Characteristics of a Company
Characteristics of a Company
A company is a legal entity formed by a group of individuals to carry on a lawful business or other activities. It is recognized as a separate legal person distinct from its members.
Here are the key characteristics of a company:
1. Separate Legal Entity
A company has an identity separate from its members (shareholders).
It can own property, incur debts, sue, and be sued in its own name.
Case Law:
Salomon v. Salomon & Co. Ltd. (1897, UK)
This is the landmark case establishing the principle of separate legal personality.
Mr. Salomon formed a company and was the principal shareholder. When the company went into liquidation, creditors claimed Mr. Salomon should be personally liable. The House of Lords held the company was a separate legal entity, and Mr. Salomon was not personally liable for the company's debts.
2. Perpetual Succession
The existence of a company is continuous and not affected by the death, insolvency, or insanity of its members.
The company continues until it is legally wound up.
Case Law:
Re Kingston Cotton Mill Co. (1896)
Demonstrated that a company has perpetual succession irrespective of changes in membership.
3. Limited Liability
The liability of shareholders is limited to the extent of their shareholding or the amount they have agreed to contribute.
Personal assets of shareholders are protected from company debts.
Case Law:
Salomon v. Salomon & Co. Ltd. (1897) also establishes this principle — shareholders are not personally liable for company debts beyond their share contribution.
4. Common Seal (Optional Now)
Traditionally, a company had a common seal, the official signature of the company on documents.
Nowadays, electronic signatures and authorized representatives may sign on behalf of the company.
5. Transferability of Shares
In a public company, shares are freely transferable, allowing shareholders to sell their shares without affecting the company's existence.
In private companies, transfer of shares is usually restricted by the Articles of Association.
6. Artificial Person
A company is created by law and does not exist naturally.
It acts through its agents (directors, officers) as it does not have physical existence.
7. Capacity to Sue and be Sued
As a separate legal entity, the company can initiate legal proceedings or be sued in its own name.
8. Separate Property
The property owned by the company belongs to the company and not to its members personally.
Creditors cannot directly claim shareholders’ personal assets.
9. Members as Owners
Members/shareholders own the company through their shareholding.
However, management is typically handled by directors, distinct from ownership.
10. Management by Board of Directors
Day-to-day management is vested in directors appointed by shareholders.
Shareholders control the company indirectly through voting rights.
Summary Table
| Characteristic | Explanation | Key Case Law |
|---|---|---|
| Separate Legal Entity | Company distinct from members | Salomon v. Salomon & Co. Ltd. |
| Perpetual Succession | Continues despite changes in membership | Re Kingston Cotton Mill Co. |
| Limited Liability | Liability limited to shareholding | Salomon v. Salomon & Co. Ltd. |
| Artificial Person | Created by law, no physical existence | Salomon v. Salomon & Co. Ltd. |
| Capacity to Sue and be Sued | Can sue or be sued in its own name | — |
| Separate Property | Company owns its assets separately | — |
| Transferability of Shares | Public companies: freely transferable; private companies: restricted | — |
| Management by Directors | Managed by board appointed by shareholders | — |
Additional Case Law
Lee v. Lee’s Air Farming Ltd. (1961, Privy Council)
The court upheld that a company is a separate legal person, and even if one person controls the company entirely (Mr. Lee was sole shareholder, director, and employee), the company is distinct from that person.
Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875)
This case explained the concept of ultra vires (acts beyond the company’s capacity). A company can only act within its objects clause, emphasizing its separate legal status.
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