The origin of Company Law can be traced back to Roman Law in ancient Rome, where a “ Corporation” could be formed by a decree of the senate or by law with its own fundamental charter or constitution and bylaws, for its running. While the charter or constitution determined the powers of the “Corporation” in relation to outsiders or the world at large, the bylaws set the rules for its internal management. Majority decisions of members were binding. Such “ Corporation” could come to an end on the expiry of its term or by operation of law.
With the proliferation of large-scale business in the wake of Industrial Revolution in Europe, it was no longer possible for the businessmen to be exposed to the risks of unlimited personal liability or insolvency, inherent in sole proprietorship or partnership form of business. At this juncture the British people as a solution used the experience of ancient Rome with “Corporation”.
Under this new form of organization, a group of people who had pooled their individual capital or resource into a ‘joint stock’ was allowed by the King or the Queen by a Royal Charter to have their individual personal liabilities limited maximum to the amount of stock pooled by each of them into the company. Such a company was a Chartered Company or a Company by Royal Charter, such as the East India Company set up in 1600 to do trading in India by a Charter of the Queen of England.
With the decline of the King or the Queen and emergence of the Parliament as legislature, different companies were being formed by separate Acts of the Parliament.
The Joint Stock Companies Act of 1844 in Great Britain is the first comprehensive piece of company legislation known to the world with the passing of which the incorporation and establishment of companies came to be regularized under its umbrella. The Limited Liabilities Act of 1855, which was amended and renamed in 1862 as the Companies Act, replaced this Act. Thus the foundation of company law was laid in Great Britain to be followed in other parts of the world.
A company incorporated under the company law of the jurisdiction is an artificial person with a separate legal entity, distinct and different from its members. From this state of separate legal entity, the proposition of limited liability flows according to which the liability of the company is not the personal obligation of its members, whose liability is limited maximum to the amount unpaid, if any, on the shares subscribed by them in a company limited by shares. In a company limited by guarantee the liability of the members is limited maximum to the amount each member undertakes to contribute in the event of winding up of the company.
As an artificial juristic person a company can hold property or can sue or be sued in its own name.
Directors as human agents of the company run and manage the same on behalf of the general body of its members.
A company has a perpetual succession and as such, continues to exist indefinitely unless wound up or liquidated under specified legal procedure. The existence of the company is not affected by the death, retirement or insolvency of any of its members by virtue of its separate legal entity.
However, in exceptional cases the Courts and other public authorities resort to lifting of the corporate veil to find out and book the actual offender behind, when the company is used for fraudulent purposes.
While a ‘public company’ can invite the public to subscribe to its shares and debentures, a ‘private company’ cannot. In case a ‘public company’ accepts such public subscription, it is ‘widely held company’. Otherwise it is ‘closely held company’ just like a ‘private company’.
Further, a ‘public company’ whose shares are quoted on the stock exchange is a ‘listed company’. Others are unlisted companies.