Intermediate · Paper 5 – Business Laws & Ethics · Companies Act, 2013 · 2:26
English
Transcript
Quick question! If a company cannot repay its loan, can the bank come to the shareholders' homes to collect it? Think about it. By the end of this video, you will know.
Meet Arun and Divya. They run a busy snack stall in Coimbatore, called Kovai Crunch.
Arun: Divya, our orders are doubling every month! We need a bigger kitchen, and more money.
Divya: But Arun, if we borrow and something goes wrong, our own homes are at risk!
So they form a company. Kovai Crunch Private Limited is born, with its own name, its own bank account, and its own property.
So what exactly is a company? Section 2(20) of the Companies Act, 2013 says: a company means a company incorporated under this Act, or under any previous company law.
In its legal form, a company is an artificial entity. The identity of its members is independent from the company itself.
Divya: So the company is a separate person? Not just Arun and me?
Exactly! Like a natural person, a company has its own rights and liabilities. It can own property, make contracts, sue, and be sued, in its own name.
Now, our quick question. The loan belongs to the company, not to Arun and Divya. Their liability is limited to the unpaid value of their shares. Their homes are safe.
The Companies Act, 2013 has 470 sections, 7 schedules and 29 chapters. It replaced the Companies Act, 1956, and brought new ideas like the One Person Company.
Exam tip! Write the definition with its section number, Section 2(20). And remember the key words: an artificial legal person, separate from its members.
Let's recap. One, Section 2(20) defines a company. Two, a company is an artificial legal person. Three, it is separate from its members. Four, it has its own rights and liabilities.
Now try the test in the MPA app. In the next video, we will learn the seven features of a company.