Meaning and Features of a Company

With a phenomenal change in the domestic and international economic landscape,

the Government of India decided to replace the Companies Act, 1956 with a new
legislation. The Companies Act, 2013, endeavours to make the corporate
regulations in India more contemporary. In this article, we will focus on the
meaning and features of a Company.

Meaning of a Company
There are many definitions of a Company by various legal experts. However,
Section 2(20) of the Companies Act, 2013, defines the term ‘Company’ as follows:
“Company means a company incorporated under this Act or under any
previous company law.”

Hence, in order to understand the meaning of a Company, it is important to look at

the distinctive features that explain the realm of a Company.

Features of a Company
A Company is a Separate Legal Entity

One of the most distinctive features of a Company, as compared to

other organizations, is that it acquires a unique character of being a separate legal
entity. Hence, when you register a company, you give it a legal personality with
similar rights and powers as a human being.

The existence of a company is distinct and separate from that of its members. It can
own property, bank accounts, raise loans, incur liabilities and enter into contracts.
According to Law, it is altogether different from the subscribers to
the Memorandum of Association.

Also, it has a distinct personality which is different from those who compose it.
Member can also contract with the Company and acquire a right against it or incur a
liability to it. However, for any debts, the creditors can sue the Company but the
members cannot.

A Company can own, enjoy, and dispose of a property in its own name. While the
shareholders contribute to the capital and assets, the company is the rightful owner
of such assets and capital. Further, the shareholders are not private or joint holders
of the company’s property.
Perpetual Succession

Another important feature of a Company is that it continues to carry on its business

notwithstanding the death of change of its members until it is wound up on the
grounds specified by the Act. Further, the shares of the company change hands
infinitely, but that does not affect the existence of the company.

In simple words, the company is an artificial person which is brought into existence
by the law. Hence, it can be ended by law alone and is unaffected by the death or
insolvency of its members.

Limited Liability

One of the important features of a company is the limited liability of its members.
The liability of a member depends on the type of company.

 In the case of a limited liability company, the debts of the company in

totality do not become the debts of its shareholders. In such a case, the
liability of its members is limited to the extent of the nominal value of
shares held by them. The shareholders cannot be asked to pay more
than the unpaid value of their shares.

 In the case of a company limited by guarantee, members are liable only

to the extent of the amount guaranteed by them. Further, this liability
arises only when the company goes into liquidation.

 Finally, if it is an unlimited company, then the liability of its members is

unlimited too. But such instances are very rare.
Artificial Legal Person

Another one of the features of a company is that it is known as an Artificial Legal

Person.

 Artificial – because its creation is by a process other than natural birth.

 Legal – because its creation is by law, and

 Person – because it has similar rights to a human being.

Further, a company can own property, bank accounts, and do everything that a
natural person can do except go to jail, marry, take an oath, or practice a learned
profession. Hence, it is a legal person in its own sense.
Since a company is an artificial person, it needs humans to function. These humans
are Directors who can authenticate the company’s formal acts either on their own or
through the common seal of the company.

Common Seal

While a company is an artificial person and works through the agency of human
beings, it has an official signature. This is affixed by the officers and employees of
the company on all its documents. This official signature is the Common Seal.

However, the Companies (Amendment) Act, 2015 has made the Common Seal
optional. Section 9 of the Act does not have the phrase ‘and a common seal’ in it.
This provides an alternative mode of authorization for companies who do not wish
to have a common seal.

According to this amendment, if a company does not have a common seal, then the
authorization shall be done by:

 Two Directors or

 One Director and the Company Secretary (if the company has appointed
a Company Secretary).

Solved Example on Meaning and Features of a

Company
Q1. Peter holds 99.99% of the shares of a timber company. Also, he is a major
creditor of the company. He ensures the company’s timber in his name. A few
months later, the company loses all the timber in an accidental fire. Peter claims the
insurance amount from the insurer. Is his claim valid?

Answer: As the company is a separate legal entity, it owns all rights to its
properties. Also, no shareholder has any right to any item of the property owned by
the company. Hence, Peter’s claim is invalid.  The insurer is not bound to pay him
compensation.