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Definition and Features

A company is a voluntary association of persons formed under law for a common commercial purpose. It has a separate legal identity from its members. Key characteristics of a company include perpetual succession, members having limited liability, transferable shares, and management by a representative board of directors. A company is created by law as an artificial legal person to undertake business for profit subject to limitations defined in its charter.

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520 views4 pages

Definition and Features

A company is a voluntary association of persons formed under law for a common commercial purpose. It has a separate legal identity from its members. Key characteristics of a company include perpetual succession, members having limited liability, transferable shares, and management by a representative board of directors. A company is created by law as an artificial legal person to undertake business for profit subject to limitations defined in its charter.

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nayak
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Company: Meaning,

Characteristics
Meaning and Definition of Company:
Literary meaning of the word ‘company’ is an association of persons
formed for common object. A company is a voluntary association of
persons recognised by law, having a distinctive name and common
seal, formed to carry on business for profit, with capital divisible
into transferable shares, limited liability, a corporate body and
perpetual succession.

Definition of Company:

The main definition of a company are given below:

1. According to Justice James, “A company is an association of


persons united for a common object.”

2. According to Lord Lindley, “By a ‘company’ is meant an


association of many persons who contribute money or money’s
worth to a common stock and employ it for some common purpose.
The common stock so contributed is denoted in money and is the
capital of the company. The persons who contribute it or to whom it
belongs are members. The proportion of capital to which each
partner is entitled is his share.”

3. According to Kimball and Kimball, “A corporation is by nature an


artificial person created or authorised by the legal stature for some
specific purpose.”

4. According to Prof. Haney, “A company is an artificial person


created by law having a separate entity with a perpetual succession
and a common seal.”

5. According to James Stephenson, “A company is an association of


any persons who contribute money or money’s worth to a common
stock and employs it in some trade or business, and who share the
profit and loss (as the case may be) arising there from.”
6. According to Indian Companies Act, “Company means a
company formed and registered under this act or an existing
company. ‘Existing Company’ means a company formed and
registered under any of the previous Company Laws.”
Characteristics of Company:
On the basis of definitions studied above, the following are
the characteristics of a company:

1. An Artificial Person Created by Law:

A company is a creation of law, and is, sometimes called an artificial


person. It does not take birth like natural person but comes into
existence through law. But a company enjoys all the rights of a
natural person. It has right to enter into contracts and own
property. It can sue other and can be sued. But it is an artificial
person, so it cannot take oath, cannot be presented in court and it
cannot be divorced or married.

2. Separate Legal Entity:

A company is an artificial person and has a legal entity quite distinct


from its members. Being separate legal entity, it bears its own name
and acts under a corporate name; it has a seal of its own; its assets
are separate and distinct from those of its members.

Its members are its owners but they can be its creditors
simultaneously as it has separate legal entity. A shareholder cannot
be held liable for the acts of the company even if he holds virtually
the entire share capital. The shareholders are not agents of the
company and so they cannot bind it by their acts.

3. Perpetual Succession:

The life of company is not related with the life of members. Law
creates the company and dissolve it. The death, insolvency or
transfer of shares of members does not, in any way, affect the
existence of a company.
According to Tennyson-

“For men may come, men may go,

But I go on forever.”

In the case of company it may be said that members may come and
members may go but the company goes on. It is a legal person
having come into being by law and only law can bring its end and
none else.

4. Common Seal:

On incorporation a company becomes legal entity with perpetual


succession and a common seal. The common seal of the company is
of great importance. It acts as the official signature of the company.
As the company has no physical form, it cannot sign its name on a
contract. The name of the company must be engraved on the
common seal. A document not bearing the common seal of the
company is not authentic and has no legal importance.

5. Limited Liability:

The limited liability is another important feature of the company. If


anything goes wrong with the company his risk is only to the extent
of the amount of his shares and nothing more. If some amount is
uncalled upon a share, he is liable to pay it and not beyond that.

The creditors of a company cannot get their claims satisfied beyond


the assets of the company. The liability of members of a company
‘limited by guarantee’ is limited to the amount of guarantee.

6. Transferability of Shares:

A shareholder can transfer his shares to any person without the


consent of other members. Under Articles of Association, a
company can put certain restriction on the transfer of shares but it
cannot altogether stop it. Private company can put more restrictions
on the transferability of shares.
7. Limitation of Work:

The field of work of a company is fixed by its charter. The


Memorandum of Association. A company cannot do anything
beyond the powers defined in it. Its action is, therefore, limited. In
order to do the work beyond the memorandum of association, there
is a need for its alteration.

8. Voluntary Association for Profits:

A company is a voluntary association of persons to earn profits. It is


formed for the accomplishment of some public good and
whatsoever profit is divided among its shareholders. A company
cannot be formed to carry on an activity against the public policy
and having no profit motive.

9. Representative Management:

The shareholders of company are widely scattered. It is not possible


for all the shareholders to take part in the management. They leave
their task to the representatives the Board of Directors and the
company is managed by Board of Directors.

10. Termination of Existence:

A company is created by law, carries on its affairs according to law


and ultimately is affected by law. Generally, the existence of a
company is terminated by means of winding up.

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