4 Important Characteristics of a Private Limited Company

Introduction

The private limited company in Gujarat is a 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 a particular statutory act it carries a certain set of characteristics that defines the basic nature of company. Unlike a natural person, a company is an artificial judicial person which runs by its directors and is owned by shareholders cum members. Directors of the company are in a fiduciary relationship with company. They are imposed with the responsibility to run the company in the best interest of the company and its members.  The directors are not the owners of company. The members of the company who possess the shares/stock of the company are the real owners of the company. In this article, we will discuss 4 basic characteristics of company which define 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 in time without affecting the status of the company. The status of company remains the same as going concerned irrespective of members and directors. During the 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 the 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 a fiduciary relationship with the company. This means that the directors of the company are imposed with the responsibility to run the company in the most profitable manner both for the company and its members. The directors are also responsible to carry out all the legal compliances as set in the company act and any other act which is applicable to the company. The status of a separate legal entity enables the company to sue others and be sued by others. The company can own properties in its own name and also incurs debts in its own name. The members and shareholders are not liable for any liability that is incurred by the company. However, the directors can be questioned and penalized for any misconduct and non-compliance by the company.

3) Limited Liability:

Unlike the proprietorship concern and partnership firm, the liability of members in the company is limited to the extent of shares subscribed by them. In the event of winding up, insolvency, or bankruptcy of the company the personal assets of the company are fully safe and they are not to be sold to make the payments. Only the assets which are in the name of the 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 the law and is required to act in accordance with the Companies’ act-2013. The company can own assets in its own name and can enter into an agreement for the 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 the signature. The common seal act as a signature of the company. All legal documents or all kinds of papers must carry the common seal of the company to validate their legitimacy.