Definition of a company

DEFINITION OF A COMPANY

Company [Section 3(1) of Companies Act, 1956] The definition of “Company” in sub-section (1)(1) of section 3 of the 1956 Act, is subject to the other definitions given in other provisions of the 1956 Act for the limited purposes stated therein. In Telesound India Ltd., it was held that though the word companies is generally defined in section 3 of the 1956 Act, the definition cannot be used to cut down the scope of the word companies as defined in other sections for their own different purposes. For Example, Section 390(a) of the 1956 Act defines the companies for the purposes of the section “as a company liable to be wound up under this Act”. The court said that if the word companies were to be restricted to the definition of section 3 of the 1956 Act, a large number of companies, such as, unregistered companies and foreign companies would be outside the preview of the provisions contained in Chapter 5 of the 1956 Act with regard to compromise, arrangement, reconstruction etc., even though these categories would be within the winding up sweep of the Act. www.companyregistrationinmadurai.in

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 For the purposes of Industries Development

and Regulations Act, 1951 which permits the take-over of the company’s management, it has been held that a word “Company” does not include a partnership firm. A banking company registered under the Sikkim Registration of Companies Act, 1961 has been held to be a company within the meaning of section 5(d) of the Banking Regulation Act, 1949 and section 3 of the 1956 Act. Note that the word “Company” as defined in section 3 of the 1956 Act does not include a foreign company. But the word when used with “holding” and “subsidiary” is wider in scope and includes also a foreign body corporate.[Section 4(5) of the 1956 Act]. www.companyregistrationinmadurai.in

Existing Company  The definition necessarily implies the actual

existence of the company. A company which has become defunct and whose name has been struck off the register under section 560 of the 1956 Act, will not come within the definition of existing company. A business registered under the Sikkim registration of Companies Act, 1956, is not a company within the meaning of section 3(1) (2) of the 1956 Act nor an existing company within the meaning of section 3(1)(2) of the 1956 Act. The provisions of the 1956 Act do not extend to the state of Sikkim. www.companyregistrationinmadurai.in

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Section 3 of the Companies Act, 1956 – Foreign company

 The term “company” as defined in section 3 of the 1956 Act. It denotes a group of persons and the effect of registration under the Act is that such a group becomes a corporate body having perpetual succession and a common seal. The 1956 Act, in its several provisions, has given effect to a democratic set-up to the association called the “Company“, the management vesting in its Board of Directors and the ultimate control remaining with the organisation in general meeting. The legal fiction created by sub-section (2) of section 591 of the 1956 Act does confer on a foreign companies any exalted state so as to be treated as a business incorporated in India. www.companyregistrationinmadurai.in

Company and Partnership  The points of difference between a company and a partnership as noted in PALMER. ” The principle that, apart from exceptional cases, the business is a body corporate, distinct from its members, lies at the root of many of the most perplexing questions, that beset company’s Law. It is a fundamental or cardinal distinction-a distinction which must be firmly grasped. The principle is thrown into clear relief by contrasting an incorporated companies with a partnership, for under English Law (though not the Scottish law or that of most Continental systems) a firm or partnership is not a separate entity from its members. www.companyregistrationinmadurai.in

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 In case of a partnership the property of the firm belongs

to the individual members. They are collectively entitled to it , whereas, in the case of a business, it belongs to the company’s and not to the members.  Creditors of a firm are creditors of the members of the firm, and on obtaining judgement against the firm can levy execution on the property of the partners in the firm, whereas, in the case of a business, “the creditor has no debtor but that impalpable thing, the corporation,” and the judgement against the companies normally gives no right to levy execution against the members.  A member of a firm can on behalf of the firm dispose of property and incur liabilities , within the scope of the business, to any extend, whereas a member of a company, as such, has no power.  A partner cannot contract with the firm, whereas a member of the companies can contract with the organisation.

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COMPANY AS PARTNER  The 1956 Act recognizes that a company can be a partner in

a partnership firm. Under Schedule 6 of the 1956 Act, under the Sub-head ‘loans and advances’, advances and loans to a partnership firm in which the companies or any of its subsidiaries is partner, has to be disclosed separately.

Thus,it is possible for companies to be a partner in a firm, as the business is a legal person. The object clause of the memorandum of association must contain the power enabling the companies to enter into partnership with any person or company. There was not be any operational difficulty in case of a organisation/business becoming a partner in a firm . Such partner-company could act through its officers duly authorized in this behalf. “Nationally and juristically if two incorporated companies under the Indian Companies Act enter into a partnership , then each organisation becomes the agent for the other and agrees to share the profits. www.companyregistrationinmadurai.in

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 This will create many problems for the two incorporated

companies. Both the companies will have to be, therefore, the agents for each other in a manner which may not be permissible at all by their own articles and memorandum. It would be difficult to apply the very specific rights and obligations as between partners in the case of companies as partners, such as Chapter 3 ,and Chapter 4 and Chapter 6 of the Partnership Act, 1932.

Then there is need also for the registration of firms and the companies as such partners in a partnership will have to, therefore, obey the two masters, the Registrar of Firms and Registrar of Companies.� It is not only the individuals who can be partners in a firm, an incorporated companies may form a partnership with an individual. Company’s may also enter into a joint venture with any person or firm or any other form of association. A company may also become partner in a limited liability partnership (LLP). In short, a business being a juristic person is to entitled to almost all of the rights of association conferred on natural persons. www.companyregistrationinmadurai.in

 Where a company can enter into partnership or not is no

longer open to doubt. The Department of Company’s affairs has in its circular no. 1-81, dated 14-09-1981. The 1956 Act itself recognizes the legality of a business being partner in a partnership firm. A business being a juristic person can do all that a natural person can, add there is nothing in the principles of partnership which excludes a business from being a partner. A business which is authorized to carry on a business is by implication authorized to carry the same business in partnership or as the joint venture. The position of companies as a partner is thus stated: � A company may be a partner in a partnership, indeed all the partners in the partnership may be companies. These Companies, like all partners (except limited partners of a limited partnerships), are liable for all the departments of the partnership without limitation, that the liability of the incorporators that is members of those partnerships, is limited is irrelevant

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