A
company is a voluntary association of persons, recognized by law, having a distinctive
name, a common seal, formed to carry on business for profit, with capital
divisible into transferable shares, limited liability, a corporate body and
perpetual succession. An analysis of this definition will bring out the
distinctive characteristics of a company.
Creature
of law:
A
company is a creation of law, and is sometimes called artificial person. It
exists only in contemplation of law and therefore has no physical shape or
form. Although invisible and intangible, as a legal person, it enjoys almost
all the rights of natural person. It has a right to enter into contracts and
own property. It can sue and can be sued. The legal personality is one of its
distinctive features.
Distinct
legal entity:
Being
a creature of law, a company is a legal entity, something distinct from the
persons who are its members. A shareholder is not liable for the acts of the
company, even though he holds almost all of the shares. Also the shareholders
cannot bind the company by their acts. They are not its agents. As the company
is an artificial creature of law, distinct and separate from its members, a
shareholder can both own its share and be its creditor. The life of the company
is independent of the lives of its members. Even if all the members die, the
company does not come to an end because of their demise.
Limited
liability of members:
The
limited liability is another important feature of a company. A person, by
buying shares in a company, acquires an interest in the company, and is at
liberty to dispose of these shares whenever he likes. If anything goes wrong
with the company, his liability is limited by the nominal amount of the shares
held by him. In other words, while he stands to lose the money he has invested,
he cannot be called upon to pay a paisa out of his private property in order to
help meet the company’s obligations.
Perpetual
Succession
The
incorporation process brings into being a corporate body distinct and separate
from the member who constitute it. The right given to shareholders to transfer
their shares without in any manner affecting the position of the company gives
the company continuity. As a natural consequence of incorporation and
transferability of shares, the company has perpetual succession or interrupted
existence. As we have noted above, the life of the company being independent of
the lives of its member, its life expectancy is not limited to that of various
founders. Members may come and members may go, but the company goes on
uninterrupted (until, of course, wound up according to law). The law creates
the company and the law brings it to an end.
Common
Seal
The
law requires every company to have a seal with its name engraved on it. As the
company has no physical form, it cannot sign its name of a contract. Therefore,
originally all documents and contracts required the affixing of the seal. But
now most of the transactions are signed by the directors who act as its agents.
When it is affixed on nay document, two directors must witness its affixation.
Divorce
between Ownership and Management
The
personality of the company is separate and distinct from those humans who
compose it-the shareholders. Therefore, the shareholders cannot bind the
company by their acts. Since the investors of capital are a heterogeneous group
of people residing far and wide, they cannot manage the affairs of the company.
They leave this task to their representatives-the Board of Directors. This
characteristics of a company militates against the Golden Rule of Capitalism,
which will be discussed later
The
chief implication of the above analytical description of the company mat be
summarized as follows:
1. It is a voluntary association
2. Of mutually agreeing persons, natural
and legal;
3. It is an autonomous legal unit,
4. Distinct from its associating members
5. In name, in the duration of its life,
and its liability to creditors;
6. It exists because the State has by
statute enabled to exist.
In
all respects company organizations differs radically from a partnership
business.
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