13 most important features of a company as per company act 1956 (India)

The following are the main characteristics and distinctive features of a company form of enterprise:

1. An Association of Persons:

At least two persons or seven persons must come together to form a private or a public company respectively. A single individual cannot constitute a company. This is the reason why a company is called on Association of Persons.


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2. Incorporated Association:

A company comes into existence only after a certificate of incorporation has been obtained from the Registrar of Joint Stock Companies. Without incorporation, it has no legal existence.

3. Artificial Legal Person:


A company is an artificial person created by law to achieve the objectives for which it is formed. A company exists only in the contemplation of law. It is artificial person in the sense that it is created by a process other than natural birth and does not possess the physical attributes of a natural person.

It is invisible, intangible, immortal and exists only in the eyes of law. It has no body, no soul and no conscience; it is regarded as an artificial person.

4. Distinct Legal Entity:

A company is a legal person having a juristic personality entirely distinct and independent of the individual persons who are its members. It enjoys in many respects the right of a natural person in the eyes of law.

It can own property, conduct a lawful business, enter into contracts with others, buy, sell and hold property, all in its own name under its own seal. It can file a suit against others and can be sued against.

5. Perpetual Succession:


A company has perpetual existence i.e. its existence is not affected by the death or lunacy or insolvency or retirement of its member.

Members may come and go, but the company continues its operations so long as it fulfils the requirements of the law under which it has been formed. Thus, a company has a perpetual succession irrespective of its membership.

6. Limited Liability:

Liability of members of a limited company is limited to the face value of the shares subscribed by each of them. Members cannot be asked to pay anything more than what is due or unpaid on the shares of the company held by them.

In no case the personal property of the members of a company can be attached to satisfy the claims of creditors of a company.

7. Transferability of Shares:


Members of a public limited company are free to transfer the shares held by them to any one members for either to purchase or sell the shares.

8. Diffused Ownership:

Ownership of a company is in the hands of a large number of people. In case of Private Ltd. Company, the upper limit is up to 50. In case of a public Ltd. Company there is upper limit to the number of members.

Any individual is free to acquire the share of any company and become to the owner to that extent only. As such ownership is spread among a number of share holders.

9. Separation of ownership and management:

Share holders are the owners of the company. Company’s share holders are widely scattered. It is physically impossible for all of them to take patty in the management of the company.

Being a share holder of a company does not give him the right to manage the affairs of a company. The management is vested with the directors, who are the legal representatives of the shareholders. Thus owners of the company have no direct control over the management of the company.

10. Common Seal:

A company being an artificial person cannot sign documents for itself whereas a natural person can do. The law has provided for the use of a common seal, with the name of the company engraved on it, as substitute for its signature.

The common seal of the company is approved in the first Board Meeting held immediately after the incorporation. Common seal has to be affixed on all important documents and contracts.

Any document bearing the common seal of the company duly signed by at least two directors will be legally binding on the company.

11. Corporate Finance:

A company generally raises large amount of funds in form of issuing shares, debentures, bonds and incurring loans and advances from financial institutions. The total share capital of a company is divided into a number of shares which are held by individual members and institutions.

12. Object clause of Business:

A company can conduct only such business as stated in its first Memorandum of Association. In order to bring any charges in its activity, the object clause must be changed.

13. Publication of Accounts:

A joint stock company is required to file annual audited statements with the Registrar of Companies at the end of each financial year. The annual statements are available for inspection in the office of the Registrar.

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