Company is a voluntary association of persons formed for the purpose of doing business having a distinct name and limited liability. It is a juristic person having a separate legal entity distinct from the members who constitute it, capable of rights and duties of its own and endowed with the potential of perpetual succession. The Companies Act, 1956, states that 'company' includes company formed and registered under the Act or an existing company i.e. a company formed or registered under any of the previous company laws.
The main characteristics of a company are as follow:
Independent Corporate Existence
As mentioned earlier, by the registration under the Companies Act, a company is vested with corporate personality which is independent of and distinct from its members. Consequently a member (shareholder) of a company cannot be held liable for any acts and debts of the company even though he may virtually hold the entire share capital. The decision of the House of Lords in Salomon v. Salomon and Co. Ltd is a well known authority on the subject.
Perpetual Succession
Members may come and members may go but the company goes on for ever. Variation in members or their identity does not affect the legal existence and identity of a company. It is a creation of law and can be dissolved only under the law.
Limited Liability
The company being a separate entity, leading its own business life, the members are not liable for its debts. The liability of the members of a company is limited to the extent of the nominal value of the shares held by them. In no event can a shareholder be asked to pay anything more than the unpaid value of his shares. In the case of a company limited by guarantee, the members are liable only to the extent of the amount guaranteed by them not beyond, and only when the company goes liquidation.
Transferable Shares
The shares of joint stock companies are freely transferable. In the case of a private company, the Act requires it to put certain restrictions on the transferability of shares. Every member owing fully paid-up shares is a liberty to dispose them off according to his choice but subject to the articles of the company. Any absolute restriction on the right to transfer shares is void.
Separate Property
As a corporate person, the company is entitled to own and hold property in its own name. No member can claim ownership of any item of the company’s assets.
Power to Sue and be Sued
A company, being a body corporate can sue and be sued in its own name. Therefore, the law recognises the existence of a company, quite independent of the motives, intentions, schemes or conduct of its individual shareholders.
