Page 21 - DCOM106_COMPANY_LAW

Company Law

Notes In Lee v. Lee Air Farming Limited (1960) 3 All ER 429 PC, a company was formed for the purpose
of manufacturing aerial top-dressing. Lee, a qualified pilot, held all but one of the shares in the
company and by the articles was appointed governing director of the company and chief pilot.
Lee was killed while piloting the company’s aircraft and his widow claimed compensation for
his death under the Workmen Compensation Act. The company opposed the claim on the
ground that Lee was not a ‘worker’ as the same person could not be employer and the employee.
Held: There was a valid contract of service between Lee and the company; and Lee was, therefore,
a worker. Mrs. Lee’s contention was upheld.
In Bacha F. Guzdar v. The Commissioner of Income-Tax, Bombay [AIR (1955) SC. 74], the facts of
the case were as follows:
The plaintiff (Mrs. Guzdar) received certain amounts as dividend in respect of shares held by her
in a tea company. Under the Indian Income-tax Act, agricultural income is exempted from
payment of income-tax. As income of a tea company is partly agricultural, only 40 per cent of the
company’s income is treated as income from manufacture and sale and, therefore, liable to tax.
The plaintiff claimed that the dividend income in her hands should be treated as agricultural
income up to 60 per cent, as in the case of a tea company, on the ground that dividends received
by shareholders represented the income of the company.
Held: By the Supreme Court, that though the income in the hands of the company was partly
agricultural yet the same income when received by Mrs. Guzdar as dividend could not be
regarded as agricultural income.

Task A husband and wife who were the only two members of a private ltd., company
were killed in a motor accident. Does the company also die with them?

2.2.4 Limited Liability

The company being a separate person, its members are not as such liable for its debts. Hence, in
the case of a company limited by shares, the liability of members is limited to the nominal value
of shares held by them. Thus, if the shares are fully paid up, their liability will be nil. However,
companies may be formed with unlimited liability of members or members may guarantee a
particular amount. In such cases, liability of the members shall not be limited to the nominal or
face value of the shares held by them. In case of unlimited liability companies, members shall
continue to be liable till each paise has been paid off. In case of companies limited by guarantee,
the liability of each member shall be determined by the guarantee amount, i.e., he shall be liable
to contribute up to the amount guaranteed by him.

Unlimited Liability of a Member of a Limited Liability Company

In the following cases, a shareholder or member shall lose the privilege of limited liability:
1. Where members of the company are reduced below the statutory minimum, viz., 7 in case
of a public company and 2 in case of a private company and the company carries on the
business for more than 6 months while the members are so reduced, every person who is
a member during the time that it so carries on business after those 6 months and is aware
of the fact that it is operating with fewer than the requisite number shall be personally
liable for the whole of the debts contracted during that time (s.45).

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