What Is A Company

What is a Company?
Company is an association of person who takes their meals together. The

term is derived from the Latin word (“com” meaning “with” or “together”;
“panis” that is “bread”) Section 2(20) of Companies Act, 2013 states that a
company means any association of person registered under the present or
the previous companies act. It is called a “body corporate” because the
persons composing it are made into one body by incorporating it according to
the law and clothing it with legal personality.
The following are some popular definitions of a “company”
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.”
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.”
Prof. Haney – “A company is an artificial person created by law, having

separate entity, with a perpetual succession and common seal.”
Important Characteristics of a Company

1. Voluntarily Incorporated Association
The most fundamental characteristic of a company is its incorporation. A

company comes into existence only after it is registered under the Companies
Act. This process of incorporation endows the company with its legal status,
distinguishing it from other forms of business organisations such as
partnerships or sole proprietorships.
A company is typically a voluntary association formed by individuals or a

group of individuals with a shared objective. In most cases, this objective is
profit-making. However, there are exceptions, such as Section 8 of Companies
Act, which are not primarily profit-oriented.
Instead, these companies are formed for promoting charitable, scientific or
educational objectives. This characteristic highlights the flexibility of the
company structure, making it suitable for various purposes.
2. Artificial Person Created by Law
Perhaps one of the most fundamental characteristics of a company is that it is

an artificial person created by law. This means that a company is considered a
legal person in the eyes of the law, capable of engaging in various legal
activities.
As a legal entity, a company can enter into contracts, own property in its name
and sue or be sued by others. This characteristic is pivotal in allowing
companies to operate independently and engage in a wide range of business
activities.
Case Law: Union Bank of India vs. Khader International Constructions and
others (1993)
The significance of a company being treated as an artificial person is

exemplified in legal cases like Union Bank of India vs. Khader International
Constructions. In this case, the Supreme Court of India held that the term
‘person,’ as mentioned in Order 33, Rule 1 of the Civil Procedure Code, 1908,
includes any company.
Therefore, a company has the legal capacity to file a suit as an indigent (poor)
person, emphasising its status as a legal entity.
3. Not a Citizen
While a company is recognised as a legal person, it is important to note that it

is not a citizen. Unlike individuals who have citizenship status, a company does
not possess citizenship rights. Instead, it can only act through natural persons
who represent and manage its affairs.
However, certain fundamental rights provided by the Indian Constitution to

protect individuals, such as the right to equality (Article 14), are also applicable
to companies. This distinction ensures that companies have specific legal
rights while acknowledging their non-citizen status.
4. Separate Legal Entity
One of the defining characteristics of a company is its status as a separate

legal entity. When a company is incorporated under the Companies Act, it is
treated as a distinct person independent of its members or shareholders.
This separation means that the company is responsible for its own actions,
obligations and liabilities. Consequently, the company can enter into contracts,
own property and incur debts in its own name.
Case Law: Salomon vs. Salomon (1895)
The principle of a company’s separate legal entity is exemplified in the

landmark case of Salomon vs. Salomon. In this case, Mr. Salomon had a
personal business in leather and shoe manufacturing. He later created a
company and sold his previous business to this company.
While he held the majority of the company’s shares, the court ruled that the
company was a separate entity from Mr. Salomon. This distinction protected
Mr. Salomon from being personally liable for the company’s debts, reinforcing
the concept of separate legal personality.
5. Limited Liability
A critical feature of companies is the concept of limited liability, which

provides a shield for shareholders against personal liability for the company’s
debts and obligations. This limited liability can take two forms:
a. Company Limited by Guarantee: In this type of company, the liability of

shareholders is limited to a specific amount guaranteed by them in the
memorandum of association. Shareholders are obligated to contribute this
amount only in the event of the company’s winding-up or if the company
incurs losses.
b. Company Limited by Shares: In companies limited by shares,

shareholders’ liability is limited to the extent of the unpaid money on the
shares they hold. In other words, shareholders are responsible for paying the
outstanding amounts on their shares, but their personal assets are protected
beyond this commitment.
6. Perpetual Succession
Companies possess the unique characteristic of perpetual succession.

Perpetual succession means that a company’s existence is not influenced by
the death, insolvency or departure of its members or shareholders.
Unlike other forms of business entities, a company’s life is not tied to the lives
of its owners. It can continue to operate indefinitely unless legally dissolved
through the process of winding up.
7. Transferability of Shares
Under the Companies Act, there are three main types of companies: public
companies, private companies and One Person Companies (OPCs). The
transferability of shares varies among these categories.
Public Company: Public companies allow for the free transfer of shares from
one person to another. Shareholders in a public company can buy and sell
their shares without significant restrictions.
Private Company: In contrast, private companies impose restrictions on the

right to transfer shares. These restrictions are typically outlined in the
company’s articles of association and may involve conditions regarding to
whom shares can be transferred and for what consideration.
One Person Company (OPC): OPCs, as the name suggests, are designed for
single-person ownership. In OPCs, share transferability is not allowed, as there
is only one shareholder.
8. Separate Property
Another crucial aspect of a company’s characteristics is its possession of

separate property. Since a company is considered a distinct legal entity, it can
own, enjoy and dispose of properties in its own name. This separation of
property is significant in protecting the company’s assets and ensuring that
they are distinct from the personal assets of its shareholders.
Case Law: RF Perumal vs. H. John Deavin (1958)

The case of RF Perumal vs. H. John Deavin underscores the principle that no
member can claim ownership of the company’s property during its existence
or liquidation. In this case, it was established that a company cannot have an
insurable interest in its property, reinforcing the concept of separate property
ownership.
9. Capacity to Sue and Be Sued
As a separate legal entity, a company has the capacity to sue and be sued in
its own name. This legal capacity extends to various scenarios, including the
company’s right to initiate legal actions against others and its susceptibility to
legal actions brought by third parties. Additionally, a company can sue its own
members when necessary.
Case Law: Abdul Haq vs. Das Mal (1910)
The case of Abdul Haq vs. Das Mal is an illustrative example of a company’s
capacity to sue. In this case, an employee sued the directors of the company
for unpaid salary. The court ruled that the remedy for such a claim lies against
the company itself and not against its directors or members. This emphasises
the distinct legal personality of a company.
10. Contractual Rights
Companies possess the capacity to enter into contracts in their own name.
This contractual right enables companies to engage in various business
transactions, including agreements with suppliers, customers, employees and
other entities.
When a company enters into a contract, it does so as a separate legal entity

and the contract is binding on the company itself.
11. Limitation of Action
A significant characteristic of companies is the limitation of their actions by the

contents of their Memorandum of Association. The Memorandum of
Association defines the company’s powers and objectives, serving as a guiding
document for its activities.
Any actions taken by a company beyond the scope of its Memorandum of

Association are considered ultra vires and, therefore, void. This limitation
ensures that a company operates within the legal framework defined by its
objectives.
12. Separate Management
In contrast to some other forms of business structures, such as partnerships or

sole proprietorships, members of a company can derive profits from their
ownership without being actively involved in the day-to-day management of
the company.
This separation of ownership and management allows for flexibility in how a

company is structured and operated. Shareholders can focus on their
investments without having to take on managerial responsibilities.
13. Termination of Existence
A key aspect of a company’s characteristics is its mode of termination. A

company is created by law, conducts its affairs within the bounds of the law
and can only be terminated through the legal process of winding up.
This termination process involves settling the company’s affairs, distributing

assets to creditors and shareholders and ultimately dissolving the company.
The existence of a company can be terminated, but only through the
prescribed legal procedures.
Conclusion
Any association of person to be called a company is to be registered under
the procedure prescribed by the Law. An incorporated organisation is queued
with a bundle of advantages, which a partnership firm or any other business
organisation does not have.
Therefore, understanding the characteristics of a company is essential for navigating

the corporate world. The separate legal entity status, limited liability, perpetual
succession and transferability of shares are the pillars that support the company
structure. These features provide the company with the flexibility to grow and adapt,
while also ensuring a framework of accountability and regulation. As the business
environment evolves, so does corporate law, reflecting the dynamic nature of companies
and their role in the economy.

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What is a Company?

Company is an association of person who takes their meals together. The

The following are some popular definitions of a “company”

Lord Justice Lindley – “A company is an association of many persons who

Chief Justice Marshall – “A corporation is an artificial being, invisible,

Prof. Haney – “A company is an artificial person created by law, having

Important Characteristics of a Company

The most fundamental characteristic of a company is its incorporation. A

A company is typically a voluntary association formed by individuals or a

2. Artificial Person Created by Law

Perhaps one of the most fundamental characteristics of a company is that it is

The significance of a company being treated as an artificial person is

While a company is recognised as a legal person, it is important to note that it

However, certain fundamental rights provided by the Indian Constitution to

One of the defining characteristics of a company is its status as a separate

Case Law: Salomon vs. Salomon (1895)

The principle of a company’s separate legal entity is exemplified in the

A critical feature of companies is the concept of limited liability, which

a. Company Limited by Guarantee: In this type of company, the liability of

b. Company Limited by Shares: In companies limited by shares,

Companies possess the unique characteristic of perpetual succession.

Private Company: In contrast, private companies impose restrictions on the

Another crucial aspect of a company’s characteristics is its possession of

Case Law: RF Perumal vs. H. John Deavin (1958)

9. Capacity to Sue and Be Sued

Case Law: Abdul Haq vs. Das Mal (1910)

10. Contractual Rights

When a company enters into a contract, it does so as a separate legal entity

11. Limitation of Action

A significant characteristic of companies is the limitation of their actions by the

Any actions taken by a company beyond the scope of its Memorandum of

12. Separate Management

In contrast to some other forms of business structures, such as partnerships or

This separation of ownership and management allows for flexibility in how a

13. Termination of Existence

A key aspect of a company’s characteristics is its mode of termination. A

This termination process involves settling the company’s affairs, distributing

Therefore, understanding the characteristics of a company is essential for navigating

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