Characteristics of company

The main highlights of the company are as follows Characteristics of company

1. Separate legal entity

After amalgamation the company acquires a separate personality from its shareholders. He is treated as an artificial personality. It can do all the things that an ordinary person can do, like making contracts, doing business in its own name, opening a bank account, and filing suits or contesting cases against the company.

Even if some members of the company hold all the shares of the company, then in the eyes of the law the company is separate from its members. This doctrine was enunciated in Salomon & Salomon & Co. Ltd. (1897) A.C.22. In presentation, a leather merchant named Salomon sold his business to a company for £38,782. The company issued £20,000 debentures and £10,000 shares of £10,000 each to Solomon for consideration. The company created movable encumbrances on the debentures against all the assets.Salomon issued one share each to his four sons, his wife and daughter.


After some time the company suffered losses and its liquidation began. 6,047 pounds were realized by selling all the assets of the company. As Salomon was the holder of bonds worth £20,000 and a charge on the entire property was created in his favor to the Company, he claimed title to the property worth £6,047.

The company’s other creditors sought £6,047 in assets to satisfy their debts, saying that because Salomon held nearly all of the company’s 20,000,000 shares (except 20,000 – 6 shares held by other members) , Salomon and Salomon & Company were one and the same. Therefore property worth £6,047 should be given to him to pay his debts.

The House of Lords ruled that Salomon and Salomon & Co were separate entities. Therefore, Solomon, being the bondholder and having created a movable encumbrance in his favour, was entitled to property worth £6,047. This decision proves that the existence of the company and its members are separate. If £10,000 is to be recovered from the company, then this amount cannot be recovered by suing the shareholders. The suit can be filed in the name of the company only against the company and not against its members Characteristics of company

2. Perpetual succession

The existence of the company is perpetual i.e. eternal. Since the existence of a company is separate, its existence is relatively more permanent than that of a sole trader or a partnership. The age of the company does not depend on the age of the members of the company. The death of a member or director, even the death of all members, bankruptcy, insanity or retirement, cannot result in the death of the company.
It is said that whether the members of the company come or go, the company remains alive forever. The company flows like a river. Water comes and goes in the river but the river never stops.

3..common seal

The company has a common seal. Since a company is an artificial person, it cannot act on its own. Therefore it has to act through natural persons i.e. directors. While entering into a contract on behalf of the company, the directors of the company put the common seal of the company on the contract along with their signatures, which is considered equivalent to the signatures of the company. If the common seal is not put on the contract along with the signatures of the directors, then the contract will not be considered valid.

4. Limited liability

Perhaps the most important feature of a company is limited liability due to which the company is formed. In a company with limited liability by shares, the liability of each shareholder is limited to the face value of the shares held by him, for any amount exceeding this he has to repay the amount to the company. Cannot be held liable to fulfill the obligations.
For example, if ‘A’ holds 10 shares of Rs 100 each and he has paid Rs 50 per share on those shares. When the company goes into liquidation its maximum liability outstanding will be Rs 500(10*50).
In the case of a company limited by guarantee, the liability of each member, in the event of the company going into winding up, is limited to the amount of the contribution made by him by guarantee and not more. Its liability is zero during the lifetime of the company.

5. Transferability of shares

An important feature of a company is the transferability of shares. Shares of a public company can be easily transferred from one person to another. Characteristics of company

6. Separate property

In Perumal v. John Devine (1969) 30 Companies Cases, 3401, it was held that separate property is a part of the principle of separate existence. A company has a separate existence from its members. A company has the right of separate ownership of property. The property of the company is not the property of the members of the company, though the members of the company contribute to the capital of the company. No member can claim ownership of the property of the company during the life of the company and on its dissolution.
Shareholders also do not have an insurable interest in the assets of the company.

7. Capacity to sue

Since a company has a separate existence, it can sue and be sued in its own name.

8. Voluntary and incorporated association

The important feature of the company is that the company is a voluntary organization which is formed by the members on their free will. It is an institution incorporated by law. Its incorporation takes place under the Act. Without incorporation the company has no existence and cannot legally be called a company.

9. Artificial legal person

Once the company is registered, the company becomes an artificial legal person. It can buy property in its own name, hold it in its own name and sell it as and when required. It can file a suit in the court in its own name, other persons can file a suit against it in its name.
It does not have physical existence. Therefore, in anger you cannot attack it and bring it down. It has no soul, nor any conscience, that is why it is called an artificial person. But still the law confers on it certain rights and obligations like a natural person. It can buy and sell property. It can also be fined for violating the provisions of the Companies Act.

Is company a citizen?

Although the company is a legal person with nationality and place of residence, it is not a citizen. Characteristics of company