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CHAPTER 1
INTRODUCTION
Meaning of a company:
Section 3 (1) (i) of the Companies Act, 1956 defines a company as a company formed and
registered under this Act or an existing company. Section 3(1) (ii) Of the act states that an
existing company means a company formed and registered under any of the previous
companies laws. Section 2(20) of the Companies Act, 2013 means a company incorporated
under this Act or under any previous Company law.
This definition does not reveal the distinctive characteristics of a company . According to
Chief Justice Marshall of USA, A company is a person, artificial, invisible, intangible, and
existing only in the contemplation of the law. Being a mere creature of law, it possesses only
those properties which the character of its creation of its creation confers upon it either
expressly or as incidentalto its very existence.
Another comprehensive and clear definition of a company is given by Lord Justice Lindley,
A company is meant an association of many persons who contribute money or moneys
worth to a common stock and employ it in some trade or business and who share the profit
and loss (as the case may be) arising there from. The common stock contributed is denoted in
money and is the capital of the company. The persons who contribute it, or to whom it
belongs, are members. The proportion of capital to which each member is entitled is his
share. Shares are always transferable although the right to transfer them is often more or less
restricted.
According to Haney, Joint Stock Company is a voluntary association of individuals for profit,
having a capital divided into transferable shares. The ownership of which is the condition of
membership. From the above definitions, it can be concluded that a company is registered
association which is an artificial legal person, having an independent legal, entity with a
perpetual succession, a common seal for its signatures, a common capital comprised of
transferable shares and carrying limited liability.

CHARACTERISTICS OF A COMPANY
The main characteristics of a company are :
1. Incorporated association. A company is created when it is registered under the
Companies Act. It comes into being from the date mentioned in the certificate of
incorporation. It may be noted in this connection that Section 11 provides that an
association of more than ten persons carrying on business in banking or an association

or more than twenty persons carrying on any other type of business must be registered
under the Companies Act and is deemed to be an illegal association, if it is not so
registered.
2. Separate Legal Entity: A company has a legal distinct entity and is independent of
its members. The creditors of the company can recover their money only from the
company and the property of the company. They cannot sue individual members.
Similarly, the company is not in any way liable for the individual debts of its
members. The property of the company is to be used for the benefit of the company
and nor for the personal benefit of the shareholders. On the same grounds, a member
cannot claim any ownership rights in the assets of the company either individually or
jointly during the existence of the company or in its winding up. At the same time the
members of the company can enter into contracts with the company in the same
manner as any other individual can. Separate legal entity of the company is also
recognized by the Income Tax Act. Where a company is required to pay Income-tax
on its profits and when these profits are distributed to shareholders in the form of
dividend, the shareholders have to pay income-tax on their dividend of income. This
proves that a company that a company and its shareholders are two separate entities.
3. Perpetual Existence. A company is a stable form of business organization. Its life
does not depend upon the death, insolvency or retirement of any or all shareholder (s)
or director (s). Law creates it and law alone can dissolve it. Members may come and
go but the company can go on forever. During the war all the member of one private
company, while in general meeting, were killed by a bomb. But the company
survived; not even a hydrogen bomb could have destroyed i. The company may be
compared with a flowing river where the water keeps on changing continuously, still
the identity of the river remains the same. Thus, a company has a perpetual existence,
irrespective of changes in its membership.
4. Common Seal: As was pointed out earlier, a company being an artificial person has
no body similar to natural person and as such it cannot sign documents for itself. It
acts through natural person who are called its directors. But having a legal personality
it can be bound by only those documents which bear its signature. Therefore, the law
has provided for the use of common seal, with the name of the company engraved on
it, as a substitute for its signature.
5. Limited Liability: A company may be company limited by shares or a company
limited by guarantee. In company limited by shares, the liability of members is
limited to the unpaid value of the shares. In a company limited by guarantee the

liability of members is limited to such amount as the member may undertake to

contribute to the assets of the company in the event of its being wound up.
6. Transferable Shares: In a public company, the shares are freely transferable. The
right to transfer shares is a statutory right and it cannot be taken away by a provision
in the articles. However, the articles shall prescribe the manner in which such transfer
of shares will be made and it may also contain bona fide and reasonable restrictions
on the right of members to transfer their shares. But absolute restrictions on the rights
of members to transfer their shares shall be ultra vires. However, in the case of a
private company, the articles shall restrict the right of member to transfer their shares
in companies with its statutory definition.
7. Separate Property: As a company is a legal person distinct from its members, it is
capable of owning, enjoying and disposing of property in its own name. Although its
capital and assets are contributed by its shareholders, they are not the private and joint
owners of its property. The company is the real person in which all its property is
vested and by which it is controlled, managed and disposed of.
8. Artificial legal person: A company is an artificial person. Negatively speaking, it is
not a natural person. It exists in the eyes of the law and cannot act on its own. It has to
act through a board of directors elected by shareholders. It was rightly pointed out in
Bates v Standard Land Co. that : The board of directors are the brains and the only
brains of the company, which is the body and the company can and does act only
through them.
But for many purposes, a company is a legal person like a natural person. It has the
right to acquire and dispose of the property, to enter into contract with third parties in
its own name, and can sue and be sued in its own name.
However, it is not a citizen as it cannot enjoy the rights under the Constitution of
India or Citizenship Act. In State Trading Corporation of India v C.T.O,1 it was
held that neither the provisions of the Constitution nor the Citizenship Act apply to it.
It should be noted that though a company does not possess fundamental rights, yet it
is person in the eyes of law. It can enter into contracts with its Directors, its members,
and outsiders. Justice Hidayatullah once remarked that if all the members are citizens
of India, the company does not become a citizen of India.

1 (1963 SCJ 705)

Is Company a citizen:
Although a company is regarded as a legal person (though artificial), it is not a citizen either
under the Constitution of India or the Citizenship Act, 1955. Under the Constitution, a
company has no fundamental rights which are expressly available to citizens only. It can
however, claim the protection of those fundamental rights which are available to all persons,
whether citizens or not, for example, the right to own property.
A company is also not allowed to lay claim to fundamental rights on the basis of its being an
aggregation of citizens. Once a company or a corporation is formed, the business of the
company or corporation is not the business of the citizens but that of the company or
corporation formed as an incorporated body.
It should, however, be noted that certain fundamental rights enshrined in the Constitution are
for protection of any person, for example, right to equality etc are available to a company.
Company is not citizen:
So, it may be added that a company, though a legal person, is not a citizen either under the
Constitution of India or under the Citizenship Act.
A company is however, a person in the eyes of law and it can claim the protection of such
fundamental rights as are guaranteed to all persons whether citizen or not. A company cannot
claim the protection of such fundamental rights as are expressly guaranteed to citizens only.
But even so there is no cause for anxiety about corporations in general and companies in
which States hold all or majority of the share in particular. They are amply protected under
our Constitution. There can be no discrimination, no taxation without authority of law, no
curbs involving freedom of trade, commerce or intercourse, and no compulsory acquisition
of property. There is sufficient guarantee and if more is needed then any member (if citizen)
is free to invoke Article 19(1)(f) and (g) and there is no doubt that the corporation in most
cases will share the benefit. There is no need to apprehend that Corporations are at the mercy
of the State Governments.
The hardship caused by this pronouncement has, however been subsequently modified
(though not by conceding in so many words that a company may be citizen for a certain
purpose) by holding that a citizen shareholder may petition, proceeding on behalf of the
company, against violation of his companys fundamental rights.2

2 State of Gujarat v Shri Ambica Mills Ltd (1974) 4 SCCC 656

Nationality, domicile and residence:

A company does however have a nationality, domicile and residence. Speaking of this Mc
Naghtten J laid down:
it was suggested that a body corporate has no domicile. It is quite true that a body corporate
cannot have a domicile in the same sense as an individual any more that it can have a residence
in the same sense as an individual. But by analogy with a natural person, the attributes of
residence, domicile and nationality can be given to a body corporate.
A company incorporated in a particular country has the nationality of that country, though unlike
a natural person, it cannot change its nationality.
The same principles apply to determination of the residence of a company. Lord Loreburn stated
in a case before the House of Lords that in applying the concept of residence to a company we
ought to proceed as nearly as we can upon the analogy of an individual.
A company cannot eat or sleep, but it can keep house and do business. We ought therefore to see
where it really keeps house and does business. An individual may be of a foreign nationality and
yet aside in the United Kingdom, so may a company. Otherwise it might have its chief seat of
management and its center of trading in England under the protection of English law and yet
escape the appropriate taxation by the simple expedient of being registered abroad and
distributing its dividends abroad. A company resides foor purposes of income tax where its real
business is carried on. The real business is carried on where the central management and control
actually resides.
Ordinarily the residence of a company is at the place where its registered office is situated. This
observation occurred in a case in which the company was incorporated in Australia and it also
carried on business and worked for gain at that place. It filed a case under the Copyright Act in
Ernakulum whereas the breach of the copyright had taken place in Chennai no part of the cause
of action had taken place in Ernakulum. The mere fact that the companys power of attorney was
residing and doing business there did not confer any jurisdiction on the courts of that place.

CHAPTER 2
LEGISLATIVE PROVISIONS

Section 2(b) of the Citizenship Act, 1955 states that:

Citizen, in relation to a country specified in the First Schedule, means a person who under
the citizenship or nationality law for the time being in force in that country, is a citizen or
national of that country;
Section 2(f) of the Citizenship Act, 1955 states that:
Person does not include any company or association or body of individuals, whether
incorporated or not;
Section 3 of the Citizenship Act, 1955 states that:
Citizenship by birth. [(1)

Except as provided in sub-section

(2)

Every person born in India, -

(a) On or after the 26th day of January, 1950, but before the commencement of the
Citizenship (Amendment) Act, 1986;
(b) On or after such commencement and either or whose parents is a citizen of India at the
time of his birth,
Shall be a citizen of India by birth.]
(2) Person shall not be such a citizen by virtue of this section if at the time of his birth(a) His father possesses such immunity from suits and legal process as is accorded to an
envoy of a foreign sovereign power accredited to the President of India and is not a citizen of
India; or
(b) His father is an enemy alien and the birth occurs in a place then under occupation by the
enemy.

Article 5 of the Indian Constitution:

Citizenship at the commencement of the Constitution.
At the commencement of this Constitution, every person who has his domicile in the territory
of India and
(a) who was born in the territory of India; or
(b) either of whose parents was born in the territory of India; or
(c) who has been ordinarily resident in the territory of India for not less than five years
immediately preceding such commencement, shall be a citizen of India.

CHAPTER 3
JUDICIAL ANALYSIS

1. Heavy Engineering Mazdoor Union v State of Bihar 3, it was held that although a
company is regarded as a legal person though artificial, is not a citizen either under
the Constitution of India or under the Citizenship Act, 1955.
2. State Trading Corporation of India Ltd. v CTO, 4 the Special Bench of Supreme
Court held that the state Trading Corporation of India is incorporated as a private
company under the Companies Act. All the shares are held by the President of India
and two secretaries in their Official capacities. The question was whether the
Corporation was a citizen. One of the contentions put forth on behalf of the
corporation was that if the corporate veil was pierced.one sees three persons who
are admittedly the citizens of India and therefore, the corporation should also be
regarded as a citizen.
3. Narasaraopeta Electric Corpn Ltd. v State of Madras, 5 it was held that the High
Court observed that a company incorporated under the Indian Companies Act does
not satisfy the requirements of the definition of citizen in Article 5 of the
Constitution and therefore is not a citizen.
4. Telco Ltd. v State of Bihar,6 it was held that once a company or a corporation is
formed the business of the company or corporation is not the business of the citizens
but that of a company or corporation formed as an incorporated body and the rights of
the incorporated body must be judged on that footing and cannot be judged on the
assumption that they are the rights attributable to the business of individual citizens.

3[1969] 39 Comp. Cas 905 (SC)

4 AIR 1963 sc 1811
5 [1951] 21 Comp. Cas 297
6 [1964] 34 Comp. Cas. 458 (SC)

5. Chiranjilal Chaudhari v Union of India, 7 the Supreme Court held that the
fundamental rights guaranteed by the Constitution are available not merely to
individual citizens but to corporate bodies as well except where the language of the
provision or the nature of the right compels the interference that they are applicable
only to natural persons.
6. Bennet Coleman Co. v Union of India, 8 the Supreme Court extended the rule by
stating it is now clear that the fundamental rights of shareholders as citizens are not
lost when they associate to form the company. When their fundamental rights as
shareholders are impaired by State action their rights as shareholders are protected.

7 [1951] 21 Comp. Cas. 33

8 [1972] SCC 788

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CHAPTER 4
CONCLUSION
A company is without any doubt a legal person or entity but under Article 19 of the Indian
Constitution, it is not a citizen. It is well known fact that a Company is an Artificial Person
within its man-made or through operation of law. But whether this Artificial Person can have
the Citizenship of the country is a question of law.
As per Citizenship Act, 1955 only natural persons can be a Citizen and not any juristic
person like Corporations. And therefore, as a company is an Artificial person and not a
natural person, it cannot get a status of citizenship of the country.
It has no fundamental rights like a citizen has. As such a company cannot take the recourse
of law to press for its fundamental rights like a citizen can. For example a company does not
have the right to franchise.
It is clear from the judgment of Justice Hidayatullah in the case State Trading Corporation of
India v Commercial Tax Officer. In the words of Justice Hidayatullah, if the company ever
becomes a legal person, it can neither be included in the Act of Constitution nor can it be
called a citizen in the Citizenship Act. Though the company cannot be a citizen yet its
nationality can be recognized. Its nationality is recognized at the place where the company is
incorporated. The company which is incorporated in India shall be called an Indian Company
even though its members are foreigners.

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BIBLIOGRAPHY
REFERRED BOOKS
AVTAR SINGH, COMPANY LAW, SIXTEENTH EDITION
TAXMANNS COMPANY LAW AND PRACTISE, DR G K KAPOOR AND SANJAY
DHAMIJA.

INTERNET SOURCES
www.manupatra.com
www.westlawindia.com
www.indiankanoon.org
www.corporate-cases.com