Overview of Companies Act 1956

Overview of Companies Act

The International, as well as the domestic landscape, has witnessed rapid changes. In view of these alterations and developments, the Indian Government decided to replace the old Companies Act, 1956 with a modern version – Companies Act, 2013. This Act tries to make the corporate regulations and norms in India more modern and contemporary, matching up with the time.

What do you mean by a company?

There are multiple definitions of a company. But as per section 2(20) of the Companies Act, 2013, “Company means a company incorporated under this Act or under the previous company law.”

Distinctive features of a company

  • Separate legal entity: This is one of the most distinctive features of any company. A company always acquires a unique character by being a separate legal entity. Thus, by getting your company registered, you are offering a legal personality to your company. It will have similar kinds of rights and powers just like a human being. The existence of the company will be separate from that of its members. The company can have its own bank accounts, property, enter into contracts, incur liabilities, raise loans, and so on. A company is the rightful owner of all the assets and capital.
  • Limited liability: The liability of a member of the company depends on the type of the company:
  1. When a company is limited by guarantee, then the members are liable only for the amount for which they offered a guarantee in the first place. When the company enters the state of liquidation, this scenario can take place.
  2. If the company is a limited liability type, then the debts of the company will not be the same as that of the shareholders. They will be liable only for the nominal value of shares that they hold.
  3. If the company is unlimited, then the liability of the members will be unlimited as well. But conditions like these are rare.
  • Perpetual succession: A company will continue to carry on with its business operations irrespective of the death or alterations of its members. Also, the company shares change hands multiple times. However, this will never affect the existence of the company. The law alone can put an end to a company.
  • Common seal: A company operates by using the agency of human beings. Also, it is an artificial person, and hence, it needs to have an official signature. The employees and officers affix this signature on all the company documents. But according to the Companies (Amendment Act), 2015, it is no more mandatory to use the common seal. Section 9 of this Act does not contain the phrase “and a common seal” anymore. So, the companies which do not want to have a common seal can use an alternative mode of authorization.

The authorization can take place by:

  1. One director and a company secretary
  2. Two directors
  • Artificial legal person: A company is also popular by the name of “Artificial Legal Person.” It is called artificial since its creation is not natural. It came to existence out of the law. So it is also termed as legal. It is also considered as a person since it has the same rights which any human being has.

The company can have bank accounts, own property, and get involved in multiple activities just like any human being. But it will not take an oath, get married, go to jail or learn any professions.

A company by nature is artificial, and hence it requires a human being to operate flawlessly. These human beings are known as the Directors of the company. They authenticate the operations and formal acts of the company by using a common seal or on their own.

These are the most distinctive features of a company, which separates it from other organizations.