The never-ending human desire to grow and grow further has given rise to the expansion of business activities, which in turn has necessitated the need to increase the scale of operations so as to provide goods and services to the ever increasing needs of the growing population of consumers.
Large amount of money, modern technology, large human contribution etc. is required for it, which is not possible to arrange under partnership or proprietorship. To overcome this difficulty, the concept of ‘Company’ or ‘Corporation’ came into existence.
While the invention of steam power ignited the human imagination to build big machines for the mass production of goods, the need to separate the management from ownership gave birth to a form of organisation today known as ‘company’.
Company form of organisation is one of the ingenious creations of human mind, which has enabled the business to carry on its wealth creation activities through optimum utilisation of resources.
In course of time, company has become an important institutional form for business enterprise, which has carved out a key place for itself in the field of business operations as well as in the wealth-generating functions of society.
2. MEANING OF COMPANY
The word 'Company', in everyday usage, implies an assemblage of persons for social purpose, companionship or fellowship. As a form of organisation, the word 'company' implies a group of people who voluntarily agree to form a company.
The word 'company' is derived from the Latin word 'com' i.e. with or together and 'panis' i.e. bread.
Originally the word referred to an association of persons or merchant men discussing matters and taking food together. However, in law 'company' is termed as company which is formed and incorporated under the Companies Act, 2013 or an existing company formed and registered under any of the previous company laws. As per this definition of law, there must be group of persons who agree to form a company under the law and once so formed, it becomes a separate legal entity having perpetual succession with a distinct name of its own and a common seal.
Its existence is not affected by the change of members.
Company begs its origin in law. It is an organisation consisting of individuals, called shareholders by virtue of holding the shares of a company, who are authorised by law to elect a board of directors and, through it, to act as a separate legal entity as regards its activities.
Generally, the capital of the company consists of transferable shares, and members have limited liabilities.
To get to the heart of the nature of the company, let us examine the concept of company propounded under corporate jurisprudence.
According to Justice Marshal. "A corporation is an artificial being, invisible, intangible and existing only in the contemplation of law”.
In the same manner, Lord Justice Hanay has defined a company as "an artificial person created by law with a perpetual succession and a common seal”.
A common thread running through the various definitions of 'company' is that it is an association of persons created by law as a separate body for a special purpose. At the same time, definitions have laid down certain characteristics of a corporate organisation, which make it out as a separate and unique organisation which enables the people to contribute their wealth to the capital of the company by subscribing to its shares and appointing elected representatives to carry out the business.
3. SALIENT FEATURES OF A COMPANY
Following are the salient features of a company:
4 TYPES OF COMPANIES
1. Government Company
According to Section 2(45) of the Companies Act, 2013, “Government company” means any company in which not less than fty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.
2. Foreign Company
According to Section 2 (42) of the Companies Act, 2013, “Foreign company” means any company or body corporate incorporated outside India which –
(a) Has a place of business in India whether by itself or through an agent physically or through electronic mode; and
(b) Conducts any business activity in India in any other manner.
3. Private Company
Section 2(68) of the Companies Act, 2013 denes ‘Private company’ as a company which by its articles,
i. Restrict the right to transfer its shares;
ii. Except in case of One Person Company limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this sub-clause, be treated as a single member:
Provided further that—
(A) Persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and
(iii) Prohibits any invitation to the public to subscribe for any securities of the company. Shares of a Private Company are not listed on Stock Exchange.
4. Public Company
Section 2(71) of the Companies Act, 2013 defines Public Company as a company which— (a) is not a private company; provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.
A company which is a listed public company if it gets unlisted continues to be a public company.
No Minimum Paid-up Share Capital: The minimum paid-up share capital requirement of INR 1,00,000 (in case of a private company) and INR 5,00,000 (in case of a public company) has been done away with under Companies Act, 2013. Accordingly, no minimum paid-up capital requirements will now apply for incorporating private as well as public companies in India.
5. One Person Company
Section 2 (62) of the Companies Act, 2013 defines “One Person Company” as a company which has only one person as a member.
6. Small Company
Section 2(85) of the Companies Act, 2013 defines “Small company” means a company, other than a public company
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or
(ii) turnover of which as per its last prot and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Note: The status of a company as a Small Company may change from year to year.
7. Listed Company
As per Section 2 (52) of the Companies Act, 2013,''listed company” means a company which has any of its securities listed on any recognised stock exchange.
The company, whose shares are not listed on any recognised stock exchange, is called ‘‘Unlisted Company’’.
An unlisted company can be a public company or a private company.
8. Unlimited Company
Section 2 (92) of the Companies Act, 2013 defines ''Unlimited company” means a company not having any limit on the liability of its members.
9. Company limited by Shares
As per Section 2(22) of the Companies Act, 2013, “Company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
10. Company limited by Guarantee
As per Section 2(21) of the Companies Act, 2013, “company limited by guarantee” means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.
11. Holding Company
According to Section 2 (46) of the Companies Act, 2103, “Holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies.
12. Subsidiary Company
Section 2(87) of the Companies Act, 2013 defines “subsidiary company” as a company in which the holding company:
(i) Controls the composition of the Board of Directors; or
(ii) Exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies.
A company shall be deemed to be a subsidiary company of the holding company even if there is indirect control through the subsidiary company (ies). The control over the composition of a subsidiary company’s Board of Directors means exercise of some power to appoint or remove all or a majority of the directors of the subsidiary company.