Section 3 (1) (i) of the Companies Act, 1956 defines a company as “a companyformed and registered under this Act or an existing company”. Section 3(1) (ii) Of theact states that “an existing company means a company formed and registered under anyof the previous companies laws”. This definition does not reveal the distinctivecharacteristics of a company . According to Chief Justice Marshall of USA, “A companyis a person, artificial, invisible, intangible, and existing only in the contemplation ofthe law. Being a mere creature of law, it possesses only those properties which thecharacter of its creation of its creation confers upon it either expressly or as incidentalto its very existence”.Another comprehensive and clear definition of a company is given by LordJustice Lindley, “A company is meant an association of many persons who contributemoney or money’s worth to a common stock and employ it in some trade or business,and who share the profit and loss (as the case may be) arising there from. The commonstock contributed is denoted in money and is the capital of the company. The personswho contribute it, or to whom it belongs, are members. The proportion of capital towhich each member is entitled is his share. Shares are always transferable although theright to transfer them is often more or less restricted”.

the main characteristics are 1. Incorporated association2 .Artificial legal person3.Separate legal entity4.Perpetual existence

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A company is a third legal business structure and has entirely adifferent organizational structurefrom the soleproprietorshiporpartnership. Its formation is due to firstly, the sole proprietorship and partnership cannot meet the increased capital demand of industry and commerce. Secondly, the company ensures the protection of limited liability to the shareholders and investors.The company has several distinct characteristics; the significant ones are discussed here:

Separate Legal Entity

A company is a separate legal entity from its members who constitute it. It can hold, purchase and sell properties and enter into contracts in its own name. It is an artificial legal person who can sue aid be sued. Companies are owned by shareholders and they elect the Board of Directors, who run the company. The board in turn selects the management. Thus the shareholders exercise only indirect control over the affairs of the company. The separation of ownership from the management some-times results in a conflict of interests between owners and management. The best the shareholders can do is to change some of the directors through vote in the annual general meeting subsequent to any such conflict.

LimitedLiability

The liability of the shareholders of a company is limited to the nominal value of the shares held by them. In the event of liquidation the maximum loss of a shareholder is equal to the nominal value of the shares held by him. The creditors have no claim on the personal assets of the shareholders in the event of liquidation.