The Company - Frequently Asked Questions

1. Define company.
According to Haney, "A company is an incorporated association, which is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal."

2. What is 'separate legal entity'?
A company is a legal person having a juristic personality entirely distinct from and independent of the individual persons who are for the time being its members. It has the right to own and transfer the title to property in any way it likes.

3. What is 'Common Seal'?
A company being an artificial person has no body similar to natural person and as such it cannot sign documents for itself. But having a legal personality, it can be bound by only those documents which bear its signature. Therefore, the law has provided for the use of a common seal, with the name of the company engraved on it, as a substitute for its signature.

4. What do you mean by perpetual succession?
A company is a stable form of business organisation. Its life does not depend upon the death, insolvency or retirement of any or all shareholder(s) or director(s). Law creates it and law alone can dissolve it. Members may come and go but the company can go on forever.

5. What do you mean by 'lifting the corporate veil'?

6. State types of companies.
Kinds of Companies on the basis of Incorporation
(1) Chartered company
(2) Statutory company
(3) Registered company

Kinds of Registered Companies on the basis of Number of Members
(1) Private company
(2) Public company

Kinds of Registered Companies on the basis of Liability of Members
(1) Companies limited by shares
(2) Companies limited by guarantee
(3) Unlimited companies

7. What is partnership?
According to Section 4 of the Indian Partnership Act, 1932, Partnership is defined as "relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all." The liability of the partners is unlimited.

8. What is chartered company?
It is a type of company which is established by the Charter. The rules and regulations of such companies are framed by the Charter who establishes it. E.g. Bank of England.

9. What do you mean by 'Statutory company'?
It is a company incorporated by a special Act passed either by the Central or State legislature. Companies intending to carry on some business of national importance are formed in this way. E.g. Reserve Bank of India, Life Insurance Corporation, etc.. The powers which are to be exercised by such companies are defined by the Acts constituting them.

10. What do you mean by 'Company limited by guarantee'?
A company limited by guarantee may be defined as "a company having the liability of its members limited by its memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up."

11. What do you mean by 'Company limited by shares'?
A company having the liability of its members limited by the Memorandum to the amount, if any, unpaid on the shares respectively held by them is termed "a company limited by shares". Such a company is popularly called as limited liability company. The liability can be enforced at any time during the existence and also during the winding up of the company.

12. What is 'Government company'?
A Government company is defined in Section 617 as "any company in which not less than 51 per cent of paid-up share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined."

13. What is 'Foreign company'?
A foreign company means a company incorporated outside India but having a place of business in India. Indian Acts are applicable to foreign companies according to Companies Act.

14. What is 'Company Law Board'?
With a view to ensuring greater efficiency, cohesion and despatch in the day-to-day administration of the Companies Act, an administrative authority, namely, The Board of Company Law Administration(popularly known as the Company Law Board) was formed. The Company Law Board has to exercise and discharge such powers and functions as may be conferred on it, by or under the Companies Act or any other law.

15. What is 'Advisory Committee'?
An Advisory Committee has been set up under the Amendment Act of 1965, which is to consist of such number of members, not exceeding five, as the Central Government may appoint by notification in the Official Gazette. The functions of this Committee are to advise the Central Government and the Company Law Board on such matters arising out of the administration of the Companies Act as may be referred to it by the Central Government or the 'Board'.

16. Solomen V/s. Solomen case.

17. Mention 4 important characteristics of private company.
A Private company is one which:
(1) restricts the right of the members to transfer shares, if any;
(2) limits the numbers of its members to fifty, excluding members who are or were in the employment of the company;
(3) prohibits any invitation to the public to subscribe for any share in, or debentures of, the company;
(4) has the word "Private" in its name.

18. What is 'Holding company'?
A Holding Company is one which purchases 51 per cent or more of the shares of the subsidiary company and manages the affairs of the subsidiary company. The Act defines a Holding Company as "A company shall be deemed to be the holding company of other, if that other is its subsidiary."

19. What is 'Subsidiary company'?
Subsidiary company is one which sells 51 per cent of its shares to the Holding Company and is managed and controlled by the Holding Company. A company shall also be deemed to be subsidiary of another if it is a subsidiary of any other company which is that other company's subsidiary.