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Characteristics of a company

The salient features of a joint stock company are as under:

(i)    Distinct Legal Entity. A company is an artificial person created by law. So it has an existence independent of its members. It can own property, enter into contracts in its own name and conduct any lawful business. It can sue and can be sued. Shareholders are neither the owners nor the agents of the company. So a shareholder cannot be held liable for the acts of the company and vice-versa.

(ii)    Perpetual Existence. A joint stock company has a perpetual succession. Its existence is not affected by the death, lunacy or bankruptcy of its members. It hold shareholders may go by selling their share and new shareholders may come, but the existence of the company is not affected as the company is created by law.

(iii)    Limited Liability. Since the company has a separate legal entity, its members cannot be held liable for the debs of the company. The liability of every member of a limited company is limited to the nominal value of the shares subscribed by him to the amount of guarantee given by him. A member cannot be asked to pay more than what is due form him in respect of shares allotted to him if the assets of the company are not sufficient to meet fully the claim of its creditors.

(iv)    Transferability of Shares. The shares of companies are transferable except in case of private companies. Every shareholder of a public limited company is free to transfer the shared held by him to anybody else.

(v)    Separation of Ownership and Management. Separation of ownership and management has become an important feature of joint stock companies. The number of persons who hold the shares of a company is generally very large. Shareholders have no right to participate in the day-to-day administration of the affairs of the company. They have the right to elect representative or directors who will mange the company.

(vi)    Separate Property. A company, being a legal person, is capable of owning, using and disposing of property in its name. Shareholders are not the joint owners of the company’s property.

(vii)    Common Seal. As an artificial person, a company cannot act and sign itself. It acts through human beings known as directors. All the acts of the company done through the directors are authenticated by the common seal of the company. The common seal of a company is affixed on all important documents as a toke of the company’s approval. The common seal is the official signature of the company. Any document which does not bar the common seal of the company is not binding on the company.

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