Intermediate · Paper 5 – Business Laws & Ethics · Companies Act, 2013 · 2:45
English
Transcript
A company has no body, no face, and no hands to sign. Yet it can own a factory, borrow crores, and even go to court. How? The answer is in the seven features of a company.
Meet Karthik and Lakshmi. Both are shareholders of Sunrise Textiles Limited, a big public company in Tiruppur.
Feature one: separate legal entity. The company is an artificial person, separate from its shareholders. It has its own independent corporate existence.
Karthik: So Sunrise Textiles is one person, and I am a different person?
Feature two: limited liability. Lakshmi holds one share with a face value of ten rupees. She has paid six rupees. So she can be asked to pay only the unpaid four rupees, whatever the company's debts may be.
Lakshmi: Even if the company owes one crore, I pay only four rupees more?
Feature three: perpetual succession. Members may come and members may go, but the company goes on, from incorporation till winding up.
Feature four: separate property. The factory, the machines and the land belong to the company, in its own name. Not to Karthik, and not to Lakshmi.
Feature five: common seal. A company cannot sign with its own hand, so it used a common seal on documents. Since the 2015 amendment, the seal is optional. Documents can be signed by two directors, or by one director and the company secretary.
Feature six: transferability of shares. Lakshmi can sell her shares freely to anyone. But in a private company, the transfer of shares is restricted.
Feature seven: capacity to sue and be sued. If a supplier cheats Sunrise Textiles, the company files the case in its own name. And if the company does not pay, the supplier sues the company, not Karthik.
Exam tip! Seven features, seven words. Separate, limited, perpetual, property, seal, transfer, sue. Write each feature with a one line explanation.
Let's recap. Separate legal entity. Limited liability. Perpetual succession. Separate property. Common seal. Transferability of shares. And capacity to sue and be sued.
Now try the test in the MPA app. In the next video, we will see when courts lift the corporate veil.