Features of a Company - Types, FAQs

A company is a group of individuals who contribute money or value to a shared fund and utilize it for a particular purpose. One of the important features of a company is that it is a fictitious person that operates as a corporate legal entity apart from its core members or stockholders and uses a standard authentication for its signature. As a result, a few features of a company distinguish it from other forms of organizations.

What is the Indian Companies Act 1956?

The Companies Act of 1956 is an essential piece of Indian legislation aimed to regulate and govern companies' functioning and defining features of a company in the country. We have provided below its objectives and features:

Objectives:

• Foster a structured and accountable corporate environment.
• Safeguard the interests of shareholders and the public.
• Promote fair and transparent corporate governance.
• Encourage responsible management of corporate resources.
• Facilitate the growth and orderly conduct of businesses.

Features:

• The Act laid out the mandatory process for registering a company.
• It established the legal framework within which companies should operate, defining their powers, duties, and responsibilities.
• The Act categorized companies into private and public, each with distinct rules and regulations, based on their size and scope.
• It clarified the liability of company members by introducing different types of companies, including those limited by shares, limited by guarantee, and those with unlimited liability.
• The Act defined the structure and powers of the board of directors, emphasizing their duty to act in the company's best interests.

Features of a Company Under the Indian Companies Act 1956

A company has eight fundamental features under the Indian Companies Act of 1956. These essential features of a company are as follows:

A. Incorporated Association

A company is recognized as an association of individuals bound by the laws of the country. In India, registration under the Companies Act 1956 is mandatory for any corporate body to be acknowledged as an organization within Indian jurisdiction.

The crucial documents for incorporation include the Memorandum of Association, outlining the company's purpose, and the Articles of Association, specifying its rules. The Registration Certificate, also known as the Certificate of Incorporation, grants legal entity status.

B. Independent Legal Entity

According to the Companies Act 1956, a company is a distinct legal entity separate from its shareholders. It can operate bank accounts, file lawsuits, and be sued independently. Shareholders are not considered owners; the company is a separate entity with its rights and obligations.

C. Separate Property

A company's property is distinct from its members. Shareholders only have rights to their shares and not direct ownership of the company's assets. Changes in membership do not alter the company's property rights.

D. Perpetual Existence

A company enjoys perpetual existence unless terminated by law. Even if all members leave, it survives through contracts and agreements, with its identity intact under the Companies Act 1956.

E. Common Stamp

Directors, acting as agents for the company and its members, authorize all activities using the common seal. Documents not bearing this seal are not considered official.

F. Separation of Ownership and Management

Companies may have numerous shareholders, necessitating the hiring of directors responsible for daily operations, ensuring a clear division between ownership and management.

G. Transferability of Shares

Shareholders can transfer shares to interested buyers, with public company shares usually transferrable without issue. Legal complexities can arise in the case of private companies.

H. Limited Liability

According to this features of a company, A Shareholder has limited liability, restricted to the unpaid value of their outstanding shares, distinguishing it from the company's liability.

Types of Companies

Companies are broadly categorized into two types based on the number of members: private companies and public companies. However, another significant classification is based on the shareholders' liabilities. Here are the different kinds of companies in this regard:

Companies Limited by Shares

In this type, a member's liability is limited to the nominal value of their shares. If a member's shares are fully paid up, their liability is zero. But if the shares are not fully paid, the member can be required to pay the remaining amount during the company's liquidation.

Companies Limited by Guarantee

Certain companies are limited by guarantee, meaning members agree upon a specific amount they will pay in case the company is liquidated—a guaranteed sum. This liability arises only if the company is being wound up.

Unlimited Liability Companies

In these companies, members are personally accountable for the company's losses. If, during liquidation, the company's assets cannot cover its debts, members have to pay the remaining balance. Their personal properties can also be seized to cover these debts. It's important to note that such companies are not typically found in India.