• An association of persons for trade or other
lawful activity formed for the purpose of
carrying on business or profit.
• Every association is not a company .
• Legally, a company refers to an association
which is “registered as a company” under the
Companies Act , 1956
• Lord Justice Lindley has defined a 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 arising
there from. The common stock so contributed is denoted in
money and is the capital of the company.
• The persons who contributed in it or form it, or to whom it
belongs, are members. The proportion of capital to which
each member is entitled is his “share”. The shares are always
transferable although the right to transfer them may be
An artificial person created by law: A
company is called an artificial person because
it does not take birth like a natural person but
comes into existence through law. Being the
creation of law, the company possesses only
those properties, which are conferred upon it
by its charter.
4. • Perpetual Existence:
• The term perpetual existence means the continued
• The death, insolvency or unsoundness of mind of its
members or transfer of shares by its members does not
in any way affect the existence of the company.
• Members may come and members may go but the
company goes on forever.
• The company can be compared with flowing river
where water (members) keeps on changing
continuously, still the identity of the river (company)
remains the same
5. • Common Seal:
• The term Common Seal means the official signature of
• Since the company being an artificial person cannot
sign its name on a document, every company is
required to have its common seal with its name
engraved on the same.
• This seal acts as the official signature of the company.
• Any document bearing the common seal of the
company and duly witnesses by at least two directors
will be binding on the company.
• Limited Liability: In case of a company limited by
share, the liability of a member is limited up to the
amount remaining unpaid on the shares held by a
6. • Free Transferability of shares:
• The shares of a public company are freely
• A shareholder can transfer association, even a
public limited company can put certain
restrictions on the transfer of shares but it cannot
altogether stop it.
• A shareholder of public company possessing fully
paid up shares is at liberty to transfer his shares
to anyone he likes in accordance with the manner
provided for in the articles of association of the
8. Characteristics of a Company
• A voluntary association of persons
• A creation of law
• Incorporated for specific objects only.
• A separate legal entity different from persons
• Its members generally have limited liability
• Its capital ,if any, consists of transferable shares.
• It has separation of ownership and management
• It acts through a common seal.
9. Separate Legal Entity
• A company in law is regarded as an entity
separate from its members
• Any of its members can enter into contracts
with it and he cannot be held liable for the
acts of the company even if he holds the
entire share capital.
• The company’s money and property belong to
the company and not to the share holders.
11. 1. Classification on the basis of incorporation:
(I)Statutory Companies – created by a special act of the Legislature.
Do not have any Memorandum or Articles of Association.
They derive their powers from the Acts, which constitute them.
Changes in structures or powers is possible through legislative
Main objective: to serve Public Interest.
Example: RBI, SBI,LIC ,UTI, FCI.
Are concerned with public utilities – railways, electricity and gas.
Provisions of companies Act,1956 apply to them, if they are not
inconsistent with the provisions of the special act under which they
12. Registered Company
• Companies registered under the companies Act 1956 or under
any other provisions of Company Law are called Registered
• Comes into existence when the certificate of incorporation
was issued by the Registrar of Companies (ROC).
• Derive their powers from the Companies Act and MOA.
• may be either a Private Company or a Public Company.
• These Companies may be
Companies limited by shares
Companies limited by guarantee or
13. Classification on the basis of liability
I. Limited Companies:
(a) Companies with limited liability:
- The liability of the members is limited by its MOA to the amount
unpaid on the shares,(If any) such a company is known as
company limited by shares.
- Liability can be exposed during existence and winding up of the
- If the shares are fully paid, the liability of members are nil.
14. (b) Companies limited by Guarantee:
• Each member promises to pay a fixed sum of money in case
of its winding up.
• This amount is called guarantee.
• Sometimes the members are required to buy a share of a
fixed value and also give a guarantee for a further sum in the
event of liquidation.
• Such companies are generally non-trading companies and not
formed for earning profits, but formed for the promotion of
the art, science, sports and culture.
• Such companies may be registered with or without a share
15. II Unlimited Companies:
A company not having any limit on the liability of its members
is termed as unlimited companies.
The members are personally liable for the debts of the
Because of the separate legal entity, the crs cannot sue the
The creditors should approach the court for the winding up of
the company . Members have to contribute their property and
the liquidator has to use the funds in the discharge of the
May or may not have a share capital.
If it has share capital the amount of share capital maut also be
stated in the Articles.
16. On the basis of members
1. One –person company:
- Has only one individual as member.
- Memorandum is required to indicate the name of person
who shall become member in case of death of incapacity of
the sole member.
- Mention the word “one person Company” below the name
wherever it is used.
2. Private limited Company:
- min. paid-up capital of Rs. 1 lakh or higher
- Restricts the right to transfer its shares,
- Limits its members to 200.
- Prohibits any invitation for shares, debentures, acceptance
of deposits other than its members, directors or relatives.