What is meant by the word ‘Company’? Describe its characteristics.

By BYJU'S Exam Prep

Updated on: September 25th, 2023

A company is an artificial person, created by law that has a separate legal entity, perpetual succession, and common seal and has limited liability. The characteristics of the company are Incorporated Association, Separate Legal Entity, Artificial Person, Limited Liability, Perpetual Existence, Common Seal, Management and Ownership, and Transferability of Shares.

“Company means a company incorporated under this Act or any prior Company Law,” states Section 2 (20) of the Company Act 2013 (the “Act”).

Generally speaking, a company is an artificial person constituted by law with limited liability, permanent succession, and its own legal existence. It is a group of people coming together voluntarily to contribute to the capital needed for the firm to operate. Typically, a company’s capital is split up into tiny pieces called shares, the ownership of which is transferable and subject to specific rules and regulations.

Table of content

1. What is meant by the word ‘Company’? Describe its characteristics.

Characteristics of Company

(i) Incorporated Association: A corporation is established through the legal system. As a result, it must be incorporated under the Companies Act. No business can be formed without such registration.

(ii) Separate Legal Entity: An organisation has a distinct legal identity that is unaffected by changes in ownership. A firm can thus negotiate, bring a lawsuit, and be sued in its role as a separate entity.

(iii) Artificial Person: A company is an artificial and juristic person that is created by law.

(iv) Limited Liability: Each shareholder of a firm is only partially liable. His liability is capped at the outstanding balance of the shares he owns. He is no longer responsible if the shares are fully paid up.

(v) Perpetual Existence: The demise, retirement, or insolvency of a member of the company has no impact on its continued existence. In other words, a company’s life is unaffected by the existence and employment status of its members. A company’s existence is limitless until it is legally wound up in accordance with the Companies Act.

(vi) Common Seal: The firm has no physical existence and is not a natural person. Therefore, it is unable to sign. The common seal serves as a company’s formal signature, validating official papers.

(vii) Management and Ownership: A corporation is run by its elected representatives, known as Directors, rather than by all of its members. Management and ownership are thus two distinct concepts.

(viii) Transferability of Shares: A company’s shares can be freely transferred, with the exception of private firms. Articles of Association govern the transfer of shares in private companies.

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