What do you mean by company? Discuss its main characteristics.

“A company is an artificial person created by law.” Explain this statement and bring out the basic features of a company.

“The fundamental attribute of corporate personality is that the company is a legal entity from the members.” Discuss this statement.

“A company is a legal person just as much as an individual but with no physical existence.” Explain fully.

Define a company. Describe the characteristics of a company.

“Company is an artificial person created by law having a separate entity with a perpetual succession and common seal.” Discuss this statement.

ANS.

COMPANY

The word company is derived from the Latin word ‘Com’ and Pains’. The term ‘Com’ means together and the term ‘Pains’ means bread. In the beginning the term company referred to a group or association of persons who took their meals together. On the occasion of these festive meals the businessmen took advantage of festive gatherings and they started discussion on business related matters. In the present time business matters are complicated so business matter cannot be discussed on festive gathering. Thus, the term company is very important term. It denotes association of persons. These associations are formed for the purpose of business. In the case of Smith Vs. Anderson (1880) it was decided that “a company, in broad sense, may mean an association of individuals formed for some purpose.”

A company is a legal entity having perpetual succession and a common seal. It is an artificial person created by law. Insanity, death and insolvency of the members of the company will not affect the existence of the company. Company has a right to enter into contracts. Directors are like agents of the company. Company do its work through its directors.

Legal Definitions of a Company

Following are the legal definitions of company. Legal definitions are given by various judges in different cases.

In the words of Lord Justice Lindley, “An association of many persons who contribute money or money’s worth to a common stock and employ it for some common-purpose. The common stock so contributed is denoted in terms of money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.”

In the words of Justice James, “A company is an association of persons united for common object.”

Section 2(20) of the Companies Act, 2013 says that, “Company” means a company incorporated under this Act or under any previous company law.

In the words of Chief Justice Marshall of the U.S-A. “A corporation is an artificial being, invisible, intangible and existing only it contemplation of law. Being the more creature of law it possesses only those properties which the charter of its creation, confers upon it, either expressly or as incidentally to its very existence.”

CONSTITUTIONAL DEFINITIONS OF JOINT STOCK COMPANY

Constitutional definitions include such definitions which are given in statutes.

According to Indian Companies Act, 1913, “Joint stock company is an artificial “person created by law having a separate entity with a perpetual succession and a common seal.”

Following are definitions of a company which are based on principles. These definitions have elaborated by different scholars.

In words of Kimball and Kimball, “A corporation is by nature an artificial person created or authorized by the legal statute for some specific purpose.”

In the words of Field House, Joint stock company is an association of individuals for the purpose of engaging in an undertaking trade or business.”

In the words of William Springall, “The corporation is a creation of the state and possesses an entity distinct from the persons owning its stock and other securities.”

In the words of Prof. Haney, “A joint stock company is a voluntary association of individuals for profit having a capital divided into transferable. shares, ownership is the condition for membership.”

CHARACTERSTICS OF COMPANY

Following are characteristics of a company:

(1) An Association of Persons- A company is an association of persons. Such persons join hands with a common motive. In the private company there must be atleast 2 members and a public company must have atleast 7 persons to get it registered. Such persons join hands voluntarily. Any association or institution which is established with the objectives of earning a profit, and which has more than 10 members in case of banking and 20 members in case of any other business activity needs, by law, to be registered.

(2) Incorporated Association by Law – A joint stock company is an incorporated association of persons. Such incorporation is essential by law. In the present time registration of company is essential under the Companies Act, 2013. Thus it can be concluded that registration is the birth of company. Company cannot take its form unless getting registered under the Companies Act, 2013.

(3) Created by Law – A company comes into existence by law. It is a creature of law. Without getting registration no company can come into existence. The Companies Act, 2013 is a substantive law for the company. It is created by the Companies Act, 2013, it is known as created by Statute.

(4) Artificial Person – Company is an artificial person created by law. Company is not natural person. Natural person is not created by law but the company’s birth depends upon the certain statutes.

(5) Company cannot be Citizen – An artificial, person cannot be a citizen of India. So, company is not citizen of India. According to the Citizenship Act, 1955 and Constitution of India an artificial or legal person cannot be citizen of India. Thus citizenship of a company is restricted by the Citizenship Act, 1955 and also by Constitutional law.

(6) Limited Liability – Company’s shareholders’ liability is limited to the value of shares. In the unlimited company shareholders liability is unlimited.

(7) Transferability of Shares- The shares of a company can be transferred. Whenever shareholder wants to transfer his .shares be can make such transfer in favour of other person. Section 44 of the Companies Act, 2013 says that each shareholder can freely transfer his shares. But in some specific situations, the company may improve restrictions on the transfer of shares.

(8) Common Seal- A company is an artificial person so company cannot make signature. Seal of the company is like signature of human being.

(9) Perpetual Existence – A company has a perpetual existence. The existence of a company and its member being separate. The existence of the company cannot affected by insolvency, lunacy or death of its shareholders.

(10) Statutory Regulation and Control – A company is regulated and controlled by statute. Company is regulated and controlled as per the provision of the Companies Act, 2013 and regulations as well as rules made their under.

(11) Other Features of a Company – Following are the other features of a company:

(i) Division of capital into shares^

(ii) Diffused ownership of business,

(iii) An autonomous self-governing and self-controlling organization,

(iv) Corporate finance,

(v) Compliance to various legal formalities,

(vi) Winding up by law.

(vii) Defined works and objects.

MERITS OF COMPANY

Following are the advantages company:

(1) Corporate Personality- Company a distinct legal or juristic persons. On the other hand partnership has no existence a part from its partners.

(2) Perpetual Existence of the Company – Company has a perpetual existence. Company has perpetual succession not with standing any change in its members. Members may come and go but the company can go on for ever.

(3) Limited Liability of Members – In the case of company being wound up, the company’s members liability will be decided in accordance with the Act.

(4) Transferability of Shares (Sec. 44)- According to the provisions of Sec. 44. “The snares or debenture or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company.”

(5) Diffusion of Risk – In the company form of business, risk is diffused among large number of members.

LIMITATIONS OF COMPANY

Following are the disadvantages of company-

(1) Various Formalities- There are different types of formalities like promotional formalities, registration formalities and commencement of business formalities are required.

(2) Various Expenses- In the various formalities high expenses are made.

(3) More Social Responsibilities- Company’s responsibilities for the society are greater.

(4) Greater Taxes- Various types of taxes are imposed on company business.

(5) Greater Disclosure of Information- Various documents are prepared and disclosed to the public or members etc.

(6) Other Disadvantages- In addition to above following are also demerits of company:

(i) Separation of control from ownership

(ii) Various complexities in winding up.

(iii) Need of high professionals.