What is Company and Its Features?




Section 3 (1) (i) of the businesses Act, 1956 defines an organization as “a company fashioned and registered under this Act or associate degree existing company”.

Section 3 (1) (ii) of the act states that “an existing company means an organization fashioned and registered beneath any of the previous companies’ laws”. This definition does not reveal the distinctive characteristics of an organization.


According to jurist Marshall of USA, “A company may be a person, artificial, invisible, intangible, and existing solely within the contemplation of the law. Being a mere creature of law, it possesses solely those properties that the character of its creation of its creation confers upon it either expressly or as incidental to it’s terribly existence”.


Another comprehensive and clear definition of an organization is given by Lord Justice Lindley, “A company is meant associate degree association of the many persons United Nations agency contribute cash or money’s price to a standard stock and employ it in some trade or business, and United Nations agency share the profit and loss (as the case could be) arising there from. The common shares contributed is denoted in cash and is that the capital of the corporate. The persons United Nations agency contribute it, or to whom it belongs, area unit members. The proportion of capital to that every member is entitled is his share. Shares area unit forever transferable though the proper to transfer them is often a lot of or less restricted”.

According to Haney, “Joint Stock Company may be a voluntary association of people for profit, having a capital divided into transferable shares. The possession of that is that the condition of membership”. From the on top of definitions, it will be terminated that an organization is registered association that is associate degree artificial legal person, having associate degree freelance legal, entity with a perpetual succession, a standard seal for its signatures, a standard capital comprised of transferable shares and carrying financial obligation.

1. Incorporated association: A corporation is made once it's registered beneath the businesses Act. It comes into being from the date mentioned within the certificate of incorporation. it's going to be noted during this connection that Section eleven provides that AN association of quite 10 persons carrying on business in banking or AN association or quite twenty persons carrying on the other sort of business should be registered beneath the businesses Act And is deemed to be an extra-legal association, if it's not therefore registered.

For forming a public company a minimum of seven persons and for a personal company a minimum of 2 persons square measure person’s square measure needed. These persons can subscribe their names to the memoranda of association and also befits different legal needs of the Act in respect of registration to make and incorporate a company, with or while not liability. [Sec 12 (1)]


2. Artificial legal person: A corporation is a synthetic person. Negatively speaking, it's not a natural person. It exists within the eyes of the law and can't act on its own. It’s to act through a board of directors elective by shareholders. It had been justly detected in Bates V customary Land Co. that “The board of administrators square measure the brains of the corporate, that is that the body and also the company will and will act only through them”. But for several functions, a corporation may be a legal person sort of a natural person. It’s the correct to accumulate and dispose of the property, to enter into contract with third parties in its own name, and may sue and be sued in its own name.

However, it's not a subject because it cannot fancy the rights beneath the Constitution of India or Citizenship Act.


In State commerce Corporation of India v C.T.O (1963 SCJ 705), it had been command that neither the provisions of the Constitution nor the Citizenship Act apply to that. It ought to be noted that although a corporation will not possess basic rights, however it's person within the eyes of law. It will enter into contracts with its Directors, its members, and outsiders. Justice Hidayatullah once remarked that if all the members’ square measure citizens of India, the corporate doesn't become a subject of India.


3. Separate Legal Entity: a corporation encompasses a legal distinct entity and is freelance of its members. The creditors of the corporate will recover their cash solely from the corporate and also the property of the company. They cannot sue individual members.

Similarly, the corporate isn't in any means responsible for the individual debts of its members. The property of the company is to be used for the advantage of the corporate and nor for the non-public advantage of the shareholders. On identical grounds, a member cannot claim any possession rights within the assets of the company either singly or collectively throughout the existence of the corporate or in its carrying out. At the same time the members of the corporate will enter into contracts with the corporate within the same manner as the other individual will. Separate legal entity of the corporate is additionally recognized by the revenue enhancement Act. Wherever a corporation is needed to pay Income-tax on its profits and once these profits redistributed to shareholders within the sort of dividend, the shareholders have to be compelled to pay income-tax on their dividend of financial gain. This proves that a corporation that a corporation and its shareholders are 2 separate entities. The principal of separate of legal entity was explained and emphasized within the noted case of Salomon v. Salomon American Revolutionary.


4. Perpetual Existenc: A corporation could be a stable sort of concern. Its life doesn't rely upon the death, economic condition or retirement of any or all shareholder(s) or director(s). Law creates it and law alone will dissolve it. Members could return and go however the corporate will continue forever. “During the war all the member of 1 personal company, whereas generally meeting, were killed by a bomb. But the company survived; not even a nuclear weapon might have destroyed it”. The corporate is also compared with a flowing stream wherever the water keeps on dynamic unceasingly, still the identity of the stream remains a similar. Thus, an organization contains a perpetual existence, regardless of changes in its membership.


5. Hair seal: As was identified earlier, an organization being a synthetic person has no body just like natural person and in and of itself it cannot sign documents for itself. It acts through natural one that square measure called its administrators. However having a legal temperament, it are often sure by solely those documents that bear its signature. Therefore, the law has provided for the employment of hair seal, with the name of the company carved thereon, as a substitute for its signature. Any document bearing the hair seal of the company are going to be wrongfully binding on the corporate. An organization might have its own laws in its Articles of Association for the style of affixing the hair seal to a document. If the Articles square measure silent, the provisions of Table-A (the model set of articles appended to the businesses Act) can apply.

As per regulation eighty four of Table-A the seal of the corporate shall not be appendant to any instrument except by the authority of a resolution of the Board or a Committee of the Board licensed by it in this behalf, and except within the presence of a minimum of 2 administrators and of the secretary or such different person because the Board may appoint for the aim, and people 2 administrators and therefore the secretary or different person same shall sign each instrument to that the seal of the corporate is therefore appendant in their presence.


6. Restricted Liability: an organization is also company restricted by shares or an organization restricted by guarantee. In company restricted by shares, the liability of members is proscribed to the unpaid price of the shares. For example, if the face price of a share in a very company is Rs. 10 and a member has already paid Rs. 7 per share, he are often referred to as upon to pay no more than Rs. 3 per share throughout the time period of the corporate. In a company restricted by guarantee the liability of members is proscribed to such quantity because the member might undertake to contribute to the assets of the corporate within the event of its being tense.


7. Transferable Shares: In a very public company, the shares square measure freely transferable. The correct to transfer shares could be a statutory right and it cannot be abstracted by a provision within the articles. However, the articles shall bring down the style within which such transfer of shares are going to be created and it's going to conjointly contain bona fide and affordable restrictions on the correct of members to transfer their shares. However absolute restrictions on the rights of members to transfer their shares shall be ultra vires. However, within the case of a private company, the articles shall prohibit the correct of member to transfer their shares in firms with its statutory definition. In order to create the correct to transfer shares more practical, the investor will apply to the Central Government just in case of refusal by the corporate to register a transfer of shares.


8. Separate Property: As an organization may be a legal person distinct from its members, it's capable of owning, enjoying and getting rid of property in its own name. Though its capital and assets area unit contributed by its shareholders, they're not the non-public and joint homeowners of its property. The corporate is that the real person in that all its property is unconditional and by which it's controlled, managed and disposed of.


9. Delegated Management: A joint stock company is AN autonomous, free and self-controlling organization. Since it's an outsized range of members, all of them cannot participate within the management of the affairs of the corporate. Actual management and management area unit, therefore, delegated by the shareholders to their elective representatives, referred to as administrators. They appear once the everyday working of the corporate. Moreover, since shareholders, by majority of votes, decide the overall policy of the corporate, the management of the corporate is carried on democratic lines. Majority call and centralized management obligatorily achieve unity of action.

Subscribe to Our Newsletter

Contact Info

  • White Facebook Icon
  • trendynewz