Incorporation marks the birth of an artificial legal person. Under the Companies Act, 2013, a company is recognized as a juristic person distinct from its members and directors.
1. Separate Legal Entity: The Salomon Doctrine
The foundation of company law rests on the principle that a company has a distinct legal personality from the day of its incorporation.
Facts: Salomon, a boot manufacturer, incorporated a limited company with his family as sole shareholders. He took debentures secured by a charge on the company's assets. When the company went into liquidation, the unsecured creditors argued Salomon should not be paid first because the company was a mere sham and his alias.
Held: The House of Lords held that once the company is legally incorporated, it is an independent legal entity distinct from its founders. Salomon's secured debentures were valid and had priority over unsecured claims. The company was not an agent or trustee of the founder.
2. Key Advantages of Incorporation
- Separate Property: The company owns its assets; shareholders have zero direct proprietary rights in the company's land or goods (Macaura v. Northern Assurance Co.).
- Perpetual Succession: Members may come and go, but the company continues to exist until legally wound up. (Death or insolvency of members does not affect the corporate life).
- Limited Liability: The liability of members is strictly limited to the nominal value of shares held by them, or the guarantee amount.
- Transferability of Shares: Shares represent movable property and are freely transferable under Section 44.
3. Registration and Incorporation (Section 7)
Incorporation is achieved by filing crucial documents with the Registrar of Companies (ROC), including the Memorandum, Articles, declarations of compliance, and registered office details. Section 9 states that upon receiving the Certificate of Incorporation, the company becomes a body corporate capable of exercising all corporate functions.