Introduction to Company Law


Autor: Anamika M J, National University of Advanced Legal Studies, Kochi


The concept of the company has been there for quite a while. The highlights and attributes of it have advanced over the timeframe as per the cultural changes that the nation has experienced. The company has certain preferences over the type of systematic ownership and association in view of the highlights like a constrained obligation, interminable progression and so on.


India has received several enactments from England. Company law is one such enactment which was embraced from England. In 1850 the first Company enactment was presented in India for the registration of a joint company which was based on the English Company Act 1844. The idea of limited liability was presented in the English Company Act of 1856 which was later presented in India in the year 1857. The Companies Act was altered a few times between 1850 and 1852 and the Act in 1852 repealed all other Act and stayed till 1912. The Indian Companies Act of 1913 was based on the British Companies Act of 1908. This Act experienced a few amendments. After independence it was discovered that the Companies Act must be changed to fit into the Indian situation, subsequently Companies Act 1956 was passed. This Act is currently replaced by the Companies Act 2013 which got the assent from the President on 29 August 2013.


Indian Company Act defines a company as “a company formed under this Act or any other previous Company laws”. A Company is a legal person or a legal entity that has special features specified under the law. A company is a legal entity. It also helps in meeting the economic ends of a country. It can be considered as a social, economic and legal entity of a country.


A corporate body is the creation of law. A company has certain rights, obligations and duties recommended by law. It possesses the powers conferred by the Memorandum of Association. Within the limits prescribed it can perform the rights as a corporate personality. The main characteristics of a company are discussed below:

i) Corporate Personality

A company incorporated under the Act is considered as a Corporate personality. It is considered as a different person other than the members who constituted it. A company is an artificial person who acts through humans. It is considered as a legal person who can enter into contracts and possess property in its name and can sue people and can be sued. It is called an artificial person as it is intangible and exists only in law.

ii) Limited Liability

The company being a separate personality the debts of the company does not become the liability of its members. The liability of the members is limited to the extent of the nominal value of shares upheld which means that the risk of the individuals is constrained to a certain degree.  The shareholders cannot be asked to pay more than the unpaid value of shares.

iii) Perpetual succession

Perpetual succession is the continuation of a corporation or other organization’s existence despite the death, bankruptcy, insanity, change in membership, or the exit of any member of the company. An incorporation company never dies until it is wound up legally. The Company’s life is determined by its Memorandum of Association.

iv) Separate Property

A company is a legal person and is entirely different from its members. It can claim the property in its own name. The Company is the real person in whose control and ownership the property claimed by it lies.

v) Transferability of Shares

The capital of a company is divided into shares. These shares are movable which means it can be transferred to another person and the shareholder will not be permanently wedded to the company.

vi) Common Seal

Upon consolidation, a company becomes a legal entity with perpetual succession and a common seal. Since the company has no physical existence, it must act through its agents and all contracts entered into by its agents must be under the seal of the company. The common seal acts as an official signature of the company.

vii) Capacity to sue or to be sued

A company is a legal person and hence it can initiate a legal proceeding against another person and it can also be sued. All the legal proceedings are carried out in the name of the company. A company can initiate a legal proceeding when there is a loss caused to the company by certain acts.

viii) Contractual rights

A company, being a legal entity different from its members, can enter into contracts for the conduct of the business in its own name. A shareholder cannot enforce a contract made by his company; he is neither a party to the contract nor entitled to the benefits derived from it.

ix) Limitation of Action

A company cannot go beyond the power stated in its Memorandum of Association. The Memorandum of Association of the company regulates the power and fixes the objects of the company and provides the edifice upon which the entire structure of the Company rests.

x) Separate Management

The members may derive profits without being burdened with the management of the company. They do not have effective and intimate control over its working and they elect their representatives as Directors on the Board of Directors of the Company to conduct corporate functions through managerial personnel employed by them.

xi) Voluntary association for profit

A company is a voluntary association for profit. It is formed for the accomplishment of some stated goals and whatsoever profit is gained is divided among its shareholders or saved for the future expansion of the company. Only section 8 companies can be formed with no profit motive.

x) Termination of existence

A company being an artificial judicial person does not die a natural death. It is created by law, carries on its affairs according to the law throughout its life and ultimately is effaced by law. Generally, the existence of a company is terminated by means of winding up. However, to avoid winding up, sometimes companies adopt strategies like reorganization, reconstruction, and amalgamation.