1  Concept, Definition and Features of Company

1.1 Concept of a Company

A company is a legal entity formed by individuals or groups to conduct business activities. It operates as a separate entity from its owners and has distinct legal rights and responsibilities, such as entering into contracts, owning assets, and incurring liabilities. Companies can be formed for profit-making or non-profit purposes.

The term company originates from the Latin word “com” (together) and “panis” (bread), symbolizing a group of people sharing interests. In modern business law, a company refers to a legal entity formed by a group of individuals to engage in and operate a business—commercial or industrial—enterprise.

A company is an artificial legal person, distinct from its members, created under law. In India, this is governed by the Companies Act, 2013.

Key Reference: Section 2(20) of the Companies Act, 2013 defines a company as

“A company incorporated under this Act or under any previous company law.”

1.2 Definitions

  • L.H. Haney:
    “A company is an artificial person created by law, having a separate entity, with perpetual succession and a common seal.”

  • Justice Lindley:
    “A company is an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business.”

  • Landmark Case: Salomon v. Salomon & Co. Ltd. (1897)
    This case established the principle that a company has a separate legal existence distinct from its members.

1.3 Features of a Company

A company, being a statutory creation, exhibits several unique features that distinguish it from other forms of business organizations. Below are the key features:

  • Incorporated Association
    A company must be registered under the Companies Act, 2013 to gain legal recognition. This incorporation gives it a distinct legal identity.

    Infosys Ltd. was incorporated in 1981 under the Companies Act and is now a globally recognized IT company.

  • Artificial Legal Person
    A company is created by law and acts like a legal person. It can enter into contracts, own assets, and sue or be sued, though it operates through directors or officers.

    Tata Motors Ltd. owns factories and enters agreements in its own name.

  • Separate Legal Entity
    A company is separate from its shareholders. It can own property and be held liable in its own name.

    In Salomon v. Salomon & Co. Ltd. (1897), the House of Lords affirmed that a company is a separate legal person. Reliance Industries is distinct from Mukesh Ambani.

  • Limited Liability
    Shareholders are liable only to the extent of their unpaid share capital. Their personal assets are protected.

    If XYZ Ltd. fails with ₹10 crore debt, a shareholder with ₹2 unpaid per share (1000 shares) is liable only for ₹2,000.

  • Perpetual Succession
    The company’s existence is unaffected by the death, retirement, or insolvency of its members.

    Wipro Ltd. continues its operations regardless of changes in ownership or leadership.

  • Common Seal (Now Optional)
    Historically, companies used a common seal to authorize documents. Post-2015 amendment, this is optional.

    Infosys signs contracts with director signatures or digital authorization.

  • Transferability of Shares
    Public company shares can be freely transferred, providing liquidity and flexibility.

    HDFC Bank Ltd. shares can be sold on stock exchanges. In contrast, Zoho restricts share transfers internally.

  • Separation of Ownership and Management
    Shareholders elect directors who manage the company. This ensures professional governance.

    TCS is owned by shareholders but managed by the CEO and Board of Directors.

  • Capacity to Sue and Be Sued
    A company can file legal cases or be sued in its own name.

    Amazon India filed lawsuits in its corporate name, not in the name of its directors.

  • Regulatory Framework and Compliance
    Companies must follow laws including the Companies Act, SEBI regulations, Income Tax laws, etc.

    ICICI Bank must comply with RBI (banking), SEBI (listing), and corporate governance laws under the Companies Act.

1.3.1 Summary: features of a company

Feature Description Example
Incorporated Association Legal formation under Companies Act Infosys Ltd. incorporated in 1981
Artificial Legal Person Company acts like a person in law Tata Motors signs contracts as a legal entity
Separate Legal Entity Distinct from shareholders Reliance Industries ≠ Mukesh Ambani
Limited Liability Member liability restricted to unpaid share value Shareholder pays only unpaid ₹2/share in XYZ Ltd
Perpetual Succession Company exists regardless of member death/exit Wipro Ltd. continued after founder’s demise
Common Seal Optional official signature Infosys uses digital/director signatures
Transferability of Shares Shares easily traded (public companies) HDFC Bank shares traded on NSE/BSE
Ownership vs Management Shareholders own; directors manage TCS managed by CEO/Board
Legal Capacity Company can sue or be sued independently Amazon filed legal case as a company
Regulatory Compliance Bound by financial, corporate, and sectoral laws ICICI complies with SEBI, RBI, Companies Act