In the last few articles, we have seen basic features of company like corporate personality, limited liability, Separate property. In this article, we shall discuss about more features like Perpetual succession, Easy transferability of shares, and Capacity to sue and be sued.
Perpetual Succession:
Perpetual succession, means that the membership of a company may keep changing from time to time, but that shall not affect its continuity. An incorporated company never dies, except when it is wound up as per law. The Companies Act states, ‘Members may come and members may go, but the company can go on forever.’ As per Section 34(2) of the Company Act, an incorporated company has the characteristic of perpetual succession. The term perpetual succession of the company means its continuous existence, which means that a company never dies, even if the members cease to exist. The insolvency of a member, even of all the members of a company does not bring the life of the company to an end. Members can come and go but the company will be the same entity with the same privileges, immunities, estate, and possessions. The company only comes to an end, when it is wound up (shut down) according to law, as per the provisions of the Companies Act, 2013.
In the case of a partnership firm, the death of even one partner of a firm may result in the dissolution of the entire firm.
In Re Noel Tedman Holdings Pvt Ltd., (1967) Qd R 56 case, the Court held that company members may come and go but this does not affect the legal personality of the company.
In Punjab National Bank v. Lakshmi Industrial & Trading Co (P) Ltd, AIR 2001 All 28 case, the guarantors of a company’s loan could not claim to be relieved of the liability by the reason of the fact that the company’s management totally changed including the managing director. Such changes do not affect the continuity of the company or its commercial or contractual relations.
Easy Transferability of Shares:
A company issues shares to each of its members which represent that that they hold such part of company and a person/entity holding such shares are known as shareholders. A share is not a negotiable instrument, but it is a movable property. In India, a share is regarded as goods. According to the Sale of Goods Act, 1930, “Goods” means any kind of movable property other than actionable claim and money, and includes stock and shares.
Transfer of shares means the voluntary handing over of the rights and the duties / liabilities of a company member (as represented in a share of the company). The rights and duties of the share transfer happen from a shareholder who wishes to not be a member of the company any more called transferor to a person who wishes of becoming a member called transferee. From time to time there are certain situations where an existing shareholder wanted to transfer their shares of respective company to other person/entity. A transfer of share can only be transferred for only existing shares and from existing shareholders. Transmission of securities means where a person acquires an interest in property by operation of law, such as by right of inheritance or by reason of the insolvency or lunacy of the holder of securities or by purchase in a Court-sale.
Under Section 44 of the company act, the shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. This provision leads to the investment of funds in shares.
A member may sell his shares in the open market and realize the money invested by him. This provides liquidity to a member (as he can freely sell his shares) and ensures stability to the company (as the member is not withdrawing his money from the company). The Stock Exchanges provide adequate facilities for the sale and purchase of shares. For this, he does not require the permission of other shareholders. Thus, members of the company can encash shares at any given time upon their will. Thus, there is liquidity available to the investors. This advantage is available to public limited companies and not to private limited companies. Further, as of now, in most of the listed companies, the shares are also transferable through Electronic Mode i.e. through Depository Participants in dematerialized form instead of physical transfers.
In partnership, if a partner wishes to transfer his share in the firm to another person, he cannot do so unless all the other partners agree.
Capacity to Sue and Be Sued:
A person can take legal action on his / her name. Similarly, the company as an independent legal entity could take legal action in its own name against another person. In turn, it can be sued by other companies and people. However, the managing directors and other directors are not liable to be sued in the name of the company.
A partnership is only an aggregation of its partners and can sue, and be sued, only in the name of its partners.
In Aspro Travel Ltd. v. Owners Abroad plc. (1996) 1 WLR 132 case, it is held that jut as a person has a right to his reputation, so also, a company has the right to protect its name from being tarnished and can sue the third party for a defamatory statement made by him against the company.
In ACC Ltd. v. Keshavanand, (1998) 1 SCC 687 case, the Court observed that just as an individual can file a criminal complaint, so can a company. However, it must be represented in the proceedings by one of its officers. Now, if a complaint is filed by an individual who does not bother to present himself in subsequent proceedings, the same is liable to be dismissed. Likewise, although a complaint can be filed by a company, if it does not depute its representative to be present at future proceedings, the company’s complaint is liable to be dismissed.
In Abdul Haq v. Das Mai (1910) 19 IC 595 case, Abdul Haq was an employee in a company. He had not been paid his salary for several months. He sued Das Mai, a director of the company for recovery of the amount of salary due to him. It was held that he would not succeed, because “the remedy lies against the company and not against the directors or members of the company.
Conclusion:
Company is artificial person and has corporate personality different from its members. Due to a corporate personality a company bears its own name, acts under the name, has a seal of its own and its assets which are separate and distinct from those of its members. Company is governed by the laws of the land, in which it is incorporated. Since a corporate body (i.e., a company) is the creation of law, it is not a human being, it is an artificial juridical person (i.e., created by law) and it is clothed with many rights, obligations, powers and duties prescribed by law.
- The term perpetual succession of the company means its continuous existence, which means that a company never dies, even if the members cease to exist.
- Members of the company can encash shares at any given time upon their will. Thus, there is liquidity available to the investors. This advantage is available to public limited companies and not to private limited companies.
- Company can sue and be sued on its own name