What Is A Company? Describe The Features Of A Company.

The word ‘Company’ is derived from the Latin word ‘Com means with or together’ and ‘Panis means bread’. It originally remarked to an association of person who took their meals along. The word ‘Company’ has no strictly, technical or legal meaning. It’s “an complex, centralized, economic body structure run by professional managers who rent capital from the investors. The thought of ‘company’ or ‘corporation’ in business isn’t new however was proscribed in 4th century B.C. itself thought out ‘Arthashastra’ days. Its shape got revamped over a amount of your time in step with the wants of business dynamics. In a common law section-2(20) company is a “legal person” or “legal entity” separate from, and capable of  surviving beyond the lives of, its members.


In the legal sense, a company is an association of both natural and artificial person (and is incorporated under the existing law of a country).

In the terms of the companies act, 2013 (Act no. 18 of 2013) a “company” means that a corporation incorporated underneath this act or underneath any previous company law (section–2(20)).

In the words of lord Justice Lindley has defined a company as “an Association of many persons who contribute money or money’s worth to common stock and employ it in some trade or business and who share the profit and loss arising therefrom. The common stock therefore contributed is denoted in money and is that the capital of the company”.

According to the law of USA has outlined a “company may be an organization, partnership, association, joint stock company, fund or organized cluster of person whether or not incorporated and (in an official capacity) any receiver, trustee in bankruptcy or similar official or liquidating agent, for any of the foregoing”.

According to the law of India has outlined company as a “registered association that is an artificial legal person, having an independent legal, entity with a perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying restricted liability”.

Companies act, 2013 extent of application (section – 1(4)) the provisions of the act are to apply to the following companies and bodies corporate:-

  1. Companies incorporated under this act or under any previous company law.
  2. Insurance companies – this application is only to the extent to which the provision of the act are not inconsistent with those of the Insurance act, 1938 and the Insurance Regulatory and Development Authority act 1999.
  3. Banking companies – subject to the provision of the banking Regulatory Act, 1949; banking companies means a company as defined in section 5(c), Banking Regulation Act.
  4. Companies engaged in generation or supply of electricity, to the extent to which the provision of the act are not inconsistent with those of the electricity act, 2003.
  5. Any other company governed by any special act except to the extent the said provisions are inconsistent with the provisions of such special act; and
  6. Any such body corporate incorporated by any act, as the central government may be notification specify for such application subject to such exception, modifications or adaptations as may be specified in the notification.

The Features of A company

1. Independent corporate existing (section-9).

The outstanding feature of a corporation is its independent corporate existence. A corporation is an artificial person created by law. It’s not a human being however it acts through people in general. It’s thought about as a legal person which might enter into contracts, possess properties in its own name, sue and may be sued by others etc. It’s referred to as an artificial person since it is invisible, intangible existing solely within the contemplation of law. It’s capable of enjoying rights and being subject to duties.

2. Members of the company.

According to the companies act, 2013, the minimum range of members needed to begin a public Ltd. company is 7 whereas for a private limited company, it is two. The maximum range of members for a public Ltd. company may be unlimited where it’s restricted to 200 for a private Ltd. company.

3. Limited liability.

The privilege of limited liability for business debts in one in all the principal feature of doing business underneath the company form of organisation. The corporate, being a separate person is that the owner of its assets and sure by The liabilities. In other words a shareholders is vulnerable to pay the balance if any, due on the shares held by him, when called upon to pay and nothing more, even if the liabilities of the corporate far exceed its assets. This implies that the liability of a member is limited.

4. Articles of regulation.

The two main documents of the corporation is memorandum of association wherever the main objects of the companies are specified and other documents is article of association in which ways and direction are suggested to get those objectives. The direction to managers can not go beyond these documents.

5. Perpetual succession.

An incorporated company never dies. It is an entity with perpetual succession. Perpetual succession,  therefore, means that the membership of a company may keep changing from time to time but that doesn’t affect the company continuity in the like manner as the river Thames is still the same river, through the parts which compose it are changing every instant. The death or insolvency of individual member does not, in any way, affect the corporate existence of the companies. “Members could come and go however the corporate will proceed forever”.

6. Separate property.

In the words of Walton J. simple truism – the property of the company is not the property of the shareholder; it is the property of the company. A company, being a legal person, is capable of owing enjoying and disposition of property in its own name. Properties of a companies including licenses, permits, concessions and leases are not property of shareholders, only of company. Transfer of shares, change of management, company becoming subsidiary of another company, rights belonging to the company remain as they were before.

7. Risk bearing.

Within the case of an organization the business risk is unfold terribly wide among the various shareholders. Further, the liability of these shareholders is limited to the extent of the issue price of the shares subscribed by them.

8. Transferable of shares.

Once joint stock corporation were established the great object was that their shares ought to be capable of being simply transferred. Consequently the companies act in section-44 declares – “The shares or debentures or other interest of any members in a company shall be movable property, transferable in the manner provided by the articles of the companies”. A member may sell his share in the open market and realize the money invested by him. This provides liquidity to a member (as he can freely sell his share) and ensures stability to the company ( as the member is not withdrawing his money from the company). The stock exchange provide adequate facilities for the sale and purchase of shares.

9. Common seal.

Upon incorporation, a corporation become a legal entity with perpetual succession and a common seal. Since the corporate has no physical existence, it should act through its agents should be below the seal of the corporate. The common seal acts as the official signatures of a companies. The name of the corporation should be engraved on its common seal. A rubber stamp doesn’t serve the aim. A document not bearing a common seal of the company. When the resolution passed by the board, for its execution requires the common seal to be affixed is not authentic and shall have no legal force behind it.

10. Capacity to sue or be sued.

A company, being a body corporate, will sue and be sued in its own name. Criminal complaint may be stuffed by an organization however it should be represented by a natural person. It’s not necessary that the same person ought to act as a representative through out. The complaint by an organization is prone to be dismissed because of the absence of the representative in the same way in which an individual complaint is liable to be dismissed for absence of the complaint. The court of appeal held that a companies can complain under the broadcasting act, 1996 about unwarranted infringement of its privacy. The court said that a company may have activities of a private nature which required protection from unwarranted intrusion.

11. Contractual rights.

A company, being a legal entity totally different from its members, will enter into contracts for the conduct of the business in its own name. A shareholders can not enforce a contract made by his company; he is neither a party to the contract nor to be entitled to the benefit derived from of it, as an organization isn’t a trustee for its shareholders. Similarly, a member of a company can not sue in respect of torts committed against the companies; nor can he be sued for torts committed by the companies. Therefore, the company as a legal person can take action to enforce its legal right or be sued for breach of its legal duties. Its right and duties are distinct from those of its constituent member.

12. Limitation of action.

A company can not go beyond the power stated in its memorandum of association. The memorandum of association of the company regulates the powers and fixes the objects of the company and provides the edifice upon which the entire structure of the company rest. In order to enable it to carry out its actions with out such restrictions limitation in most cases, sufficient power are granted in the memorandum of association but once the powers have been laid down, it can not go beyond such powers unless the memorandum of association itself altered prior to doing so.

13. Separate management (Professional).

As already noted, the members could derive profit while not being burdened with the management of the corporate. They do not have effective and intimate control over its working and they elect their representative as directors on the board of directors of the company to conduct corporate functions through managerial personnel employed by them. In other words, the company is administered and managed by its managerial personnel.

14. Voluntary association for profit.

A company is a voluntary association for profit. It is formed for the accomplishment of some stated goals and what so ever profit is gained is divided among its shareholders or saved for the future expansion of the company. Only a section 8 of company can be formed with no profit motive.

15. Termination of existence.

A company, being an artificial juridical person, doesn’t die a natural death. It is created by law, carries on its affairs according to law, carries on its affairs throughout its life and ultimately is effaced by law generally, the existence of a company is terminated by means of winding up. However to avoid winding up some time companies adopted strategies like reorganization, reconstruction and amalgamation.

16. Finance.

The company is the only medium of organizing business which is given the privilege of raising capital by public subscription either by way of shares or debentures. The facility of borrowings and giving security by way of a floating charges is also an exclusive privilege of companies capital in many cases is the lifeblood of a concern, and it is always a great misfortunes where development of a business is arrested or restricted by want of capital.

17. Prescribed mode of winding up.

It is the another features of a company that is winding up is also directed by law. “Company is born under rules and dies under rules”. Like its inception its winding up follows a complete and set procedure as prescribed by law. So, these were some of the major characteristic of the company by which you might have followed the exact nature of this form of business organization.

This Article is Authored by Deepanshu Ashava, 4th Year B.A.LL.B Student at IMS Law College, Noida. 

Law Corner

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