Why is a company called as an artificial person ? Explain important features of a company form of business.

 Why is a Company Called an Artificial Person?

A company is called an artificial person because it is created by law and has its own legal identity, separate from its owners. Unlike a natural person (human being), it does not have a physical form or emotions. However, it can perform activities like owning property, entering contracts, and suing or being sued, just like a real person. This legal recognition allows a company to exist independently of the people who run or own it.

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Important Features of a Company Form of Business

1. Separate Legal Entity:

A company is treated as an independent legal entity, separate from its shareholders. For example, if a company incurs debt, the shareholders are not personally responsible.

2. Limited Liability:

The liability of shareholders is limited to the amount they have invested. Their personal assets are not at risk if the company faces financial losses.

3. Perpetual Existence:

A company continues to exist even if its shareholders or directors change or pass away. This ensures stability and longevity.

4. Transferability of Shares:

In most companies, shares can be easily bought or sold, providing liquidity to investors.

5. Ownership and Management Separation:

Owners (shareholders) and managers (directors) have different roles. Shareholders invest in the company, while directors manage its day-to-day operations.

6. Capacity to Sue and Be Sued:

A company can initiate legal proceedings or be sued in its own name, just like a person.

7. Regulation and Compliance:

Companies are governed by specific laws (e.g., Companies Act) and must adhere to strict rules, including filing regular financial reports.

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Conclusion

The company form of business is considered an artificial person because it is legally independent from its owners and managers. This unique structure provides benefits like limited liability and perpetual existence, making it an attractive option for businesses aiming for growth and stability. However, it also comes with regulatory requirements that must be carefully followed to ensure smooth operations.