Question

Describe the characteristics of the Company.

Answer 1

1. Association of Persons: A company is formed voluntarily by a group of persons to perform a common business. The minimum number of persons for forming a private company is 2, and for a public company, 7.
2. Artificial Person: A company is an artificial and juristic person that is created by law.
3. Separate Legal Entity: A company has a separate legal entity from its members (shareholders) and Directors. It can open a bank account, sign a contract, and own property in its own name.
4. Limited Liability: The liability of the members of a company is limited to the nominal value or the face value of the shares. Unlike in a partnership firm, in the insolvency of a company, the members and shareholders are not liable to pay the amount due to the company’s creditors. In fact, members and shareholders are liable only for the unpaid amount on the shares they hold. For example, if the share is valued at Rs 10 and Rs 6 has been paid up, then the member is liable to pay only Rs 4.
5. Perpetual Existence: The existence of the company is not affected by the death, retirement, or insolvency of its members. That is, a company’s life remains unaffected by its members’ tenure. The life of a company is perpetual until it is properly wound up under the Companies Act.
6. Common Seal: The Company is an artificial person and has no physical existence; hence, it cannot sign. Thus, the Common Seal serves as a company’s official signature, validating official documents.
7. Transferability of Shares: The shares of a public limited company are freely transferable without the consent of other members. But the share of ownership of a private limited company is not transferable without the consent of the other members.