Question

Justify the following statement.

A Joint Stock Company is an artificial person.

Answer 1

(1) A joint stock company is created by law, i.e. Companies Act, 1956, or a special Act of Parliament. It has its own independent legal personality. It is therefore called a corporate body or an artificial or legal person. Unlike a natural living person, it does not have life, body, soul, and mind. It exists only in the eyes of law. Although a joint stock company is owned by its members, its existence is distinct from its members. A company on its own can enter into contracts, purchase, sell and mortgage the property, raise loans, issue official receipts, and appoint persons as employees. It can perform all the acts through its directors.

(2) Even a member of a company, i.e. a part-owner can enter into a contract with the company. A company can sue or file a suit against a third party. Similarly, it can be sued by a third party in the court of law. Though a company can enter into contracts, it cannot sign by itself. For this purpose, the Common Seal of the company serves as its signature. But it is to be attested by two directors and the secretary, if necessary. Thus, though a company is not a natural person it performs all the acts of a natural person for the sake of business and therefore it is called an artificial person.