Corporate Personality

Definition of “Company”. Under Indian law, a company is an incorporated association of persons. Section 2(20) of the Companies Act, 2013 defines “company” as “a company incorporated under this Act or under any previous company law”. In other words, any corporate entity registered under the present Act or earlier companies acts qualifies as a company. By fiction of law, such a corporation is treated as an artificial person distinct from its members, possessing rights and obligations of its own.

Extent of Application (s.1(4)). Section 1(4) makes clear that the Companies Act, 2013 applies broadly to modern corporate bodies, with specified exceptions. It expressly covers “companies incorporated under this Act or under any previous company law”. It also extends (subject to inconsistency) to insurance companies, banking companies, electricity companies, and other special acts. Thus the Act governs virtually all corporations in India, except where a special law (like the Banking Regulation Act or Insurance Act) expressly prevails.

Evolution of Company Law in India

The law of corporate personality in India has deep historical roots, evolving through colonial and post-Independence statutes. The first Indian joint-stock legislation was the Companies Act of 1850, modelled on the British Companies Act 1844. This Act provided a framework for registering companies but did not initially allow limited liability. A key change came in 1857, when limited liability was introduced by amendment – allowing shareholders to cap their liability at the amount unpaid on their shares. (Initially banking companies were excluded, but by 1858 limited liability was extended to banks as well.) In 1866 the Indian Companies Act was consolidated into a comprehensive code regulating incorporation, governance and winding-up. This 1866 Act was largely modelled on Britain’s Companies Act 1862. Two decades later, the law was rewritten in 1882 to keep pace with contemporary English reforms. The 1882 Act remained the central company law in India until the early 20th century.

A landmark statute was the Indian Companies Act, 1913, based on the English Companies Consolidation Act of 1908. The 1913 Act applied to all incorporated companies in India and contained detailed provisions on formation, management and winding up. It was frequently amended in the 1920s and 1930s (culminating in a major revision in 1936 aligning it with the British Act of 1929). After Independence, India set up the H.C. Bhabha Committee (1950–52) to review company law. Its report led to the Companies Act, 1956. The 1956 Act (based in part on the English Companies Act 1948) was a thorough, standalone statute governing company incorporation, capital, directors, meetings, audits, and winding-up. It remained in force for nearly six decades, amended many times but largely intact as the principal law for Indian companies.

Economic liberalization in the 1990s and corporate scandals prompted further updates. A series of amendments (1993, 1996, 2000–2002, etc.) introduced modern governance measures like buyback rules and the establishment of the National Company Law Tribunal. Finally, after extensive consultation, the Companies Act, 2013 was enacted (effective August 2013), replacing the 1956 Act. The 2013 Act modernized corporate law: it introduced new concepts such as One-Person Companies (OPCs), mandatory Corporate Social Responsibility (CSR) spending for certain companies, class-action suits by investors, enhanced roles for independent directors, and stricter anti-fraud provisions. In short, Indian company law has evolved from basic registration rules in the mid-19th century to a comprehensive, investor-friendly regime in 2013.

Constitutional Right to Form Associations

The Indian Constitution guarantees citizens the freedom to form associations. Article 19(1)(c) explicitly provides that “all citizens shall have the right… to form associations or unions”. Incorporating a company is essentially an exercise of this right – a group of individuals (citizens) freely band together into a corporate entity. (Of course, the company itself – as an artificial person – is not a “citizen” under Article 19 and cannot claim fundamental rights; only its natural-person members do.) Courts have recognized that citizens may validly exercise their Article 19(1)(c) freedom to incorporate and belong to companies or societies unless reasonable restrictions apply. For example, in Dharam Dutt v. Union of India (2003), the Supreme Court noted that people’s rights to form and manage associations (here, an intellectual body) remain protected under Article 19(1)(c) even when government acts on a statutory basis. In sum, while a company is a “legal person” distinct from its shareholders, its formation arises from the constitutional freedom of association enjoyed by those shareholders.

Previous Company Law [S.2(67)]

The Companies Act, 2013 defines “previous company law” in Section 2(67) to cover all historical Indian company statutes. This includes Acts enacted before 1866, the Indian Companies Act 1866, the Companies Act 1882, the Companies Act 1913, the 1942 Ordinance on transferred companies, the Companies Act 1956, and equivalent laws in erstwhile provincial jurisdictions. It even includes the Portuguese Commercial Code relating to “sociedades anonimas” and special laws like the Sikkim Companies Act (1961) where applicable. Thus the definition ensures continuity of law – any company incorporated under an earlier act is still treated as a company under the 2013 Act.

Nature and Advantages of Corporate Personality

By law, a corporation (once validly incorporated) has a separate legal personality from its shareholders or directors. This gives rise to several fundamental features and advantages:

• Independent corporate existence [S.9]. Upon registration (Section 9), a company becomes a body corporate in its own right. It “acquires a legal existence separate from its members”. In practical terms, the company can own property, enter contracts, sue and be sued in its own name. Its existence does not hinge on the lives or identities of its owners. This principle was famously affirmed in Salomon v. A. Salomon & Co. Ltd. (1897), where the House of Lords held that a properly formed company is a distinct legal person, even if one individual controls it. Indian courts follow this rule. The corporate entity alone bears legal rights and obligations; shareholders are not parties to the company’s contracts or debts. Thus, the corporation “stands apart as a person”: its assets belong to the company, its name signs the contracts, and it is liable for its actions.

• Limited liability. A primary benefit flowing from separate personality is that members’ liability is limited. Shareholders are liable only to the extent of unpaid share capital – they are not personally on the hook for company debts. If the company fails, creditors can claim only against the company’s assets. The personal assets of shareholders and directors are protected. As one commentator explains, “none of the shareholders … are liable beyond the amount they have invested in the corporation”. This encourages investment and entrepreneurship. (It also means the company’s debts are corporate debts alone.) Of course, limited liability is not absolute – courts may “pierce the corporate veil” and hold individuals liable if the company is a mere sham or is used to defraud creditors. But generally shareholders enjoy the shelter of limited liability.

• Perpetual succession. A company’s existence is perpetual: it continues unaffected by changes in membership or the death or insolvency of any member. Members may come and go, but the company’s legal identity remains constant until it is legally wound up. In practice, this means a company can last indefinitely, enabling long-term planning. Even if all original founders leave or pass away, the company survives through its governing authorities (the board of directors) and remaining shareholders. Its assets and rights remain vested in the company, not in the individuals. Thus, many companies endure for decades or even centuries, regardless of turnover in owners.

• Separate property. A corporation can own property in its own name. Any assets acquired by the company are owned by the company itself, not by shareholders. Shareholders have no claim to company property, beyond their share interest. This ensures corporate assets are clearly identified and managed for company purposes. As one legal analysis notes, this arrangement “allows a perpetual succession of the property” because the company alone holds it. (By contrast, in a partnership the property is owned jointly by the partners.) Notably, the House of Lords in Macaura v Northern Assurance (1925) held that even if one person is the sole shareholder, company property cannot be treated as his personal property. Thus the tea estate insured by Macaura belonged solely to the company. Similarly in India, courts recognize that property transferred to a company remains the company’s property.

• Transferable shares. A company’s capital is divided into shares, which (subject to any contractual restrictions in the Articles) are freely transferable. Shares are movable property of the shareholder, and can be sold or inherited. This transferability makes it easy to change ownership: an investor can exit by selling shares without disturbing the company’s existence. It also enables capital mobilization. By inviting the public to subscribe for shares (an IPO or stock listing), a company can raise funds quickly and on a large scale. Even if shareholders change over time, the company continues as before. (Transferable shares are a key advantage over e.g. partnerships, where “business interests” are not as easily sold.)

• Capacity to sue and be sued. Because it is a legal person, a company may initiate or defend legal actions in its own name. Unlike an unincorporated association, the company need not rely on individual members or trustees in litigation. Its obligations and rights in court belong to the company, though naturally it must act through human agents (directors or representatives). This means, for example, a company can sue for debts owed to it, or be held liable (and fined or penalized) without dragging shareholders into the case. Any judgement for or against the company affects the company’s assets directly.

• Professional management (separation of ownership and management). A modern corporation is run by a board of directors and professional managers who may be distinct from the shareholders. Owners (shareholders) exercise ultimate control only through voting, whereas the day-to-day management is entrusted to experienced directors and executives. This centralized professional management provides expertise and continuity. It also means that ownership (the shareholders) and control (the managers) are legally separate. As one analysis notes, shareholders are like the “organism’s limbs,” while directors are the “brain” controlling the company’s actions. This allows the company to pursue long-term strategies, fund expansion, and operate efficiently even as shareholders retire or sell their holdings.

• Financing power. By virtue of its corporate form, a company enjoys strong capacity to raise capital. It can issue shares or debentures to the public, borrow in its own name, and benefit from economies of scale. For example, listing shares on a stock exchange provides a powerful mechanism to generate funds. One commentator explains that by selling shares and debentures publicly, “a company generates its capital and finances,” and can thus amass large resources quickly. Also, since the company is perpetual, creditors and investors have greater confidence of repayment or dividends over time. All corporate revenues, investments, and liabilities reside with the company alone, simplifying accounting and making the business more transparent. In short, corporate finance is distinct from personal finance of members, enabling larger projects and investment.

Each of these features – independent existence, limited liability, perpetual life, separate property, transferability of interest, legal capacity, professional management, and standalone finances – flows directly from the doctrine of corporate personality. Together they make the corporate form a powerful vehicle for business, encouraging investment and growth while limiting individual risk. These characteristics have been consistently upheld in case law. For example, Salomon v. Salomon (1897) remains the touchstone affirming that an incorporated company must be treated as a separate legal person. Similarly, Indian jurisprudence (e.g. Kondoli Tea Co. Ltd. vs. Unknown, 1886) has ruled that property transferred to a company belongs to the company alone, reinforcing that members “did not hold the estate as tenants in common”. In practice, this legal framework of corporate personality underpins modern commerce: it balances the advantages of collective enterprise with the protections and responsibilities of corporate status.

References: Companies Act, 2013 §§ 1(4), 2(20), 2(67), 9; Salomon v. A. Salomon & Co. Ltd., (1897) AC 22 (HL); Law Drishti, Evolution of Company Law in India; Constitution Art. 19(1)(c); Lexibal Corporate Personality (notes); iPleaders Corporate Personality (blog).

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Company law part 3 Registration and Incorporation

 Registration and Incorporation

• Formation of a Company [S.3]: Under Section 3, a company can be formed “for any lawful purpose” by subscribing to the Memorandum and complying with registration requirements. In particular: a public company requires at least seven subscribers, a private company requires at least two, and a One Person Company (OPC) may be formed by one subscriber (OPC is defined as a private company with a single member). (The OPC’s sole member must nominate another person in the MOA to become member on the first member’s death.) Any such company may be either limited by shares, limited by guarantee, or unlimited. (E.g. Tea Assn. of India v. NDMC held that once properly registered, a company has a separate legal existence from its promoters.)

• Types of Companies: By definition, a public company has no restrictions on share transfers or maximum members and must carry “Limited” in its name. A private company must (among other things) restrict share transfers and limit membership to 200 (excluding past employees). An OPC is a special private company with one member; it cannot carry on NBFC/business with securities, and its nominee (named in MOA) automatically becomes member on death of the subscriber. (Like any private company, an OPC cannot raise public capital or exceed specified capital/turnover limits before converting to another form.)

• Punishment for False Particulars [S.7(5)]: Section 7(5) of the Act makes it an offence to furnish false or incorrect particulars in any incorporation document. Any person who knowingly submits false information in the registration papers is liable to action under Section 447 (fraud). Similarly, Section 7(6) subjects the company itself and its first directors/promoters to penalties if the company was “got incorporated” by fraud or suppression of facts. (Section 447 prescribes severe penalties – imprisonment and heavy fines – for fraud.)

• Certificate of Incorporation [S.7(2)]: Once the ROC is satisfied that all documents are in order, it registers the company and issues a Certificate of Incorporation. From the date stated in the certificate, the company comes into existence as a legal entity (with perpetual succession, common seal, etc.). The Certificate serves as the company’s “birth certificate”: the company may then sue and be sued in its own name, acquire property, and incur liabilities separately from its members.

• Conclusive Evidence of Incorporation: Section 7(2) explicitly makes the Certificate of Incorporation “conclusive evidence” that all legal requirements for registration have been complied with. In other words, once the ROC issues the certificate, nobody (neither courts nor authorities nor third parties) can question the fact of incorporation on technical grounds. Indian courts have reinforced this: for example, in Maluk Mohamed v. Capital Stock Exchange (Kerala HC) it was held that “a writ cannot be issued to cancel the registration of the company or the certificate”. Similarly, in T.V. Krishna v. Andhra Prabha (AP HC) the court held that once a company is “born” upon incorporation, the only way to extinguish it is by statutory winding-up – its incorporation cannot be attacked in court.

• Certificate & Judicial Review: Because the certificate is conclusive, even if irregularities or defects existed in the pre-registration proceedings, they generally cannot be challenged by ordinary legal action once the company is registered. For instance, in Moosa Goolam Arif v. Ebrahim Goolam Ariff (Calcutta HC, 1913) the Court noted that even though minors had been improperly made subscribers, the issued certificate was “conclusive for all purposes” and the company stood registered. As Lord Cairns famously said in Peel’s Case (1867), “when once the certificate of incorporation is given, nothing is to be inquired into as to the regularity of the prior proceedings.” (Although these are pre-2013 cases, the principle remains: once incorporated with a certificate, the company’s existence and status are final unless winding up or licence cancellation is invoked.)

• Pre-incorporation Contracts (General Rule): A company cannot make or be bound by contracts before it legally exists. By common law (as adopted in India), two valid contracting parties are needed for a contract. A proposed company (not yet in existence) cannot enter into a binding agreement, so any such “pre-incorporation contract” automatically binds the person who made the contract, not the future company. The courts have consistently held that the company is neither obliged nor entitled to benefit from such agreements.

• Company Cannot be Sued: Because it did not exist at contract time, the newly-formed company cannot be sued on a pre-incorporation agreement. In Re English & Colonial Produce Co. (1906), a solicitor paid company-registration fees on behalf of promoters before the company existed; once the company was incorporated, it was held not liable to reimburse him, since at the time of payment it “was not in existence” and “ratification was impossible”. Similarly, in Natal Lands & Colonisation Co v. Pauline Colliery Syndicate (1904), the court held that a company could not enforce or be liable on a contract made for it before incorporation. In short, no lawsuit can run for or against the company on a pre-incorporation deal.

• Company Cannot Sue: Likewise, the company cannot itself sue on a pre-incorporation contract because it never assumed it. If a promoter incurs expenses or delivers goods on behalf of a to-be-formed company, the promoters must look to each other (or to the contract’s terms) for recovery. (By contrast, Specific Relief Act provisions allow an incorporated company to enforce certain pre-incorporation agreements if the terms are included in its articles and the contract is formally adopted; see below.)

• Ratification of Contracts: A key consequence is that ratification by the company is impossible. Since the company had no legal existence when the contract was made, it cannot “backdate” its authority to validate the deal. In Kelner v. Baxter and Re English & Colonial, the courts held explicitly that ratification by the after-formed company could not relieve the original promoter of liability. The only way a company can assume a pre-incorporation contract is by a novation: i.e. substituting itself into a fresh contract with the other party after incorporation.

• Promoter’s Personal Liability: The promoter or agent who signs a pre-incorporation contract is personally liable on it. If a promoter expressly or implicitly purports to act on behalf of a not-yet-existent company, he is treated as the principal/guarantor of that contract. For example, in Kelner v. Baxter (1866), the promoters of a hotel company signed a wine-supply contract on the company’s behalf before incorporation. The court held the company was not bound, but the promoters (who “contracted on behalf of a principal who had no existence”) were personally liable for payment. In other words, unless the contract itself releases them, promoters cannot escape liability merely by incorporating the company later.

• Statutory Reform (CA 2013): The Companies Act 2013 codifies these principles. Section 15(1) restates that any contract entered on behalf of a company not yet formed binds only the person who acted (promoter), not the company (unless the contract itself provides otherwise). Section 15(2) grants the promoter a right to recover from the company if the latter adopts the contract after formation (often by indemnifying the promoter). Essentially, CA 2013 preserves the common-law position (as in Kelner), while adding clarity and aligning with Specific Relief Act exceptions.

• Specific Relief Act Exceptions: By statute (outside Companies Act), India allows some remedy for pre-incorporation contracts. S.15(h) and S.19(e) of the Specific Relief Act permit specific performance (enforcement) of certain pre-incorporation agreements if the contract is included in the company’s articles of association and the company formally adopts it after incorporation. Thus, while the general rule is non-binding, these provisions let a company (or third party) enforce a contract entered in contemplation of its formation, provided the proper steps (inclusion in AOA, notice of adoption) are taken. (These are exceptions and apply narrowly; otherwise promoters bear the loss or must obtain indemnities.)

• Formation of Companies with Charitable Objects [S.8]: Section 8 of the Act provides for non-profit companies with “charitable objects” (commerce, art, science, sports, education, social welfare, religion, charity, protection of environment, etc.). Such a company is incorporated with limited liability but without adding “Limited” or “Private Limited” to its name. Crucially, an application (Form INC-12) must be filed for a licence under S.8 before incorporation. If the Central Government grants the licence, the ROC issues incorporation (Form INC-16) in the approved name. By law the company’s income must only be applied to its stated objectives – no dividends may be paid to members. (Section 8(3) provides that if the company ever carries on activities outside its objects, its licence can be cancelled.) In practice, Section 8 companies enjoy benefits like easier stamp-duty, income-tax exemptions (u/s 12A/80G), and donor confidence, but they must strictly comply with the non-profit conditions.

Cases : Re English & Colonial Produce Co. (1906) (private UK Ch) – company could not ratify registration expenses (promoter personally liable). Kelner v Baxter (1866) (UK CP) – promoters held personally bound on pre-incorporation contract for wine. Maluk Mohamed v Capital Stock Exchange (Ker HC 1991) – a writ petition to cancel a company’s registration was dismissed; the court stressed that once registered, a company cannot be erased by judicial challenge. TV Krishna v Andhra Prabha (AP HC 1960) – only winding-up proceedings can terminate a company once validly incorporated. (Salomon v Salomon – though pre-2013, it famously confirms that after incorporation the company is a separate legal person distinct from its shareholders.)

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Company law - Corporate personality part 2 Disadvantages of Corporate Personality

 Disadvantages of Corporate Personality

1. Lifting the Corporate Veil

Although a company is ordinarily a separate legal person, courts will pierce its veil in certain cases to hold the true actors liable. For example, if a company’s control reveals hostile or improper purposes, its character is determined (e.g. a company effectively controlled by enemy nationals was deemed an “enemy” company in Daimler Co. Ltd v. Continental Tyre). Similarly, if a company is used primarily to evade taxes or defraud the public, courts disregard its separate personality. In Sir Dinshaw Maneckjee Petit (tax-evasion case) the company was held a mere façade to dodge tax. Likewise, courts treat a company as a sham or cloak when its form conceals fraud: e.g. in Skipper Construction Co. multiple family-owned companies were treated as one entity because they were “pure cloaks” for illegality. Courts also pierce the veil if the company is acting as an agent or trustee of others. For instance, a company used as a mere nominee of a foreign parent was disregarded, and in Brojo Nath Ganguly v. CIWTC the Supreme Court held that a company acting as a state instrumentality must be treated as part of the government (lifting the veil under Article 12). In short, courts lift the veil “to look behind” when separate personality is misused – for revenue (tax) protection, fraud prevention, or public policy reasons.

2. Personal Liability of Directors and Members (Statutory)

Statute imposes personal liability on officers/shareholders in various cases, despite incorporation. Key provisions include:

• Non-compliance of incorporation (s.464 CA 2013): If a company is not properly formed (e.g. formation formalities breached), it loses the benefits of incorporation and members may be held liable.
• Misdescription of Name: Under s.12 of the CA, if a person signs company documents without the company’s official suffix (e.g. “Ltd.”), the signatory directors become personally liable.
• Fraudulent Trading (s.339 CA 2013): In winding-up, anyone knowingly running the company’s business to defraud creditors is personally liable for its debts.
• Holding and Subsidiary Companies (ss.2(46), 2(87) & disclosure rules): A holding company must attach its subsidiary’s accounts to its own balance sheet. This statutory disclosure lifts part of the veil by making the subsidiary’s affairs transparent. (However, absent fraud or abuse, parent and subsidiary remain distinct legal entities.)

3. Subsidiaries and Multinationals

A holding company and its subsidiaries are separate legal persons, so normally the parent is not liable for subsidiary debts. For example, Vodafone v. UOI reaffirmed that a subsidiary’s assets and liabilities belong to itself. However, if a parent exerts total control and the subsidiary has no independent existence, courts may treat them as one “single economic entity.” In State of U.P. v. Renusagar Power, Hindalco completely controlled its 100%-owned subsidiary Renusagar, so the Supreme Court lifted the veil and held Hindalco liable for Renusagar’s power plant (electricity duty). In short, mere ownership is not enough – only when the subsidiary is a mere façade or agent of the parent will liability follow the veil-lifting doctrine.

Note: A foreign company’s branch/office is not a separate legal entity (it’s part of the parent abroad under s.2(14) CA 2013), so liabilities of the branch attach directly to the parent.

4. Formalities and Expense

Incorporation brings heavy compliance burdens. A company must follow strict procedures (registration, boards and shareholder meetings, annual filings, statutory audits, etc.), which increase time and cost. For example, companies must comply with myriad legal requirements under company, tax, and labour laws; non‑compliance can incur penalties. Maintaining a company also incurs ongoing expenses – professional fees (lawyers, accountants), filing fees, audits and record‑keeping. This administrative overhead can be “expensive and time‑consuming”. In short, compared to an unincorporated firm, a corporation’s regulatory formalities and associated costs are a notable disadvantage.

5. Company is Not a Citizen (Nationality, Domicile, Residence)

A company is an artificial person, not a “citizen” under law. It cannot claim citizenship rights as a natural person. For constitutional purposes, only individuals are citizens; a company is excluded. However, a company does have a nationality and residence. Indian law treats nationality as determined by the place of incorporation: an Indian-incorporated company is “Indian” even if management is abroad. Its residence (domicile) is where its real business is carried out – usually where central management and control is located. In practice, the company “resides” where its board actually meets and manages affairs. (These rules matter for tax and legal jurisdiction but do not confer citizenship status on the corporation.)

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Company' law - Chapter I - Corporate Personality part 1

 Corporate Personality

Definition of “Company”. Under Indian law, a company is an incorporated association of persons. Section 2(20) of the Companies Act, 2013 defines “company” as “a company incorporated under this Act or under any previous company law”. In other words, any corporate entity registered under the present Act or earlier companies acts qualifies as a company. By fiction of law, such a corporation is treated as an artificial person distinct from its members, possessing rights and obligations of its own.

Extent of Application (s.1(4)). Section 1(4) makes clear that the Companies Act, 2013 applies broadly to modern corporate bodies, with specified exceptions. It expressly covers “companies incorporated under this Act or under any previous company law”. It also extends (subject to inconsistency) to insurance companies, banking companies, electricity companies, and other special acts. Thus the Act governs virtually all corporations in India, except where a special law (like the Banking Regulation Act or Insurance Act) expressly prevails.

Evolution of Company Law in India

The law of corporate personality in India has deep historical roots, evolving through colonial and post-Independence statutes. The first Indian joint-stock legislation was the Companies Act of 1850, modelled on the British Companies Act 1844. This Act provided a framework for registering companies but did not initially allow limited liability. A key change came in 1857, when limited liability was introduced by amendment – allowing shareholders to cap their liability at the amount unpaid on their shares. (Initially banking companies were excluded, but by 1858 limited liability was extended to banks as well.) In 1866 the Indian Companies Act was consolidated into a comprehensive code regulating incorporation, governance and winding-up. This 1866 Act was largely modelled on Britain’s Companies Act 1862. Two decades later, the law was rewritten in 1882 to keep pace with contemporary English reforms. The 1882 Act remained the central company law in India until the early 20th century.

A landmark statute was the Indian Companies Act, 1913, based on the English Companies Consolidation Act of 1908. The 1913 Act applied to all incorporated companies in India and contained detailed provisions on formation, management and winding up. It was frequently amended in the 1920s and 1930s (culminating in a major revision in 1936 aligning it with the British Act of 1929). After Independence, India set up the H.C. Bhabha Committee (1950–52) to review company law. Its report led to the Companies Act, 1956. The 1956 Act (based in part on the English Companies Act 1948) was a thorough, standalone statute governing company incorporation, capital, directors, meetings, audits, and winding-up. It remained in force for nearly six decades, amended many times but largely intact as the principal law for Indian companies.

Economic liberalization in the 1990s and corporate scandals prompted further updates. A series of amendments (1993, 1996, 2000–2002, etc.) introduced modern governance measures like buyback rules and the establishment of the National Company Law Tribunal. Finally, after extensive consultation, the Companies Act, 2013 was enacted (effective August 2013), replacing the 1956 Act. The 2013 Act modernized corporate law: it introduced new concepts such as One-Person Companies (OPCs), mandatory Corporate Social Responsibility (CSR) spending for certain companies, class-action suits by investors, enhanced roles for independent directors, and stricter anti-fraud provisions. In short, Indian company law has evolved from basic registration rules in the mid-19th century to a comprehensive, investor-friendly regime in 2013.

Constitutional Right to Form Associations

The Indian Constitution guarantees citizens the freedom to form associations. Article 19(1)(c) explicitly provides that **“all citizens shall have the right… to form associations or unions”**. Incorporating a company is essentially an exercise of this right – a group of individuals (citizens) freely band together into a corporate entity. (Of course, the company itself – as an artificial person – is not a “citizen” under Article 19 and cannot claim fundamental rights; only its natural-person members do.) Courts have recognized that citizens may validly exercise their Article 19(1)(c) freedom to incorporate and belong to companies or societies unless reasonable restrictions apply. For example, in Dharam Dutt v. Union of India (2003), the Supreme Court noted that people’s rights to form and manage associations (here, an intellectual body) remain protected under Article 19(1)(c) even when government acts on a statutory basis. In sum, while a company is a “legal person” distinct from its shareholders, its formation arises from the constitutional freedom of association enjoyed by those shareholders.

Previous Company Law [S.2(67)]

The Companies Act, 2013 defines “previous company law” in Section 2(67) to cover all historical Indian company statutes. This includes Acts enacted before 1866, the Indian Companies Act 1866, the Companies Act 1882, the Companies Act 1913, the 1942 Ordinance on transferred companies, the Companies Act 1956, and equivalent laws in erstwhile provincial jurisdictions. It even includes the Portuguese Commercial Code relating to “sociedades anonimas” and special laws like the Sikkim Companies Act (1961) where applicable. Thus the definition ensures continuity of law – any company incorporated under an earlier act is still treated as a company under the 2013 Act.

Nature and Advantages of Corporate Personality

By law, a corporation (once validly incorporated) has a separate legal personality from its shareholders or directors. This gives rise to several fundamental features and advantages:

• Independent corporate existence [S.9]. Upon registration (Section 9), a company becomes a body corporate in its own right. It “acquires a legal existence separate from its members”. In practical terms, the company can own property, enter contracts, sue and be sued in its own name. Its existence does not hinge on the lives or identities of its owners. This principle was famously affirmed in Salomon v. A. Salomon & Co. Ltd. (1897), where the House of Lords held that a properly formed company is a distinct legal person, even if one individual controls it. Indian courts follow this rule. The corporate entity alone bears legal rights and obligations; shareholders are not parties to the company’s contracts or debts. Thus, the corporation “stands apart as a person”: its assets belong to the company, its name signs the contracts, and it is liable for its actions.

• Limited liability. A primary benefit flowing from separate personality is that members’ liability is limited. Shareholders are liable only to the extent of unpaid share capital – they are not personally on the hook for company debts. If the company fails, creditors can claim only against the company’s assets. The personal assets of shareholders and directors are protected. As one commentator explains, “none of the shareholders … are liable beyond the amount they have invested in the corporation”. This encourages investment and entrepreneurship. (It also means the company’s debts are corporate debts alone.) Of course, limited liability is not absolute – courts may “pierce the corporate veil” and hold individuals liable if the company is a mere sham or is used to defraud creditors. But generally shareholders enjoy the shelter of limited liability.

• Perpetual succession. A company’s existence is perpetual: it continues unaffected by changes in membership or the death or insolvency of any member. Members may come and go, but the company’s legal identity remains constant until it is legally wound up. In practice, this means a company can last indefinitely, enabling long-term planning. Even if all original founders leave or pass away, the company survives through its governing authorities (the board of directors) and remaining shareholders. Its assets and rights remain vested in the company, not in the individuals. Thus, many companies endure for decades or even centuries, regardless of turnover in owners.

• Separate property. A corporation can own property in its own name. Any assets acquired by the company are owned by the company itself, not by shareholders. Shareholders have no claim to company property, beyond their share interest. This ensures corporate assets are clearly identified and managed for company purposes. As one legal analysis notes, this arrangement “allows a perpetual succession of the property” because the company alone holds it. (By contrast, in a partnership the property is owned jointly by the partners.) Notably, the House of Lords in Macaura v Northern Assurance (1925) held that even if one person is the sole shareholder, company property cannot be treated as his personal property. Thus the tea estate insured by Macaura belonged solely to the company. Similarly in India, courts recognize that property transferred to a company remains the company’s property.

• Transferable shares. A company’s capital is divided into shares, which (subject to any contractual restrictions in the Articles) are freely transferable. Shares are movable property of the shareholder, and can be sold or inherited. This transferability makes it easy to change ownership: an investor can exit by selling shares without disturbing the company’s existence. It also enables capital mobilization. By inviting the public to subscribe for shares (an IPO or stock listing), a company can raise funds quickly and on a large scale. Even if shareholders change over time, the company continues as before. (Transferable shares are a key advantage over e.g. partnerships, where “business interests” are not as easily sold.)

• Capacity to sue and be sued. Because it is a legal person, a company may initiate or defend legal actions in its own name. Unlike an unincorporated association, the company need not rely on individual members or trustees in litigation. Its obligations and rights in court belong to the company, though naturally it must act through human agents (directors or representatives). This means, for example, a company can sue for debts owed to it, or be held liable (and fined or penalized) without dragging shareholders into the case. Any judgement for or against the company affects the company’s assets directly.

• Professional management (separation of ownership and management). A modern corporation is run by a board of directors and professional managers who may be distinct from the shareholders. Owners (shareholders) exercise ultimate control only through voting, whereas the day-to-day management is entrusted to experienced directors and executives. This centralized professional management provides expertise and continuity. It also means that ownership (the shareholders) and control (the managers) are legally separate. As one analysis notes, shareholders are like the “organism’s limbs,” while directors are the “brain” controlling the company’s actions. This allows the company to pursue long-term strategies, fund expansion, and operate efficiently even as shareholders retire or sell their holdings.

• Financing power. By virtue of its corporate form, a company enjoys strong capacity to raise capital. It can issue shares or debentures to the public, borrow in its own name, and benefit from economies of scale. For example, listing shares on a stock exchange provides a powerful mechanism to generate funds. One commentator explains that by selling shares and debentures publicly, “a company generates its capital and finances,” and can thus amass large resources quickly. Also, since the company is perpetual, creditors and investors have greater confidence of repayment or dividends over time. All corporate revenues, investments, and liabilities reside with the company alone, simplifying accounting and making the business more transparent. In short, corporate finance is distinct from personal finance of members, enabling larger projects and investment.

Each of these features – independent existence, limited liability, perpetual life, separate property, transferability of interest, legal capacity, professional management, and standalone finances – flows directly from the doctrine of corporate personality. Together they make the corporate form a powerful vehicle for business, encouraging investment and growth while limiting individual risk. These characteristics have been consistently upheld in case law. For example, Salomon v. Salomon (1897) remains the touchstone affirming that an incorporated company must be treated as a separate legal person. Similarly, Indian jurisprudence (e.g. Kondoli Tea Co. Ltd. vs. Unknown, 1886) has ruled that property transferred to a company belongs to the company alone, reinforcing that members “did not hold the estate as tenants in common”. In practice, this legal framework of corporate personality underpins modern commerce: it balances the advantages of collective enterprise with the protections and responsibilities of corporate status.

References: Companies Act, 2013 §§ 1(4), 2(20), 2(67), 9; Salomon v. A. Salomon & Co. Ltd., (1897) AC 22 (HL); Law Drishti, Evolution of Company Law in India; Constitution Art. 19(1)(c); Lexibal Corporate Personality (notes); iPleaders Corporate Personality (blog).