Company Meaning and Definition

Questions and Answers

What distinguishes a company as a separate legal entity from its members?

A company is a distinct legal entity created by law, meaning it has its own rights and obligations separate from its members.

In what way does the principle of perpetual succession affect the lifespan of a company?

Perpetual succession allows a company to continue its existence regardless of changes in its membership or the individual status of its members.

How does the case of Salomon Vs Salomon Co Ltd illustrate the concept of a company’s separate legal personality?

The case demonstrates that the company is considered a separate person in law, distinct from its shareholders, thus protecting its assets and prioritizing secured creditors.

What is meant by the term 'common stock' in the context of a company?

Common stock refers to the capital contributed by members that is used for the company's trade or business, representing ownership stakes through shares. Signup and view all the answers

Why are shares of a company considered transferable, and what restrictions could apply?

Shares are transferable to allow liquidity and investment changes, but restrictions may apply to control ownership and maintain the composition of the shareholder base. Signup and view all the answers

What ensures the perpetual existence of a company and how does it differ from a natural person?

A company exists perpetually because it is created by law and continues to exist independently of its members, unlike a natural person who can die. Signup and view all the answers

Explain the concept of limited liability in a company limited by shares.

In a company limited by shares, members' liability is restricted to the unpaid amount of their shares, meaning they can only be called to pay the outstanding value. Signup and view all the answers

What role does the common seal play in a company’s operations?

The common seal acts as the official signature of the company, authorizing contracts made by its agents as the company itself cannot physically sign documents. Signup and view all the answers

Discuss the implications of a company’s capacity to sue and be sued.

A company, as a separate legal entity, can sue or be sued in its own name, allowing it to engage in legal actions as a person would. Signup and view all the answers

In what way does a company's ownership of property differ from that of its shareholders?

A company owns property in its own name, distinct from its shareholders, who are not considered joint owners of the company's assets. Signup and view all the answers

Study Notes

Company Definition

A company is an association of individuals formed for a common purpose, characterized by voluntary membership.
Capital is divided into shares, and companies are recognized as artificial legal persons with perpetual succession.
Prof. Lindley defines a company as an association pooling money or assets to conduct a common trade, sharing profits and losses.

Characteristics of a Company

Separate Legal Entity

A company is a distinct legal entity created by law, recognized as an artificial person.
Reference case: Salomon Vs Salomon Co Ltd establishes that a company is independent of its members, even if one member holds the majority of shares or is a secured creditor.

Perpetual Succession

Companies have an indefinite lifespan, unaffected by members’ mortality, insolvency, or mental state.
Formation by law allows continuation despite external disasters or the death of all human members.

Limited Liability

In a company limited by shares, member liability is restricted to the unpaid portion of their shares.
In a company limited by guarantee, liability pertains to a predetermined sum committed in case of the company winding up.

Common Seal

A juristic person with a common seal acts through agents; any contract requires the company seal as its official signature.
The seal carries the company's name and signifies its corporate identity.

Transferability of Shares

Shares are divided parts of a company’s capital, intended for easy transfer under specified conditions.
The ability to transfer shares encourages liquidity and shareholder flexibility in joint-stock companies.

Capacity to Sue and Be Sued

A company can initiate or defend legal actions under its corporate name, resembling the legal actions that individuals can undertake.
Incorporation grants independent legal personality, allowing it to engage in legal matters like a human being.

Separate Property

A company owns property distinct from its members; its assets are not personally owned by shareholders.
Although the company’s capital is contributed by members, ownership and control of property lie solely with the company as a legal entity.

Description

This quiz explores the fundamental concepts of a company, including its definition, characteristics, and purpose. Understand the nature of companies as voluntary associations of individuals and their structural components like shares and perpetual succession. Perfect for business studies and introductory legal concepts.