Company Law: Meaning and Significance

The way companies run is now given new prominence by contemporary culture. It has become the most widely used kind of business organization. The fact that a company is not a property is now commonly accepted, even in countries with a long history of capitalism. It has been proven false that a company's stockholders do not own it. According to the new socio−economic theory, a firm is a social entity with obligations and responsibilities to the community in which it functions.

What is the Meaning of Company?

There is no formal technical or legal definition of the term "Company." The English word "company" originally referred to a group of individuals who shared a meal and is derived from the Latin words "Com" and "Pains," both of which suggest "bread." A company is nothing more than a group of individuals who have united or gathered money for a certain cause and have structured themselves into a distinct legal entity called a company to pursue that cause.

Company can be thought of as a broad term for an artificial person that law both creates and destroys. A group of people come together to launch a business with legal assistance. The exact definition of a country differs from one nation to another. Public or private businesses are an essential component of an economy. They are the means by which a nation develops and spreads abroad. Their performance is a crucial indicator of a nation's economic standing.

Characteristics of a Company

Since a corporate body (i.e. a company) is the creation of law, it is not a human being, it is an artificial juridical person (i.e. created by law) and it is clothed with many rights, obligations, powers and duties prescribed by law.

Incorporated association − When a corporation registers under the Companies Act, it becomes a legal entity. From the time specified in the certificate of incorporation, it exists.

The shareholders cannot bind the corporation with their actions because they are not its agents. They cannot be sued to enforce the company's rights or sued in relation to its obligations since the company does not retain its property as an agent or trustee for its members. As a result, the act of creating a legal corporation as a juristic person is known as "incorporation." A juristic person is treated in accordance with the law and is endowed with rights and obligations.

Separate Legal Entity − A firm is a distinct legal entity from the people who constitute it. It has the authority to hold, buy, sell, and engage in agreements in its own name. It is a fake legal person who is both able to sue and be sued. Shareholders own businesses, and they choose the board of directors that runs them. The management is chosen by the board in turn. As a result, the stockholders only indirectly influence the company's operations. There can occasionally be a conflict of interest between owners and management due to the separation of ownership and management. Following any such conflict, the most the shareholders can do is vote to replace some of the directors at the annual general meeting.

Separate Property − Members have no direct proprietary rights to the company's property, just their "shares," and the corporate property is clearly distinguished from the members' property. Any liquidation or split of the company's assets will not result from a change in the membership structure. The company cannot be considered either the owner's property or an agent of the shareholder who holds all of the business's shares. No member may, either singly or collectively, assert any ownership rights in the company's assets while it is still in existence or after it is dissolved.

Perpetual Existence − A company has a continuous succession. It doesn't have a set life expectancy. The method of creation and dissolution of a company, as well as the members' freedom to freely transfer shares, ensure that the firm will continue to exist regardless of the members' lives. A company's existence can only be ended by law. Despite the fact that its members, including the founders or subscribers to the Memorandum, may pass away or leave it, it cannot pass away because it is an artificial person. Furthermore, the corporation can nonetheless carry out its obligations under existing contracts and sign new ones notwithstanding changes to its membership. Members may come and go, but the business may endure forever.

Common Seal − A company may have an artificial personality, but its directors are the people who actually carry out its operations. They serve as the company's agents but not its members. The company's "common seal" is the source of authority for all of its actions. The company's formal signature is known as the "common seal." A document without the company's common seal will not bind the business.

Separation of Ownership and Management− A firm is owned (de facto) by a huge number of shareholders who are unable to effectively manage the company's affairs. The company's goals are established by the shareholders, who also choose the directors, who will act as their agents or representatives in managing the business on their behalf.

Limited Liability − A company's stockholders are only responsible for the nominal value of the shares they own. A shareholder's maximum loss in the case of liquidation is equal to the nominal value of the shares he owns. In the case of liquidation, the shareholders' personal assets are exempt from creditors' claims.

Transferability of Shares − A joint stock company's shares are freely transferable. It is not necessary to obtain approval from the business or other shareholders. Shares of listed corporations can easily be bought, traded, and transferred as ownership on the stock exchange. However, in the case of a private limited company, the limitations outlined in the articles of incorporation apply to the transfer of shares.

Development of Company Law in India

Indian company law is the adored offspring of English parents. The English Acts served as the template for our different company acts. The first Companies Act was passed in India in 1850, following the Joint Stock Companies Act of 1844 in England. It stipulated that businesses must be registered and that shares may be transferred. The right to register was granted by the Amending Act of 1857, either with or without restricted responsibility. Following a similar concept in Britain, this right was subsequently granted to banking and insurance corporations by an Act of 1860. All earlier acts were repealed by the Companies Act of 1856.

This Act included provisions for the incorporation, oversight, and dissolution of businesses and other organizations. This Act was revised in 1882 to reflect changes made to English company law up to that point. A consolidated act was enacted in 1913, and significant changes were made to the consolidated act in 1936. A comprehensive Companies Act was enacted in England in the meantime, in 1948. The Indian Government issued the Indian Companies (Amendment) Ordinance in 1951, which gave the Court and the Central Government broad authority to intervene directly in the business affairs of the company and to take any necessary steps to advance the firm's interests. An amending act from 1951 took the place of the ordinance. However, finally in 2013, a well−defined comprehensive Companies Act legislated to govern the related businesses and their transactions.


A company is a legal person which has been given personification by law. It acts not according to its own whims and fancies being an artificial person but according to the men behind the curtains of the corporation.

Frequently Asked Questions

Q. What is the difference between corporate and business law?

The distinction between corporate law and business law is − business law encompasses legal issues used in acquisitions, mergers, the establishment of firms, and shareholder rights, whereas corporate law concentrates on the legal aspects controlling the selling and distribution of goods. Companies require someone with a thorough understanding of both legislations.

Q. What is the difference between corporate and commercial law?

Corporate and commercial are names given to two related but typically distinct groups in a legal practice. The corporate practise areas are intertwined, and their work involves both mergers and acquisitions and the lifetime of businesses, securities, contracts, money related to administration control, etc., whereas, commercial law focuses on the expansion and diversifying and licensed amendments and innovation.

Q. Has Company the right to sue and get sued?

A company can sue and be sued on its own behalf and even sue its members. It also has the right to seek damages if publishing a defamatory incident about the company, which substantially affects its operations.

Q. Is the power of Company unlimited?

No. A company cannot go beyond the power stated in its Memorandum of Association. The actions and objects of the company are limited within the scope of its Memorandum of Association.