A company is referred to as an association of people who contribute money or money’s worth to a common fund and use it for a purpose. It is an artificial person that exists as a corporate legal entity which is different from its core members or shareholders and has a common authentication utilised for its signature. Hence, it has a few definite characteristic features which categorise it from the other types of an organisation.
Also see: Types of Companies
Characteristic features of a Company
- Corporate Body: A company needs to be registered under the Companies Act, 2013. Any other organisation incorporated with the Registrar of Companies, and subsequently not registered cannot be considered as a company.
- Separate Legal Entity: A company exists as a separate legal entity which is different from its shareholders and members. Due to this feature, shareholders can enter into a contract with the company and can also sue the company and be sued by the company.
- Limited Liability: As the company exists as a separate entity, members of the company are not liable for the debts of the company. Liability of members of a company is limited to the extent of the shares that are held by them or by the extent of the guarantee amount
- Transferability of Shares: Shareholders of a public limited company can transfer their shares as per the rules laid down in the articles of association. However, in case of a private limited company, there might be some restrictions on the transfer of shares.
- Common Seal: The firm is an artificial entity or a person, and therefore cannot sign its name by itself. It creates the necessity of a common seal that can be used for representing the decisions made on behalf of the company.
- Perpetual Succession: The company being an artificial person established by law perpetuates to exist regardless of the differences in its membership. In simple words, a company is an artificial person. Therefore, it does not have any restrictions on age. The factors like death, insolvency, retirement or the insanity of one or all of the members do not impact the company status.
- Number of Members: As per the Companies Act, 2013, the minimum number of members required to start a public limited company is seven while for a private limited company, it is two. The maximum number of members for a public limited company can be unlimited while it is restricted to 200 for a private limited company.
Read more: What is Joint Stock Company?
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