Key Legal Characteristics and Attributes of a Corporate Body

A corporate body is an artificial legal person created by law. Once incorporated, it gains an independent identity separate from its members. This distinct status is recognized under the CompaniesAct, 2063 (2006) in Nepal, which outlines the rights, duties, obligations, and privileges such a body may enjoy. The powers of a company are confined to what is granted through its Memorandum of Association (MOA), Articles of Association (AOA), and legal provisions. Several defining characteristics give a corporate body its legal and functional personality, each with specific legal consequences.

Corporate Personality: An Independent Legal Identity

A company, once incorporated, is granted corporate personality. This means it exists as a separate legal entity from the individuals who own or manage it. The company has its own name, can own property, incur debts, open bank accounts, employ people, and sue or be sued in its own name. This separation ensures that the personal assets of shareholders remain protected from the company’s liabilities.

Key points:

• Separate legal identity from shareholders.

• Debts and liabilities belong solely to the company.

• Can function as an individual in the eyes of the law.

Limited Liability: Protecting Shareholder Interests

One of the major benefits of the corporate form is limited liability. Shareholders are only responsible up to the unpaid amount of their subscribed shares. Their personal assets are not used to settle company debts. Section 8 of the Companies Act, 2063, clearly states that shareholder liability is limited to the extent of their investment in the company. As a result, companies are required to add the word “Limited” at the end of their name to reflect this status.

Perpetual Succession: Continuity Despite Change

Unlike sole proprietorships or partnerships, a company’s existence does not end with the death, insolvency, or exit of any of its members. A company’s life is independent of the people who own it. It continues to exist until legally dissolved. This ensures operational continuity and fosters investor and market confidence.

Key points:

• Legal identity remains intact regardless of changes in membership.

• The life of the company is determined by the MOA or legal dissolution.

• Enhances business stability and long-term planning.

Separate Property: Ownership by the Company

A company can own, enjoy, and dispose of property in its own name. Shareholders are not considered co-owners of company assets. The property is vested in the company and controlled by it, not by its members. Section 7(2) of the Companies Act confirms that a company may acquire, hold, and transfer both movable and immovable property.

Capacity to Sue and Be Sued: Legal Recognition

The company can initiate or face lawsuits under its own name. Section 3 of the Companies Act affirms that any company registered under it may sue and be sued independently. This reinforces its status as a legal person and enables it to protect its rights or be held accountable without involving individual shareholders directly.

Contractual Rights: Legally Binding Agreements

As a separate legal entity, a company can enter into contracts in its own name. Contracts made by the company are binding upon it—not its shareholders. Similarly, shareholders are not individually responsible for the obligations or benefits of a company’s contracts. Section 7(4) of the Companies Act gives the company full authority to enter and execute legal agreements like any natural person.

Common Seal: The Company’s Official Signature

Traditionally, companies were required to use a common seal on official documents as a form of authentication. However, under Section 20(2) of the Companies Act, the use of a seal is no longer mandatory. If a company chooses to use one, Section 26 mandates that the seal must be made in the company’s name in clear and legible letters. The seal is still often used in formal documentation to signify company approval.

Key points:

Legal Significance in Company Operations

The distinct legal features of a company enable it to function efficiently in the market. Limited liability attracts investors, perpetual succession ensures longevity, and corporate personality allows the company to build contractual and legal relationships independently. These characteristics also provide a framework for fair treatment of shareholders, creditors, and external stakeholders.

• They establish legal separation between the company and its members.

• They support clear ownership and accountability.

• They encourage long-term investment and stable growth.