Company: Nature and Characteristics
Introduction to Company
The concept of ‘Company’ in business is not a new one but its evidence can be traced during the period of 4th centuries that is of ‘Arthashastra’ days. With the growth in the economy and rise in demands of various business, it’s shape got revamped over a period of time. This article is reflecting upon the meaning, nature and classification of companies under various legislations. Companies act as a mode through which a country grows and expands worldwide and it also act as a parameter through which a country’s position can be determined in the world’s economic standard.
Meaning of Company
The word ‘company’ has no any strict technical or legal meaning. It is the amalgamation of the Latin word ‘Com’ meaning ‘with or together’ and ‘Panis’ meaning ‘bread’. This word originally referred to an association of persons who took their meals together. In simple words, company is nothing but a group of persons who have come together or have contributed some money for some common purpose to achieve and who have incorporated themselves into a separate legal entity. It may also be termed as an association of likeminded persons to start a business with a common purpose and it act as an artificial person that can be created by the law and destroyed by law.
A company is a corporate body and having legal personality and this personality is distinct as well as separated from the members constituting it.
Definition of Company
Lord Justice Lindlay- Company is an association of many persons who contribute money or money’s worth to a common stock and employ it for common purpose. Here, the common stock denotes the money and it act as the capital of the company. The persons who have contributed their money to it and whom the money belongs they are called as members.
As per the Companies Act, 1956, Company means a company registered under this Act or existing company.
Prof. Haney- “A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal”.
Nature and Characteristics of a Company
The Company is an association of both the natural and artificial person. It is not merely a legal institution but is a legal device for the attainment of the social and economical end. As it is also an artificial legal person, it has been conferred with some rights, obligations, powers and duties prescribed by law.
Since it is the creation of the law, it possesses only those powers that have been conferred by its Memorandum of association.
The characteristics of the Company are as follows-
- Corporate personality– It vested with the corporate personality so that it bears its own name, acts under that name, having a seal of its own and its assets are separate and distinct from its members. Since, it has distinct and separate identity, it is capable of owing the property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts and being sued or have right to sue in the same manner as an individual has.
- Limited Liability– It is one of the principal advantages of doing business under the corporate form of organisation. If anything wrong happens with the company his risks is only to the extent of the amount of his shares in the company and nothing more.
- Separate legal entity– it has a separate identity and distinct from those of its members. Since, it has separate identity, it bears its own name and acts under the corporate name, having its own seal and assets. The shareholders are not the agents of the company and can’t be held liable for any wrong act of the company although it holds entire share capital. In R.F Perumal v. H. John Deavin,Madras High court held that “no member can claim himself to be the owner of the company’s property during its existence or in its winding-up”.
- Perpetual succession– The life of the company does not depend upon the life of its members. As it is created by the law, it can also be dissolved by the same. The law can only bring its end and no one else. It has been rightly said by Tennyson, “For men may come, men may go, But I go on forever”. A company’s life depends upon the terms of its Memorandum of association.
- Common Seal– It is of utmost importance to any company. It acts as an official signature. Since company has no any physical existence, it cannot sign its name on the contract and for this purpose, the seal can be used. The seal must be engraved with the name of the company. Any document that does not bear common seal of the company can’t be taken as authentic and it has no any importance in the eyes of law.
- Transferability of Shares– Share means the parts of the company’s capital. The shares are termed as a movable property and shareholders can transfer their shares to any person without the consent of other members.
- Limitation of work– Company can’t go beyond the powers stated in the Memorandum of Association. The Memorandum of Association regulates the powers and fixes the objects of the company and provides the edifice upon which the entire structure of the company rests. The Memorandum of Association limits the scope and objects of the company.
- Voluntary association for profit– The Company is formed for the accomplishment of some stated goals and for gaining some profit. Hereby, the gained profit gets divided among the shareholders or saved for the future expansion of the company.
- Termination of existence– The existence of the company can be terminated only means of winding up. Therefore, sometimes companies adopt strategies like reorganisation, reconstruction and amalgamation to avoid this winding up.
- Capacity to sue or be sued– A company is a corporate body and it can sue or be sued in its own name. All legal proceedings against the company need to be instituted in the name of that company. Company’s right to sue arises only in that case when any damage incurred to the company. Company has the right to seek damages even in that case also where a defamatory material published and affects its business. The company could not be held liable for the acts committed by its members in their personal capacity.
- Contractual Rights– Company can enter into contracts for the conduct of the business in its own name. A shareholder can’t enforce any contract made by the company; as he is neither a party to the contract nor the beneficiary of that contract. Company is not the trustee for the shareholders.
 AIR 1960 Mad.43
Author: Prity Kumari,
Central University of South Bihar
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