Learning Materials For Accounting, Management , Finance And Economics.

Sunday, April 17, 2011

Characteristics Of A Company

A voluntary association of people with common business objectives such as common capital, sharing of profit or loss, common seal etc. is known as company. It is operated and managed by a 'board of directors' which are elected by shareholders. Separate legal entity, limited liability, common seal, share transferability etc. are some key features of a company.

Following are the main characteristics of a company

1. Legal Entity

A company is an artificial person created by law. So, it has a separate legal entity from its members. It can hold and deal with any type of property of which it is owner in any way like, can enter into contracts, open bank account in its own name, sue and be sued in its name and capacity.

2. Perpetual Succession

Joint stock company is a corporate body. It acquires a separate legal personality difference from its member with a common seal. It does not depend upon the existence of its members. It means company is not at all affected by the death, lunacy or bankruptcy of its members or shareholders. The shareholders may come or go but the company goes on forever. Only law can terminate its existence.

3. Limited Liability

The liabilities of shareholders of the company is limited up to their capital investment only. The liability of the shareholders in the public limited company is limited to the extent of the amount of share, they have subscribed. The shareholders are not liable for the payment of excess claim of the creditors even if capital of the company becomes insufficient.

4. Common Seal

Common seal is another notable characteristic of a company. However, a company being artificial person, it can not sign on documents like natural person. Therefore, a common seal is used as a substitute of signature. The common seal affixed on all documents of the company.

5. Transferability Of Share Capital

The shares of a company are freely transferable from one person to another person except in case of private companies.

6. Separation Of Ownership And Management

Every member or shareholder, who is real owner of the company can not take active part in day-to-day management of the company. It is managed and controlled by a board of directors.

7. Maintenance Of Books Of Accounts

A company has to keep and maintain a prescribed set of accounting books and any failure in this regard attracts penalties.

8. Audit Of Account And Publication Of Financial Statements

It is compulsory for each and every company to get its accounts to be audited. A joint stock company has to publish its financial statement at the end of every fiscal year.