Company is
an artificial person created under the Companies Act 1956 with perpetual
succession and common seal. It is a legal person different from its members /
shareholders. It possesses all the powers to enter into valid contracts, sell,
purchase, hold, and lease and mortgage the immovable property. It has a legal
entity.
There are
two important types of companies. They are private limited company and public limited
company. Any two persons can form a private company and its membership /
shareholders are limited to 50. A minimum number of seven persons can form a
public limited company.
Under the
Companies Act, the registration of both private limited company and public
limited company is compulsory. The certificate of incorporation is issued on
registration. The registrar of Joint Stock Companies issues the certificate of
commencement of business to the public limited companies. This is not
applicable to private limited companies.
The
Memorandum and Articles of Association is an important document of a company.
The memorandum refers to the objectives and powers of the company and articles
of association deals with the powers, duties, liabilities of the Board of
Directors, share holders/members and rules and regulations governing the
management of the company.
Common Seal: Companies are not physical persons
who can sign. Common seal is the physical form of the company. The common seal
is used as a physical impression made upon the documents executed by the
companies. This is special seal engraved on steel block. This is to supplement
the signature of the corporate officers and to authenticate company documents.
Authorization
by a resolution of the Board of Directors of the company or by an authorized
committee of the Board is necessary to affix the common seal. In case of some
companies the articles of association deal with affixing of the common seal.
Immovable Property Transaction: The Transfer of Property Act
mentions that a living person includes company. It is taken for granted that
all outsiders are aware of the contents of the Memorandum and Articles of
Association of a company. The Memo random
and Articles of Association deals with the objectives of the company. The
powers and rules regarding governance of the company must be verified to
ascertain that the transactions are as per the objectives and are within the
powers of the company.
The
Articles of Association specifically deal with powers of the directors
regarding sale, purchase and mortgage of immovable property.
The company
may also execute Power of Attorney under its common seal empowering any person
to execute deeds on its behalf. Director,
Managing agent, Secretary, Treasurer, Manager or any authorized official may
also authenticate the documents on behalf of the company, and it need not be
under the common seal.
Any charge
created by the company on its property needs to be registered with the
Registrar of Companies within 30 days of such creation of charge by filing Form
No.8. Charges not registered within the stipulated time are not taken into
account against the liquidator of the company on liquidation, or against any
creditor. Such
registered charge will serve as notice to all persons dealing with the
property.
The
Registrar of Companies maintains the Register of Charges and it is open to the
public for inspection. This is different from the details maintained at
sub-registrar office and mentioned in the Encumbrance Certificate. It is
necessary to inspect the Register of Charges while transacting with the company
Apart from the Register of Charges maintained by the registrar, the company is
also bound to maintain a Register of Charges on its properties. This is open
for inspection by the members of the company or creditors.
The
Companies Act has restricted the powers of the Board of Directors on conveyancing
in some cases. Section 293 of the Companies Act deals with these restrictions.
Consent of
the general body of the company is mandatory to sell, lease or otherwise
dispose of the whole or substantially the whole undertaking of the company.
Like wise the consent of the general body of the company is necessary to borrow
in excess of the aggregate of the paid up capital and free reserves. The Board
of Directors cannot authorize this type of transaction without the prior
consent of the general body. The only exception is temporary loans taken by the
company from its bankers in the ordinary course of business.
So, while
transacting with the company it is necessary to ascertain that the property is
not whole or substantially whole part of the undertaking of the company and if
the transactions involve whole or substantially whole part of the undertaking,
the consent of the general body is obtained. However, where the ordinary
business of the company is selling / leasing this restriction will not apply.
Similar
caution needs to be exercised when the company borrows on mortgage of its
properties in excess of its paid up capital and free reserves. If the company
is in liquidation, only the liquidator, with the sanction of the court, can
sell its property in the name of the company.
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