A Company is and artificial person created by law with a perpetual succession and a common seal. Explain the statement in the light of features of a company.
Definition of a Company : Section 2 (20) of the Companies Act, 2013 defines a company as “a company incorporated under this Act or under any previous company law.” Important previous companies laws are the companies laws passed in 1850, 1866, 1882, 1913 and 1956.
After passing of the Companies Act, 2013, all these acts have been repealed. The definition contained in the Act does not throw any light on the features of a company. A more comprehensive definition of a company has been given by Prof. Haney : A company is an incorporated association which is created by law, having a separate entity with a perpetual succession and a common seal. Two more features division of capital into transferable shares and limited liability of the members may be added to the definition given by Prof. Haney.
Thus, a company may be defined as “an incorporated association which is an artificial person created by law, having a separate entity, with a perpetual succession, a common seal, capital divided into transferable shares and carrying limited liability.
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Characteristics or Features of a Company
Incorporated Association: A company must be registered under the prevalent Companies Act. If the number of members in an association exceeds 50 and the association is formed for carrying on a business with profit motive, it must be registered under the Companies Act or any other Indian Law otherwise it becomes an illegal association.
For forming a public company, at least seven persons and for forming a private company, at least two persons are required. For forming one person company, as a private company, only one person is required.
Artificial Legal Person : A company is an artificial legal person. It is artificial because it is created by a process other than the natural birth. It comes into existence through the operation of law. It is a legal person because it exists in the eyes of the law.
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It can do a number of things which can be done by a natural person g. a company can enter into a contract, it can purchase and sell assets, it can be fined, it can file s s it, and so on. It acts through the board of directors elected by the members.
Separate Legal Entity (Doctrine of Corporate Veil) : A company is a legal person and is different from its members. The property of the company belongs to the company alone and the members can not claim individually or jointly ownership rights in the assets of the company during its existence or in its winding up.
A company can file a suit against its members and the members can also file a suit against the company. Further, the members are not liable for the liabilities of the company. Their liability is limited to the extent of their shareholdings. Creditors of the company are the creditors of the company alone and they cannot proceed directly against the members of the company.
Perpetual Existence: ( A company has perpetual succession and is independent of the life of its members. Its existence is not affected by the death, lunacy or bankruptcy of its members. Members may come, members may go but a company continues for ever.
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A company comes into existence through the operation of law and it can come to an end only through the operation of la During the) war, all the members of a private company, while attending the general meeting, were killed by a bomb. But the company continued. Legal representatives of the deceased members became the new members of the company.
Limited Liability : Liability of the members of the company is limited to the value of the shares subscribed by each of them. In case of company limited by grantee, the liability of the members of the company is limited to the extent of guarantee given by them.
Transfer-ability of Shares : The shares of a company are freely transferable in the case of public companies whereas they are not so in case of private companies)
Common Seal : Every company has its own common seal which is affixed on all the important documents of the company. The common seal with the name of the company engraved on it, is used as a substitute of its signature.
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Separate property : A company, being a legal person, is capable of owning, enjoying and disposing of property in its own name. The property of the company is to be used for the company’s business and not for the personal benefit of its members.
