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Sunday, May 11, 2014

Company - Meaning and Features

Company and Its features or “A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal”
Definition: A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal. It is an association of many persons who contribute money or money’s worth to a common stock and employs it for a common purpose. The common stock so contributed is denoted in terms of money and is called capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.
According to The Companies Act’ 2013 – “Company means a every association of person formed and registered under this Act or any companies enacted prior to the Companies Act, 2013.” [sec.2(20)]
Joint Stock Company has been defined by many eminent authors, jurists and institutions. Some of these definitions are given below:
According to L.H.Haney – “A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal.”
According to Chief Justice Marshall – “A company is an artificial being invisible, intangible and existing only in the eyes of law.”
Characteristics of a Company
The system of joint stock organization is very useful for large undertakings for which large capital is required. It is an incorporated association created by law, having distinctive name, a common seal, perpetual succession, limited liability etc. formed to carry on business for profit. Some of the essential characteristics of a company are given below:

1) Artificial Person: A company is an artificial person, which exists only in the eyes of law. The company carries business on its own behalf. It has a right to sue and can be sued, can have its own property and its own bank account. It can also own money and be a creditor.
2) Created by law: A company can be formed only with registration. It has to fulfill a lot of formalities to be registered. It has also to fulfill a lot of legal formalities in order to be dissolved.
3) Separate Legal entity: A company has a separate legal entity and is not affected by changes in its membership.
4) Perpetual succession: A company has a continuous existence. Its existence does not affected by admission, retirement, death or insolvency of its members. The members may come or go but the company may go forever. Only law can terminate its existence
5) Limited Liability: The liability of every member is limited to the amount he has agreed to pay to the company on the shares held by him.
6) Voluntary Association: A company is a voluntary association. It cannot compel any one to become its member or shareholder.
7) Capital Structure: A company has to mention its maximum capital requirements in future in its memorandum of association. Its capital is divided into shares, which are easily transferable from person to person.
8 ) Transferability of Shares: The shares of the company are movable property. The shares of a company are freely transferable by its members except in case of a private company, which may have certain restrictions of such transferability. [ Sec.44 of the Companies Act, 2013]
9) Common Seal: As a company is an artificial person, so it cannot sign any type of contracts. For this purpose its requires a common seal which acts as the official signatories of the company. All the contracts prepared by its directors must bear seal of the company.
10) Democratic Ownership: The directors of a company are elected by its shareholders in a democratic way.
11) Maintenance of Books: A limited Company is required by law to keep a prescribed set of account books and failure in this regard may attract penalty.

12) Periodical audit: A Company has to get its accounts periodically audited through the chartered accountants appointed for this purpose by the shareholders.
From the above discussion it is clear that Company is an incorporated association created by law, having distinctive name, a common seal, perpetual succession, limited liability etc. formed to carry on business for profit.