A Company is an association of persons formed and registered under the companies Act.
Association of Persons – A group of persons who come together for achieving a common objective.
Companies Act – Act to regulate the affairs related to companies. The present companies act was formulated in 2013
Characteristics of a Company
Separate Legal Entity
It Means an entity distinct from its owners in the eyes of law. So a company can own assets, enter into contracts, sue and be sued in court of law for its actions.
A company has no life and it is not a human being. But still in the eyes of law it is a separate person distict from its members. So a company is called artificial person
Perpetual means going on forever i.e. which never ends. It means that the company goes on forever and it never ends. But this is not fully true. Company also ends but it can end only by following the process of law (winding up). It cannot come to end based on the death, lunacy or bankruptcy of its members/shareholders. So the existence of company is independent of its members as it is a separate person in the eyes of law. The members may come and go but the company goes on forever
It means that the liability of the members of the company is limited to the amount unpaid on its shares. So basically this limited liability is not with reference to the company but instead it is with reference to the liability of its members. Suppose Mr A has brought 1000 shares of Rs 10 each of ABC Ltd. Till now he has paid only Rs 7 per share and hence his shares are partly paid up. Now Mr A’s liability towards the company can be upto maximum of Rs 3 per share on 1000 shares i.e. Rs 3000. The company may incur losses and may have huge debts. But Mr A cannot be asked to pay more than Rs 3000. His personal assets cannot be called up for payment of company liabilities. This limited liability is the key characteristic and also key advantage of the company form of organization. Anyone looking to start a new venture or business idea which seems to be risky should better form a company as limited liability poses an advantage in case the business idea does not work out.
Transferability of Shares
The shares of a company are freely transferable. Suppose I have 100 shares of some company. Now there could be many more shareholders like me. If I want to sell my shares to someone else then I need not take permission from either the company or from other shareholders. I can simply approach a stock exchange where the shares of this company are traded and sell then to a prospective buyer. Thus it can be said that the shares of a company are freely transferable.
Since the company is an artificial person and it can hold assets and contract debts in its name so a certain arrangement is required to evidence that some contract or arrangement is entered by a company.
For this a common seal is made for the company which is affixed on all the documents related to the company. However it is to be noted that a company may or may not have a common seal