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Business Enterprises

NATURE, FORM AND TYPES OF BUSINESS ENTERPRISES

Business Enterprises
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Non-Corporate (Sole Proprietorship, Partnerships & HUF)

Corporate (Cos. & Co-operatives)

NATURE, FORM AND TYPES OF BUSINESS ENTERPRISES

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Basic difference between Corporate and NonCorporate form of business organization is that while a non-corporate form of business can be started without Registration, Corporate bodies cannot be set up without registration under the laws which govern their functioning.

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COMPANIES ACT, 1956

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COMPANIES ACT, 1956 - FEATURES

The Companies Act, 1956 is the longest piece of legislation ever passed by our Parliament.

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The Act consists of 658 Sections and 15 Schedules.

BRIEF STRUCTURE OF THE COMPANIES ACT, 1956

Section 1 Short Title, Extent and Commencement
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Section 2 Definitions Section 3 to 658 Other Provisions

SHORT TITLE, EXTENT AND COMMENCEMENT (SECTION 1)

This Act may be called the Companies Act, 1956.

It extends the whole of India. It came into force on April 01, 1956.

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DEFINITION OF COMPANY UNDER COMPANIES ACT, 1956

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A company means a company formed registered under the Companies Act, 1956.

and

COMPANY ITS MEANING

A Company in broad sense may mean an association of individuals formed for carrying on some business or undertaking for acquisition of gain.

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However, an association formed not for profit acquires a corporate life and falls within the meaning of a company by reason of a license u/s 25 of the Companies Act, 1956.

COMPANY ITS MEANING

In legal sense, a co. is an association of both natural and artificial persons incorporated under the existing laws of the country.

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COMPANY ITS MEANING

Co means as association of many persons who contribute money or moneys worth to a common stock & employ it in some trade or business & who share the profit or loss arising there from.

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The common stock so contributed is the capital. The persons who form it are the members. The proportion of the capital to which each member is entitled is his share.

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COMPANY ITS CHARACTERISTICS

The most striking characteristics of a company are:
1. Corporate Personality By incorporation under the Act, the co. is vested with a corporate personality quite distinct from individuals who are its members.

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CORPORATE PERSONALITY
Being a separate legal entity : It bears its own name; It has a seal of its own; It is capable of owning property, Incurring debts, borrowing money, Having a bank account, Employing people, entering into contracts, Suing and being sued

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CORPORATE PERSONALITY

Saloman V. Saloman and Co. Ltd.

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Saloman V. Saloman.xlsx

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CORPORATE PERSONALITY

Lee V. Lees Air Farming Ltd.

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Lee V. Lee Air Farming.xlsx

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CORPORATE PERSONALITY
Small deviation from the Corporate Personality Rule Experience of a Shareholder is the experience of a Company New Horizons Limited V. Union of India

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New Horizons Limited.xlsx

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COMPANY ITS CHARACTERISTICS

2. Limited Liability
One of the most important advantages of doing business under the corporate form or organization.

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This means that the liability of a members is limited.

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COMPANY ITS CHARACTERISTICS

2. Limited Liability
Eg., If A holds shares of nominal value of Rs. 1000 and has already paid Rs. 600, he cannot be called upon to pay more than Rs. 400, the amount remaining unpaid on his shares.

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If he holds fully paid up shares, he has no further liability to pay even if the co. is declared insolvent.

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COMPANY ITS CHARACTERISTICS

2. Limited Liability
In Partnership firms, the liability of the partners for the debts of the business is unlimited.

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Not only their share in the firm but their personal assets may be attached to satisfy the debts and liabilities of the firm.

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COMPANY ITS CHARACTERISTICS

3. Perpetual Succession
Members may come and members may go, but the co. can go on forever.

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During the war, all the members of one Private Co., while in the General Meeting, were killed by a bomb, but the co. survived not even a hydrogen bomb could have destroyed it.

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COMPANY ITS CHARACTERISTICS

4. Separate Property
A Co. being a legal person and entirely distinct from its members, is capable of owning, enjoying and disposing of property in its own name.

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The property of the Co. is not the property of the shareholders, it is the property of the Co.

Norther Insurance Co. Ltd..xlsx

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COMPANY ITS CHARACTERISTICS

5. Transferability of Shares
The capital of a co. is divided into parts, called Shares. A member may sell his shares in the open market and realise the money. This provides liquidity to the members and ensures stability to the Co. (as the member is not withdrawing his money from the Co.).

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COMPANY ITS CHARACTERISTICS

6. Common Seal
Since, the Co. has no physical existence, it must act through its agents and all contract entered into by his agents must be under the seal of the Co.

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The Common Seal of a Co. is of great importance and acts as official signature of a Co.

The name of the Co. must be engraved on its seal.

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COMPANY ITS CHARACTERISTICS

7. Capacity to sue and be sued
A Co. being a body corporate, can sue and be sued in its name.

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COMPANY ITS CHARACTERISTICS

8. Contractual Rights
A Co., being a separate legal entity different from its members, can enter into contracts for the conduct of the business in its own name.

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COMPANY ITS CHARACTERISTICS

9. Limitation of action
A Co. cannot go beyond the power stated in the MOA.

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MOA of the Co. regulates the powers and fixes the objects of the Co. and provides the entire super structure of the Co. rests.

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COMPANY ITS CHARACTERISTICS

10. Separate Management
Members do not have effective and intimate control over its working and elect its representatives to conduct corporate functioning.

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The Co. is administered and managed by its Board of Director.

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COMPANY ITS CHARACTERISTICS

11. Termination of Existence
A Co., being an abstract and artificial person, does not die a natural death.

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It has its existence only in contemplation of law.

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COMPANY ITS CHARACTERISTICS

11. Termination of Existence
The existence of a Co. is terminated by means of winding up.

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However, to avoid winding up sometimes companies change their form by means of reorganization, reconstruction and amalgamation.

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LIFTING OF CORPORATE VEIL

As the separate personality of the company is a statutory privilege, it must be used for legitimate purposes only. Where a fraudulent or dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality. The court will break through the corporate shell and apply the principle lifting or piercing the corporate veil.

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LIFTING OF CORPORATE VEIL

Fraudulent Conduct :

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Where the business has been carried on with an intent to defraud creditors or any other person or for any fraudulent purpose, those who are knowingly parties to such conduct of business be made personally liable without any limitation for all or any debts or other liabilities of the Co.

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LIFTING OF CORPORATE VEIL

Non Payment of Tax:

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When any Pvt. Co. is wound up, any tax assessed on the Co., whether before or in the course of liquidation in respect of any income of any PY cannot be recovered, every person who was Director of that co. at any time during the relevant PY shall be jointly and severally liable for payment of tax.

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LIFTING OF CORPORATE VEIL

Ultra Vires Act:

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Directors of a Co. will be personally liable for all those acts which they have done on behalf of a co. if they are Ultra Vires the Co.

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LIFTING OF CORPORATE VEIL

Mis Description of name:

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Where an officer of a Co. signs on behalf of a Co. any contract, agreement, cheque, bill of exchange, order for money or goods or such other documents, such person shall be personally liable to the holder if the name of the Co. in not mentioned. Hendon V. Adelman & Others.xlsx

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LIFTING OF CORPORATE VEIL

Misrepresentation in Prospectus:

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In case of misrepresentation in Prospectus, every Director, Promoter and every other persons who authorises the issue of such prospectus incurs liability towards those who subscribe for share on the faith of untrue statement.

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ILLEGAL ASSOCIATION
An unincorporated Co., association or partnership consisting of large number of persons has been declared illegal.

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No Co., Association or Partnership consisting of more than 20 persons (10 in case of banking business) can be formed for the purpose of carrying on any business for gain, unless it is registered as a Co. under the Companies Act, 1956 or is formed in pursuance of some other Indian Law.

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THANK YOU

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