COMPANY AND ITS FEATURES NOTES: Characteristics of Company, Lifting up of corporate veil
Question: Define a company and explain its special characteristics?
Company is an artificial person created by the law for some common purpose where the capital is divisible into parts known as shares with perpetual succession and common seal.
ACCORDING TO PROF. HANEY
“A company is an artificial person created by law, having separate entity with the perpetual succession and common seal.”
ACCORDING TO LORD JUSTICE LINDLEY
“It is an association of persons who contribute money or money’s worth to a common stock and employ it for some common purpose.”
FEATURES OF COMPANY
ASSOCIATION OF PERSONS
It is an association of persons that is formed for some common purpose. The private company can be formed with minimum of 2 persons. The public company can be formed with the minimum of 7 persons. In the case of one person company, only one member is required.
It is an artificial person in the eyes of the law which is created through the process provided in the Companies Act 2013 or any other previous Act. It is not considered as natural like human being.
SEPARATE LEGAL ENTITY
The joint stock company has its separate legal entity from its members. It has its own existence in the eyes of the law. As a separate entity it can
- Enter into contracts with other parties in its own name.
- Sue others and be sued by others.
- Sell or purchase property in its own name.
The company work independently of its members. It is not bound by the acts of its members.
The company is a separate legal entity. Thus it enjoys the perpetual succession which means it remains unaffected by the death, insolvency and lunacy of the stakeholders. The company comes into the existence only by the act of law and may end only by law. It is rightly said:
“MEMBERS MAY COME, MEMBERS MAY GO
THE COMPANY GOES ON FOREVER”
TRANSFERABILITY OF SHARES
The members of the companies enjoy the distinct feature of Transferability of shares. Any member is free to transfer their share of interest without any permission. However, by mentioning in the Articles of Association, the companies can put some restrictions or conditions but transfer of shares cannot be stopped at all.
In case of companies, the liability of the members is limited upto the amount of unpaid value of shares. The companies may be:
- Limited by guarantee
- Limited by the shares
In case of companies limited by guarantee, the shareholders have to pay only that amount which is guaranteed by them in the Memorandum of Association.
In case of companies limited by shares, the liability of shareholders is only upto the amount of unpaid value of shares.
There is also a kind of Unlimited Companies, but these are not prevalent in India.
A company is an artificial person. It cannot be considered as natural like human being. But the company has the right and the power to enter into the contracts. The companies can do so by having its common seal. The common seal is a stamp with the name of the company engraved on it. The seal of the company is affixed on the documents which require the approval. The two directors must witness the affixation of the seal.
According to the Companies (Amendment) Act, 2015, the use of the common seal is made optional.
SEPARATION OF OWNERSHIP AND MANAGEMENT
The ownership and management of the companies are in different hands. The shareholders are the owners of the companies. But they are scattered worldwide, that is why they appoint their representatives to manage the work of the companies. These elected representatives are known as the Board of Directors.
The company form of business is governed under the Companies Act 2013 or under any previous Act.
The registration is compulsory in all the cases under the Companies Act 2013. The companies must get the Certificate of Incorporation and Certificate of Commencement to start its business.
PUBLICATION OF ACCOUNTS
The publication of accounts for the companies is compulsory. The company has to file its annual statements with the Registrar of Companies at the end of the financial year. The annual statements are to be inspected by the Registrar.