A company may be an incorporated company or a corporation or an unincorporated company. An incorporated company is a single and legal person distinct from the individuals constituting it, whereas an unincorporated company, such as a Partnership, is a mere collection or aggregation of individuals.
Company – Its Nature
Advantages of Corporate Form of Enterprises:
1. Corporate Personality
A Company is a separate legal entity it bears its own name and acts under a corporate name. It has a seal of its own. Its assets are separate and distinct from those of its members. It is also a different ‘person’ from members who compose it. As such it is capable of owning property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts, and suing or being sued in the same manner as it has a separate legal entity.
2. Limited Liability
In the case of companies limited by shares, no member is bound to contribute anything more than the nominal value of the shares held by him which remains unpaid. The privilege of limited liability is one of the principal advantages of doing business under the corporate form of organization.
For example, if Mr. Antony holds shares of the total nominal value of Rs. 1,000 and has already paid Rs. 500/- (or 50 % of the value) as part payment at the time of allotment, he cannot be called upon to pay more than Rs. 500/- the amount remaining unpaid on his shares. If he holds fully paid shares, he has no further liability to pay even if the company is declared insolvent. In the case of a company limited by guarantee, the liability of members is limited to a specified amount mentioned in the memorandum.
3. Perpetual Succession
An incorporated company has perpetual succession. The death or insolvency of individual members does not in any way, affect the corporate entity, its existence, or continuity. “Members may come and members may go but the company can go on forever”.
4. Transferable Shares
“The shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company”. This encourages investment of funds in the shares, so that the members may encash them at any time.
A company as a legal entity is capable of owning its funds and other assets. “The property of the company is not the property of the shareholders; it is property of the company”.
Capacity to Sue.
As a juristic legal person, a company can sue in its name and be sued by others. The managing director and other directors are not liable to be sued for dues against a company.
5. Flexibility and Freedom
The company has the autonomy and independence to form its own policies and implement them, subject to the general principles of law, equity, and a good conscience and in accordance with the provisions contained in the Companies Act, Memorandum, and Articles of Association.