RIGHTS OF COMPANIES TO CHOOSE NATIONALITY

Written by Chehan (LLB-I Year Student)

INTRODUCTION:

The law of the companies serves a function beyond merely ensuring that contracts are performed and the people are benefitted from commerce. However, once a company is incorporated, it requires several features that give it a distinct identity. A company is an artificial person and it is concerned with ensuring that there are no defaults that may disrupt the smooth functioning of business enterprises to uphold transparency and accountability, we need company laws that provide an outline of how the company must do business and be managed.

WHAT IS A COMPANY:

A company stands as a distinct entity, carved out from the essence of the law itself, a creation borne from the historical evolution of legislation, transitioning from the 1956 Companies Act to the present Companies Act of 2013. In this intricate play of commerce, the central roles are assumed by two critical players: the directors and shareholders. The board of directors serves as the vigilant guardians of business affairs and company management, while the shareholders serve as the steadfast pillars upholding the company's existence. It's noteworthy that the directors come into play only after the company's formal establishment and registration, marking a significant moment in its journey. In the realm of business, the company takes on a persona of its own, conducting its affairs under its name and accumulating profits that belong exclusively to its corporate identity. These profits, in turn, flow towards the shareholders, who, in their capacity as investors, reap dividends from the fruits of this collective endeavor. Thus, there exists a distinct legal separation, where the company and its members inhabit separate realms, each a unique entity in its own right.

FEATURES, AND INCORPORATION OF THE COMPANIES:

LEGAL AUTHENTICATION TO THE COMPANY: A company can only be established according to the provisions of the law of the land. In India, enterprises are registered and established under the company's law, excluding the Insurance and Banking enterprises for which another definite law is furnished.

CAPPED LIABILITY: In contrast to a traditional partnership firm, the liability risks of a company's member's shareholders are limited to their fraction of the shares. For fixed risks, incorporating a company is a better option.

LONG TERM EXISTENCE: The company is an inanimate person established by legal statute and continues to exist regardless of the member numbers or even existence. A company can be only dissolved by law. Even the circumstances of the insanity/death of any member shareholders of the company make no dent in the company’s existence.

EASE OF TRANSFER OF SHARES: The shares of a Public limited company are transferable. The authorization of any member of the firm is not required for the conveyance of shares. The comfort of the transfer of the shares garners the company better trust amongst its shareholders.

INDEPENDENT LEGAL PERSONALITY: A company has a defined independent legal entity that is different from constituting members. As an independent person in law, a company may possess and convey any kind of properties, it may be a party to the contract.

INCORPORATION: A company should be incorporated according to the provisions of the Companies Act 1956. The following are the steps that lie in the incorporation of the company:

LIMITED BURDEN: The limitation of the liability during liquidation is the merit of incorporation. The liability of the members of the company is limited by shares owned by them paying the nominal value of the shares held.

PERPETUAL SUCCESSION: An incorporated company never dies. There is a large number of members of the company. A company can only be dissolved according to the provisions of law.

REGISTRAR OF COMPANIES (ROC):

When a company is formed and begins operations, it impacts not only the employers and employees inside the organization, but also the industry and market as a whole, the customers and other stakeholders within the company, and the government. The interdependence of these numerous entities needs oversight and control. The Registrar's office is where a company's name and other relevant paperwork are registered. The documents required for the registration of the companies are given below:

MEMORANDUM OF ASSOCIATION (MOA):

The memorandum of the association is one of the most important documents of a company as it sets out the distinct aspects of the company and provides requisite information about the company to outsiders-such as the name of the company in the name of the clause; the state in which registered office is situated, in the registered office clause.

ARTICLES OF THE ASSOCIATION (AOA):

The guidelines for the company's administration are outlined in the articles of association. The articles include all of the rules and regulations that govern the relationships between the firm and its members, as well as among the members themselves.

Therefore, the Memorandum of Association (MOA) and Articles of Association (AOA) stand as the twin pillars upon which the foundation of a company is firmly built. These two documents are not mere paperwork but hold profound significance in shaping the identity, structure, and functioning of the company. The Memorandum of Association serves as the company's constitution, outlining its fundamental objectives, scope of operations, and the limits within which it can function. It defines the company's very purpose and raison d'être, setting the boundaries within which it can operate. On the other hand, the Articles of Association provide detailed rules and regulations governing the internal management of the company. They delineate the rights, duties, and powers of the company's members, directors, and officers. It's the blueprint for how the company will conduct its day-to-day affairs.

Together, these documents not only grant legal existence to the company but also serve as a compass, guiding its journey through the intricate landscape of business and governance. They are the cornerstone documents that safeguard the interests of shareholders, directors, and all stakeholders, ensuring that the company operates in harmony with its intended purpose and the law.

DOCTRINE OF CONSTRUCTIVE NOTICE:

The doctrine of constructive notice is a legal principle that applies in the context of company law and property law. It essentially means that individuals and entities are deemed to have notice of certain information or facts, even if they were not actually aware of them because the information is considered to be publicly available or part of the official records. In the context of company law, the doctrine of constructive notice typically applies to the company's memorandum and articles of association, which are publicly available documents filed with the relevant government authorities. It implies that anyone dealing with a company is assumed to have notice of the contents of these documents. This means that individuals or entities are expected to be aware of the company's constitution, including its objectives, powers, and any restrictions on its activities as outlined in the memorandum and articles of association.

In essence, the doctrine of constructive notice places a degree of responsibility on individuals and entities to familiarize themselves with the publicly available information about a company before engaging in transactions with it. This helps ensure transparency and legal compliance in business dealings.

DOCTRINE OF INDOOR MANAGEMENT:

The doctrine of indoor management is a legal principle that serves as a counterbalance to the doctrine of constructive notice in company law. While the doctrine of constructive notice suggests that anyone dealing with a company is assumed to have knowledge of the company's public documents and constitution (such as its Memorandum and Articles of Association), the doctrine of indoor management recognizes certain limitations to this rule. Under the doctrine of indoor management, a person transacting with a company is entitled to assume that the company's internal proceedings and corporate acts have been duly complied with. As such, this doctrine protects third parties who rely on the apparent authority of company officers and documents, even if there are internal irregularities.

In essence, the doctrine of indoor management strikes a balance between protecting the interests of third parties dealing with a company and maintaining the integrity of the company's internal procedures. It recognizes that outsiders should not be penalized for internal irregularities of which they have no knowledge.

TRUSTEE:

A director is also a trustee of the company since he is responsible for conducting business on the company's behalf and utilizes the company's property and wealth to do so.

RIGHTS OF COMPANIES TO CHOOSE NATIONALITY:

In the context of companies, the concept of "nationality" is not typically applicable in the same way it is to individuals. Companies are legal entities created and governed by the laws of the country in which they are registered or incorporated. While corporations do not have a nationality in the same way that persons do, they do have a legal identity connected with the jurisdiction in which they are incorporated. Companies often choose the jurisdiction in which to incorporate or register based on various factors, including legal and regulatory advantages, tax considerations, access to markets, and business-friendly environments. The rights of companies to select a specific jurisdiction for incorporation or registration are typically governed by the laws of that jurisdiction.

For example, a company may choose to incorporate in a particular country because it offers favorable tax incentives, a stable regulatory environment, or access to a specific market. In doing so, the company is subject to the laws and regulations of that jurisdiction and enjoys the rights and benefits provided by that legal framework. It's important to note that while companies have the freedom to choose their place of incorporation or registration, they are still bound by the laws and regulations of that jurisdiction and must comply with the legal requirements and obligations imposed by the government of that country. Additionally, companies may also operate in multiple jurisdictions and must adhere to the laws and regulations of each jurisdiction in which they conduct business.

CONCLUSION:

In a nutshell, it may be stated that a company is an artificial person created by a statute of legal sanctity that is provided under the Companies Act,2013 and previous legislations animate a company with a personality almost similar to that of a physical person.

REFERENCES:

Dr. Bhupinder Kaur(B.A,LL.B,LL.M(Criminology)

Dr. R K Bangia (B.A,LL.B, LL.M,M. phil)

Dr.PV Paranjape(M.A,LL.B,LL.M,Gold medallist)

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