• Company is a legal person or a separate legal entity and company member is not an agent of the other member.
• Company is a perpetual existence and death or insolvency of any members of the company does not dissolve the company unlike partnership.
• Liability of members is limited unlike partnership where liability is unlimited.
• Company shareholder can transfer his share to another person making the transferee amember of the company.
• Company conducts its business on the basis of:
Memorandum and Article of Association
The Companies Act, 1956, and
Use of common seal of the company.
• The Company Act, 1956 applies to the whole of India.
• Incorporated Company means following:
A company is an artificial person with perpetual succession and common seal, formed and registered under the provisions of the Indian Companies Act, 1956.
A company that uses aword at the last of its name as name ‘limited’ or ‘private limited’.
A company of few individuals forming a group of workers.
• Memorandum of Association: It contains the following information:
Constitution of the company i.e. the charter of the company.
Name of the company, name of the State where company is registered and situated and objects of the company
Authorized capital, and
Liability of the members.
• When bank lends money to the company, it sees all the points mentioned in the memorandum of association. Normally bank sees (i) objective of company is incorporated, (ii) what is the constitution of the company i.e. how it has been formed and who are its promoters, (iii) what is present capital and how much is required, and (iv) liabilities of its members, any special clause etc.
• Article of Association provides information related to share capital, underwriting commissions, alterations of capital, powers of Directors, their qualifications, remunerations, rules and regulations, objects of company, power of company, etc.
• Joint Stock Companies are mainly statutory companies and they are established under the Indian Companies Act.
• Statutory companies are those which are established by a special Act of the Parliament. For example such companies are RBI, SBI, NABARD or other Government enterprises.
• There are three types of companies that are registered under the Companies Act, 1956. These are:
Public Limited Company
Private Limited Company
Company Limited by Guarantee.
• Public Limited Company is limited by share, liability is per shareholdings, require 7 or more persons to start a company and is incorporated under Companies Act, 1956.
• Private Limited Company is characterized by liability limited by shares, minimum 2 members to form a private limited company with maximum of 50 members excluding employees, such company restricts the right of the transfer of shares and lastly such company does issue prospectus.
• A company limited by guarantee is one where members contribute fixed amount in the event of its winding up, profit not being motive since these are charitable companies.
• Ultra-Vires means that company doing something beyond its scope, power of authority, contracts made are beyond members/company’s power as laid down in memorandum of association. Ultra-vires are ab initio void and not ratifiable.
• Doctrine of Relation back: It means when dealing of the insolvent from the date of act of insolvency will not be valid in law. All such properties sold or transferred shall rest in the Official Receiver.
• Doctrine of Indoor Management: It means while persons dealing with a company are presumed to have read the public document and understood their contents and ascertained that the transaction is not inconsistent with the memorandum and articles of the company. Moreover, outsider has no right and duty to see the inside working of the company’s internal proceedings.
• Doctrine of Constructive Notice means that every person dealing with the company is deemed to have notice of the contents of its memorandum and article and have understood them properly.
• Minor cannot become a member of a company and is wholly incompetent to contract. Minor taking shares is void
• Rights of Members include (a) right of getting dividend, (b) right of return of capital on winding up of company or reduction, (c) right to attend meetings and exercise vote, (d) right to inspect statutory books and registers free of charge as provided under Companies Act.
• Prospectus : Prospectus under section 2 (36) of the Companies Act defines prospectus as any document described or issued as a prospectus and includes notice, circular, advertisement or other document inviting deposits etc. It also means invitation issued to the public to take shares etc. of the company. It acts as an advertisement offering to public. In other words it is general notice to public.
• Issue is not public when directed to a specified person.
• Deemed Prospectus means where a company allots or agrees to allot any share or debentures with a view to their being offered for sale to public by any document by which it is deemed that offer of sale is to public is called deemed prospectus.
• Section 20 of the Banking Regulation Act, 1949 provides a restriction to banks to grant loans and advances to its Director who happen to be Director or partners or guarantor of any company or firm.