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The Companies Act, 2013

Introduction to Companies Act and Company

After going through this lesson, you shall be able to understand the following concepts 

  • Knowledge of the Companies Act, 2013
  • Concept of company and its prime features
The Companies Act, 2013 was indeed introduced to amend the law which previously governed the companies. This Act was preceded by the Companies Act, 1956, which was the original Act made for companies.
Due to drastic changes in the domestic and global economic environment and to ease the growth of our economy, the Central Government decided to replace the Companies Act, 1956 with a new law. The Companies Act, 2013 contains 470 sections and 7 schedules. The entire Act is laid in 29 descriptive chapters and a substantial part is in the form of Companies Rules. The Companies Act, 2013 aims at improving corporate governance, removing inflexible regulations, strengthen the position of minority investors and for the first time ever legislates the part played by the whistle-blowers. Thus, this enactment is a contemporary version of the previous Act.

Applicability of the Companies Act, 2013:
The provisions of this Act are applicable to:
  • Companies incorporated under Companies Act, 2013 or under any previous company law.
  • Insurance companies (except where the provisions of this Act are inconsistent with the provisions of the Insurance Act, 1938 or the IRDA Act, 1999)
  • Banking companies (except where the provisions of this Act are inconsistent with the provisions of the Banking Regulations Act, 1949)
  • Companies engaged in the generation/supply of Electricity (except where the provisions of this Act are inconsistent with the provisions of the Electricity Act, 2003)
  • Or any other company governed by any special Act for the time being in force.
  • Any Body Corporate which is incorporated by an Act for the time being in force, and as the Central Government may have had notified specifically in this behalf
Meaning of Company and its important features
In words of Chief Justice Marshall, “a corporation is an artificial being, invisible, intangible, existing only in contemplation of law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as accidental to its very existence.
According to Professor Haney, “A company is an incorporated association, which is an artificial person created by law, having a separate entity, with a perpetual succession and a common seal.” This definition sums up the meaning and the important features of a company.
However, the Companies Act defines the term company differently. Section 2(20) of the Act defines the term ‘company’ as, “Company means a company incorporated under this Act or under any previous company law”. Let’s understand company by getting into the depth of the related important terms.

Let’s understand the above listed features of a company one by one.

Separate Legal Entity
When a company is registered, it gets a legal personality with almost the same rights and powers as a human being. Its existence is separate from that of its members. A company can buy and sell property, own a bank account, raise loans, incur liabilities and enter into legally valid contracts.
Even members of a company can enter into contracts with the company and transact with it. A company has authority to buy and sell property in its own name. The shareholders are not the private or joint owners of company’s property.
This clause was established in the case of Macaura where he was the holder of nearly all shares of a timber company. He insured the company’s timber in his own name. The timber was lost in a fire. Macaura claimed insurance compensation. Held, the insurance company was not liable to him as no shareholder has any right to any property owned by the company.

Perpetual Succession
Members of a company may die or change but the company continues to be in existence unless it is wound up on any ground specified in the Act.
The shares of the company may also be bought and sold innumerable times by its members but that does not affect the existence of the company, neither is it affected by the insolvency or death of its members. Only law can put an end to a company’s life.

Limited Liability
The liability of a member depends upon the kind of company of which he is a member. In case of a limited liability company, the debts of the company do not become the debt of the company, thus keeping the members safe. Liability of each member is limited to the extent of the nominal value of the total shares held by him/her in the company.
In the case of a company limited by guarantee, the members are liable only to the extent of the amount guaranteed by them and that too only in case of liquidation of the company.
However, in case of unlimited company, as the name suggests, the liability of its members is unlimited.

Artificial Legal Person
A company is an artificial person as it is created not by natural birth but by registration under law. It has a legal and a judicial personality recognizable under law.
It can own property, have bank account, raise loans and enter into contracts. Even members can contract with company. It can sue and be sued in its own name. It can do everything which any natural person can do except be sent to jail, marry or practice a profession.
Being an artificial person, it can act only through some human agencies, which are its directors. The directors act as its agents, but they are not the “agents” of the members.
Thus, a company is called an artificial legal person.

Common Seal
A company being an artificial person works through an agency of human beings. Common seal is the official signature of a company. The common seal is used by a corporation as the symbol of its incorporation under the law.

Note: As per the Companies (Amendment) Act, 2015  the word common seal has been made optional by omitting the words “and a common seal” from Section 9. This has been done to offer an alternative mode of authorization for companies which do not prefer to work under a common seal. Even in the U.K., the common seal is an optional mode since 2006. However, in case a company chooses not to have a common seal, then an authorization shall be made by atleast 2 of its directors or by a director and the Company Secretary.Objective        
After going through this lesson, you shall be able to understand the following concepts 
  • Meaning of Corporate Veil.
  • Famous case of Solomon vs. Solomon
  • Lifting of Corporate Veil
Corporate Veil
refers to a legal concept which states that a company is identified…

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