Definition and features of a company

Definition and features of a company

1. Definition & Features of a Company

  • Word ‘company’ is composition of two Latin words 
  • ‘Com’=with or together & ‘panis’ =bread 
So based upon these words and their meaning, Company is referred to ‘an association of persons’ who ‘took/earn their meals’ together. In popular trade parlance, a company is an association of likeminded persons, who come together for the purpose of carrying on some business.

As per section 2(20) of the Companies Act, 2013 a “company” means  ‘A company incorporated under this Act (Companies act, 2013) or under any previous company law (Companies Act, 1956 or any previous law)’
To understand more about company it is better to examine the salient features of ‘company’, as follows;
  1. Separate legal entity – Company is a separate legal person and artificial person. It is distinguished from the shareholders of the company. 
  2. Limited liability – The liability of the members of a company having share capital is limited to the extent of the nominal value of the shares held by them. The shareholders cannot be called upon to pay more than the unpaid value of his shares, whatever may be the indebtedness of the company; Companies Act, 2013 
  3. Perpetual succession- The Company has its existence from the time of incorporation to winding up. Members may go and members may come but the company survives up to the winding up; 
  4. Separate property – The company is having right to acquire properties for its own and to transfer the said properties; 
  5. Common seal – The common seal is used by the company for affixing it in the documents such as contract etc., since it is artificial person and cannot sign on its own in the documents. Now the common seal is made at the option of the company. It is required affix, common seal on certain documents (such as bill of exchange, share certificates, etc.) under companies act 2013, but now instead that it may be signed by ‘either of managing director or two directors’ and ‘company secretary’. 
  6. Transferability of shares – The shares of the members, except in the private company, may be freely transferable. 
  7. Capacity to sue and be sued – Being a separate legal entity the company is having capacity to sue others and it can be sued by others. 
  8. Separate Management – Members are not actively taking part in management of business of company, although they are decision maker on certain matters of Annual general meeting. Corporate is managed by directors (collectively known as Board of Dirctors), who act as agent on behalf of members at large. 

2. Distinction between Company and Partnership

Basis Partnership Joint Stock Company
Legal Status A firm is not a legal entity i.e., it has no separate legal personality from the personalities of its constituent members. A company is a distinct/ separate legal entity from its members (decided in case of Salomon v. Salomon).
Agency In a firm, partner is considered an agent of the fellow partners, and also of the firm. Member of company is not an agent to company or other members & his actions do not bind either.
Division of profits The profits of firm are distributed among the partners according to the partnership deed. If deed is silent then equally Members are usually getting the dividend out of profit of the company, but that is also not always. Company may transfer its profit to reserve. Dividend is proposed by directors, although ratified or declared by members.
Extent of liability In majority of partnership (except the partnership under Limited Liability Partnership act 2008), the liability of the partners is unlimited. Meaning there by partner is liable upto his private property also, if the asset of firm is insufficient to meet overdue debt. Although company can be
1. Limited by Share
2. Limited by Guarantee
3. Unlimited Company
But most of companies are limited by shares, Where the liability of a shareholder is limited to the amount, if any, unpaid on his shares,
In case of a guarantee company, the liability is limited but upto the amount for which member has agreed to be liable.
Property Property of firm is known as ‘common estate’ and such is common pool of asset of firm contributed by partners. Assets are used by firm, but own by respective partner who contributes it. Property of company is known as, ‘Joint Stock’ which is Separate from the personnel property of individual member. Joint stock can be provided back to members only in form of dividend or repayment of capital in event of winding up.
Transfer of shares In partnership firm, partner can’t transfer his share, without the consent of all fellow members. In company, subject to the provisions of article of association, member can freely transfer their share (except the private company).
Management In majority of firms, management of firms’ activity can be taken care by any of partner. Although they can mutually decide and provide something other expressly, in partnership deed. Members are not actively taking part in management of business of company; it is managed by directors, who act as agent on behalf of members at large.
Note – on some matters, decision making power is remain with member, he can vote in Annual General Meeting.
Registration Registration of firm is optional. A company can’t commence the business unless, it is registered with Ministry of Corporate Affairs
Winding up Firm can be dissolved by consent of all partners also, apart from certain event and order by court. A company is legal person hence order of winding-up of company need to be passed only by court of valid jurisdiction.
Number of maximum members Section 464 of the Companies Act, 2013, specifies the maximum number of partners in any association may be upto 100.
However, in the Companies (Miscellaneous) Rules, 2014 maximum limit is restricted to 50.
Note – Act will prevail over rule, so 100
There is no upper limit in case of public company, but in case of private company the maximum number of members can be 200.
Duration of existence Firm is needed to be dissolved in case of Death, Insolvency, and Incapacity of any partner of firm. Company has perpetual succession.

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