Meaning and Features of a Company: Companies Act, 2013

What is a Company?

Section 2(20) of the Companies Act, 2013 states the meaning of a Company. This section states that “Company means the incorporation of a company by association of different persons under the laws established by the Companies Act 2013 or any other previous company act”. The main reason for the formation of a company is to create a separate “Body Corporate” which has its own separate legal identity. The word company is coined from a Latin word (com and panis) Com means together and Panis means bread, so in general terms, we can say that the association of people who eat together is a company.

Any company that is formed by the Companies Act, 2013 or any other previous company act has a separate individual status as a Legal Person and they can enjoy various rights that are given to the citizen of the country. The existence of any company does not depend upon its members, the company is an independent entity that has a separate identity and can sue any other person or entity and can be sued also.

Key Takeaways:

• A company is a legal entity that is formed by a group of individuals to engage in and operate a business organization in a commercial or industrial capacity.
• The business line of a company depends on its structure which can range from a partnership to a proprietorship, or even a corporation.
• A company is purposely organized to earn profits from running its business.

Features of a Company under Companies Act, 2013

There are various features of a company that make them unique and efficient. Every company has a separate legal entity, the company has limited liability and the identity of a legal person. Some of these features are explained below in detail.

1. Separate Legal Entity

This is one of the best features of a company. When an entity is registered as a company by the rules and laws established under the Companies Act, 2013 then only the entity gets the identity of a Separate Legal Entity. This feature provides the company with all the rights that a human being of that country enjoys. They get the power to sue any company individually, they can also acquire property, they can open a bank account in their name, and also can get loans from banks in their name. The members who joined together to form the company will be part of the company but can never say that they own the company entirely. Members can leave the organization and can join another organization but the identity of the organization stands still.

2. Perpetual Succession

This feature of the company is self-explanatory from the term and the simple meaning of the term is that the company formed under the act will never die. The company will always remain in business even if the members of the company leave the company or retire from the company and even the death of a member of the company does not affect the continuity of the business. The members of the company can be replaced and the work of the company will continue. These things will not affect the identity of the company. The Companies Act, 2013 provides some sections in which the company can be legally wound up.

3. Limited Liability

The members of the company incorporated under the act have very limited liability. The liability of the members also varies according to the nature of the company. All the assets are owned by the company in their name only and similarly, all the debts need to be paid by the company only. The members of the company are neither the owner of the assets of the company nor they can be held liable for any debts of the company.

4. Artificial Legal Person

Any company formed under the Companies Act, 2013 or any other Company Act is treated as an individual legal person by law. The status of a legal person to a company is a designation and they are hypothetical in existence, so it is artificial. The company created by the individuals must follow all the rules of the Companies Act, 2013, so their creation is legal by the law. The company has various rights such as opening a bank account in their name, owning assets in their name and they have a right to sue any other individual or company in their name.

5. Common Seal

Companies that are incorporated under the Companies Act, 2013 or any other Company Act are individual legal entities and can execute agreements in their name. Agreements can only be executed when a company puts its signature but a company can’t put their signature by themselves as they are only an artificial entity. The common seal is considered as the official signature of the company. But after the amendment of 2015 to the Companies Act 2013 the government has allowed the company that they can have the company seal only if they want. According to Section 21 of the Companies Act, 2013, the Board of the Company can appoint any essential person of the company as the signing authority of the company in specific matters to execute the agreement on behalf of the company. There can be more than one signing authority in the company dedicated to acting in different roles and executing the agreement in different segments of the company.

Conclusion

Any company that is incorporated by the laws of the Companies Act, 2013 enjoys various rights that are given to them for smooth business functioning. These rights are very distinct and enables the company to enjoy their rights as a separate legal entity. The Companies Act, 2013 has replaced various sections and also introduced new sections in the act that make the functioning of business smoother way. This act also clearly explains the roles and responsibilities of the board of directors of the company, the accountability of all the members, and the number of directors each company should have.

Features of a Company – FAQs

What are the types of companies under the act based on the number of members?

According to the Companies Act, 2013 there are 3 types of companies based on the number of members, One Person Company, Private Limited Company, and Public Limited Company.

What is the citizenship status of a company as per the Indian laws?

A company incorporated by the Companies Act, 2013 is not a citizen of India as per Section 2(f) of the Citizenship Act, 1955.

What is the meaning of OPC according to the Companies Act, 2013?

According to the Section 2(62) of the Companies Act, 2013 OPC means “One Person Company” and it consists of only one member.

Why Memorandum of Association is an essential document according to the Companies Act, 2013?

The Memorandum of Association is a very essential document as it provides the foundation for the company on which it started and it also provides the ambit of the area in which the company can run its business.

What are the types of companies under the act based on domicile?

Under the Companies Act, 2013 there are 2 types of companies based on domicile; i.e., Foreign Companies and Indian Companies. Section 2(42) of the act defines the meaning of a Foreign Company.

What is the difference between a Company and a Corporation?

A Company is formed by the rules of the Companies Act, 2013 and a Corporation is formed by the government by special acts that are passed by the government in the parliament.

Reference:

• Ministry of Corporate Affairs

Note: The information provided is sourced from various websites and collected data; if discrepancies are identified, kindly reach out to us through comments for prompt correction.