Nature and Characteristics of a Company

A company is a creation of law, it is not a human being. It is an artificial judicial person. It has many rights, obligations, powers, duties and it can empower these according to the limit prescribed by the memorandum of association. The most striking characteristics of a company are

1. Corporate personality 

A company is different from its member having its own personality.

When a company is incorporated by a law then it has created its own personality having its own name, seal, and assets. Therefore it is capable of owning property, incurring debts, borrowing money, having its own bank accounts, employing people, entering contract and suing or to be sued in the same manner as like individual.

2. Limited Liability

The liability of a company is limited and it is not extend to member property.

Limited liability characteristic is one of the best advantages of doing business through company form. The liability of the company is limited to the company property only. The members are liable to extend to the contribution to the capital of the company up to the nominal value of the shares held and not paid by him.

3. Separate property

Company property is different from shareholders property.

A company is a legal person and entirely distinct from its members, is capable of owning, enjoying, and disposing in its own name.

4. Transferability of shares

Company shares should be freely transferable.

The capital of a company is divided into parts called shares. The shares should be freely transferable, subject to certain condition so that no shareholder is permanently or necessarily wedded to a company.

A member may sell his shares and realized his money invested by him. This provides liquidity to a member and ensures stability to the company. The stock exchange provides adequate facilities for the sale and purchase of shares.

5. Common seal

Common seal is the official signature of the company

A company has no physical existence. It must act through its agents and all contract entered into by its agents must be under the seal of the company.

6. Capacity to sue and to be sued

A company can sue or be sued in its own name

All legal proceeding against the company are to be instituted in its name. The company may bring an action against anyone in its own name.

7. Contractual rights

A company can enter into a contract for the conduct of the business in its own name.

A shareholder cannot enforce a contract made by the company. He is neither a party to the contract nor be entitled to the benefit derived from of it. A shareholder cannot be sued on contract made by his company.

8. Limitation of Action

A company power is limited in accordance with memorandum of association.

A company cannot go beyond the power stated in its memorandum of association. A company needs to do all the action with in the scope of memorandum of association. If a company needs to do
anything beyond the scope of MoA, then it has to alter the MoA according to regulation of law.

9. Separate Management 

A company is administered and managed by its managerial personnel.

The members elect their representative as director of the company to conduct corporate functions through managerial personnel employed by them.  The company is administered by a separate management (board of director) by its managerial personnel.

10. Voluntary Association for profit

A company is formed to earn profit.

A company is a voluntary association for profit. It is formed for the accomplishment of some stated goals and whatsoever profit is divided among its shareholders or saved for the future expansion of the company.

Only section 8 company can be formed with no profit motive.

11. Termination of existence 

A company is terminated by means of winding up.

When a company incorporate it operate according to law and the termination process also is done according to the law. This process is called winding up of the company. Sometimes companies adopt strategies like reorganization, reconstruction, and amalgamation.

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