COMPANY MEANING
A company means an association of individual formed for some common purpose. But it is a voluntary association of persons. It has capital divisible into parts, known as shares, an artificial person created by a process of law and it has a perpetual succession and a common seal.
Definition
According to Prof. Lindley, company is defined as, “An association of many persons who contribute money or money’s worth to a common stock, and employ it in some common trade or business (i.e., for a common purpose), and who share the profit or loss (as the case may be) arising therefore. The common stock so contributed is denoted in money and it 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. Shares are always transferable although the right to transfer them is often more or less restricted”.
Characteristics of a Company
1. Separate Legal Entity
A company formed and registered under the companies act is a distinct legal entity. It is a creation of law and is sometimes called artificial person having invisible and intangible. It is a fiction of law with legal, but no natural or physical existence.
Case of Salomon Vs Salomon Co Ltd: S Sold his boots business to a newly formed company for $30, 000. His wife, one daughter and four sons took up one share of $ 1 each. S took 23, 000 shares of $ 1 each and $ 10, 000 debentures in the company. The debentures gave S a charge over the assets of the company as the consideration for the transfer of the business. Subsequently when the company was wound up, its assets were found to be worth $6, 000 and its liabilities amounted to $ 17, 000 of which $ 10, 000 were due to S (secured by debentures) and $ 7, 000 due to unsecured creditors.
The unsecured creditors claimed that S and the company were one and the same person and that the company was a mere agent for S and hence they should be paid in priority to S. Held, the company was, in the eyes of the law, a separate person independent from S and was not his agent. S, though virtually the holder of all the shares in the company, was also a secured creditor and was entitled to repayment in priority to the unsecured creditors.
2. Perpetual Succession
A company is an artificial person, as such it never dies. Its life does not depend on the life of its members. It may not affected by insolvency, mental disorder or retirement of its members. It is created by law and can be put an end to only by the process of law. Even the earthquake, flood or hydrogen bomb cannot destroy it. It continues to exist even if all its human members are dead. Unlike a natural person a company never dies. It is an entity with a perpetual succession. Its existence is not affected by the death, lunacy and insolvency of its members.
3. Limited Liability
In a company limited by shares, the liability of members is limited to the unpaid value of the shares. If the face value of a share in a company is Rs.10 and a member has already paid Rs.7 per share, he can be called upto to pay not more than Rs.3 per share during the lifetime of the company. In a company limited by guarantee, the liability of members is limited to such amount as the members may undertake to contribute to the assets of the company in the event of its being wound up.
4. Common seal
A company is a juristic person with a perpetual succession and a common seal. Since the company has no physical existence, it must act through its agents and all such contracts entered into by its agents must be under the seal of the company. The common seal acts as the official signature of the company. Every company mush has a seal with its name engraved on it.
5. Transferability of shares
The capital of a company is divided into parts, called shares. These shares are, subject to certain conditions, freely transferable so that no shareholder is permanently or necessarily wedded to the company. When the joint stock companies were established, the great object was that the shares should be capable of being easily transferred.
6. Capacity to sue and be sued
A company can sue and be sued in its corporate name. It may also inflict or suffer wrongs. It can in fact do or have done to it most of the things which may be done by or to a human being. On incorporation, a company acquires separate and independent legal personality. As a legal person, it can sue and be sued in its name.
7. Separate Property
A company, as already observed, is a legal person distinct from its members. It is therefore capable of owing, enjoying and disposing of property in its own name. Although, the capital and assets of the company are contributed by its shareholders, they are not the private and joint owners of the property of the company. The property of the company is not the property of the shareholders; it is the property of the company.
