Meaning, Definition, and Characteristics of a Company

(As per the Companies Act, 2013)

✅ 1. Meaning of a Company

A company is a legal entity formed by a group of individuals to engage in and operate a business—
commercial or industrial—enterprise. It is created by registration under the Companies Act, 2013
and has a separate legal identity distinct from its members.

It can own property, enter into contracts, sue and be sued in its own name, and continue to exist
even if the shareholders or directors change.

✅ 2. Definition of Company (Section 2(20) of the Companies Act, 2013)

“Company” means a company incorporated under this Act or under any previous company law.

🔹 This means that a company must be:

 Registered with the Registrar of Companies (ROC), and

 Governed either by the Companies Act, 2013 or any earlier version (such as the Companies
Act, 1956).

✅ 3. Characteristics of a Company

The key features or characteristics that distinguish a company from other forms of business are:

1️⃣ Incorporated Association

 A company must be registered under the Companies Act, 2013.

 It comes into existence only after certificate of incorporation is issued by the ROC.

2️⃣ Separate Legal Entity

 A company has an existence independent of its members.

 It can own property, enter contracts, and sue or be sued in its own name.

📌 Case Law: Salomon v. Salomon & Co. Ltd. (1897)

Recognized the separate legal personality of a company.

3️⃣ Limited Liability

 The liability of shareholders is limited to the amount unpaid on their shares.

4️⃣ Perpetual Succession

 The company continues to exist even if shareholders or directors die or leave.

 Its existence is not affected by any change in membership.

5️⃣ Common Seal (Optional after 2015 Amendment)

 Earlier, the company had to use a common seal as its official signature.

 Now, it's optional as per Companies (Amendment) Act, 2015.

6️⃣ Separate Property

 A company can own, buy, and sell property in its own name.

 Members do not have ownership rights in company property.

7️⃣ Capacity to Sue and Be Sued

 As a legal person, a company can file a suit and can be sued by others in its own name.

8️⃣ Transferability of Shares

 In a public company, shares can be freely transferred.

 In a private company, transfer is restricted as per its Articles of Association.

9️⃣ Artificial Legal Person

 A company is created by law and has no physical form.

 It acts through its board of directors or authorized officers.

📝 Conclusion

The Companies Act, 2013 provides a modern legal framework for the registration and regulation of
companies in India. A company is a unique form of business structure that offers benefits like limited
liability, separate legal identity, and perpetual succession, making it suitable for larger and long-
term enterprises.
Introduction

A company is a separate legal entity distinct from its members. This principle, laid down in Salomon
v. Salomon & Co. Ltd. (1897), is called the corporate veil. However, in certain cases, courts may
ignore this separate identity to hold the individuals (like directors or shareholders) personally liable.
This is called lifting or piercing the corporate veil.

✅ Legal Basis

While the Companies Act, 2013 does not define this doctrine directly, various sections impose
personal liability in cases of fraud or misrepresentation:

 Section 7(7) – False incorporation details

 Section 251(1) – Fraudulent application for strike-off

 Section 339 – Fraudulent conduct during winding up

✅ Explanation

Courts may lift the corporate veil in the following situations:

1. To prevent fraud or tax evasion

2. To punish improper or illegal conduct

3. To determine the true character of the company

4. Where the company is a sham or façade

This ensures that the company structure is not misused to escape liability.

✅ Case Laws

 Gilford Motor Co. v. Horne (1933):

 Delhi Development Authority v. Skipper Construction Co. (1996):

✅ Conclusion

The doctrine of lifting the corporate veil is a powerful tool used by courts to ensure justice and
prevent misuse of the corporate form. Though exceptional, it is vital for maintaining transparency
and accountability in corporate operations.
Kinds of Companies under the Companies Act, 2013

(6 Marks | Exam-Oriented Answer)

✅ Introduction

The Companies Act, 2013 classifies companies based on liability, number of members, control, and
ownership. Understanding the kinds of companies helps determine the legal structure, compliance
obligations, and operational scope.

✅ Types of Companies (with Legal Reference)

Under the Companies Act, 2013, companies are broadly classified as follows:

🔹 1. Based on Liability

(a) Company Limited by Shares [Section 2(22)]

 Liability of members is limited to the unpaid value of shares.

(b) Company Limited by Guarantee [Section 2(21)]

 Members guarantee to pay a fixed sum in the event of winding up.

(c) Unlimited Company [Section 2(92)]

 No limit on members' liability.

🔹 2. Based on Number of Members

(a) Private Company [Section 2(68)]

 Minimum 2 and maximum 200 members

 Restricts transfer of shares

 Cannot invite public to subscribe

(b) Public Company [Section 2(71)]

 Minimum 7 members, no maximum

 Shares freely transferable

 Can raise capital from public

(c) One Person Company (OPC) [Section 2(62)]

 Only one member

 Introduced to encourage sole entrepreneurs

 Has limited liability

(a) Holding Company [Section 2(46)]

 Controls one or more subsidiary companies.

(b) Subsidiary Company [Section 2(87)]

 Controlled by a holding company.

🔹 4. Based on Ownership

(a) Government Company [Section 2(45)]

 51% or more of shareholding held by government.

(b) Foreign Company [Section 2(42)]

 Incorporated outside India but has a place of business in India.

(c) Section 8 Company [Section 8]

 Non-profit company for charitable or social purposes.

✅ Conclusion

The Companies Act, 2013 provides various types of companies to suit different business models,
objectives, and ownership structures. Each type has distinct legal requirements and operational
characteristics.

Incorporation of a Company

(For 6 Marks | Company Law | LLB Exam)

✅ F – Introduction / Definition

Incorporation is the legal process of forming a company as a separate legal entity under the
Companies Act, 2013. After incorporation, the company becomes a body corporate with perpetual
succession and limited liability.

✅ L – Relevant Law

The process is governed primarily by the following provisions:

 Section 7 – Incorporation of a company

 Rule 9 to Rule 12 – Companies (Incorporation) Rules, 2014

✅ E – Steps for Incorporation

1. Digital Signature Certificate (DSC)

o Required for signing e-forms digitally.

2. Director Identification Number (DIN)

o Mandatory for proposed directors (Apply through SPICe+ form).

3. Name Approval (RUN or SPICe+ Part A)

o File for approval of company name from MCA.

4. Filing of Incorporation Documents (SPICe+ Form)

o Includes:

 Memorandum of Association (MOA)

 Articles of Association (AOA)

 Declaration by professionals

 Address proof and ID of directors

5. PAN, TAN, EPFO, ESIC, GST (via AGILE-PRO Form)

o Integrated process for all registrations.

6. Certificate of Incorporation (COI)

o Issued by the Registrar of Companies (ROC)

o Contains the CIN (Corporate Identity Number)

✅ C – Case Law Reference

 Salomon v. Salomon & Co. Ltd. (1897):

✅ Conclusion

Incorporation legally brings a company into existence. It grants the company a separate legal identity,
perpetual succession, and the ability to enter into contracts and own property in its own name. The
MCA21 online portal has now simplified this process with the SPICe+ system.