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Unit 2: Meaning and Nature of a Company

2. Where in the course of winding up, it appears that any business of the company has been Notes
carried on with intent to defraud creditors; the Court may declare the persons who were
knowingly parties to the transaction personally liable without limitation of liability for
all or any of the debts or other liabilities of the company (s.542).

2.2.5 Separate Property

Shareholders are not, in the eyes of the law, part owners of the undertaking. In India, this
principle of separate property was best laid down by the Supreme Court in Bacha F. Guzdar v.
The Commissioner of Income Tax, Bombay (Supra). The Supreme Court held that “a shareholder
is not the part owner of the company or its property, he is only given certain rights by law, e.g.,
to vote or attend meetings, to receive dividends” Similarly, in R. F. Perumal v. H. John, it was
observed that “no member can claim himself to be owner of the company’s property during its
existence or on its winding up. In still another case, it was observed that “ even where a shareholder
held almost entire share capital, he did not even have an insurable interest in the property of the
company”. In Macaure v. Northern Assurance Co. Ltd., the facts were as follows:
‘Macaure’ held all except one share of a timber company. He had also advanced substantial
amount to the company. He insured the company’s timber in his personal name. On timber
being destroyed by fire, his claim was rejected for want of insurable interest. The Court applying
principle of separate legal entity held that the insurance company was not liable.

2.2.6 Transferability of Shares

Since business is separate from its members in a company form of organisation, it facilitates the
transfer of member’s interests. The shares of a company are transferable in the manner provided
in the Articles of the company (s.82). However, in a private company, certain restrictions are
placed on such transfer of shares but the right to transfer is not taken away absolutely.

2.2.7 Perpetual Existence

A company being an artificial person cannot be incapacitated by illness and it does not have an
allotted span of life. The death, insolvency or retirement of its members leaves the company
unaffected. Members may come and go but the company can go forever. The saying “King is
dead, long live the King” very aptly applies to the company form of organisation.

2.2.8 Common Seal

A company being an artificial person is not bestowed with a body of natural being. Therefore,
it has to work through its directors, officers and other employees. But, it can be held bound by
only those documents which bear its signature. Common seal is the official signature of a
company.
Seal of company when to be used – The articles of association of the company provide for
putting the seal of the company on documents. Apart from those documents, the company seal
is to be put on power of attorney, deed of lease, share certificates, debentures, debenture trust
deed, deed of mortgage, promissory notes, negotiable instruments (except cheques), agreement
of hypothecation, loan agreements with banks and financial institutions, contract of employment,
guarantees issued by the company and all formal documents and documents executed on stamp
papers.

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