Meaning of company:- Company means such a form of business organization which is established by some persons for the purpose of making profit under the provisions of legislation.
In simple words, ‘company’ means a group of persons having a common objective and whose capital is divided into transferable limited liability shares. The business of the company is conducted under a common seal and after registration it becomes its own separate permanent entity. Any person can sue the company and the company can sue any person.
The various definitions of ‘company’ can be divided into the following two parts from the point of view of convenience—
(I) the definitions given by eminent scholars and judges, and (II) the definitions provided in the Companies Act, 2013.
Definitions given by prominent scholars and judges
(1) According to Judge James, “company means an association of persons who have come together for a common purpose.” (This definition does not correctly explain the word ‘company’.)
(2) According to Lord Lindley, “A company is a group of persons, who deposit money or contributions equal to money in a joint fund and use it for a certain purpose. Huh.” (This definition is incomplete.)
(3) According to American Chief Justice Marshall, “Joint stock company is an artificial, invisible and intangible institution, whose existence is statutory and which is created by legislation.” (This definition explains the main features of the company, so it can be called the correct definition.)
(II) Definition as provided in the Companies Act, 2013
As per section 2(20) of the Companies Act, 2013. “company” means a company amalgamated under this Act or under any earlier Companies Act.”
This definition is not a complete and appropriate definition as it does not explain the salient features and characteristics of the company. Existing company mentioned in this definition means a company formed and registered under any of the previous Companies Acts.
Characteristics of the company
(1) Registered voluntary association
The first feature of the company is that it is a registered or incorporated voluntary association of persons. Whose creation is possible only when some persons voluntarily agree to form a company and get it registered under the Companies Act.
At least two persons are required to form a private company and at least seven persons for a public company. The persons who agree to form the company have to sign the ‘Union clause’ of the memorandum and they are called the first members of the company.
A private company can have a maximum of 200 members, there is no restriction on the number of members in a public company.
(2) An Artificial Person Created by Law
A company is an artificial statutory person created by law. A company can do all the work like a natural person, hence it is called an individual. It is called a statutory person because it is established by legal processes. Artificial person is said because its physical presence is not possible like a natural person. Hence, the company is an artificial person created in accordance with the provisions of the legislation. Justice Marshall wrote that, “The company is invisible. Immortal and artificial person whose existence exists only in the eyes of law. According to Lord Chancellor Selborne (Selborne, L.C.), “It is a mere abstraction of law”.
3 Separate Legal Entity
A company is a legal entity separate from its shareholders. As a result, the company can enter into any contract with any of its members and the members can enter into agreement with the company. The company can sue its members and the members can also sue them. In addition, for the work done by the company, the shareholder or member is liable to be held in the House of England in Salomon v. Salomon & Co. Ltd. adopted the same principle and treated the members as separate from the company. The Calcutta and Bombay High Courts have also held the same view.
(4) Perpetual Existence
According to section 9 of the Companies Act, 2013, the existence of the company is permanent, that is, the life of the company depends on the life of its members. Death of a member of the company. The existence of the company is not affected by the bankruptcy or insanity or the separation from the company by any member, that is, the company continues to run. In fact, there is no change of any kind in the members of the company, the life of the company does not end and it continues to function permanently.
Even the government cannot end the existence of the company. Even if the government takes over the entire business of a company, the existence of the company will continue until the company is duly dissolved. [Mookerjee B. vs. State Bank of India, AIR (1992) Cal. 250]
(5) Common Seal
Universal seal means the seal of the name of the company. Being an artificial personality, the company cannot do any work on its own as it does not have any physical existence. The work of the company is done by the directors, secretaries and managing directors of the company and these persons put the seal of the company while doing the work, only then the work done by them will be considered as the work done by the company and the company will be bound by them. Thus the seal of the company is the signature of the company. Letters, forms and covenants which do not bear the company’s seal are not considered to be of the company. Notification No. 1/6/2015-CL of the Companies Amendment Act, 2015
(6) Limited Liability
Limited Liability means- “You have to pay as much as you have agreed to pay.” In contrast, unlimited liability means – “You have to pay as much as you can afford. The principle of limited liability was first implemented in India in 1857. The liability of the members of the company is limited to the amount of shares purchased by them. The company may be limited by shares or limited by guarantee. Liability of the members of the company in case of a company limited by shares. The amount taken is limited to the unpaid amount. Therefore, if a shareholder has transferred his shares. If the full amount has been paid then he has no liability towards the company. In the case of a company limited by guarantee, the liability of the members is limited to the amount which they (the shareholders) agree to contribute to the assets of the company in the event of winding up of the company. Thus it is clear. That the liability of the members is limited, not unlimited. In a nutshell, it can be said that Vibration. The creditors of the company cannot recover any amount from the personal property of the shareholders in the event of loss of Rs. If the business of the company is to defraud the company’s creditors or other parties. If operated for the purpose of [Section 339] (Representative Management) – Usually the shareholders of the company.
(8) Transferability of Shares
According to section 56 of the Companies Act, 2013, generally the shareholders of the company can voluntarily transfer their shares in favor of any person, firm or institution so long as the councilors of the company Nothing to the contrary shall be contained in the Articles of Association. In the case of a private company, the shares cannot be transferred unless the conditions of the Articles are complied with.
(9) Shareholders are not Agents
An important feature of the company is that its shareholders cannot act as agents of the company, that is, the shareholders cannot bind the company with their actions.
(10) Number of Members
The minimum number of members in a public company is seven and there is no restriction on the maximum number, that is, it can be equal to the number of shares issued. In contrast, the minimum number of members in an individual or private company can be two or maximum number of fifty.
(11) Dissolution of the company
Just as a company is formed by the Act, in the same way its dissolution can be done only by the methods of winding up mentioned in the Companies Act.
(12) Voluntary association for profit
Generally every company is established with the aim of earning profit, but it is a voluntary association i.e. no one can be made its shareholder forcibly. Whatever the company receives, it is distributed among the shareholders according to certain rules.