Meaning and Definitions:
A company or a joint stock company is an entity, incorporated by a group of persons through the process of law for undertaking (usually) a business. It is an artificial person and is separate from its members (shareholders). It normally has a share capital divided into units called Shares, the owners of which are known as Members or Shareholders. Unlike partnership, insolvency or death of a member does not affect the life of a company, i.e., the company remains functional even if a members becomes insolvent or dies.
“Company means a company incorporated under this act or any previous company law.”
—Section 2(20) of the Companies Act, 2013
“A company is an artificial person, created by law having separate entity with a perpetual succession and a common seal.”
—Prof. Haney
Characteristics of a Company:
1. Incorporation: A company is an artificial person established through the process of law i.e., the Companies Act, 2013 or any previous company law.
2. Separate Legal Entity: A company is an artificial person having a legal entity separate from its shareholders. It can own property enter into contract, conduct business sue or be sued for its debts and actions. The scope of its activities and the working of the company is regulated by its Memorandum of Association, Articles of Association and Provision of the Companies Act.
3. Perpetual Existence: A company has a perpetual succession not affected by the death. Lunacy or bankruptcy of its members of shareholders. The life of a company comes to an end only by winding up through the process of law.
4. Limited Liability: Liability of its members is limited to the value of the share subscribed by them except in the case of companies incorporated with unlimited liabilities.
5. Transfer ability of Shares : The shares of a company are freely transferable except in case of private companies.
6. Management and Ownership: A company is not run by all the members but by their elected representatives called Directors. Thus, management and ownership are separate.
7. Common Seal: A company may or may not have a common seal. If it has a common seal, it is affixed to all the important documents of the company.
Kinds of Companies:
(a) One Person Company: One person company is a company which has only one person as a member. It is a company incorporated as a private company which has only one member. Rule 3 of the Companies (Incorporation), Rules 2014 provides that:
- Only a natural person being an Indian citizen and resident in India can from one person company or can be nominee for the Role member of one person company.
- One person can form only one “one person company” or become nominee of only one such company.
- It can be formed for charitable purposes.
- It cannot carry out non-banking financial investment activities including investments in securities of anybody corporate.
- Its paid up share capital is not more than Rs 50 lakhs.
- Its average annual turnover should not exceed Rs 2 crores.
(b) Private Company: A private company is one which has minimum paid up. Share capital as may be prescribed and which by its Articles of Association.
- Restricts the, right to transfer its shares if any.
- Except in the case of one person company limits the number of its numbers excluding its present or part employee members to 200.
Where shares are held by two or more persons jointly they shall be treated as a single member.
- Prohibits any invitation to the public to subscribe for any securities of the company.
A private company must have atleast 2 members. The name of a private company ends with the words “Private Limited”. [Section 2(68) of the Companies Act, 2013]
(c) Public Company: A public company is a company which:
- is not a private company.
- has a minimum paid up capital as may be prescribed.
- is a private company being a subsidiary of a company which is not a private company.
A public company must have atleast 7 members. There is no restriction on the maximum number of members.
The name of a public company ends with the word “Limited”.
A public company can raise its capital by issue of shares to public for subscription.
