Business Entity Concept and its Implication

The corporate laws are the key for any company to operate in the present world! That is where we come across an area very well known as "Business Entity concept". Business Entity concept is a concept which states that the Owner/ the Investor/s of a company is/are distinct person/s to the company. This forms the background of the company to have "Capital clause" And "Liability clause" inserted in its Memorandum of Association which is shortly known as MoA.

In the current era, no company can survive/ serve as a company without these clauses inserted in their MoA. These clauses are mandatory requirements that a company should fulfill in order to get incorporated as a company in India. This capital clause states the type of liability the Owner or the Investors is holding in the company i.e. either as an Equity Shareholder or Preference Shareholder or Debenture holder or as any other type of Investor based on the options available in the company. The liability clause specifies the amount of liability each Investor or a class of investors are bound to pay to the company either at the time of Liquidation/ Winding up of the company or when requested for by the company, as the case may be. Not only these two clauses mentioned above are to be stated in the MoA, there are lot more which are due to the provisions of the Companies Act, 2013 which is the binding force of all the companies in India subject to amendments and updates based on the trend and technological development. For more, stay tuned with our weekly post on Commerce, Finance, Accounting, Costing and other related issues of a Company in India. Please don't forget to leave your comments and thoughts.