Features of Company

Presented By:Jaywanti Takhtani

Company
Literally the word company means a group of persons associated for any common object such as business, charity, sports, and research, etc. Almost every partnership firm having two or more partners may, therefore, style itself a 'company' e.g., 'Rameshwar Dass Jamuna Dass & Company'. But this company is not a company in the legal sense of the word. The word & Company" here simply indicates that there are other persons in their association besides Rameshwar Dass and Jamuna Dass. We shall be using the word company in our text strictly in legal sense, i.e., accompany incorporated or registered under the Companies Act, usually having the world Limited as part of its name e.g., 'The Kohinoor Mill Co. Ltd., Bombay', 'Kelvinator of India Ltd., Delhi',' The Alkali & Chemicals Corporation of India Ltd., Calcutta', etc. It must, however, be noted that although a company can be registered for any object, trading as well as nontrading.

Features of Company
1. Company is a separate legal entity

The most important consequence of incorporation is that a company is regarded as being a legal person in its own right. This means that a company has a legal identity of its own which is quite separate from the legal identity of its owners. If a wrong is done to a company, it is the company, and not its owners, which has the right to sue. Conversely, if a company injures a person that person can sue the company but cannot sue the owners. This well-established principle was laid down in the following case.

Salomon v Salomon & Co Ltd [1897] (House of Lords)

Salomon v Salomon & Co Ltd [1897] (House of Lords)

For several years Mr. Salomon had carried on a business as a boot repairer and manufacturer. He formed a limited company and sold his business to the company for 39,000. The company paid the purchase price in three ways, as follows: rst, by issuing Salomon with 20,000 1 shares; second, by regarding him as having loaned the company 10,000; and third by making up the balance in cash. Salomon took all of the companys assets as security for the loan which had been made to him. Unsecured creditors lent the company a further 8,000. Shortly after its incorporation, the company got into nancial difficulty and was wound up. The assets of the company amounted to about 6,000. Creditors who have been given security for their loan are entitled to be repaid before unsecured creditors. Salomon therefore took all of the 6,000. The unsecured creditors claimed that Salomon should repay their loans personally because he was the same person as the company. Held The company had been formed properly and without any fraud. Although Salomon owned all but seven of the issued shares, he was one person and the company was another. Salomon therefore had no more obligation to pay the companys debts than he had to pay his next-door neighbor's debts. Salomons case is regarded as one of the most important in English law, mainly because of the protection which it offers to the owners of limited companies.

2.Limited liability

The liability of the members for the debts of the company is limited to the amount unpaid on their shares howsoever heavy losses the company might have suffered. For example, if a shareholder buys 100 shares of Rs 10 each and pays Rs 5 on each share, he has paid up Rs 500 and can be made to pay another Rs 500, but he cannot be made to pay more than Rs 1,000 in all. No shareholder can be called upon to pay more than the nominal or face value of shares held by him, in case of a company with limited liability. Thus, by virtue of this characteristic the personal property of the shareholder cannot be seized for the debts of the company, if he holds a fully paid-up share.

3. Separate Property

It is also feature of company that property of company is different from its members. It can purchase or sell property without the permission of shareholders. In other words, assets of company are not the assets of members like partnership.

4.Incorporated association :

A company must necessarily be incorporated or registered under the prevalent Companies Act. Registration creates a joint stock company and it is compulsory for all associations or partnerships, having a membership of more than ten in banking and more than twenty in any other trading activity, formed for carrying on a business with the object of earning profits.

5.Artificial Legal Person:

A company is an artificial person created by law to achieve the objectives for which it is formed. A company exists only in the contemplation of law. It is artificial person in the sense that it is created by a process other than natural birth and does not possess the physical attributes of a natural person. It is invisible, intangible, immortal and exists only in the eyes of law. It has no body, no soul and no conscience; it is regarded as an artificial person.

6. Perpetual existence :
A company is a stable form of business organization. Its life does not depend upon the death, insolvency or retirement of any or all shareholder(s) or director(s). Law creates it and law alone can dissolve it. Members may come and go but the company can go on for ever. For eg. :-"During the war all the members of one private company, while in general meeting, were killed by a bomb. But the company survived; not even a hydrogen bomb could have destroyed it."9 The company may be compared with a flowing river where the water keeps on changing continuously, still the identity of the river remains the same, Thus, a company has a perpetual existence, irrespective of changes in its membership.

7. Common Seal
As was pointed out earlier, a company being an artificial person has no body similar to natural person and as such it cannot sign documents for itself. It acts through natural persons who are called its directors. But having a legal personality, it can be found by only those documents which bear its signature. Therefore, the law has provided for the use of a common seal, with the name of the company engraved on it, as a substitute for its signature. Any document bearing the gammon seal of the company will be legally-binding on the company.

8. Transferability of shares :
The shares of a public company are freely transferable and members can dispose of their shares whenever they like without seeking any permission from the company or the other members. In a private company, however, some restriction on the right to transfer is essential in its articles as per Sec. 3 (1) (iii) of the Act.

9.Separation of ownership and management

Share holders are the owners of the company. Companys share holders are widely scattered. It is physically impossible for all of them to take patty in the management of the company. Being a share holder of a company does not give him the right to manage the affairs of a company. The management is vested with the directors, who are the legal representatives of the shareholders. Thus owners of the company have no direct control over the management of the company.

10.Object clause of Business:

A company can conduct only such business as stated in its first Memorandum of Association. In order to bring any charges in its activity, the object clause must be changed.

11.Publication of Accounts:
A joint stock company is required to file annual audited statements with the Registrar of Companies at the end of each financial year. The annual statements are available for inspection in the office of the Registrar.

Thank you