4 Important Characteristics Of A Private Limited Company | Online Chartered

Introduction:

The private limited company is distinct entity incorporated under companies’ act 2013/1956. It is one of the most convenient ways of doing business in a legal format. Since this format of doing business is governed by particular statutory act it carries certain set of characteristics which defines the basic nature of company. Unlike a natural person, a company is an artificial judicial person which runs by its directors and owned by shareholders cum members. Directors of company are in fiduciary relationship with company. They are imposed with the responsibility to run the company in the best interest of company and its members.  The directors are not the owners of company. The members of company who possess the shares/stock of company are the real owners of company. In this article we will discuss 4 basic characteristics of company which defines the company at its best.

1) Perpetual succession:

The directors or members may come and go but company shall always run. This means that any member or director of company can enter or resign at any point of time without affecting the status of company. The status of company remains the same as going concern irrespective of members and directors. During life cycle of company, the appointment and resignation of directors is an ordinary course of business.  In a very systematic way we can say that perpetual succession means uninterrupted existence. The company dies only when the management of the company legally dissolved the company. The company remains in existence even in the case of death of directors, insolvency or bankruptcy of any of its members.

2) Separate Legal entity:

A Company is a separate legal entity distinct from its members in the eyes of law. The directors appointed in the company are in fiduciary relationship with company. This means that the directors of company are imposed with the responsibility to run the company in the most profitable manner both for company and its members. The directors are also responsible to carry out all the legal compliances as set in the companies act and any other act which is applicable to the company. The status of separate legal entity enables company to sue others and be sued by others. Company can own properties in its own name and also incurs debts in its own name. The members and shareholders are not liable towards any liability that incurs by company. However, the directors can be questioned and penalized for any misconduct and non-compliance by company.

3) Limited Liability:

Unlike the proprietorship concern and partnership firm, the liability of members in the company is limited to the extent of share subscribed by them. In the event of winding up, insolvency or bankruptcy of company the personal assets of company are fully safe and they are not to be sold to make the payments. Only the assets which are in the name of company are prone to sell in the above mentioned events. Thus, the members are only liable to the extent of their share in the company and not more than that.

4) Common seal:

A company is an artificial judicial person in the eyes of law and required to act in accordance with the companies’ act-2013. Company can own assets in its own name and can enter into an agreement for furtherance of business. But, since the company is an artificial person it cannot affix its signature on any documents/contracts/agreements. To mitigate this limitation, the company is entitled to put its common seal as its consent in the place of signature. The common seal act as signature of the company. All the legal documents or all kind of papers must carry the common seal of company to validate its legitimacy.