Company Law and Practice · Introduction to Company Law

Meaning and Characteristics of a Company under the Companies Act, 2013

Updated 11 October 2026 · Fact-checked

A company is an artificial legal person formed and registered under the Companies Act, 2013. Its main features are separate legal entity, perpetual succession, limited liability (in a company limited by shares), power to hold property and to sue and be sued. To answer, state the feature, cite Section 9, then apply it to the facts.

Understand Meaning and Characteristics of a Company

A company is an association of persons that the law treats as a person in its own right. It is created by registration under the Companies Act, 2013. It is not a natural person. It is an artificial juridical person, so it exists only in the eyes of law.

The key provision is Section 9. From the date of incorporation shown in the certificate of incorporation, the subscribers to the memorandum and all later members become a body corporate by the name in the memorandum. That body corporate can exercise all the functions of an incorporated company. It has perpetual succession. It can acquire, hold and dispose of property (movable and immovable, tangible and intangible), contract, and sue and be sued in its own name.

From this one section you get the main characteristics:

Separate legal entity: the company is distinct from its members. Its assets, debts and contracts belong to it, not to the shareholders. The House of Lords laid this down in Salomon v. Salomon & Co. Ltd. Mr Salomon, who held nearly all the shares and was also a secured creditor, was held not liable for the company's debts, because the company was a separate person from him.
Perpetual succession: members may come and go, die or become insolvent, but the company continues until it is wound up as per law.
Limited liability: in a company limited by shares, a member's liability is limited to the unpaid amount on the shares held. This follows from the company's own status and the type of company registered, not from Section 9 alone.
Capacity to hold property, contract and sue: the company owns its property in its own name. A member has no insurable or ownership interest in specific company assets.

Additional points: shares are transferable (fully so in a public company; a private company restricts transfer in its articles), and management is separated from ownership because directors run the company for the members.

Common seal: earlier a common seal was treated as the company's official signature. The words 'and a common seal' were omitted from Section 9 by the 2015 amendment, so a common seal is no longer compulsory. Under Section 22, a company may still have a seal. If it has none, an attorney can be authorised by two directors, or by a director and the Company Secretary where one is appointed. Write this clearly in exams, since older notes call the common seal a mandatory feature.

Key rules to remember

Effect of registration (Section 9): Certificate of incorporation → body corporate + perpetual succession + power to hold property, contract, sue and be sued; Effective from the date of incorporation mentioned in the certificate. Cite Section 9 for all core features.
Separate legal entity: Company ≠ its members; Basis: Salomon v. Salomon & Co. Ltd. The company owns the assets and owes the debts.
Limited liability (company limited by shares): Member's maximum liability = unpaid amount on shares held; A fully paid-up shareholder has nothing more to pay to the company.
Common seal position: Common seal optional (omitted from Section 9 by Act 21 of 2015, w.e.f. 29-5-2015); Section 22(2) proviso: without a seal, authorisation of an attorney is by two directors, or a director and the Company Secretary where appointed.
Contracts by company (Section 22(1)): Bill, hundi or promissory note is the company's if made in its name by a person acting under its express or implied authority; Shows the company acts only through agents.

How to solve Meaning and Characteristics of a Company questions

Use this method for any question that asks you to explain, discuss or apply the features of a company.

1Define the company in one line: an artificial legal person formed and registered under the Companies Act, 2013, and cite Section 9.
2Identify which characteristic the question is testing: separate entity, perpetual succession, limited liability, property, suing, or seal.
3State the rule in plain words, with the section where you are sure of it.
4Support it with Salomon v. Salomon & Co. Ltd. if the point is separate personality or limited liability.
5Apply it to the facts given: who owns the asset, who is liable, who can sue, what happens on a member's death.
6Write a clear conclusion that answers the exact question asked.
7If the facts show fraud or sham use of the company, mention that the court may look behind the company (lifting of the veil) as an exception.

Quickest way: Feature-Rule-Facts-Conclusion in four lines

When to use it: Short-answer questions or when you have under six minutes for the answer.

Line 1: name the feature and cite Section 9.
Line 2: one-line rule, for example 'company is distinct from its members'.
Line 3: apply to the facts using the names and rupee amounts given.
Line 4: conclusion, such as 'Hence the creditor can recover only from the company, not from Mr A personally'.

Common mistakes in Meaning and Characteristics of a Company

Writing that a common seal is compulsory for every company.
Older books and notes list it as a mandatory feature.
Fix: State that the words 'and a common seal' were omitted from Section 9 in 2015. Seal is optional; Section 22(2) proviso covers companies without one.
Saying members are never liable at all.
'Limited liability' is remembered as 'no liability'.
Fix: Say liability is limited to the unpaid amount on shares in a company limited by shares. Guarantee and unlimited companies differ.
Claiming a shareholder owns the company's assets.
Confusing owning shares with owning property.
Fix: Write that the company owns the property in its own name. A member owns only shares.
Treating perpetual succession as meaning the company can never be closed.
The word 'perpetual' is read literally.
Fix: Say the company continues despite changes in membership, until it is wound up or struck off as per law.
Quoting Salomon's case without the facts or holding.
Students memorise only the case name.
Fix: Give the holding in two lines: the company is a separate person from its members, even where one person holds nearly all the shares.
Calling a company a natural person or a citizen.
Mixing the legal person concept with natural persons.
Fix: Use the term artificial juridical person. It has legal rights and duties but is not a natural person.

Worked examples

Example 1

Mr Ramesh holds 99 of the 100 shares in Ramesh Traders Private Limited. The company's godown is destroyed by fire. Ramesh claims on his personal insurance policy for the stock in the godown. Can he succeed? Explain with reference to the characteristics of a company.

Show the solution

Provision: under Section 9, on registration the company becomes a body corporate with power to acquire, hold and dispose of property in its own name.
Principle: the company is a separate legal entity from its members, as held in Salomon v. Salomon & Co. Ltd.
Application: the stock belongs to Ramesh Traders Private Limited, not to Ramesh, even though he holds 99 of 100 shares.
Insurable interest: a shareholder has no legal interest in specific company assets, only in his shares.
Conclusion: Ramesh cannot succeed on his personal policy; the company must claim under its own policy.

Answer: Ramesh cannot succeed. The stock is the property of the company, a separate legal person under Section 9, and a shareholder has no insurable interest in its specific assets.

Example 2

A, B and C are the only members of Sunrise Limited, a company limited by shares. A dies and B becomes insolvent. Does the company cease to exist? Also state the liability of C, who holds fully paid shares, if the company cannot pay a creditor of ₹5,00,000.

Show the solution

Provision: Section 9 gives the company perpetual succession from the date of incorporation.
Application to membership: death or insolvency of a member does not end the company. A's shares pass to legal heirs and B's shares vest as per law.
Existence: the company continues until wound up as per law.
Liability: in a company limited by shares, a member's liability is limited to the unpaid amount on his shares.
Application to C: his shares are fully paid, so the unpaid amount is nil.
Conclusion: the creditor can proceed against the company's assets only, not against C personally.

Answer: The company does not cease to exist because of perpetual succession under Section 9. C owes nothing further, as his shares are fully paid, so the creditor of ₹5,00,000 can recover only from the company.

Exam tips

Open every answer with Section 9. It is the anchor for most features and examiners look for it.
Mention that the common seal is no longer compulsory, and cite Section 22(2) proviso. This shows you know the current law.
Pair separate legal entity with Salomon v. Salomon & Co. Ltd. and give the holding in two lines.
For problem questions, follow the ICSI style: provision, facts and analysis, then a one-line conclusion.
Link the topic to lifting of the corporate veil, so you can add the exception when the facts suggest fraud.

Practice questions from Introduction to Company Law

Meaning and Characteristics of a Company: frequently asked questions

What is the definition of a company under the Companies Act, 2013?

The Act defines a company as one incorporated under the Companies Act, 2013 or any previous company law. In exams, you can also describe it as an artificial legal person with separate existence. Section 9 then lists its legal effects after registration.

What are the main characteristics of a company for CS Executive?

The main ones are separate legal entity, perpetual succession, limited liability (in a company limited by shares), power to hold property, and power to contract and sue in its own name. Add transferability of shares and separation of ownership from management as supporting points.

Is a common seal still compulsory for a company?

No. The words 'and a common seal' were omitted from Section 9 by the 2015 amendment. If a company has no seal, Section 22(2) proviso lets two directors, or a director and the Company Secretary, authorise an attorney.

What does Salomon v. Salomon & Co. Ltd. decide?

It decided that a duly incorporated company is a separate legal person from its members. Mr Salomon held almost all shares but was not personally liable for the company's debts. Use it to support separate legal entity and limited liability.