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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.