The features of a company denote its unique attributes and distinguish it from other forms of business entities like sole proprietorships or partnerships. It is an artificial legal person created under the provisions of the Companies Act, 2013, and has its distinct identity separate from its members. This article is about what a company means, the features of a company, and the various types of companies, through comprehensive knowledge regarding its structure and operations.
What is a Company?
A company is an artificial legal person created by law and possesses the rights and responsibilities of a natural person. As per the Companies Act, 2013, it is an incorporated organization formed and registered under the act. The famous jurist Chief Justice Marshall described a company as “an artificial, invisible, intangible person existing only in the eyes of the law.
A company pools resources from its members, called shareholders, for a collective purpose, and its operations are governed by a Board of Directors elected by these shareholders. This structure therefore ensures the organization’s continuity, limited liability, and efficient governance.
Features of a Company
The features of a company make it one of the most popular forms of business organization. These features define the structure, operations, and governance of the company.
Separate Legal Entity: A company is regarded as a separate legal entity from its shareholders or members. It can own assets, incur liabilities, and enter into contracts on behalf of the owners and independently. The securitization protects shareholders from getting personally liable to the actions of the company.
Limited Liability: The liability of shareholders is capped at the amount unpaid on their shares. For instance, a shareholder owning shares worth ₹10,000 and having paid ₹7,500 against them is liable only for ₹2,500 in case of liquidation. This protects the personal assets of shareholders from the company’s debts.
Perpetual Succession: A company enjoys perpetual existence, and is not affected by the death, insolvency, or retirement of its shareholders. The change in membership or ownership cannot affect the business. This entity continues to exist until legally dissolved.
Transferability of Shares: In a public limited company, shares can be freely transferred without seeking approval from other shareholders or the company. This feature allows liquidity for investors, enabling them to exit their investments easily. Private companies, however, may impose restrictions on the transfer of shares as per their Articles of Association.
Artificial Legal Person: A company is a creation of law and exists only in the eyes of the law. While it enjoys legal rights like a natural person, such as owning property or filing lawsuits, it cannot perform physical acts like signing documents or attending meetings. These activities are carried out by its representatives, such as directors or officers.
Common Seal: Historically, a company used a common seal as its official signature to validate documents and agreements. Though the Companies Act, of 2013, has made the use of a common seal optional, it remains an important identifier for some companies.
Capacity to Sue and Be Sued: A company can initiate legal proceedings in its name to enforce rights or settle disputes. Similarly, it can be sued for failing to meet its legal or contractual obligations.
Distinct Ownership and Management: Shareholders own the company, but management is vested in the Board of Directors. This separation ensures professional and unbiased decision-making in the company’s affairs.
Kinds of Companies
Companies can be classified based on their liability, ownership, or purpose. Below are the primary categories:
Based on Liability
Companies Limited by Shares: Members’ liability is limited to the unpaid portion of their shares. For example, if a shareholder owns 100 shares valued at ₹10 each and has paid ₹800, they can only be held liable for ₹200.
Companies Limited by Guarantee: Members guarantee a specific sum to be paid if the company is wound up. This type is common for non-profit organizations where members’ liability arises only during liquidation.
Unlimited Companies: There is no limit to the liability of members. Creditors can claim debts from members’ assets if the company’s assets are insufficient.
Based on Ownership
Private Limited Company: Membership is limited to a minimum of 2 and a maximum of 200 (excluding employees). Shares are not freely transferable, and public subscription is not allowed. Family businesses or closely held corporations often chose him.
Public Limited Company: Shares can be freely traded on stock exchanges, offering liquidity to shareholders. Requires a minimum of 7 members, with no cap on maximum membership. Suitable for large-scale enterprises seeking public funding.
One-Person Company (OPC): A single individual owns and manages the company. It combines the benefits of limited liability with the simplicity of sole proprietorship.
Based on Purpose
Non-Profit Organizations: Exists for charitable, social, or cultural reasons rather than to earn profit. Profit surpluses are reinvested in their activities.
Government Companies: The government holds at least 51% of the equity share capital. For instance, public sector undertakings include ONGC and SAIL.
Conclusion
The characteristics of a company make it a robust and efficient form of business organization, especially well-suited for large-scale operations. Its distinct legal identity, limited liability, perpetual succession, and ability to pool capital from a wide base of investors are principal advantages. Companies have changed the map of business because they have provided mediums of growth, investment, and innovation. A deep understanding of these features is important in the decision-making process of stakeholders about their associations with corporate entities.
Features of a Company FAQs
What are the key features of a company?
The main features of a company include having a separate legal identity, limited liability, perpetual succession, the transferability of shares, and statutory compliance.
What is the definition of a company under the Companies Act, 2013?
A company, in the context of the Companies Act, 2013, is a legal entity, human created by law, having an identity different from its members with distinct rights and liabilities.
What are the advantages of a company structure?
Limited liability to shareholders, easy raising of capital, continuation of existence, professional management, and transferability of shares.
What is the difference between a private company and a public company?
Private companies have restrictions on transfers of shares have restricted membership of 200 and can not invite public investment. A public company has a free transfer of shares with no maximum membership.
How does perpetual succession benefit a company?
Perpetual succession ensures the company’s existence is not affected by changes in ownership, death, or insolvency of its members, providing stability and continuity.