A company is a voluntary and autonomous association of certain persons with capital divided into numerous transferable shares formed to carry out a particular purpose in common. It is an artificial person created by law to achieve the object for which it is formed. Section 2(20) of the Companies Act, 2013 defines a company as “Company formed and registered under this Act or an existing company.” An existing company means a company formed and registered under any of the former Companies Acts. Thus it is an abstract person, invisible, intangible and existing only in contemplation of law. It can hold, purchase or sell both movable and immovable property, incur and pay debts, open a bank account in its own name and sue and be sued in the same manner as an individual. Law creates it and law only can dissolve it. Its existence is altogether independent of the life of its members. Members may come and go but the company would go on forever. Transferability of shares has given perpetual succession to a company. Death, insanity or insolvency of a member or any member will not affect the existence of the company at all. A company is a legal entity quite distinct and separate from the persons who are its members. A company cannot ordinarily buy its own shares. A shareholder is not the agent of the company. He cannot incur any debt so as to bind the company. They cannot bind the company by their acts. The same person can be a shareholder and a creditor of the company. The ownership is divorced from management because a joint stock company is’ managed by a Board of Directors elected by the shareholders (i.e. owners).
Characteristics of a Company
The main characteristics of a company are:
i. It is a distinct legal person existing independent of its members
ii. Liability of the members is limited to the extent of the face value of shares held by them.
iii. It has a perpetual succession, i.e, the members of the company may keep on changing from time to time but this does not affect the company’s continuity.
iv. The shares of a company are freely transferable except in case of a Private limited Company.
v. A company being a legal person is capable of owing, enjoying and disposing of the property in its own name.
vi. A company, being a separate body can sue and be sued in its own name.
vii. Though a company is an artificial person yet it acts through human beings who are called directors of the company. There is a divorce between ownership and the management.
viii. It is a voluntary association of persons usually for profit.
