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According to Section 2(20) of the Companies Act, 2013, a Company means a company incorporated under this Act or under any previous company law.

This definition is not enough to understand the meaning of a company. For more clarity, let’s look at some below-mentioned definitions provided by Authorities-

Lord Justice Lindley – “A company is an association of many persons who contribute money or monies worth to a common stock and employed in some trade or business and who share the profit and loss arising therefrom. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute to it or to whom it pertains are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable although the right to transfer is often more or less restricted.”

Prof. Haney – “A company is an artificial person created by law, having separate entity, with a perpetual succession and common seal.”

Chief Justice Marshall – “A corporation is an artificial being, invisible, intangible, existing only in contemplation of the law. Being a mere creation of law, it possesses only the properties which the Charter of its creation confers upon it, either expressly or as incidental to its very existence.”

1] Incorporated Association

A company is required to be registered under the Companies Act 2013. Any association of persons that are not registered and subsequently incorporated with the Registrar of Companies as per the Companies Act 2013, is not recognized as a company at all.

2] Separate Legal Entity

A separate legal entity is a person recognised by law – a “legal person”. A company has a distinct entity and has its own legal rights and obligations, separate from those who are running the entity and its members. A company in the eyes of the law is distinct (separate) from the people who constitute it. It is capable of enjoying rights and is also subject to duties under the law. A company can also own and deal in property and other such assets. One point to be noted is that the company is not the agent or the trustee of the subscribers; it has its own distinct legal identity.

3] Limited Liability

As we can see the company has its own separate existence in the eye of the law. Neither the company is liable for the debt of its member nor are its members liable for the company’s debt. The losses that owners (shareholders) of a business firm may incur are limited to the amount of capital invested by them in the business and do not extend to their personal assets.

4] Transferability of Shares

The shares held by a shareholder of a company are transferable by nature. So the ownership in a company can be transferred in accordance with the manner provided in the Articles of Association subject to the provisions provided under the Companies Act 2013. The shares of a public company are freely transferable unless the company has a valid reason to disallow the same. The shares of a private limited company are not transferable subject to certain exceptions. A transfer deed is executed for the transfer of shares

5] Perpetual Existence

A company is an artificial person, so it does not have a restricted span of life. Death, insolvency, insanity, retirement etc. of any or even all of its members does not affect the status of a company. So, we can say members may come and go, however, the company exists forever until it is winded up with the procedure of law.

6] Common Seal

It is the signature of the company to any document on which it is affixed and binds the company to all obligations undertaken in the document. In other words, Common Seal is the official signature of the company. Directors of a company are essentially its agents. So when a director acts within his powers a company is bound by his actions. . The directors use the seal to sign documents on behalf of the company. So until there is such a seal on the documents, they cannot be enforced.

Author Bio

CS Ajay Gupta is a Practising Company Secretary and Sole proprietor of M/s Ajay Gupta & Associates( Based in Gurugram, Haryana), is here to provide expertise and share his rich experience in Secretarial and Non-Secretarial Compliances, Taxation, FEMA, SEBI, RBI, DGFT, Legal Due Diligence and NCL View Full Profile

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April 2024