A company is a legal entity, distinct and independent of those persons who from time to time are its members.
The liability of the company’s members can be limited to the extent they have agreed to contribute towards the capital of the company with reference to the number of shares and/or the amount of guarantee respectively undertaken by them.
As the company is having an independent personality of its own, its members are not personally liable for any act or omission on the part of the company, unless the law expressly provides otherwise.
The company being a juristic person, distinct from the members constituting it, can acquire, own, enjoy and alienate property in its own name. As such the property would be that of the company and no member can make any claim upon it so long as the company is a going concern.
- The company being a legal entity can sue and also be sued in its own name.
The continuity of the company and its functioning is not effected by the death, disability or retirement of any its members. The company continues to exist, irrespective of change in its membership. It is commonly referred to as “perpetual succession”.
Transfer of member’s interest in the company can be readily attained without in any way adversely affecting its property, business, or existence.
Transferability of the company’s shares provides an element of liquidity to the investors in respect of their investment in the shares of the company and thus facilities increased investment in the company’s fund without, in any way, adversely affecting its economic stability.
The members of the company equitably share the profit by way of divided and the company’s assets in the event of its winding up in proportion of the capital respectively contributed by them.
Shares of small denomination afford an opportunity to the small investors to invest according to their capacity.
Increased investment in the company’s funds is further ensured by permitting large number of persons to subscribe to the company’s shares. Incorporation of a company affords better opportunity for strengthening capital resources, growth and development of the enterprise.
The corporate form of business organisation affords opportunity for professionalisation of its management and entrusting the administration of its affairs to persons of professional competence and standing.
Arrangements between the company and its members are comparatively similar to those of other forms of organisation. For example, a company may make a valid and effective contract with one of its member. It is also possible for person in control of a company, to be in its employment as an employee, subject to the provisions of the Act.
Incorporation of company provides better borrowing facilities as the company can raise large amount, on comparatively easier terms, by issue of debentures, especially those secured by a floating charge or by accepting deposits from the public. Even banking and financial institutions prefer to render financial assistance to incorporated companies.
In certain cases, an incorporated company comparatively stands in a better position from the point of view of taxation on its income.
Once the company is brought in to existence on its incorporation, it can only be dissolved with the provisions of the law.