MEANING AND NATURE OF A COMPANY What is a Company Company ordinarily means an association of a number of individuals formed for some common purpose. When a company is registered, it is clothed with a legal personality and has the same rights and powers as a human being has. Its existence is distinct and separate from that of its members. The members may die or change but the company goes on till it is wound up on the grounds mentioned in the ordinance. Thus a company is an artificial person. It can act only through some human agency called the board of directors. They control and administer the affairs of the company and act as its agent. But they are not the agent of members of the company. Definition Of a Company A company is an association of persons united fro a common purpose -Justice James A company is an association of many persons who contribute money or money’s worth to a common stock and employs it in some trade or business, and who share the profit and loss (as the case may be) arising there from. -James Stephenson Definition Of a Company In Companies Ordinance 1984: A company is an association of persons, registered under the law having a distinctive name, recognized as a separate legal entity, with a common capital contributed by its members and comprising transferable shares of a fixed denomination, carrying limited liability and having a continuous existence and a common seal. CHARACTERISTIC FEATURES OF A COMPANY The various definitions quoted above reflect the following characteristic features that a company has: • Artificial person created by law A company under the existing corporate law is an artificial legal person having an entity and personality distinct from the members of shareholders constituting it. A company is a legal person because in law it is capable of having legal rights and obligations just like a natural person. Like every other human being it can acquire and own property, transfer property, enter into contracts and sue and be sued in its own name. • Independent legal entity Since a company is an entity separate from its members hence all assets and liabilities in a business are its own. No member can claim any ownership rights in it during its existence or winding up. This was first recognized judicially in the case of Salomon vs. Salomon and company Ltd. • Perpetual succession A company has a continued existence and its life is not affected by the death, lunacy, insolvency or retirement of its members. Members may come and go but the company continues its operations as long as requirements of law are fulfilled. • Common seal A company must have a common seal for use as an emblem in all legal documents. The common seal is used as a device as the signature of the company. Any document bearing common seal of the company and duly signed by at least two directors will be legally binding on the company • Limited liability Here the word liability refers to the liability of the shareholders towards the company. This is limited to the value of the shares subscribed to or the amount of guarantee given by them. • Transferability of shares The shares of a public limited company are freely transferable. The market value of the shares, as quoted on any stock exchange, no doubt changes everyday. But for a going concern the income of the company is distributed either on the number of shares or face value of each share. • Separate ownership and management Being in a large number it is not advisable for the shareholders to run and manage the company. Hence the law provides for the board of directors, elected by the members at their general meeting to govern the affairs of the company. Types Of Companies The companies ordinance pronounces a company to generally be one that is limited by shares, limited by guarantee, unlimited or non-profit making. • Company limited by guarantee Commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company. • Company limited by shares The most common form of company used for business ventures. Specifically, a limited company is a company in which the liability of each shareholder is limited to the amount individually invested with corporations being the most common example of a limited company • Unlimited company This is one that does not limit the liability if its members. Such a company may or may not have a share capital. In other words, in case if such companies there is no limit of liability of members to contribute the assets on a winding up. • Non profit making company An association, which is formed and incorporated without the motive of earning profit. It is not of commercial nature and does not pay dividends to its members. It applies its profits or other income for promotion if its own objects. Companies are also sometimes distinguished for legal and regulatory purposes between public companies and private companies. • Public company A company or a body corporate or other body whose securities are listed. The minimum number of persons required to form this company is three. It does not restrict transfer of shares. Does not have a maximum limit for number of members and invites public for subscribing to its shares. This kind of a company can either be listed i.e. its shares are being traded in the stick exchange or unlisted. • Private company A company, which restricts the transfer of shares. Limits the number of members to 50 and minimum 2 or 1. Prohibits invitation to public to subscribe to its shares. This king of company can either be a SMC (single member company) or other Pvt. Ltd. Some other companies may be: • Government company Whose more than 50% shares are held by the government. • Statutory company Certain companies have been formed by a private statute passed in the relevant jurisdiction . In Pakistan these are established under the act of parliament like NBP, IDBP and SBP. These are also called corporations. • Chartered company Prior to the passing of modern companies legislation, these were the only types of companies. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks) • Non Banking Finance Company (NBFC) • Foreign company One that is incorporated outside Pakistan but doing business in Pakistan. • Holding and Subsidiary company One that controls more than 50 present voting power shares or the right to appoint 50 present directors in a company and the other whose shares are held respectively. • Associated company Where more than one company have a common management. • Illegal Association An association, which is not formed according to provision of any law and in which maximum number of members exceeds statutory limits.
Posted on: Sun, 05 Oct 2014 09:54:08 +0000
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