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Characteristics of Company

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Everything you need to know about the characteristics of company.

A company is a volun­tary association of persons, recognised 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 existing company means a company formed and registered under any of the former Companies Acts. It gets a separate entity apart from the members constituting it. It can buy or sell both movable and immovable property in its name. It can borrow or lend money. It can sue or be sued like any person.

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The important characteristics of a company are as follows:-

1. Registration 2. Legal Entity 3. Perpetual Succession 4. Transferability of Shares 5. Limited Liability of Members 6. Capital

7. Common Seal 8. Board 9. Buy-Back of Shares  10. Separation of Ownership and Management 11. Management and Control 12. Taxation

13. Incorporated Association of Persons 14. Risk-Bearing 15. Articles of Regulations 16. Prescribed Mode of Winding Up.


Top 16 Characteristics of Company – Legal Entity, Perpetual Succession, Limited Liability, Common Seal & a Few Others

Characteristics of Company – 10 Important Characteristics: Legal Person, Artificial Person, Continued Existence, Limited Liability, Freely Transferable and a Few Others

A company is an association of persons who contribute money or money’s worth to carry on some agreed activity for their economic gain. The money contributed by them forms the capital of the company. It is an artificial person created by law. Section 3 of the Indian Companies Act, 1956 defines a Company as “Company formed and registered under this Act or an existing company.”

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An existing company means a company formed and registered under any of the former Companies Acts. It gets a separate entity apart from the members constituting it. It can buy or sell both movable and immovable property in its name. It can borrow or lend money. It can sue or be sued like any person.

Justice Lindley defines a company as “A company is an association of many persons who contribute money or money’s worth to a common stock and employ it for a 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 most important characteristics of a company:

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1. Legal person – It is created by law. It is considered as a person in the eyes of law.

2. Artificial person – It has no body and mind of its own. It can act only through other persons elected for the purpose.

3. Continued existence – A company has a life of its own distinct from the life of its members. So the death of a member will not affect the life of the company.

4. Limited liability – The liability of the members are limited to the extent of the face value of the shares held by them.

5. Freely transferable – Shares of a company are freely transferred except in case of a private company.

6. Can buy and sell assets – A company at its own discretion can buy or sell any asset.

7. Can sue and be sued – A company like any other person can sue a third party and be sued.

8. Separation of ownership and management – A company is managed through a board of directors elected by its members. A member has no right to participate in the management of its day-to-day affairs.

9. Common seal – Every company should have a common seal of its own. It is similar to the signature of a natural person.

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10. Dissolution – The company can be dissolved only by which creates it.


Characteristics of Company – 11 Essential Characteristics

The essential characteristics of a company may be listed as under:

1. Registration:

A company comes into existence on registration under the Companies Act. It is an incorporated association. A joint stock company may be incorporated as a private or public company or one person company.

2. Legal Entity:

A company formed and registered under the Companies Act is a legal entity separate and distinct from its members. It may contract, sue and be sued in its own name. It has no physical body and exists only in the eyes of law.

3. Perpetual Succession:

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As the life of the company is not affected by changes in individual shareholders, it is said to have perpetual succession (i.e., continuity of life). Even the death or insolvency of a member (or even all members) does not affect the corporate existence of the company. Members may come, members may go, but the company continues its operations unless it is wound up.

4. Transferability of Shares:

Shareholders have the right to transfer their shares. The shares of a company are freely transferable and can be sold or purchased in the stock exchange. However, in the case of a private company, certain restrictions are placed on the rights of a member to transfer his shares.

5. Limited Liability of Members:

It means that the liability of the shareholders is limited upto the value of the shares held by them. Once the shareholders have paid the full nominal value of the shares they have agreed to take, they cannot be held responsible for any of the debts of the company which cannot be met from company’s assets.

6. A Company is Capable of Owning, Using and Disposing of Assets in its Own Name:

The property of the company is not considered as the joint property of the shareholders although the same has been purchased from the capital contributed by the shareholders.

7. Common Seal:

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A company, being an artificial person, cannot sign its name on any document. So a company functions with the help of a Common Seal which is the official signature of a company.

However, the Companies (Amendment) Act, 2015 has made the common seal optional by omitting the words and a common seal from Section 9 so as to provide an alternative mode of authorisation for Companies who opt for not to have a common seal; the authorisation shall be made by two directors or by a director and the Company Secretary wherever the company has appointed a Company Secretary.

A document not bearing a common seal or authenticated as required, is not authentic and as such is not binding on the company.

8. Board:

The management of the company is delegated to a board, called board of directors.

9. Regulation:

The affairs of a company are regulated by the Companies Act.

10. Buy-Back of Shares:

Section 68 of the Companies Act 2013 permits a limited company to buy back its own shares under certain circumstances.

11. Not a Citizen:

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A company is not a citizen and therefore cannot enjoy the fundamental rights like right to vote which are available to citizens only.


Characteristics of Company: Notes

Sole proprietorship and partnership forms of business organisations could not meet the growing demands of a very big business, because of their limitations such as – limited capital, limited managerial ability, unlimited liability and other drawbacks. Therefore, a Company form of business organisation came into existence to do away with the defects of sole proprietorship and partnership forms of business organisations.

A Company is a voluntary association of persons formed through the process of law, for the purpose of carrying on some business.

Lord Justice Lindley defines a Company as follows, “It is an association of persons who contribute money or money’s worth to a common stock and employs it for some common purpose.”

“A Company is an artificial person created by law, having separate entity with a perpetual succession and a common seal”. – Prof. Haney.

Following are the essential characteristics of a company:

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1. Separate Legal Entity – A Company is a legal person and its entity is quite distinct and separate from its members. It can purchase and sell the properties in its own name, can open bank account in its own name and can enter into contracts. Since a Company has a legal personality distinct from that of its members, a creditor of such a Company can sue only the Company for his debts and not any of its members.

2. Perpetual Existence – The existence of a Company is not affected by the retirement, death, lunacy or insolvency of its members. Shareholders may come and Shareholders may go but the Company goes on forever, unless wound up according to Companies Act.

3. Limited Liability – The liability of the shareholder of a Company is limited to the unpaid value of his shares. For example, if the face value of a share in a Company is Rs. 10 and a shareholder has already paid Rs. 7 per share, he can be called upon to pay not more than Rs. 3 per share.

4. Common Seal – Since the Company has no physical existence, it must act through its agents, called directors. All documents prepared by the directors must bear the seal of the Company. The common seal acts as the official signature of the Company.

5. Transferability of Shares – The Capital of the Company is divided into parts, called shares. These shares are freely transferable subject to certain conditions.

6. Separation of Management from Ownership – Shareholders are the true owners of a Company, but usually, the number of shareholders is quite large, and as such it is neither possible nor desirable for each member to take part in the day-to-day management of the Company. Therefore, the Company is managed by a ‘Board of Directors’ elected by the shareholders.


Characteristics of a Company – 8 Distinctive Characteristics: Separate Legal Entity, Artificial Legal Person, Perpetual Succession, Limited Liability and a Few Others

The distinctive characteristics of a company are as follows:

Characteristic # 1. Separate Legal Entity:

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A company has an existence entirely distinct from and independent of its members. It can own property and enter into contracts in its own name. It can sue and be sued in its own name. There can be contracts and suits between a company and the individual members who compose it. The assets and liabilities of the company are not the assets and liabilities of the individual members and vice versa. No member can directly claim any ownership right in the assets of the company.

Characteristic # 2. Artificial Legal Person:

A company is an artificial person created by law and existing only in contemplation of law. It is intangible and invisible having no body and no soul. It is an artificial person because it does not come into existence through natural birth and it does not possess the physical attributes of a natural person.

Like a natural person, it has rights and obligations in terms of law. But it cannot do those acts which only a natural person can do, e.g., taking an oath in person, enjoying married life, going to jail, practising profession, etc. A company is not a citizen and it enjoys no franchise or other fundamental rights.

Characteristic # 3. Perpetual Succession:

A company enjoys continuous or uninterrupted existence and its life is not affected by the death, insolvency, lunacy, etc., of its members or directors. Members may come and go but the company survives so long as it is not wound up. Being a creature of law, a company can be dissolved only through the legal process of winding up. It is like a river which retains its identity though the parts composing it continuously change.

Characteristic # 4. Limited Liability:

Liability of the members of a limited company is limited to the value of the shares subscribed to or to the amount of a guarantee given by them. Unlimited companies are an exception rather than the general rule. In a limited company, members cannot be asked to pay anything more than what is due or unpaid on the shares held by them even if the assets of the company are insufficient to satisfy in full the claims of its creditors.

Characteristic # 5. Common Seal:

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A company being an artificial person cannot sign for itself. Therefore, the law provides for the use of common seal as a substitute for its signature. The common seal with the name of the company engraved on it serves as a token of the company’s approval of documents. Any document bearing the common seal of the company and duly witnessed (signed) by at least two directors is legally binding on the company.

Characteristic # 6. Transferability of Shares:

The shares of a public limited company are freely transferable. They can be purchased and sold through the stock exchange. Every member is free to transfer his shares to anyone without the consent of other members.

Characteristic # 7. Separation of Ownership and Management:

The number of members in a public company is generally very large so that all of them or most of them cannot take active part in the day-to­day management of the company. Therefore, they elect their representatives, known as directors, to manage the company on their behalf. Representative control is thus an important feature of a company.

Characteristic # 8. Incorporated Association of Persons:

A company is an incorporated or registered association of persons. One person cannot constitute a company under the law. In a public company, at least seven persons and in a private company at least two persons are required.


Characteristics of a Company – What are the Main Characteristics of a Company?

The company form of organisation is the most popular for undertaking large-scale business.

A company, also known as joint stock company, is defined as follows:

A company is a person, artificial, invisible, intangible and existing only in the eyes of the law. -Justice Marshal

A joint stock company is a voluntary organisation of individuals for profits, having a capital divided into transferable shares, the ownership of which is the condition of membership. -L.H. Haney

The main characteristics of a company are as follows:

1. Artificial Person:

A company is an artificial person created by law. In India, this law is in the form of the Companies Act, 1956. After registration of the company, it gets the status of an artificial person and exists independent of its shareholders, also known as members of the company. It has all legal rights in matters of conducting its activities like a real person.

2. Separate Legal Entity:

A company has a separate legal entity. Thus, it can hold property in its name, enter into an agreement with others, can sue others and can be sued by others.

3. Perpetual Succession:

A company has perpetual succession meaning that it can exist on a continuous basis irrespective of a change in the pattern of shareholders.

4. Common Seal:

Since a company is an artificial person, it is required to conduct its business through others (Directors). The company has a common seal which is affixed on important documents as a token of the company’s approval.

5. Formation:

A company is formed under the provisions of the relevant Act after completing certain formalities. When these formalities are completed and the Registrar of the Companies is satisfied, he issues a Certificate of Incorporation. With the issue of this certificate, the company comes into existence.

6. Limited Liability:

Liability of shareholders of a company is limited to the extent of the value of shares subscribed by them. If these shares are not fully paid, liability of the shareholders is limited to the extent of value of the unpaid amount of shares.

7. Transferability of Shares:

Shares of companies are transferable freely except private companies. However, the companies may put restrictions on transfer of shares in specific situations as provided in the Companies Act, 1956. For example, if the shares are issued to employees or any other group of persons on a preferential basis, there may be a restriction of time during which the shares may not be transferred.

8. Management and Control:

The ultimate authority of management and control of a company lies with its shareholders. However, their number is usually so large (in many cases more than a lakh) that they cannot participate directly in the manage­ment process. Therefore, they elect directors who manage the affairs of the company on behalf of the shareholders.

9. Risk-Bearing:

In the case of a company, the business risk is spread very widely among the numerous shareholders. Further, the liability of these shareholders is limited to the extent of the issue price of the shares subscribed by them.


Characteristics of a Company – Top 8 Characteristics of a Company: Artificial Person, Limited Liability, Perpetual Existence, Transferability of Shares and a Few Others

We may spell out the following characteristics of a company:

(i) Artificial Person:

A company is created with the sanction of law by the shareholders but is not itself a human being. It is, therefore, called an artificial and since it is clothed with certain rights and obligations, it is called a person. Subsequently a company is accordingly an artificial person. It is independent and distinct from its members.

The decision of the House of Lands in Salomon vs Salomon and Co. Ltd. is a well-known authority of this principle where it was argued their company is a separate legal personality and altogether different from its members. A company can sue and be sued in its corporate name.

(ii) Limited Liability:

Limited of liability is another major advantage of incorporation. The company, being a separate entity, leading its own business life, the members are not liable for its debts. Each member is bound to pay the nominal value of the shares held by him and his liability ends there if the liability of that member is limited by shares which are a usual phenomenon.

(iii) Perpetual Existence/Succession:

The life of the company is endless. Its shareholders may die or they may transfer their shares or there may be new shareholders but all these things do not disturb the existence of the company, it goes for ever. “An incorporated company never dies”. In the words of Professor Gower “Members may come and go but companies remains forever”, not even a hydrogen bomb could destroy it. Thus, the death or insolvency of members does not affect the continued existence of the company. The company remains the same entity.

(iv) Transferability of Shares:

The shares should be capable of being easily transferred was the great object when joint stock companies were established. The share of the member shall be a transferable property in the manner provided by the articles of association. The unique advantage of this is that a member may sell his shares in the open market and get back his money, without affecting the capital structure of the company.

(v) Capital:

Every company has authorized share capital which is divided into small shares. The owners of the shares are known as shareholders.

(vi) Common Seal:

A company being an artificial person has to work through its directors, officers and officials. But it can be held bound by only those documents which bear its signatures. Common seal is the official signature of a company. When a company has any business or transaction in a place outside India, an exact reproduction of the common seal may be kept there.

For such use, there must be power in the articles of association. A person must be properly authorized to use the seal, which shall sign his name, and also put the name of the place and the fact that he has been authorized to do so by the specified resolution.

(vii) Articles of Regulations:

There are two main documents of the company. One of them is memorandum of association where the main objects of the company are specified and other document is articles of association in which ways and directions are suggested to get those objectives. The directions to managers cannot go beyond these documents.

(viii) Prescribed Mode of Winding Up:

It is the another feature of the company that its winding up is also directed by law. “Company is born under rules and dies under rules”. Like its inception, its winding up follow a complete and set procedure as prescribed by law.

So, these were some of the major characteristics of the company by which you might have followed the exact nature of this form of business organizations.


Characteristics of a Company: 6 Features

A company is a volun­tary association of persons, recognised 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.

Characteristic # 1. 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.

Characteristic # 2. 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 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 the law, distinct and separate from its members, a shareholder can both own its shares 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.

Characteristic # 3. 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.

Characteristic # 4. Perpetual Succession:

The incorporation process brings into being a corporate body distinct and separate from the members who constitute it. The right given to the 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 uninterrupted existence.

The life of the company being independent of the lives of its members, its life expectancy is not limited to that of the 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.

Characteristic # 5. 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 on 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 any document, two directors must witness its affixation.

Characteristic # 6. 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.

The chief implications of the above analytical description of the company may be summed up as follows:

i. It is a voluntary association,

ii. Of mutually agreeing persons, natural or legal,

iii. It is an autonomous legal unit,

iv. Distinct from its associating members,

v. In name, in the duration of its life, and its liability to creditors,

vi. It exists because the State has by statute enabled it to exist.

In all these respects company organisation differs radically from a partnership business.


Characteristics of a CompanyPrincipal and Distinguishing Features of a Company

The principal and distinguishing features of a company organisation may be detailed as follows:

1. Formation:

A company is an artificial legal person created by process of law which makes it an entity separate and distinct from its members that constitute it. Since corporate life and form cannot exist without the permission of the State, a company, having corporate personality, can be brought into being by following certain legal formalities. The formation of a company passes through two stages – Promotion and Incorporation.

2. Financing:

Where the capital needs are not vast and it is desired to preserve secrecy and family character of the business, but enjoy the benefit of limited liability, a private limited company is formed. A private company raises its capital by private arrangement from friends and relatives. It cannot invite the general public to buy its shares. Where huge capital is required for production and distribution of what has been produced, a public limited company is formed and the general public is invited to supply the capital.

For this purpose, a prospectus has to be issued inviting the general public to take up the shares of the company. This is an elaborate document required to disclose detailed information, the preparation and issue of which involves good deal of expenditure. But it enables the company to collect funds from far and wide and in amount which is far beyond the powers of partnerships.

3. Control:

In law and theory, the members of the company, who contribute the share capital, have the ultimate control of company’s affairs. Every company is required to hold an annual general meeting at which the shareholders are supposed to exercise their power of control. In practice, the control lies with the Board of Directors or the ‘inside group’. But the Board is required to publish and present to the shareholders at the annual general meeting the accounts and the results of the working of the company.

4. Management:

Since the risk-bearing shareholders are widely scattered, and do not, in most cases, have the time, or knowledge of business, especially where they are engaged in their own occupations and professions, the management of the company has to be entrusted to the Board of Directors. The Companies Act also states that the Board is entitled to exercise all such powers as the company is authorised to exercise in general meeting.

Thus, the directors are the exclusive representatives of the company, and are charged with the administration of its internal affairs and the management and use of its assets. The shareholders are the risk-bearers, but the directors are the risk-takers.

5. Duration:

A company comes into being by a process other than natural birth, and so possesses the property of immortality. Its life is not measured by the lives of its members. It continues to exist even if all the members constituting it die or are adjudicated insolvent. This capacity of perpetual succession ensures its continuity.

Members may come and members may go, but the company goes on undisturbed until dissolved by a process of law. Also, a shareholder cannot get back his money from the company and so be a cause of its disintegration. In all these respects the company is superior to partnership or sole proprietorship.

6. Taxation:

In a large number of situations the tax burdens on companies are heavier than on partnerships. For example a company’s profits are taxed at a flat rate as against slab rates in case of un-incorporated associations, e.g., partnerships. This means that the rate of income-tax does not rise with the rise in profits or fall with the fall in profits; it remains constant regardless whether the profits are low or high. In the case of a sole proprietor or a partnership firm the rate is progressive, going up with the increase in the amount of assessable income.


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