A Company is an
artificial person created under the Companies Act 1956 with the right of
perpetual succession and use of its unique and individual common seal. It is a legal person different from its
members / shareholders and possesses the right to enter into valid contracts
for sale, purchase, to hold, to lease out or take on lease and to mortgage
immovable properties in its own name.
There are two important
types of companies viz; Private Limited Company and Public Limited
Company. Any two persons can form a
Private Limited Company though its membership / shareholders are limited to 50;
whereas, a minimum number of seven persons are required to form a Public
Limited Company.
Under the Companies Act,
registration of both Private Limited Company and Public Limited Company is
compulsory. Thereafter a certificate of
incorporation is issued on registration by the Registrar of Companies. The Registrar of Joint Stock Companies issues
a certificate for commencement of business to the Public Limited Companies,
However, this certificate is not required to form Private Limited Companies.
Memorandum and
Articles of Association:
The Memorandum and
Articles of Association are important documents 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 inanimate
bodies who cannot execute documents themselves, and hence all the official
documents belonging to or relating to the company requires its common seal to
be affixed on all documents in addition
to the signature/s of its authorized officers to authenticate the company
documents. The common seal is used as a
physical impression made upon the documents executed by the companies and is a
special seal engraved on a steel block.
Authorized
Officers
Officers of the companies
may be authorized to represent the company through board resolution passed in
Board Meetings of the Board of Directors of a Company or by an authorized
committee of the Board. Such persons,
however, are required to affix the common seal of the company in addition to
their signature/s to authenticate the company documents. In case of certain companies the articles of
association deal with the common seal.
Immovable
Property Transaction:
The Transfer of Property
Act mentions that a living person includes a company. and it is taken for
granted that all outsiders are aware of the contents of the Memorandum and
Articles of Association of a company.
The memorandum and Articles of Association deals with the objectives of
the company and the powers and rules regarding governance of the company must
be verified to ascertain that the transactions are as per the objectives and
are not ultra virus of the powers conferred on a 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. The Directors, Managing
Agents, 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 creation of such a charge by filing Form No. 8.
Charges not registered within the stipulated time are not taken into account by
the official liquidator appointed by the court to manage and settle the affairs
of a company on its liquidation or against any registered creditor. Such registered charge also serves as a
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, a
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 its creditors.
Procedural
aspects to be borne in mind:
The Companies Act under
Section 293 has restricted the powers of the Board of Directors to convey property
belonging to the Companies whereby the 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. Likewise 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 only
exception is to temporary loans taken by the company from its bankers in the
ordinary course of its 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 or mortgages its properties in excess of its paid up
capital and free reserves. Where a
company is in liquidation, only the liquidator, with the sanction of the court,
can sell its property in the name of the company. The Board of Directors by a resolution in the
board meeting has to authorize the sale, lease, mortgage or otherwise dispose
of the property / purchase of the property.
The resolution by the Board of Directors is necessary even in cases
where general body has consented. Unless
the Memorandum and Articles of Association empowers the Board of Directors to
sell / purchase / otherwise deal with the immovable properties, any resolution
passed by the Board of Directors in this regard will not be binding on the
company. At times, it so happens that
some of the directors have interest in some transactions. Such interested directors are not allowed to
participate in the discussions and vote.
Otherwise, the resolution is void.
If the resolution prescribes affixing of the common seal on the
documents, it has to be followed in the manner prescribed in the
resolution. Copy of the resolution
passed by the Board of Directors, certified by the Chairman and counter signed
by the Secretary should be obtained, which should be part of the documents.
Foreign Companies
The Foreign companies who
enter into any kind of transaction in India
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