Key Legal Characteristics and Attributes of a Corporate Body

A corporate body is the creation of law so it is an artificial juridical person created by law known as a legal person. It has many rights, obligations, powers, and duties prescribed by law. Being the creation of law, it can only possess the powers conferred by its MOA, AOA, and provisions of the Company Act. There are certain characteristics of the company. They are: -

• Corporate Personality
• Limited liability
• Perpetual Succession
• Separate Property
• Capacity to sue and be sued
• Contractual Rights
• Common seal

1. Corporate Personality

A company incorporated under the Companies Act is vested with a corporate personality. So, it bears its own name, separate assets that are distinct from those of its shareholders. The principle of the separate personality of a body corporate such as a registered company means that the company as a separate person incurs the company’s debts and the members/ shareholders of a company do not incur its debts. It is a different person from the shareholders who compose it. Therefore, it is capable of owning property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts, and suing or being sued in the same manner as an individual. Company Act, 2063 states that any companies incorporated under the Companies Act shall be autonomous and corporate bodies with perpetual succession.

2. Limited Liability

The privilege of limited liability for business debts is one of the principle advantages of doing business under the corporate form of organization. The company, being a separate person, is the owner of its assets and bound by its liabilities. Shareholders, even as a whole, are neither the owners of the company’s undertakings nor liable for its debts. The Company Act 2063, sec 8 states that the liability of a shareholder of a company incorporated under this Companies Act in respect of its transactions shall be limited only to the maximum value of shares to which he has subscribed or undertaken to subscribe. The Companies Act of Nepal provides that a private company shall add the word “limited” to its name as the last name of the company.

3. Perpetual Succession

An incorporated company never dies, except when it is wound up as per the law. A company, being a separate legal person is unaffected by the death or departure of any shareholder and it remains the same entity, despite a total change in the membership. A company’s life is determined by the terms of its MOA. It may be perpetual or it may be continued for a specified time to carry on a task or object as laid down in the MOA. Perpetual succession therefore means that the membership of a company may keep changing from time to time, but that shall not affect its continuity.

Professor L.C.B. Gower mentions that “the members may come and go, but the company can go on forever. During the war all the members of one private company, while in a general meeting, were killed by a bomb, but the company survived; not even a hydrogen bomb could destroy it.” The death of a member leaves the company unmoved; members may come and go but the company can go on forever.

4. Separate Property

A company being a legal person and entirely distinct from members, is capable of owning, enjoying, and disposing of property in its own name. The company is a real person in which all its property is vested, and by which it is controlled, managed, and disposed of. The property of the company is the joint property of the shareholders. A company’s property is the property of the company as a separate person, not the shareholders. Section 7(2) of the Company Act, 2063 provides that subject to the Companies Act, any company may, like an individual, acquire, hold, sell, dispose of, or otherwise deal with any movable or immovable property.

5. Capacity to sue and be sued

A company being a body corporate, can sue and be sued in its own name. To sue means to institute legal proceedings against (a person) or to bring a suit in a court of law. All legal proceedings against the company are to be instituted in its name. Similarly, the company may bring an action against anyone in its own name. The legal rights of the company belong to the company as a separate and not to its shareholders. Section 3 of the Companies Act, 2063 provides that any company may sue and be sued by its own name.

6. Contractual Rights

A company is a legal entity different from the shareholders and can enter into contracts for the conduct of business in its own name. A shareholder cannot enforce a contract made by his company; he is neither a party to the contract nor entitled to the benefit derived from it. Likewise, shareholders cannot be sued for contracts made by the company. Sec 7(4) of the Company Act, 2063 provides that the Company may, like an individual, enter into a contract, exercise its rights and perform the obligations as referred in such contract.

7. Common Seal

Upon incorporation, a company becomes a legal entity with perpetual succession. Since the company has no physical existence, it must act through its agents and all contracts entered into by its agents must be under the seal of the company. Normally, the common seal acts as the official signature of a company. The name of the company must be engraved on its common seal. Section 20(2) of the Companies Act, 2063 states that the provisions of the seal and it is not mandatory to use of seal for the company. Section 26 of the Company Act, 2063 states that a company that intends to use a seal in its transaction shall make the seal in its name in clear legible letters. The company can use its seal in any reports and records submitted on its behalf and business letters to be used in its name etc.

A company, being an artificial legal entity, has an identity distinct from that of its shareholders. The main attributes of a company include corporate personality, limited liability, perpetual succession, and separate property, all of which enable it to function independently in acquiring assets, incurring liabilities, and contracting in its name. These characteristics guarantee the interests of the shareholders, whereby liability is limited, and also, the continuity of the company is not subjected to changes in membership. It also enables the company, on its behalf, to sue and be sued. Fully established the eyes of law are other important features - the common seal provides for signature when entering into contracts in writing. Thus, the provisions under the Company Act 2063 provide the company with its independent legal entity status, which, in turn, acts as a solid foundation for its operation and interaction within the market. Fundamentally, all these legal characteristics allow companies to exist independently as perpetual entities that assure business stability and growth.