, the liability of members is limited to the extent of the nominal value of shares held by them. If a shareholder paid fully amount of the shares held by him, his liability is nil. For example, if a shareholder buys 100 shares of Rs. 10 each and pays Rs. 7 on each share, he has paid Rs. 700 and can be made to pay another Rs. 300, but he cannot be made to pay more than Rs. 1000 in all.
7. Transferable Shares :
Shares shall be movable property, transferable as per articles of the company. A member can sell his shares in the open market and get back his money at his will. This provides liquidity and stability to the company.
8. Separate Property :
As a legal person, a company can own, enjoy and dispose of any property in its own name. The property of the company can be used for the companys business and not for the personal benefit of its shareholders.
9. Capacity to Sue :
The Company is a legal person and it can sue and be sued in its corporate name. In the real sense it can do most of the things, which may be done by or to a human being.
Conclusion:
It may, however, be noted here that a company possesses the above-mentioned characteristics by virtue of its incorporation or registration under the companies Act.
Corporate personality:
Corporate personality means that the companys liabilities are the legal responsibility of the company and the members will not be liable for the companys debts This refers to the sum of money which a stakeholder can lose when a company is sued, usually limited to the amount of money that they have invested into the company. Limited liability is exclusive to limited companies and public companies. The first case that exemplified the difference in a companys personality to that of its shareholders was the 1897 case of Salomon v A Salomon & Co Ltd.
An Illustration of the Conceptual interpretation of Limited Liability v/s Lifting The Veil: The decision in Salomon V. Salomon & Co.
The case of Salomon V. Salomon & Co., commonly referred to as the Salomon case, is both the foundational case and precedence for the doctrine of corporate personality and the judicial guide to lifting the corporate veil.
The House of Lords in the Salomon case affirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders. The court did this in relation to what was essentially a one person Company, which is Mr Salomon.
honored he clause by including his wife, four sons and daughter into the businesses, making two of his sons directors, and he himself managing director. Interestingly, Mr. Salomon owned 20,001 of the company's 20,007 shares - the remaining six were shared individually between the other six shareholders. Almost immediately the company ran into difficulties than at the time of liquidation of the company, the position on liquidation was as follows: debenture issued to Salomon 10000; unsecured creditors 7000; & assets 6000. Thus, it was found that after paying the debentures holders, there was nothing left for the unsecured creditors. After that the liquidators argued that the debentures used by Mr. Salomon as security for the debt were invalid, and that they were based on fraud. Vaughan Williams J. (one of the justice) accepted this argument, ruling that since Mr. Salomon had created the company solely to transfer his business to it, the company was in reality his agent and he as principal was liable for debts to unsecured creditors. The lord justices of appeal variously described the company as a myth and a fiction and said that the incorporation of the business by Mr. Salomon had been a mere scheme to enable him to carry on as before but with limited liability. However, the House of Lords later quashed that Court of Appeal (CA) ruling, and unanimously declared that the Company is a Separate Entity or Corporate personality from its member, share holders and Directors. So that the member of the company is limited to only the liability that he has paid up capital. In other words, by the terms of the Salomon case, members of a company would not automatically, in their personal capacity, be entitled to the benefits nor would they be liable for the responsibilities or the obligations of the company. It thus had the effect that members' rights and/or obligations were restricted to their share of the profits and capital invested.
trading with the enemy, and therefore, the company was not allowed to proceed with the action.
4. COMPANY AVOIDING LEGAL OBLIGATIONS- Where the use of an incorporated company is being made to avoid legal obligations, the Court may disregard the legal personality of the company and proceed on the assumption as if no company existed.
5. SINGLE ECONOMIC ENTITY- Sometimes in the case of group of enterprises the Salomon principal may not be adhered to and the Court may lift the veil in order to look at the economic realities of the group itself. In the case of D.H.N.food products Ltd. V. Tower Hamlets, it has been said that the Courts may disregard Salomon's case whenever it is just and equitable to do so. In the above-mentioned case the Court of appeal thought that the present case was one which was suitable for lifting the corporate veil. Here the three subsidiary companies were treated as a part of the same economic entity or group and were entitled to compensation. Lord Denning has remarked that 'we know that in many respects a group of companies are treated together for the purpose of accounts, balance sheet, and profit and loss accounts. Gower too in his book says, "There is evidence of a general tendency to ignore the separate legal group". However, whether the Court will pierce the corporate veil depends on the facts of the case. The nature of shareholding and control would be indicators whether the Court would pierce the corporate veil. The Indian Courts have held that a single economic unit argument could work in certain circumstances. These circumstances would depend on the factual control exercised. This view is strengthened by the Supreme Court decision (cited in Novartis v. Adarsh Pharma ) in New Horizons v. Union of India. State of UP v. Renusagar was decided in 1988. Back in the year 1988 also, in Renusagar case, the Court proceeded, on the basis of prior English law which had accepted the single economic unit argument. Thus, Renusagar case seems to support the conclusion that a single economic entity argument would succeed in India for lifting the corporate veil. 6. AGENCY OR TRUST- Where a company is acting as agent for its shareholder, the shareholders will be liable for the acts of the company. It is a question of fact in each case whether the company is acting as an agent for its shareholders. There may be an Express agreement to this effect or an agreement may be implied from the circumstances of each particular case. In the case of F.G.Films ltd, An American company financed the production of a film in India in the name of a British company. The president of the American company held 90 per cent of the capital of the British company. The Board of trade of Great Britain refused to register the film as a British film. Held, the decision was valid in view of the fact that British company acted merely as he nominee of the American Company.
7. PUBLIC INTEREST- The Courts may lift the veil to protect public policy and prevent transactions contrary to public policy. The Courts will rely on this ground when lifting the veil is the most just result, but there are no specific grounds for lifting the veil.
2. FRAUDULENT TRADING- Under Section 542 of The Indian Companies Act, 1956, if any business of a company is carried on with the intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, who was knowingly a party to the carrying on of the business in that manner is liable to imprisonment or fine or both. This applies whether or not the company has been or is in the course of being wound up. This was upheld in Delhi Development Authority v. Skipper Constructions Co. Ltd. (1997). 3. MISDESCRIPTION OF THE COMPANY- Section 147 (4) of The Indian Companies Act, 1956, provides that if any officer of the company or other person acting on its behalf signs or authorizes to be signed on behalf of the company any bill of exchange, promissory note, endorsement, chacque or order for money or goods in which the companies name is not mentioned in legible letters, he is liable to fine and he is personally liable to the holder of the instrument unless the company has already paid the amount. 4. HOLDING AND SUBSIDIARY COMPANIES- In the eyes of law, the holding company and its subsidiaries are separate legal entities. But in the following two cases the subsidiary may lose its separate entityWhere at the end of its financial year, the company has subsidiaries, it must lay before its members in general meeting not only its own accounts, but also attach therewith annual accounts of each of its subsidiaries along with copy of the boards and auditors report and a statement of the holding companys interest in the subsidiary. The Court may, on the facts of a case, treat a subsidiary as merely a branch or department of one large undertaking owned by the holding company.
Conclusion:
Thus it is abundantly clear that incorporation does not cut off personal liability at all times and in all circumstances. Honest enterprise, by means of companies is allowed; but the public are protected against kitting and humbuggery. The sanctity of a separate entity is upheld only in so far as the entity is consonant with the underlying policies which give it life. Thus those who enjoy the benefits of the machinery of incorporation have to assure a capital structure adequate to the size of the enterprise. They must not withdraw the corporate assets or mingle their own individual accounts with those of the corporation. The Courts have at times seized upon these facts as evidence to justify the imposition of liability upon the shareholders. The act of piercing the corporate veil until now remains one of the most controversial subjects in corporate law. There are categories such as fraud, agency, sham or facade, unfairness and group enterprises, which are believed to be the most peculiar basis under which the Law Courts would pierce the corporate veil.
iii.
1. Company Law Board: The amendment act of 1963 abolished the Company law Department and empowered the Central Govt. to constitute a Board to be called the Company Law Board. In order to ensure better and convenient administration of the Companies Act, The company law board was set up by the central Govt. in 1964. As against the sanctioned strength of 9 Members (including Chairman and Vice-Chairman) the constitution of the Company Law Board as on 31st March, 2010. The administrative set up of the Company Law Board consists a. The Central office situated in New Delhi b. Four Regional offices headed by Regional Directors c. Registrar of companies in each state The amendment act of 1988 has made significant changes in section 10E Company Law Board is an independent, quasi-judicial body created under the Act of Parliament and derives its power under Section 10E of the Companies Act, 1956. The amendment 1988 authorizes the Company Law Board to enforce its orders in the same manner as if it were a decree issued by a court. In case of its inability to execute its order, it shall be lawful for the Board to send the orders to court within the local limits. It can also be happened that the unsolved matters by the CLB can be appealed in High Court in 60 days & if High Court feels it fit than it can give the remand for more 60 days to appeal. 2. Regional Directors: The Company Law board has setup four regional office with headquarters at Mumbai, Calcutta, Kanpur, & Chennai. This has been done to avoid administrative difficulties & unnecessary delays. The RD is responsible for administration of company law in his region and acts as local representative of the central Govt. The regional Directors also coordinate and supervise the work of the registrar in their respective regions. Certain 10
powers of the Central Government under the Companies Act have been delegated to the Regional Directors. They have also been declared as Heads of Department.
3. Registrar of Company: The central Govt. has appointed a full time officer in each State to be known as registrar of the companies and he is assisted by the qualified staff. He generally does his work at the capital of each state & is responsible for the administration of company law in his state. He works partly under the control of High Court & partly under the CLB (company law board). The Company Act has given him important power & authority & responsibilities in connection with the administration of the companies Act Persons or group of people who wanted to start or form a company have to file important documents with the Registrar of Company for getting the company registered. The Registrar issues the certificate of the incorporation & commencement of business to enable a Company to commence its business. He also maintains the list of registered companies, wound up companies, all the formal documents detection and prevention of the lost or unavailable documents of the companies. 4. Advisory Committee: The amendment Act 1965 abolished the advisory Commission & replaced it by the Advisory Committee. The function of this committee is to advise the Central Govt. & the Company Law Board (CLB) on such matters arising out of the administration of the Company Act. Section 410 empowers the Central Govt. not to take more than five 5 persons with suitable qualifications. It should be noted that it is not mandatory / obligatory that on part of Central Govt. or CLB to refer any specific matters to the Advisory Committee for its advice. 5. The Court: For better administration & effective application of Company Law the Courts have been developed. According to section 10, there are three types of the courts i. District Court ii. High Court iii. Supreme Court The court having jurisdiction under this act shall be the High Court having jurisdiction in relation to the place at which the registered office of the company is situated.
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