Characteristics
Of A Company:
The
following are the characteristic features of company:
Incorporated Association: A company
must be incorporated or registered
under the Companies Act. Minimum number required for the purpose is 7 in case
of a public company, and 2, in case of a private company (Sec. 12). As per
Section 11, an association of more than 10 persons, in case of banking
business, and 20 in case of any other business, if not registered as a company
under the Companies Act, or under any other law for the time being in force,
becomes an illegal association.
Artificial Person: A company is created with the
sanction of law and is not itself a
human being, it is, therefore, called artificial; and since it is clothed with
certain rights and obligations, it is called a person. A company is accordingly
an artificial person.
Separate Legal Entity: Unlike
partnership, company is distinct from
the persons who constitute it. Section 34(2) says that on registration, the
association of persons becomes a body corporate by the name contained in the
Memorandum. [Saloman v. Saloman & Co.Ltd. (1877)]
Limited Liability: The company being a separate
person, its members are not as such
liable for its debts. Hence, in the case of a company limited by shares, the
liability of members is limited to the nominal value of shares held by them.
Thus, if the shares are fully paid up, their liability will be nil. However,
companies may be formed with unlimited liability of members or members may
guarantee a particular amount. In such cases, liability of the members shall
not be limited to the nominal or face value of the shares held by them. In case
of unlimited liability companies, members shall continue to be liable till each
praise has been paid off. In case of companies limited by guarantee, the
liability of each member shall be determined by the guarantee amount, i.e., he
shall be liable to contribute upto the amount guaranteed by him.
Separate Property: Shareholders are not, in the eyes
of the law, part owners of the
undertaking. In India, this principle of separate property was best laid down
by the Supreme Court in Bacha F.Guzdar V. The Commissioner of Income Tax,
Bombay (Supara). The Supreme Court held that a shareholder is not the part
owner of the company or its property, he is only given certain rights by law,
e.g., to vote or attend meetings, to receive dividends.
Transferability of Shares: Since
business is separate from its members
in a company form of organization, it facilitates the transfer of members’
interests. The shares of a company are transferable in the manner provided in
the Articles of the company (Sec. 82). However, in a private company, certain
restrictions are placed on such transfer of shares but the right to transfer is
not taken away absolutely.
Perpetual Existence: A company
being an artificial person cannot be
incapacitated by illness and it does not have an allotted span of life. The
death, insolvency or retirement of its members leaves the company unaffected.
Members may come and go but the company can go for ever.
Common Seal: A company being an artificial
person is not bestowed with a body
of natural being. Therefore, it has to work through its directors, officers and
other employees. But, it can be held bound by only those documents which bear
its signatures. Common seal is the official signature of a company.
Capacity to sue: Another fall-out of separate
legal entity is that the company, if
aggrieved by some wrong done to it may sue or be sued in its own name.