10 Principal Features of an Incorporated Company

This article throws light upon the ten principal features of an incorporated company. The features are: 1. Registration 2. Voluntary Association 3. Legal Personality 4. Management 5. Permanent Existence or Perpetual Succes­sion 6. Common Seal 7. Limited Liability 8. Control 9. Taxation 10. Divorce between Ownership and Man­agement.

Incorporated Company Feature # 1. Registration:

A company must be regis­tered under the Companies Act. After registration, the Registrar of Companies issue a Certificate of Incorporation.

Incorporation is the legal process through which the separate corporate entity of a company is given recognition by law.

To secure in­corporation, the promoters prepare and file with the Registrar of joint stock companies the follow­ing documents:

(i) Memorandum of Association

(ii) Articles of Association

(iii) Written consents of persons who have agreed to serve as directors of the com­pany

(iv) Notice of the registered office of the com­pany and

(v) A statutory declaration by the Secretary of the proposed company or a solicitor to the effect that all provisions regard­ing incorporation have been complied with.

Incorporated Company Feature # 2. Voluntary Association:

A company is an association of many persons on a voluntary basis. Therefore, a company is formed by the choice and consent of the members.

Incorporated Company Feature # 3. Legal Personality:

A company is a crea­tion of law and is called an artificial person. Nega­tively, it means that the company is not a natural person. Positively, it implies that a company has an entity of its own recognised by law quite dis­tinct from that of the natural persons forming it.

It is created for the purpose of enabling a group of persons to conduct some activity in a more con­venient way than would be possible by retaining their identity as individuals. Although invisible and intangible, as a legal person, the company enjoys almost all the rights of a natural person. It has the right to enter into con­tracts and own property. It can sue and can be sued.

Incorporated Company Feature # 4. Management:

Since the risk-bearing share­holders are widely scattered and, in most cases, they have neither time nor knowledge of business, the management of the company has to be entrusted to the Board of Directors. The Companies Act also states that the Board is entitled to exercise all such powers as the company is authorised to exercise in general meeting.

The Directors are the exclusive rep­resentatives of the company and are entrusted with the administration of its internal affairs and the management and use of its assets. The sharehold­ers are the risk-bearers while the directors are the risk-takers. A shareholder cannot participate in the management.

Incorporated Company Feature # 5. Permanent Existence or Perpetual Succes­sion:

A company has perpetual succession. The death or insolvency of a shareholder does not affect its existence. According to Blackstone, the com­pany may be compared with a river which retains its identity though the parts which compose it are constantly changing.

The right given to the share­holders to transfer their shares without affecting the position of the company gives the company con­tinuity. As a natural consequence of incorporation and transferability of shares, the company has per­petual succession.

Incorporated Company Feature # 6. Common Seal:

The law requires every com­pany to have a seal with its name engraved on it. As the company has no physical form, it cannot sign its name on a contract. Hence, all documents and contracts require the affixing of the seal. But now most of the transactions are signed by the di­rectors who act as its agents. When the seal is af­fixed on any document, it has to be witnessed by two directors.

Incorporated Company Feature # 7. Limited Liability:

The liabilities of a share­holder of a company are limited. A person, by buy­ing shares in a company, acquires an interest in the company and is at liberty to dispose of these shares whenever he likes. A shareholder is liable only to pay for his own share in the company.

The credi­tors of a company are not creditors of individual shareholders and a decree obtained against a com­pany cannot be executed against any shareholders. It can only be executed against the assets of the com­pany.

Incorporated Company Feature # 8. Control:

The members of the company, who contribute the share capital, have the ultimate con­trol over the company’s affairs. Every company is required to hold an annual general meeting at which the shareholders will exercise their power of con­trol.

In practice, the control lies with the Board of Directors. But the Board will have to publish and present to the shareholders the accounts and the results of the working of the company every year.

Incorporated Company Feature # 9. Taxation:

The tax burdens of companies are heavier than either on sole proprietor or part­nership. A company’s profits are taxed at a flat rate against slab rates charged for non-corporate bodies. In other words, the rate of income tax for a com­pany will be the same irrespective of whether the profits are high or low.

Incorporated Company Feature # 10. Divorce between Ownership and Man­agement:

The personality of the company is sepa­rate from the personality of the people who com­pose it — the shareholders. Since the shareholders are scattered over the country, they cannot manage the affairs of the company. This task is entrusted to their representatives —the Board of Directors.

Submitted by : Dr. Alexander, Category : Features