corporate law

1. Meaning and Features of Company
By:
Mrs. Seema Mahajan
Assrt. Prof. in Commerce
Pt. Mohan Lal S.D. College For Women
Gurdaspur

2. Companies Act 2013
Meaning and Features of a Company
With a phenomenal change in the domestic
and international economic landscape, the Government of
India decided to replace the Companies Act, 1956 with a
new legislation. The Companies Act, 2013, endeavours to
make the corporate regulations in India more
contemporary. Now, we will focus on the meaning and
features of a Company.

3. Definition of Company
There are many definitions of a Company by various legal
experts. However, Section 2(20) of the Companies Act,
2013, defines the term ‘Company’ as follows:
“Company means a company incorporated under this Act or
under any previous company law.”
Hence, in order to understand the meaning of a
Company, it is important to look at the distinctive features
that explain the realm of a Company.

4. Features of Company

5. Features of Company
A Comany is a Separate Legal Entity
 One of the most distinctive features of a Company, as compared to
other organizations, is that it acquires a unique character of being a separate
legal entity. Hence, when you register a company, you give it a legal
personality with similar rights and powers as a human being.
 The existence of a company is distinct and separate from that of its members.
It can own property, bank accounts, raise loans, incur liabilities and enter into
contracts. According to Law, it is altogether different from the subscribers to
the Memorandum of Association.
 Also, it has a distinct personality which is different from those who compose
it. Member can also contract with the Company and acquire a right against it
or incur a liability to it. However, for any debts, the creditors can sue the
Company but the members cannot.
 A Company can own, enjoy, and dispose of a property in its own name. While
the shareholders contribute to the capital and assets, the company is the
rightful owner of such assets and capital. Further, the shareholders are not
private or joint holders of the company’s property.

6. Saloman Vs Saloman Ltd.
The principal of separate of legal entity was explained and emphasized in the famous
case of Salomon v Salomon & Co. Ltd. The facts of the case are as follows : Mr. Saloman,
the owner of a very prosperous shoe business, sold his business for the sum of $ 39,000 to
Saloman and Co. Ltd. which consisted of Saloman himself, his wife, his daughter and his
four sons. The purchase consideration was paid by the company by allotment of & 20,000
shares and $ 10,000 debentures and the balance in cash to Mr. Saloman. The debentures
carried a floating charge on the assets of the company. One share of $ 1 each was
subscribed by the remaining six members of his family. Saloman and his two sons
became the directors of this company. Saloman was the managing Director. After a short
duration, the company went into liquidation. At that time the statement of affairs’ was
like this: Assets :$ 6000, liabilities; Saloman as debentureholder $ 10,000 and unsecured
creditors $ 7,000. Thus its assets were running short of its liabilities b $11,000 The
unsecured creditors claimed a priority over the debenture holder on the ground that
company and Saloman were one and the same person. But the House of Lords held that
the existence of a company is quite independent and distinct from its members and that
the assets of the company must be utilized in payment of the debentures first in priority
to unsecured creditors. Saloman’s case established beyond doubt that in law a registered
company is an entity distinct from its members, even if the person hold all the shares in
the company. There is no difference in principle between a company consisting of only
two shareholders and a company consisting of two hundred members. In each case the
company is a separate legal entity.

7. Perpetual Succession
 Another important feature of a Company is that it
continues to carry on its business notwithstanding the
death of change of its members until it is wound up on
the grounds specified by the Act. Further, the shares of
the company change hands infinitely, but that does
not affect the existence of the company.
 In simple words, the company is an artificial person
which is brought into existence by the law. Hence, it
can be ended by law alone and is unaffected by the
death or insolvency of its members.

8. Limited Liability
 One of the important features of a company is the limited liability of its
members. The liability of a member depends on the type of company.
 In the case of a limited liability company, the debts of the company in
totality do not become the debts of its shareholders. In such a case, the
liability of its members is limited to the extent of the nominal value of
shares held by them. The shareholders cannot be asked to pay more
than the unpaid value of their shares.
 In the case of a company limited by guarantee, members are liable only
to the extent of the amount guaranteed by them. Further, this liability
arises only when the company goes into liquidation.
 Finally, if it is an unlimited company, then the liability of its members
is unlimited too. But such instances are very rare.

9. Artificial Legal Person
 Another one of the features of a company is that it is known as an Artificial
Legal Person.
 Artificial – because its creation is by a process other than natural birth.
 Legal – because its creation is by law, and
 Person – because it has similar rights to a human being.
 Further, a company can own property, bank accounts, and do everything that a
natural person can do except go to jail, marry, take an oath, or practice a
learned profession. Hence, it is a legal person in its own sense.
 Since a company is an artificial person, it needs humans to function. These
humans are Directors who can authenticate the company’s formal acts either
on their own or through the common seal of the company.

10. Common Seal
 While a company is an artificial person and works through the agency
of human beings, it has an official signature. This is affixed by the
officers and employees of the company on all its documents. This
official signature is the Common Seal.
 However, the Companies (Amendment) Act, 2015 has made the
Common Seal optional. Section 9 of the Act does not have the phrase
‘and a common seal’ in it. This provides an alternative mode of
authorization for companies who do not wish to have a common seal.
 According to this amendment, if a company does not have a common
seal, then the authorization shall be done by:
 Two Directors or
 One Director and the Company Secretary (if the company has
appointed a Company Secretary).

11. Solved Example on Meaning and Features of a Company
 Q1. Peter holds 99.99% of the shares of a timber
company. Also, he is a major creditor of the company. He
ensures the company’s timber in his name. A few months
later, the company loses all the timber in an accidental fire.
Peter claims the insurance amount from the insurer. Is his
claim valid?
 Answer: As the company is a separate legal entity, it owns
all rights to its properties. Also, no shareholder has any
right to any item of the property owned by the company.
Hence, Peter’s claim is invalid. The insurer is not bound to
pay him compensation.

12. Thank you