Meaning and Definition of a Company
“Company” in the common usage refers to a voluntary association of individuals formed for the purpose of attaining a common social or economic end. Strictly speaking, the term “Company” has no technical or legal meaning. In the common law, a company is a juristic personality or legal person separate from its members. Thus, it exists only in the contemplation of law.
In other words, a company is an artificial or legal person created and devised by the laws for a variety of purposes such as promotion of charity, art, research, religion, commerce or business. The company, just like a natural person possesses similar rights and owes similar obligations, but has neither a mind nor a body of its own.
Eminent scholars and writers have defined the term. Some of the definitions are give below:
Definition of Yale Law Journal: “A company is an intricate, centralized, economic, administrative structure run by professional managers who hire capital from the investors”.
Characteristics of a Company
The definitions quoted above illuminate the principal attributes of a company, otherwise known as a corporation. They are given below:
1. Legal Personality
The law divides person into two kinds viz.,
- natural persons, and
- legal persons.
Natural persons are human persons such as men, women, children etc. The natural persons are the creations of nature.
Legal persons or artificial persons, on the other hand, are created and devised by human laws i.e. created by a legal process and not through natural birth. An artificial person, though abstract, invisible and intangible, can do everything like a natural person except a few acts, which only natural persons can do.
A company is a distinct legal person, existing independent of its members. The independent corporate existence is the outstanding feature of a company.
2. Limited Liability
The principle of limited liability is a feature as well as a privilege of the corporate form of enterprise. In other words, the liability of the members is limited. It means that the shareholders enjoy immunity from liability beyond a certain limit. A shareholder cannot be called upon to pay anything more than the unpaid value
of the share that he has undertaken to pay under a contract between himself and the company.
3. Perpetual Succession
As a juristic person, a company enjoys perpetual succession. In other words, a company never dies, nor its life depends on the life of its members. Even if all the members die, it shall not affect the privileges, immunities, estates and possessions of the company.
4. Right to Property
A company, being a legal person has a right to acquire, possess and dispose of property in its own name. Its property is not that of the shareholders. Although the members contribute the capital and assets of company, the property of the company will not be considered as the joint property of the members constituting the company.
5. Common Seal
The common seal is considered as the Official Signature of the company. Its common seal must authenticate all the acts. When common seal is affixed on a document, it is considered as the authoritative document of the company. The secretary of the company should keep the seal under lock and key. He should make use of it only according to the directions of the Board of Directors.
6. Transferability of Shares
The capital of a company is divided into several small parts known as shares.The primary objective of joint stock companies is that it should be able to transfer shares easily. The law also considers the share of a company as movable property and hence like any other movable asset, the shareholder can transfer his title over his share to some other person.
7. Capacity to Sue and be Sued
A company being a legal person, can sue other persons in its corporate name. Similarly, others can also sue the company in their own name. It can also be fined for contravening any law but it cannot be imprisoned for a criminal offense.
8. Not a Citizen
Although a company is a legal person, it is not a citizen under the Indian Constitution. It can act only though natural persons.