Page 19 - DCOM106_COMPANY_LAW

Company Law

Notes 2.1 Definition of a Company

The Companies Act, 1956 defines the word ‘company’ as a company formed and registered
under the Act or an existing company formed and registered under any of the previous company
laws (s.3). This definition does not bring out the meaning and nature of the company into a clear
perspective. Also s.12 permits the formation of different types of companies. These may be
(i) companies limited by shares, (ii) companies limited by guarantee and (iii) unlimited companies.
The vast majority of companies in India are with limited liability by shares. Therefore, it is
advisable to define the term ‘company’ keeping in mind this type of company. However, a brief
description of other types of companies will be given later in unit 3.
Lord Lindley has described the company as “an association of many persons who contribute
money or money’s worth to a common stock and employ it in some trade or business; and who
share the profit and loss (as the case may be) arising therefrom”. The common stock so contributed
is denoted in money and is ‘the capital’ of the company. The persons who contribute to it, or to
whom it belongs, are members. The proportion of capital to which each member is entitled is
his ‘share’. The member may sell his share in the company, thus, withdrawing himself and
making someone else a member to whom he transfers shares. Thus, shares in a company are
transferable. As a natural consequence of transferability of shares, the company has what is
commonly known as perpetual succession. With the withdrawal or death of a member of a
company, the latter does not come to an end. The life of the company is independent of the lives
of the members of the company. Members may come and members may go, the company
continues until it is dissolved.
Gower, L.C.B. in his book entitled The Principles of Modern Company Law gives an interesting
example. He says, ‘During the war all the members of one private company, while in general
meeting, were killed by a hydrogen bomb. But the company survived, not even a hydrogen
bomb could have destroyed it’.
Section 34(2) gives the effect of registration of a company by identifying the features it acquires
as a consequence thereof. The section provides that:
“From the date of incorporation mentioned in the certificate of incorporation, such of the
subscribers of the memorandum and other persons, as may from time to time be members of the
company, shall be a body corporate by the name contained in the memorandum, capable forthwith
of exercising all the functions of an incorporated company and having perpetual succession and
a common seal, but with such liability on the part of the members to contribute to the assets of
the company in the event of its being wound up as is mentioned in the Act.

Self Assessment

Fill in the blanks:
1. An existing company formed and registered under any of the previous company laws
........................................

2. The persons who contribute to it, or to whom it belongs, are ...................................
3. Members may come and members may go, the company continues until it is
....................................

4. ................................. gives the effect of registration of a company by identifying the features
it acquires as a consequence thereof.

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