Introduction of Company under the Companies Act 2013 & Characteristics

An Introduction of Company under the Companies Act 2013

Introduction: Companies Act 2013

There are many different forms of businesses like Sole Proprietorship, Partnership Firm, Hindu Undivided Family Business, Limited Liability Partnership, etc. But Company form of business has certain advantages over another form of business like limited liability, perpetual succession, Separate legal identity, etc.

 

Meaning and Definition of Company under Companies Act 2013:

The word ‘Company’ has been derived from the Latin word made from two words i.e. Com and panies. The word ‘com’ in Latin means ‘with or together’ and the word ‘panies’ in Latin means ‘bread’. Hence, a company meant an association of persons who took their meal together.

 

In common parlance, the meaning of company form of business can be understood as an association of persons formed for the purpose of carrying on some business or undertaking. A company is a body corporate having separate legal identity having status separate from members constituting it.

 

As per Section 2(20) of the Companies Act, 2013, the term “Company has been defined as a company incorporated under this Act or under any previous company law.” The definition of the company under this Act can be more clarify as below:

 

The persons who form the company and contribute money or money’s worth for the business of the company are called ‘Members’. They get ‘shares’ in the company in the proportion of their contribution in the company. The contribution made by members of the company is the ‘Capital’ of the company.

 

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Nature and Characteristics of a Company:

The company is a legal person created by a process of law other than natural birth. For this reason, a company is also called as an artificial legal person. As a natural person, a company also enjoys many rights and incurred many liabilities of a natural person.

 

Following are the characteristics of the company:

S.No.
Particulars
Characteristics

1.
Separate Legal Entity:
Unlike other forms of business e.g. Partnership Firm, Association of Persons, etc., the company has an entity separate from its members constituting it. Once a company is incorporated under the law, it bears its own personality, name, property separate from its members, has contractual rights, right to sue and be sued, etc. in the same manner as the natural person.

It is also important to note that, even if the company is a separate legal entity in the eyes of law but it carries on its activities through its management. Also in case of Shiromani Gurudwara Prabandhak Committee vs. Shri Sham Nath Das, it was held that Company acts like a natural person but only through its designated persons, whose acts are proceeded within the ambit of the law.

2.
Artificial Person:
The Company is called an Artificial Legal Person because it is invisible, intangible and cannot be touched, but existing in the contemplation of law, hence, it has rights and liabilities same as a natural person.

 

3.
Has Nationality and Residence but no citizenship
A company has the nationality of a nation where it is incorporated and has a residence where it has established its Registered Office. However, Company cannot be a citizen under the Citizenship Act, 1955 or the Constitution of India. Section 2(f) of the Citizenship Act, 1955, expressly excludes a company or association or body of individuals from citizenship.

 

4.
Limited Liability
The principal advantage of doing business under Company form of business is Limited Liability of its members towards the debts of the company. The liability of the company is limited to the extent of the amount not

paid on the shares held by them and in case of a company limited by guarantee, members of such company are also liable to the amount guaranteed to be paid by them in the Memorandum of the company at the time of winding up.

For Example, if a person holds shares of a company having a nominal value of Rs.1000/- out of which it has paid to the company only Rs.750/-, then he cannot be called upon to pay more than balance unpaid amount i.e. Rs.250/- in this case. However, if he has paid the full amount on his shares, he will not be further liable to pay, even if the company is in liquidation.

 

5.
Perpetual Succession
Perpetual succession means membership and directorship of the company keep changing but that doesn’t affect the continuity of the company.

In the words of Professor L.C.B. Gower, Members may come and go, but the company can go on forever.

During a war, all members of one private company were killed by a bomb, but the company survived-not even hydrogen bomb could have destroyed it.

6.
Capacity to sue and be sued
A company is a legal entity in the eyes of law and hence, has the capacity to sue and be sued in its own name. Legal action or proceeding can be instituted against a company in its own name and similarly, a company in its own name file suit against any company in the court of law.

7.
Profit is object
A company is formed for the purpose of earning a profit, which is further divided among the members or saved for the expansion of the business. Section 8 company is the exception to this characteristic because Section 8 company is formed with no profit motive.

8.
Separate Management
A company is an Artificial legal person in the eyes of law, but it cannot carry its activities on its own. The company is administered and managed by its managerial personnel. Members who form and contribute to the company, do not carry corporate function, rather they appoint their representatives as directors of the company to conduct its activities.

9.
Limitation of Power
A company is formed for the objects specified in the Memorandum of Association of the company. Memorandum of Association is the principal document of the company which provides the objects which can carry by the company. A company cannot go beyond its powers mentioned under its Memorandum of Association.

10.
Termination by winding up
A company is a perpetual entity, which cannot be died or dissolved except by the procedure of law. Hence, the company is terminated by means of winding up.

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Learn more CS Foundation topics here…

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