What is meant by the word
Describe its characteristics.
The Section 3 (1) (i) of the Company Act of 1956 defines an
organisation as a company that is formed and registered under the
Act or any existing company that is formed and registered under
any earlier company laws. In general, a company is an artificial
person, created by law that has a separate legal entity,
perpetual succession, common seal and has limited liability. It
is a voluntary association of person who together contributes in
the capital of the company to do business. Generally, the capital
of a company is divided into small parts known as shares, the
ownership of which is transferable subject to certain terms and
conditions. There are two types of company, public company and
Characteristics of Company
1. Association of Person: A company is formed voluntarily
by a group of persons to perform a common business. Minimum
number of person should be two for formation of a private company
and seven for a public company.
2. Artificial Person: Company is an artificial and
juristic person that is created by law.
3. Separate Legal Entity: A company has a separate legal
entity from its members (shareholders) and Directors. It can open
a bank account, sign a contract and can own a property in its own
4. Limited Liability: The liability of the members of a
company is limited up to the nominal value or the face value of
the shares. Unlike a partnership firm, on insolvency of a
company, the members and the shareholders are not liable to pay
the amount due to the creditors of the company. In fact, the
members and the shareholders are only liable to pay the unpaid
amount of the shares held by them. For example, if the value of
share is Rs 10 and Rs 6 is paid up, then the member is liable to
pay only Rs 4.
5. Perpetual Existence: The existence of company is not
affected by the death, retirement, and insolvency of its members.
That is, the life of a company remains unaffected by the life and
the tenure of its members in the company. The life of a company
is infinite until it is properly wound up as per the Company Act.
6. Common Seal: The Company is an artificial person and
has no physical existence; hence it cannot put its signature.
Thus, the Common Seal acts as an official signature of a company
that validates the official documents.
7. Transferability of Shares: The shares of public limited
company is easily and freely transferable without any consent
from other members. But the share of ownership of a private
limited company is not transferable without the consent of the
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