characteristics of a company

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  • 7/28/2019 Characteristics of a Company

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    Characteristics of a company1. Artificial legal person

    A company is an artificial legal person. It acts through a board of directors elected by the share holders. It

    was stated in Bates vs standard Land company that The Board of Directors are the brains and the only

    brains of the company, which is the body and the company can and does act only trough them.

    A company has the right to acquire and dispose of the property, to enter into contract with third parties in

    its own name and can sue or be sued in its own name.

    2. Separate legal Entity

    A company is a separate entity quite distinct from its shareholders. A company or body corporate is

    formed once a certificate of incorporation is given. Such a body corporate is capable of having perpetual

    succession, power to hold land, has a common seal with liabilities of its members limited as per the

    provisions of the Act.

    In England legal personality of a company was recognized in 1867 in Oakes vs Turquand. Importance or

    separate entity was firmly established by Salomon vs. Salomon (1897) AC 22. In the case Solomon sold his

    boots business to a new formed company for $30000. His wife a daughter and four sons took up sh of

    $1each. Salomon took 23000 shares of $1 and $10000 debentures. When the company was wound up

    Salomon was able to rank any of secured (or preferred) creditors for his debentures.

    In the case Lord Machagater observed the company is at law quite different person altogether from the

    subscribers of the memorandum and though it might be that after incorporation the business is precisely.

    The same as it was before and the same persons are managers, and the same hands receive the profits, the

    company is not in law the agent of the subscribers or trustee liable in any shape or form except to the

    extent and in the manner provided by the Act.

    Other case laws in support of separate legal personality are the Lee vs Lee Air Farming Ltd and the

    Maccaura vs Northern Assurance Company Limited 1952 Act 6119.

    3. Perpetual Succession

    A company has a common seal, with the name of the company is not affected by the death, insanity or

    bankruptcy of shareholders. Change of membership also does not affect continuity of the company.

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    4. Common Seal

    A company has a common seal, with the name of the company engraved on it as a substitute for its

    signatures. For a document to be binding it must bear the common seal of the company and the seal

    witnessed by two or more directors.

    5. Limited Liability

    Ashareholder is only liable to the debts of the company during its life or during winding up only to

    the extent of share taken by him and only to the balance taken by him or up to the guarantee given by him

    or both. The personal property of a shareholder cant be attached for the debts of the company.

    6. Transferability of shares

    Members of a public company are free to transfer shares held by them to anybody. However for private

    company transferability of shares may be restricted by articles.

    7. Capacity to sue or be sued

    A company can sue or be sued all in its own name. Thus is the case of for suits for and against the

    company is the proper plaintiff and proper defendant.

    8. Separation of ownership and management

    Board of directors elected by members in the general meeting governing the affairs of the company.

    9. Separate property

    A company is capable of owning, enjoying and disposing the property in its own name. Thus a shareholder

    does not have an insurable interest in the property of the company.