The word ‘company’ is derived from the Latin word Com Panis (Com means ‘With or together’ and Panis means ‘Bread’), and it originally referred to an association of persons who took their meals together. In the leisurely past, merchants took advantage of festive gatherings, to discuss business matters.
In popular parlance, a company denotes an association of like minded persons formed for the purpose of carrying on some business or undertaking
In the legal sense, a company is an association of both natural and artificial persons and is incorporated under the existing law of a country.
A Private Limited Company, as defined by Section 2(68) of the Companies Act, 2013, is characterized by a minimum prescribed paid-up capital. Its articles of association impose specific restrictions:
- Share Transfer Restrictions: The company restricts the right to transfer shares, meaning shareholders cannot freely sell or transfer their shares without specified limitations.
- Membership Limit: With the exception of the One Person Company (OPC), a Private Limited Company limits its members to 200. In cases where two or more members jointly hold shares, they are treated as a single member.
- Prohibition of Public Subscription: The company is prohibited from making any public invitation for the subscription of its securities, emphasizing a private ownership structure.
Moreover, certain individuals are excluded from the count of company members. Employees of the company and former employees, who were members during their employment and continued to be members after leaving employment, are not considered as part of the membership count.
In common law, a company is a “legal person” or “legal entity” separate from, and capable of surviving beyond the lives of its members.
NATURE AND CHARACTERISTICS OF COMPANY
1. CORPORATE PERSONALITY:
A company incorporated under the Act is vested with a corporate personality so it bears its own name, acts under name, has a seal of its own and its assets are separate and distinct from those of its members. It is a different ‘person’ from the members who compose it. Therefore it is capable of:
- owning property,
- incurring debts,
- borrowing money,
- having a bank account,
- employing people,
- entering into contracts and
- suing or being sued in the same manner as an individual.
2. COMPANY AS AN ARTIFICIAL PERSON:
A Company is an artificial person created by law. It is not a human being but it acts through human beings. It is considered as a legal person which can enter into contracts, possess properties in its own name, sue and can be sued by others.
3. COMPANY IS NOT A CITIZEN:
The company, though a legal person, is not a citizen under the Citizenship Act, 1955 or the Constitution of India.
4. COMPANY HAS NATIONALITY AND RESIDENCE:
Though it is established through judicial decisions that a company cannot be a citizen, yet it has nationality, domicile and residence.
5. LIMITED LIABILITY:
“The privilege of limited liability for business debts is one of the principal advantages of doing business under the corporate form of organisation.” The company, being a separate person, is the owner of its assets and bound by its liabilities. The liability of a member as shareholder, extends to the contribution to the capital of the company up to the nominal value of the shares held and not paid by him.
6. PERPETUAL SUCCESSION:
An incorporated company never dies, except when it is wound up as per law. A company, being a separate legal person is unaffected by death or departure of any member and it remains the same entity, despite total change in the membership. Perpetual succession, means that the membership of a company may keep changing from time to time, but that shall not affect its continuity.
7. SEPARATE PROPERTY:
A company being a legal person and entirely distinct from its members, is capable of owning, enjoying and disposing of property in its own name. The company is the real person in which all its property is vested, and by which it is controlled, managed and disposed off.
8. TRANSFERABILITY OF SHARES:
The capital of a company is divided into parts, called shares. The shares are said to be movable property and, subject to certain conditions, freely transferable, so that no shareholder is permanently or necessarily wedded to a company. Section 44 of the Companies Act, 2013 enunciates the principle by providing that the shares held by the members are movable property and can be transferred from one person to another in the manner provided by the articles.
9. CAPACITY TO SUE AND BE SUED:
A company being a body corporate, can sue and be sued in its own name.
10. CONTRACTUAL RIGHTS:
A company, being a legal entity different from its members, can enter into contracts for the conduct of the business in its own name.
11. LIMITATION OF ACTION:
A company cannot go beyond the power stated in its Memorandum of Association. The Memorandum of Association of the company regulates the powers and fixes the objects of the company and provides the edifice upon which the entire structure of the company rests.
12. SEPARATE MANAGEMENT:
The members may derive profits without being burdened with the management of the company. They do not have effective and intimate control over its working and they elect their representatives as Directors on the Board of Directors of the company to conduct corporate functions through managerial personnel employed by them. In other words, the company is administered and managed by its managerial personnel.
13. VOLUNTARY ASSOCIATION FOR PROFIT:
A company is a voluntary association for profit. It is formed for the accomplishment of some stated goals and whatsoever profit is gained is divided among its shareholders or saved for the future expansion of the company.
14. TERMINATION OF EXISTENCE:
A company, being an artificial juridical person, does not die a natural death. It is created by law, carries on its affairs according to law throughout its life and ultimately is effaced by law. Generally, the existence of a company is terminated by means of winding up
Author Bio
In terms of the Companies Act, 2013 a “company” means a company incorporated under this Act or under any previous company law [Section 2 (20)] not Section 2 (68), Kindly correct it on your website. Companies Act Section 2(68) states that a company with the minimum paid-up share capital of one lakh rupees or higher as may be prescribed, is said to be a Private Company.
so wonderful to read the article very gently explain about the definition and also briefly explain but give a clear point of view about the company law. so thank you so much for providing this.