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What are the Characteristics of a Company?

Characteristics of a Company

A company as an entity has several distinct features, which together make it a unique organization. The following are the defining characteristics of a company: -

Separate Legal Entity

On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately.

Limited Liability

The liability of the members of the company is limited to contribution to the assets of the company up to the face value of shares held by him. A member is liable to pay only the uncalled money due on shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets. On the other hand, partners of a partnership firm have unlimited liability i.e. if the assets of the firm are not adequate to pay the liabilities of the firm, the creditors can force the partners to make good the deficit from their personal assets. This cannot be done in case of a company once the members have paid all their dues towards the shares held by them in the company.

Perpetual Succession

A company does not die or cease to exist unless it is specifically wound up or the task for which it was formed has been completed. Membership of a company may keep on changing from time to time but that does not affect life of the company. Death or insolvency of member does not affect the existence of the company.

Separate Property

A company is a distinct legal entity. The company’s property is its own. A member cannot claim to be owner of the company’s property during the existence of the company.

Transferability of Shares

Shares in a company are freely transferable, subject to certain conditions, such that no shareholder is permanently or necessarily wedded to a company. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares.

Common Seal

A company is a artificial person and does not have a physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal. Any document not bearing the seal of the company may not be accepted as authentic and may not have any legal force.

Capacity to sue and Being Sued

A company can sue or be sued in its own name as distinct from its members.

Separate Management

A company is administered and managed by its managerial personnel i.e. the Board of Directors. The shareholders are simply the holders of the shares in the company and need not be necessarily the managers of the company.

One Share-One Vote:

The principle of voting in a company is one share-one vote. I.e. if a person has 10 shares, he has 10 votes in the company. This is in direct contrast to the voting principle of a co-operative society where the “One Member - One Vote” principle applies i.e. irrespective of the number of shares held; one member has only one vote.
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