Brief note on company and its characteristics

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The word company ordinarily means an association of a number of individuals formed for some common object. When such an association is registered under the Companies Act, it becomes an artificial person with perpetual succession and a common seal. According to section 3 (1) (i) of the companies Act, a company means, “A company formed and registered under this Act or a existing company.” An existing company means a company formed and registered under any of the previous companies law.”

The definition given in the companies Act is not exhaustive and does not reveal the true characteristics of a company. Lord Justice Lindley has given a comprehensive definition of a company. According to him, a company is, “An association of many person who contribute money or money’s worth to a common stock and employed for a common purpose. The common stock so contributed is denoted in money and is 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. Shares are always transferable although the right to transfer them is often more or less restricted.”

Characteristic of a Company

On being incorporated, a company enjoys certain advantages over other associations. Such advantages are termed as the characteristic of a company and are discussed as under.

1. Perpetual succession.

Unlike a nature person a company never dies. It is a entity with a perpetual succession. Its existence is not affected by the death, lunacy and insolvency of its members. A company is an immortal person. Member may come and members may go, but the company continues its operation unless it is wound up. The existence of the company is not affected by the death of all the shareholders even. Thus, where all the members of a company were killed by a bomb, company was deemed to survive.

2. Limited Liability.

Limited liability of members is another important characteristic of a company. It is the reason why a great many people invest their money in limited companies. Liability of a member is limited to the face value of shares subscribed to by him. If the share are the fully paid up, his liability is nil. Unlike a partnership concern, where the liability of each partner is unlimited. In an incorporated company the members cannot be asked to pay anything more than what is due on the shares held by them. It may be noted that it is only the members’ liability for the company’s debs which is limited. The company itself, the artificial legal person, is always fully liable and so has unlimited liability.

3. Common seal.

As a company is an artificial person it cannot sign its name on a contact. So it functions with the help of a seal. Common seal is used as a substitute for its signature. Every company must have a sale with its name engraved on it. Anything done under an agreement between the company and the third party requires recognition of the company in the form of an official seal unless exempted by the Act.

5. Transferability of shares.

The shares of a company are freely transferable and can be sold or purchased in the share market. This is one of the reasons why people prefer to form companies than partnership. Section 82 of the companies Act recognizes the right of transferability of shares and provides that, “the share or other interest of any member shall be movable property transferable in the manner provided for in the articles of the company.”

6. Capacity to sue and be sued.

On incorporation a company acquires a separate and independent legal personality. As a legal person it can sue be sued in its own name.


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