Question

What is meant by the word ‘Company’? Describe its characteristics.

Answer 1

According to Section 2 (20) of the Company Act 2013 "Company means a company incorporated under this Act or any previous Company Law."

In general, a company is an artificial person, created by law that has a separate legal entity, perpetual succession, and common seal and has limited liability. It is a voluntary association of person who together contributes in the capital of the company to do business.

Generally, the capital of a company is divided into small parts known as shares, the ownership of which is transferable subject to certain terms and conditions.

Characteristics of Company-

(i) Incorporated Association : A company comes into existence through the operation of law. Therefore, its incorporation under the Companies Act is must. Without such registration, no company can come into existence.

(ii) Separate Legal Entity : A company has a separate legal entity, which is not affected by changes in the ownership. Therefore being a separate entity, a company can contract, sue and be sued in its corporate name and capacity.

(iii) Artificial Person: A company is an artificial and juristic person that is created by law.

(iv) Limited Liability : Every shareholder of a company has limited liability. His liability is limited to the extent of the unpaid value of the shares held by him. If such shares are fully paid up, he is subject to no further liability.

(v) Perpetual Existence : The existence of company is not affected by the death, retirement, and insolvency of its members. That is, the life of a company remains unaffected by the life and the tenure of its members in the company. The life of a company is infinite until it is properly wound up as per the Companies Act.

(vi) Common Seal : The company is not a natural person and has no physical existence. Hence, it cannot put its signature. Thus, the common seal acts as an official signature of a company that validates the official documents.

(vii) Management and Ownership : A company is not managed by all members but by their elected representatives called Directors. Thus, management and ownership are different.

(viii) Transferability of Shares : Shares of a company are freely transferable, except in case of private companies. Transfer of shares of private companies is regulated by Articles of Association.