Notes

Characteristics Of Company Under Companies Act

Characteristics Of Company – Hello friends, today, I am going to share Characteristics Of Company  notes with you as per companies act. If you like this post then please share this with your friends.

Characteristics Of Company

(1) Incorporated Association: A company is established by law, and can exist till such time as it is recognized by law. Under the Companies Act, it is necessary for a company that is formed to be registered, i.e., it needs to be incorporated. Any association or institution which is established with the objective of earning a profit, and which has more than 10 members in the case of banking and 20 members in case of any other business activity needs, by law, to be registered.

(2) Artificial Person: Another important characteristic of a company is that it is an artificial person created by law. It is called an ‘artificial person’ because its birth is not a natural birth. It is invisible, intangible and immortal artificial person (so long as it is not wound up) that has an identity only in the eyes of law. It has no body, no soul and suffers no pain and enjoys no pleasure. Being an artificial person, it cannot take an oath, be imprisoned or personally appear in a court of law. It cannot get married or become a professional like a doctor or a lawyer. But it cannot be treated as a fictional person’ or a fictitious entity’ because it really does exist. Like a natural person, a company can buy and sell properties, make agreements or enter into contracts and employ people on its payroll. It can also be penalised if it does not abide by law. In other words, it can be said that a company, though lifeless, enjoys the privileges of a living person.

(3) Perpetual Succession: Perpetual succession is another important characteristic of a company. Its existence is not dependent on that of its shareholders or directors. The shareholders or the directors might change, but the company goes on. Death, insolvency or lunacy of its members has no effect whatsoever on the existence of the company. Members may come and members may go, but the company goes on forever. According to R.N. Owens, “The modern corporation, with its continuous existence despite its changing membership, has been compared with a river which retains its identity even though the parts which compose it are constantly changing.”

(4) Common Seal: A company is an artificial person and, as such, it cannot put its signature on documents. That is why it is mandatory under law that every company must have a common seal with its name engraved upon it. The common seal is the symbol of the company’s identity and is as good as a signature. When it puts its seal on a document, the company becomes bound by the contents of the document. On the other hand, a document written on behalf of the company but not bearing the company’s common seal is not binding on the company. The person or persons who have signed such document will be personally held responsible for it. The laws governing the usage of company seal have been described in the Companies Act.

(5) Limited Liability: This is the fifth Characteristics Of Company. The liability of the shareholders of the company is limited. In case of financial loss to the company, howsoever heavy, the liability of the shareholders is limited to the amount unpaid on their shares, and their personal property cannot be used to pay the company debts. For example, if A buys 100 shares of a company at 10 each, his liability is limited to 1,000, and he cannot be asked to pay more than that in case the company suffers a loss.

The law stipulates that the liability of the members for the debts of the company is limited to the amount unpaid on their shares. In companies ‘limited by guarantee’, the liability of the members is limited to the amount for which they have provided the guarantee.

(6) Number of Members: The minimum number of members in a public company is seven and the maximum can be as much as the shares issued by the company. In other words, the maximum number of members in a public company is indefinite and is not specified. In a private company, the minimum number of members is two, and the maximum is two hundred, excluding members who are or were employees of the company.

(7) Representative Management: A company is deemed to be an artificial and imaginary  and person and, as such, it cannot manage its own affairs. A company is administered managed by representatives appointed by the shareholders. The shareholders are too man in number and scattered far and wide-which makes it impossible for the company affairs to be controlled by them. Besides, the objective of the shareholders is to make a profit-not to run the company’s business. 

(8) Limitation of Action: A company is incorporated for the realisation of a specific objective or objectives. The objectives of the company are described in its prospectus and define the limitation of the companies activities. No company can cross this limitation of action’ and engage itself in an activity which is not listed in its prospectus. If a company does that, its actions are not recognized by law and are deemed to be beyond the sphere of its authority. A company cannot, of its own will, start a new business or change its field of activity and do something which does not conform to its objectives.

(9) Transferability of Shares: The capital of a company is made up of shares of a definite value, and is contributed by its shareholders. According to Section 44 of the Companies Act, 2013, each shareholder can freely transfer his or her shares. But in some specific situations, the company may impose restrictions on the transfer of shares.

(10) Termination of Existence: This is the 10th Characteristics Of Company. Like it is born by an act of law, a company may also be terminated by law.

(11) Company is not a Citizen: A company is, without doubt, a legal ‘person’ or entity, but under Article 19 of the Indian Constitution, it is not a citizen. It has no fundamental rights like a citizen has. As such, a company cannot take the recourse of law to press for its fundamental rights like a citizen can. For example, a company does not have the right to 2 franchise.

Must Read – Rights And Duties Of Partners

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Note – The above listed Characteristics Of Company are based on companies act 1956 and 2013. Before starting any company it is must to understand, how company does work, what are the limitations of company and what are the Characteristics Of Company.

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