A company is an artificial legal person created by law, capable of owning property, entering contracts, suing and being sued — separate from its members. The concept evolved over centuries from informal trading partnerships to highly regulated corporate entities.

• Company law developed primarily in England and was transplanted to India through colonial legislation.
• The journey spans over 400 years — from the East India Company (1600) to the Companies Act, 2013.
• Key milestones: Bubble Act 1720 → Joint Stock Companies Act 1844 → Limited Liability Act 1855 → Companies Act 1862 → Companies Act 1956 → Companies Act 2013.

Background

• Before formal company law, merchants traded through partnerships and guilds.
• Long-distance overseas trade required pooling of large capital — too risky for one individual.
• The solution: Joint Stock — multiple investors pool capital, share profits and losses proportionally.
• Early joint stock ventures had unlimited liability — members personally liable for all debts.

Regulated Companies

• Regulated Companies — merchants trading individually but under a common charter (e.g., Merchant Adventurers, 1407).
• Members had separate capital but shared common rules and privileges.
• Distinguished from Joint Stock Companies where capital is pooled.

• Incorporated by Royal Charter on 31 December 1600 by Queen Elizabeth I.
• Full name: "The Governor and Company of Merchants of London Trading into the East Indies."
• First company with a distinct corporate identity — could sue, be sued, hold property.
• Had a perpetual succession — continued despite change in membership.
• Initially operated with terminable joint stock (capital returned after each voyage).
• Later converted to permanent joint stock (1657) — shares transferable, capital permanent.
• Operated under monopoly charter — exclusive trading rights in East Indies.

The South Sea Bubble (1720)

• Early 18th century saw rampant speculation in joint stock companies.
• The South Sea Company promised huge returns from trade with South America.
• Share prices inflated wildly → collapsed in 1720 → thousands ruined.
• This disaster is known as the "South Sea Bubble."

The Bubble Act, 1720

• Passed by British Parliament to prevent fraudulent speculation.
• Prohibited formation of joint stock companies without Royal Charter or Act of Parliament.
• Effectively froze company formation for over 100 years.
• Repealed in 1825 — as it became an obstacle to industrial growth.

• Passed after the Gladstone Committee Report (1844).
• Introduced registration as a method of incorporation — companies no longer needed Royal Charter.
• Any group of persons could form a company by simple registration.
• Introduced concept of a Registrar of Companies.
• Required companies to maintain accounts and file returns.
• BUT — still no limited liability. Members remained personally liable.

• Passed after intense lobbying by industrialists and investors.
• For the first time, limited liability was granted to shareholders.
• Members' liability limited to the amount unpaid on their shares.
• Creditors could no longer pursue shareholders' personal assets beyond their investment.
• Required the word "Limited" to be added to the company name — as a warning to creditors.

• Consolidated the Acts of 1844 and 1855 into a single comprehensive statute.
• Introduced the concept of the Memorandum of Association and Articles of Association.
• Established the ultra vires doctrine — a company cannot act beyond its stated objects.
• Confirmed separate legal personality and limited liability together in one Act.
• The landmark case Salomon v Salomon & Co. Ltd. [1897] was decided under this Act.

• The 1862 Act remained in force for nearly 40 years and served as the model for company legislation worldwide, including India.

• India's company law was modelled on English law throughout the colonial period.
• Earlier Acts: Companies Act 1850, 1857, 1860, 1866, 1882.
• The Indian Companies Act, 1913 was a comprehensive consolidating Act based on the English Companies Act 1908.
• Introduced concepts of: Memorandum of Association, Articles of Association, Prospectus, Annual Returns, Auditing.
• Remained in force until independence and beyond — until replaced by the 1956 Act.

Background

• After independence (1947), India needed a comprehensive company law suited to a socialist planned economy.
• Bhabha Committee (1950) was appointed to review company law → submitted report in 1952.
• Based on Bhabha Committee recommendations, the Companies Act, 1956 was enacted.

Key Features

• Comprehensive statute — 658 sections and 15 schedules.
• Governed incorporation, management, accounts, auditing, winding up of companies.
• Introduced strict government control over companies (licensing, CLB — Company Law Board).
• Mandatory disclosure requirements — protect investors and creditors.
• Introduced concept of Public Company vs. Private Company.

Amendments & Committees

• Sachar Committee (1978) — reviewed company law, recommended reforms.
• Eradi Committee (1999) — recommended reforms on winding up.
• Act amended multiple times but became outdated — needed total replacement.

Why a New Act?

• Globalisation, capital markets, corporate fraud scandals (e.g., Satyam Scam, 2009) exposed gaps in the 1956 Act.
• Dr. J.J. Irani Committee (2005) recommended a modern, simplified company law.
• Based on Irani Committee Report, the Companies Act, 2013 was enacted.

Key Features

• Streamlined to 470 sections (from 658) — simpler and clearer.
• Introduction of One Person Company (OPC) — single person can incorporate a company.
• Mandatory Corporate Social Responsibility (CSR) — 2% of net profits for eligible companies.
• Strengthened Corporate Governance — independent directors, audit committees, women directors.
• Enhanced Shareholder Rights — class action suits, minority protection.
• Introduction of National Company Law Tribunal (NCLT) — replaces CLB and Company Court.
• Stricter penalties for fraud — Section 447 defines fraud, heavy imprisonment.
• Concept of Small Company introduced — relaxed compliance.
• E-governance — electronic filing, digital records.