Ques. A company is a distinct legal person—comment.
Ans. A Company is a distinct legal person.—“Pergons” in ordinary parlance are the male and female human beings. In legal terminology, a person is one who is capable of exercising legal rights and performing legal duties. Salmond says: “Any person is any being whom the law regards as capable of rights and duties.” Any being that is so capable is a person whether a human b,eing or not and if it is not so capable he is not a person although it may b&nhumaniningkm incorporated company is a distinct legal person as it is capable of keying rights and performing duties in its own corporate name. It is in law something distinct from its shareholders. The company is a legal entity quite different from its members. Its personality is separate and distinct from those who compose it. In this respect a company differs from a firm. A firm has no separate and distinct existence apart from its members (partners). The property of the company is not, in law, the property of the shareholders. The assets and liabilities of the company are different from the assets and liabilities of its members. Moreover, a company may be held liable for torts like an individual.
The number of shareholders may be reduced to one (however, such extreme-ease of reducing membership of one is not possible under the present laws) yet that single shareholder and the company will be distinct person, and will have different status in the eye Of law.
A company formed and registered under the Companies Act is a distinct legal entity. It can deal with its property, sue and be sued in its own corporate name. Once a company is incorporated it must be treated like any other independent person. Debts incurred by the company are not debts of the members. Its members (also known as shareholders are contributories) hold ‘shares’ in the company which represent the amount which they have contributed, in cash or other consideration, or have undertaken to contribute, to the funds of the company and that in normal circumstances defines the limit of their liability. Thus the company “A and Co.” is entirely different person from `A’—even though he started it, manages it and owns practically all its shares. The property is the property of A and Co., and not of Mr. A. ‘A’ can make contracts with the company and his goods cannot be seized for the debts of the company. He may lend money to the company on the security of its assets. In Soloman v. Solomon and Co. Ltd., the facts were that one Solomon transferred his shoe manufacturing business to the corporate body Solomon and Co., Ltd., formed by himself and his wife and children. Subsequently this company was wound up when its assets were £6.000 and liabilities were £ 10,000 to Salomon as debenture- holder and £7,000 to unsecured creditors. In the creditor’s suit, it was held that Solomon being debenture- holder had preferential claim over the unsecured creditors and that Solomon and Co. Ltd., was not Solomon under another name but a distinct legal person.