Special Features of a Company¶
Companies are distinguished from other forms of organizations by specific features that define their legal structure and operational functions. These features not only demarcate a company's legal identity but also influence its interactions with stakeholders and society at large.
1. Incorporated Association¶
A fundamental aspect of a company is its status as an incorporated association, necessitating registration under the Companies Act, 2013. This legal requirement ensures that a company is recognized by law, providing it with a unique identity separate from its members or shareholders. The process of incorporation imbues the company with legal rights and responsibilities, distinguishing it from informal associations or partnerships which lack such formal recognition and protection under the law.
2. Artificial Legal Person¶
Unlike a natural person, a company is an artificial legal person, created by law. This means it has its own legal personality, separate from its founders, shareholders, and managers. This conceptualization allows a company to own property, incur debts, enter into contracts, and conduct business in its own name, rather than through the individuals who manage or have stakes in it.
3. Separate Legal Entity¶
Closely related to being an artificial legal person, a company enjoys the status of a separate legal entity. This distinct legal existence means that the company can engage in legal actions, own assets, and incur liabilities independently of its members. As a result, shareholders have the right to enter into contracts with the company and can also initiate legal proceedings against it, or be sued by it, in a manner similar to interactions between two natural persons.
4. Limited Liability¶
The concept of limited liability protects the personal assets of a company's shareholders. Their liability is limited to the amount invested in the company through shareholdings or the guarantee provided. This feature is crucial in encouraging investment, as it reduces the financial risks involved for shareholders, limiting their potential losses to the extent of their contributions to the company's capital.
5. Transferability of Shares¶
Shares in a public limited company are designed to be freely transferable, allowing shareholders to sell their stake without undue restrictions. This facilitates liquidity and makes the shares more attractive to investors. However, private limited companies may impose conditions on the transfer of shares to maintain control within a closed group of shareholders, balancing the need for investment with the founders' desire to retain control over the company's direction.
6. Common Seal¶
Historically, the common seal served as the corporate signature, symbolizing the company's approval of documents and contracts. While its use has diminished over time, with many jurisdictions no longer mandating it, the common seal represents the company's ability to operate and make decisions through its designated representatives, rather than directly by its members or directors.
7. Perpetual Existence / Succession¶
A company's existence is not affected by the personal circumstances of its shareholders or directors. It has perpetual succession, meaning it can continue to exist indefinitely, beyond the lives of its initial founders or any of its members. This ensures stability and continuity of operations, making the company a more reliable entity for conducting business, entering into contracts, and holding assets over the long term.
8. Number of Members¶
The law stipulates minimum and maximum numbers of members for different types of companies. Public limited companies require at least seven members but have no upper limit, allowing them to raise capital from the public at large. Private limited companies, on the other hand, need a minimum of two members and are limited to a maximum of 200, reflecting their more closed and controlled ownership structure.
9. Separate Property¶
As a separate legal entity, a company owns its property independently of its members. This separation ensures that the company's assets are utilized for its purposes and obligations, safeguarding them from being claimed by creditors of its members. This feature underscores the distinction between the company as an operational entity and the personal financial affairs of its shareholders.
10. Capacity to Sue and Be Sued¶
The company's legal identity allows it to initiate or defend against legal proceedings in its own name. This capacity reinforces the company's status as a separate entity, capable of asserting its rights, fulfilling its obligations, and being held accountable for its actions independently of its members.
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