Company Definition,Characteristics of Company

Company means an association of persons formed for some common object such as the economic gain of its members. However,in law any association of persons for any common object can be registered as a company. The object need not be the economic gain of its members,e.g,. a company can be formed for purpose such as charity,research,advancement of knowledge,etc.


According to Justice Lindley__A company is an association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose.

According to Justice Marshal of U.S.A.__ A company as”a person,artificial,invisible and existing only in the eyes of the law.

Thus, those associations which use the word company as a part of their names,but have not been registered as companies under the companies Act,are not companies within the meaning of the Act.

Essential Characteristics of Company

1. voluntary association: A company,as mentioned earlier,is a voluntary association of persons,i.e., it can neither compel a person to become its member nor to give up its membership. It is the personal choice of people and their lust for profit or some other objective of their own.

2. Independent legal entity: A company is a legal entity quite distinct and separate from its members. It can hold and deal with any type of property of which it is the owner,in any way it likes. It can enter into contracts,open a bank account in its own name,sue and be sued by its members as well as outsiders.

3. Perpetual existence: The mode of incorporation and dissolution of a company and the right of the members to transfer shares freely guarantee the continuity of the existence of the company quite independent of the life of its members. The existence of a company can be terminated only by law. Being an artificial person it cannot die irrespective of the fact that its members,even the founders or subscribers to the memorandum,may die or go out of it. Moreover,in spite of changes in the membership of the company,it can perform its contracts and enter into future agreement. Thus,members may come and go but the company can go on forever.

4. Common seal: Though a company has been given an artificial personality,yet it acts through human being,who are called as directors. They act as agents to the company but not to its members. All the acts of the company are authorised by its“common seal” The “common seal”is the official signature of the company. A document not bearing the common seal of the company will not be binding on the company.

5. Limited liability: The liability of the members of a company having share capital is generally limited to the extent of the unpaid amount on the shares held by them. In the case of a guarantee company, the members are liable to contribute a specified agreed sum to the assets of the company in the event of the company being wound up. The amount is mentioned in the company’s memorandum.

6. Transferability of shares: The  share of a joint stock company are freely transferable except in the case of a private limited company. Every member owning a fully paid-up shares is usually at liberty to dispose it off according to his choice. Restriction imposed by the articles on the absolute right of the members to transfer shares shall be void. In the case of private companies, transfer of shares shall not be permitted except according to the conditions laid down in the articles of association.