Question

Discuss the key legal attributes of a company? How does a company differ from a partnership business structure? 1000 words

Answer 1

(i) Artificial Person:

A company is created with the sanction of law by the shareholders but is not itself a human being. It is, therefore, called an artificial and since it is clothed with certain rights and obligations, it is called a person. Subsequently a company is accordingly an artificial person. It is independent and distinct from its members.

The decision of the House of Lands in Salomon vs Salomon and Co. Ltd. is a well-known authority of this principle where it was argued their company is a separate legal personality and altogether different from its members. A company can sue and be sued in its corporate name.

(ii) Limited Liability:

Limited of liability is another major advantage of incorporation. The company, being a separate entity, leading its own business life, the members are not liable for its debts. Each member is bound to pay the nominal value of the shares held by him and his liability ends there if the liability of that member is limited by shares which are a usual phenomenon.

(iii) Perpetual Existence/Succession:

The life of the company is endless. Its shareholders may die or they may transfer their shares or there may be new shareholders but all these things do not disturb the existence of the company, it goes for ever. “An incorporated company never dies”. In the words of Professor Gower “Members may come and go but companies remains forever”, not even a hydrogen bomb could destroy it. Thus, the death or insolvency of members does not affect the continued existence of the company. The company remains the same entity.

(iv) Transferability of Shares:

The shares should be capable of being easily transferred was the great object when joint stock companies were established. The share of the member shall be a transferable property in the manner provided by the articles of association. The unique advantage of this is that a member may sell his shares in the open market and get back his money, without affecting the capital structure of the company.

(v) Capital:

Every company has authorized share capital which is divided into small shares. The owners of the shares are known as shareholders.

(vi) Common Seal:

A company being an artificial person has to work through its directors, officers and officials. But it can be held bound by only those documents which bear its signatures. Common seal is the official signature of a company. When a company has any business or transaction in a place outside India, an exact reproduction of the common seal may be kept there.

For such use, there must be power in the articles of association. A person must be properly authorized to use the seal, which shall sign his name, and also put the name of the place and the fact that he has been authorized to do so by the specified resolution.

(vii) Articles of Regulations:

There are two main documents of the company. One of them is memorandum of association where the main objects of the company are specified and other document is articles of association in which ways and directions are suggested to get those objectives. The directions to managers cannot go beyond these documents.

(viii) Prescribed Mode of Winding Up:

It is the another feature of the company that its winding up is also directed by law. “Company is born under rules and dies under rules”. Like its inception, its winding up follow a complete and set procedure as prescribed by law.

So, these were some of the major characteristics of the company by which you might have followed the exact nature of this form of business organizations