A company is a legal entity formed by a group of individuals or shareholders to involve in various business activities. It is a separate legal entity, different from its owners, with its own rights and liabilities. Basically, Companies are governed by laws and order that are different for different-different companies.
Definition of a Company
According to Prof. L.H. Haney, “Company is an artificial person created by law having separated entity with a perpetual succession and common seal”.
According to Justice Lindley a company means association of persons who contribute in shape of money or money’s worth to a common stock and employ it for some specific purpose.
According to Justice James, “A company is an association of persons united for a common object.”
According to Kimball and Kimball, “A corporation is by nature an artificial person created or authorized by the legal statute for some specific purpose.”
A company can be defined as an artificial, invisible, intangible, and legal entity created and sanctioned by the law to involve in business activities. It is incorporated and registered under specific laws and regulations of a country. The company exists as a separate legal entity, independent of its shareholders, and can sue or be sued in its own name.
Characteristics of a Company
Separate Legal Entity
One of the main characteristics of a company is its separate legal entity. It means that the company has its own legal standing, distinct from its shareholders. The company can own property, enter into contracts, and be held liable for its actions.
Basically, the liability of the shareholders of a company is limited to the according of their investment in the company. This means that their personal assets are protected from the company’s debts and obligations.
Companies enjoy perpetual existence, meaning they can continue to exist regardless of changes in their shareholders or management. The company’s existence is not affected by the death, insolvency, or retirement of its shareholders.
Transferability of Shares
Shares in a company are freely transferable, allowing shareholders to sell or transfer their ownership without affecting the company’s operations.
Large Financial Resources
Companies, especially joint-stock companies, can raise large amounts of capital by issuing shares or debentures, which makes them suitable for large-scale business ventures.
Management by Board of Directors
Companies are managed by a board of directors elected democratically by the shareholders. The board makes strategic decisions and oversees the company’s affairs.
Limited Liability of Shareholders
The liability of the shareholders is limited to the amount they have invested in the company. This feature encourages people to invest their savings in companies, reducing personal risk.
Advantages of a Company
Limited Liability: Limited liability protects the personal assets of shareholders, ensuring that their risk is confined to their investment in the company.
Large Financial Resources: Companies, especially joint-stock companies, can raise substantial capital from the public, enabling them to undertake significant projects and expand their operations.
Perpetual Existence: Companies enjoy perpetual existence, ensuring continuity even in the event of changes in ownership or management.
Transferability of Shares: The ease of transferring shares in a company allows for liquidity and flexibility for shareholders.
Professional Management: Companies can attract skilled and capable individuals to manage their operations, resulting in efficient decision-making and better use of resources.
Ancillary Industries and Trade: Companies often facilitate the growth of ancillary industries and trade, contributing to economic development.
Contribution to Society: Companies play a significant role in society by providing employment, supporting community services, and contributing to research and development.
Disadvantages of a Company
Heavy Government Control: Companies, especially larger ones, may be subject to excessive government regulations and oversight, which can slow down decision-making and create bureaucratic challenges.
Lack of Privacy: Companies are required to disclose financial and other information to regulatory authorities and the public, leading to a loss of privacy for their shareholders.
Delay in Decision-making: The procedural formalities and compliance requirements can sometimes lead to delays in making important business decisions.
Unhealthy Conditions in Society: Large companies, particularly monopolies, may lead to unhealthy market conditions, reduce competition, and negatively impact consumers.
Misuse of Power: In some cases, individuals in positions of power within a company may misuse their authority, leading to unethical practices and corruption.
Limited Control for Shareholders: Small shareholders in a company may have limited influence on decision-making, as control is often in the hands of majority shareholders or the board of directors.
A company is a crucial form of business organization that offers numerous advantages such as limited liability, large financial resources, and perpetual existence. However, it also has its share of disadvantages, including heavy government control, limited control for shareholders, and potential misuse of power. As with any business form, companies should be formed and operated with adherence to the legal and regulatory requirements to ensure sustainable growth and success.