Salom & Co. Ltd. Acts

Salom & Co. Ltd. was formed with S, his wife, daughter and four sons as its sub 'brs and only members. The company took over the shoe business of Salo an (S) for £ 39,000 giving him in return 20,00 shares of one pound (£) ch and debentures worth £ 10,000 which created a charge on the comp assets and the balance in cash. All members, except S, purchased 0 share each. S and his two sons constituted the Board of Directors of th company. Due to general trade depression, the company went into liquid' on. The assets of the company amounted to £ 6,000 and its creditors to 7,000 (£ 10,000, secured by charge over the company' assets, and other cr ditors £ 7,000). S claimed the assets ofthe company because the assets secu d his debt. The other credItors contended that they should be paid in priori to S because the company and S were one and the same person. Held, that e company and S were two different legal persons and as such S was ens ed to the assets. In connection with the separate egal entity of the company, the following observation of Justice Kania a worth noting: "Under the law, an incorporated co pany is a distinct entity, and although all the shares may be practically trolled by one person, in law a company is a distinct entity and it is no ermissible or relevent to enquire whether the directors belonged to the s ne family or whether as compendious described, a 'As soon as a company is incorporated, it must e treated like any other independent person.Although a company is a legal person having with the country of its incorporation and a domicile in place or state of a citizen like a real person and therefore cannot claim protection a fundamental rights which are guaranteed to citizens only e.g. the right of ra '. However, they are sufficiently protected under the Constitution.
4. Limited Liability. As.a matter off act, it is the principal advantage of carrying the business under limited companies. A company may be limited by shares or by guarantee. In a company limited by shares, the liability of its members is limited to tlle nominal value of shares held by them. Thus, if the shares are not fully paid up, the member is liable to pay the amount remaining unpaid. The creditors of the company cannot take action against members of the
company to recover the amount due from the company. In the case of a company limited by guarantee, the liability of the members is limited upto the amount guaranteed by a member. .
5.We know that a company is a legal person in the eyes of law. It can, tllerefore, hold the property in its own name. All the property in the name of the company is it separate property which is controlled, managed and disposed of by the', company in its own name. Thus, the company is tile owner of its assets.; The members cannot claim to be the owner of the company's property., In India, this principle of separate property was best laid down by tlle
Supreme Court in Bachu F Guzdar Vs. the Commissioner of Income-tax, Bombay. The Supreme Court held that a shareholder is not the part owner ofthe company or its property, he is only given certain rights by law, e.g., to vote or attend meetings, to receive dividends.
6. Transfebility of Shares. The capital of a company' is divided into parts, and each part is called tile share. The shares of a company are freely transferable and can be purchased and sold in share market. This characteristic of a company is recognised by Section 82 of the Companies Act, which reads as under: "The shares or other interests of any member in a company shall be moveable property, transferable in the manner provided by the articles of the company". In other words, the shares of the company are transferable like movable property. However, in a private company, certain restrictions are placed on such tran:;fer of shares but th right to transfer is not taken away absolutely.
7. Common Seal. A company being an artificial person cannot sign its name on a contract, therefore, every company is required to have its own seal. The name of the company is engraved on it. The seal acts as the official signature of the company. The company shall be bound by only those documents on which this seal is affixed.
8. PCI-pctual Existence. Since a company has a separate legal entity, its existence is not affected by the death, insolvency, lunacy, etc. of its member. In the case of a company it may be said that the "members may come and members may go but the company can go on for ever". Even if all
its members die, the company would not cease to e On th death of members, the share held by them get transmitted in the name of their legal representatives who will then assume the membership ofthe company. As a company is created by the process oflaw, it can also be brought to an end by the procss of law. .
9. Separation of Ownership) and Management. A company is not managed by all its members but by their representatives. Thus, there is separation of ownership and management in it. Such an alternative is imperative in view of the large number of members in a company and the obvious difficulties involved in the matter ofentmsting the management to all of them. The representatives called directors are elected by the members in whom the ultimate
control of the company rests.