Characteristic of a Company

On being incorporated, a company enjoys certain advantages over other associations. Such
advantages are termed as the characteristic of a company and are discussed as under.
1. Incorporated association. A company is created when it is registered under the Companies
Act. It comes into being from the date mentioned in the certificate of incorporation. It may be
noted in this connection that Section 11 provides that an association of more than ten persons
carrying on business in banking or an association or more than twenty persons carrying on any
other type of business must be registered under the Companies Act and is deemed to be an illegal
association, if it is not so registered.
For forming a public company at least seven persons and for a private company at least two
persons are persons are required.
2. Perpetual succession.
Unlike a nature person a company never dies. It is a entity with a perpetual succession. Its
existence is not affected by the death, lunacy and insolvency of its members. A company is an
immortal person. Member may come and members may go, but the company continues its
operation unless it is wound up. The existence of the company is not affected by the death of all
the shareholders even. Thus, where all the members of a company were killed by a bomb,
company was deemed to survive.
3. Limited Liability.
Limited liability of members is another important characteristic of a company. It is the reason
why a great many people invest their money in limited companies. Liability of a member is
limited to the face value of shares subscribed to by him. If the share are the fully paid up, his
liability is nil. Unlike a partnership concern, where the liability of each partner is unlimited. In an
incorporated company the members cannot be asked to pay anything more than what is due on
the shares held by them. It may be noted that it is only the members’ liability for the company’s
debs which is limited. The company itself, the artificial legal person, is always fully liable and so
has unlimited liability.
4. Common seal.
As a company is an artificial person it cannot sign its name on a contact. So it functions with the
help of a seal. Common seal is used as a substitute for its signature. Every company must have a
sale with its name engraved on it. Anything done under an agreement between the company and
the third party requires recognition of the company in the form of an official seal unless
exempted by the Act.
5. Transferability of shares.
The shares of a company are freely transferable and can be sold or purchased in the share market.
This is one of the reasons why people prefer to form companies than partnership. Section 82 of
the companies Act recognizes the right of transferability of shares and provides that, “the share
or other interest of any member shall be movable property transferable in the manner provided
for in the articles of the company.”
6. Capacity to sue and be sued.
On incorporation a company acquires a separate and independent legal personality. As a legal
person it can sue be sued in its own name.
7. Separate Property :
As a company is a legal person distinct from its members, it is capable of owning, enjoying and
disposing of property in its own name. Although its capital and assets are contributed by its
shareholders, they are not the private and joint owners of its property. The company is the real
person in which all its property is vested and by which it is controlled, managed and disposed of.
8. Artificial legal person :
A company is an artificial legal person in .he sense that on the one hand, it is created by a
process other than natural birth and does not possess the physical attributes of a natural person,
and on the other hand, it is clothed with many of the rights of a natural person. It is invisible,
intangible immortal (law alone can dissolve it) and exists only in the eyes or law. It has no body,
no soul, no conscience, neither it is subject to the imbecilities of the body. It is because of these
physical disabilities that a company is called an artificial person. But it cannot be treated as a
fictitious entity because it really exists.
9. Maintenance Of Books Of Accounts
A company has to keep and maintain a prescribed set of accounting books and any failure in this
regard attracts penalties.
10. Audit Of Account And Publication Of Financial Statements It is compulsory for each and
every company to get its accounts to be audited. A joint stock company has to publish its
financial statement at the end of every fiscal year.