Company as a Separate Legal Entity under the Companies Act, 2013
Introduction
Under Indian company law, a company is treated as a separate legal entity, distinct from its shareholders and directors. Once incorporated, it acquires its own legal personality and can own property, enter contracts, and sue or be sued in its own name.
This fundamental principle provides businesses with limited liability, perpetual succession, and structured governance.
As per Section 2(20) of the Companies Act, 2013, a company means any entity incorporated under this Act or earlier company laws.
What Is a Company?
A company is an association of persons formed for carrying on business and registered under law. It becomes an artificial juridical person, meaning a legal entity created by statute.
Relevant Case Law
State Trading Corporation of India v. CTO (1963)
The Supreme Court held that although a company is a legal person, it is not a citizen and acts only through natural persons.
Corporate Personality – Separate Legal Existence
A company exists independently of its shareholders. Members do not own company assets directly; they only hold shares.
Landmark Case
Salomon v. Salomon & Co. Ltd. (1897)
The House of Lords held that once incorporated, a company becomes a legal person separate from its members, even if one individual controls most shares.
Indian Reference
T.R. Pratt (Bombay) Ltd. v. E.D. Sassoon & Co.
Indian courts confirmed that a company remains distinct even if shares are controlled by one person.
Company as an Artificial Person
A company is not human but can:
- Enter contracts
- Own property
- Sue and be sued
It operates through directors and authorised representatives.
Case Law
Union Bank of India v. Khader International Construction (2001)
The Supreme Court held that a company can even sue as an indigent person under procedural law.
Perpetual Succession
A company continues to exist despite changes in membership.
Case Law
Gopalpur Tea Co. Ltd. v. Peshok Tea Co. Ltd.
The court ruled that even takeover or death of members does not dissolve the company unless legally wound up.
Practical Example
Even if all directors die, the company survives and successors can take charge.
Separate Property of Company
Company property belongs to the company alone.
Case Law
Bacha F. Guzdar v. CIT (1955)
The Supreme Court held that shareholders are not owners of company property — they only have rights to dividends.
Macaura v. Northern Assurance Co.
A shareholder cannot insure company property in his personal name.
Limited Liability of Members
Shareholders are liable only to the extent of unpaid share capital.
Case Law
Re London & Globe Finance Corporation
Limited liability promotes investment and economic growth.
However, liability becomes unlimited in cases of fraud or statutory violations under Sections 7, 35, 75, and 339 of the Companies Act, 2013.
Capacity to Sue and Be Sued
A company can initiate or face legal action in its own name.
Case Law
Rajendra Nath Dutta v. Shibendra Nath Mukherjee
Directors cannot sue on behalf of the company unless authorised — legal action must be in company name.
Transferability of Shares
Shares are movable property under Section 44.
- Public company shares are freely transferable
- Private company shares are restricted by Articles
Case Law
Western Maharashtra Development Corporation v. Bajaj Auto Ltd.
The court clarified the legal distinction between transferability in public and private companies.
Types of Registered Companies in India
Common Categories
- Private Limited Company
- Public Limited Company
- Section 8 (Non-Profit) Company
- Government Company
- Holding & Subsidiary Company
- Associate / Joint Venture Company
- Dormant Company
- Small Company
Private Limited Company – Key Features
- Minimum 2 members, maximum 200
- Restricted share transfer
- No public invitation for shares
- Limited liability
- Lesser compliance burden
Public Limited Company – Key Features
- Minimum 7 members
- Shares freely transferable
- Can raise funds from public
- Higher regulatory compliance
Advantages of Incorporation
- Separate legal identity
- Limited liability
- Perpetual succession
- Better credibility
- Easier capital raising
Disadvantages of Companies
- Compliance cost
- Loss of privacy
- Regulatory scrutiny
- Risk of management misuse
Conclusion
The Companies Act, 2013 establishes companies as independent legal persons with strong protections such as limited liability and perpetual existence. Judicial precedents like Salomon, Lee, and Bacha Guzdar reinforce these principles.
At the same time, strict governance ensures accountability.
For promoters and professionals, the key takeaway is simple:
Proper incorporation, transparent management, and statutory compliance are essential for sustainable corporate success.