Looking for Company meaning, its definition, and features (characteristics) as per the syllabus of class 12 CBSE, ISC, and state Board.
This topic is concerned with the Accounting for share capital chapter of Accountancy class 12
What is the need of a company for a Business
As we already have study that a Business can be carried out in Proprietorship and Partnership firm.
But If the Business required huge capital and manpower. Both above form is not sufficient to undertake a business.
formate of company overcome the drawbacks of Proprietorship and Partnership firm such as
If a business required huge capital. Proprietorship and Partnership firm format is not enough. The format of a company firm to run a business makes it possible to collect and invest huge capital in the business.
Limited Management ability
In proprietorship format, there is only a single person and in Partnership also only a Maximum of 50 members. But in company format, there is two formats.
Private Limited Company can have 200 members maximum. Whereas Public Ltd can have Unlimited Members.
There is unlimited Liability in Proprietorship and Partnership firms. In case of loss in Business, the member will have to sell their private assets to settle the firm losses.
But in the case of the company, the member is liable to pay up to, what they have invested in the business. There is no need to sell private assets to cover up the company incurred losses.
Meaning of Company class 12
In short, A company is a voluntary association of persons formed through the process of law, for the purpose of carrying on some business.
Definition of Company
Lord Justice Lindley defines a Company as follows,
“It is an association of persons who contribute money or money’s worth to a common stock and employ it for some common purpose.”____Lord Justic Lindley
“A company is an artificial person created by law, having separate entity with a perpetual succession and a common seal.”____ Prof. Haney
Characteristics (Features) of a Company
Following are the essential features of a company.
Separate Legal Entity:-
A company is a legal person in the eye of law and its existence is quite distinct (separate) from its members.
It means, in case of any fraud, creditors of such a company can sue only the company for his debts and not any of its members.
following are other practices by the company under this characteristics
- Company can purchase and sell the properties in its own name
- Can open bank account in its own name
- Can enter into contracts in its own name
The company’s existence does not affect by the retirement, death, lunacy, and insolvency of its members. Shareholders may come and go, but the company goes on forever unless wound up as per the Companies Act.
The liability of the shareholder is limited to the unpaid value of his shares. For example, if the face value of a share of a company is ₹ 10 and a shareholder has already paid ₹ 8 per share. In such a case, he can only be called upon to pay not more than ₹2 per share.
A company may or may not have a common seal. It it has a common seal, it is affixed to all the important documents of the company.
Transferability of Shares
The total capital of the company is divided into parts, called shares. These shares are freely transferable subject to certain conditions.
Separation of Management from Ownership
Shareholders are the true owner of the company. But the number of shareholders are too large to take part in management. Thus the company is managed by a Board of directors elected by the shareholders.