A company as an entity has several distinct features which together make it a unique organization. The following are the defining characteristics of a company:-
1. Incorporated Association
The group of persons or association has to get themselves registered as a company under the Companies Act 1956(India).The Company comes into existence only when it receives the certificate of incorporation and the date mentioned on the certificate is a conclusive proof that company is incorporated and exist in the eyes of laws.
2. Artificial Legal Person
A company is an artificial legal person created by a process other than natural birth. It is created by law and law alone can dissolve it. It is invisible, intangible, immortal but not fictitious. It is devoid of physical attributes like body, soul etc. of a natural person, but has certain rights and duties at law like a natural person. A company being an artificial legal person can do everything like a natural person except be sent to jail, take an oath, practice a learned profession or marry.
3. Separate Legal Entity
On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, and borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately. Creditors of company are creditors of the company alone and they cannot directly proceed against the members personally.
On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, and borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately. Creditors of company are creditors of the company alone and they cannot directly proceed against the members personally.
The landmark case which established the concept of separate legal entity was of Salomon Vs Salomon & Co. Limited (1897).
The case of Salomon V. Salomon & Co., commonly referred to as the Salomon case, is both the foundational case and precedence for the doctrine of corporate personality and the judicial guide to lifting the corporate veil.
The House of Lords in the Salomon case affirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders. The court did this in relation to what was essentially a one person Company, which is Mr. Salomon.
4. Separate Property
The Company with its separate legal entity has the right to own and transfer the title to property in any way it likes. A member cannot claim to be the owner of the company's property during the existence of the company or in its winding up. A member does not even have an insurable interest in the property of the company.
The Company with its separate legal entity has the right to own and transfer the title to property in any way it likes. A member cannot claim to be the owner of the company's property during the existence of the company or in its winding up. A member does not even have an insurable interest in the property of the company.
5. Perpetual Succession
A company is an artificial person created by law and law alone can dissolve it and bring an end to its life. Membership of a company may keep on changing from time to time but that does not affect life of the company. Death or insolvency of member does not affect the existence of the company. Even if all the members of a company die, the company does not cease to exist.
A company is an artificial person created by law and law alone can dissolve it and bring an end to its life. Membership of a company may keep on changing from time to time but that does not affect life of the company. Death or insolvency of member does not affect the existence of the company. Even if all the members of a company die, the company does not cease to exist.
6. Limited Liability
Mostly the companies are limited liability companies and the liability of its members is limited to the unpaid amount on the shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets. If the company is limited by guarantee, then the liability of the members extends to the amount each one has guaranteed to pay in the event of the winding up of the company. However, the Companies Act also provides formation of a company with unlimited liability, though companies with limited liabilities are most popular.
Mostly the companies are limited liability companies and the liability of its members is limited to the unpaid amount on the shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets. If the company is limited by guarantee, then the liability of the members extends to the amount each one has guaranteed to pay in the event of the winding up of the company. However, the Companies Act also provides formation of a company with unlimited liability, though companies with limited liabilities are most popular.
7. Transferability of Shares
The shares of a public limited company are freely transferable and no permission from the company or other members is required to any member for selling their shares. However, in case of a private company, some restriction on the right to transfer shares is essential in its articles as per Section 3(1) (iii) of the Companies Act, 1956 (India).
The shares of a public limited company are freely transferable and no permission from the company or other members is required to any member for selling their shares. However, in case of a private company, some restriction on the right to transfer shares is essential in its articles as per Section 3(1) (iii) of the Companies Act, 1956 (India).
8. Common Seal
A company being an artificial person does not have any physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal.
A company being an artificial person does not have any physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal.
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