A company is one of the most important forms of business organization. It is a voluntary association of persons formed to achieve a common objective by pooling their resources and funds. A company is created under the law and has a separate legal existence from its owners. A company is regarded as an artificial person because it is created by law and exists independently of the individuals who own, manage, or support it. It has its own legal identity, perpetual succession, and common seal.
According to Section 2(20) of the Companies Act, 2013:
“A company means a company incorporated under this Act or under any previous company law.”
Definition by L. H. Haney
“A company is an artificial person created by law, having a separate entity, perpetual succession, and a common seal.
Characteristics of a Company
1. Artificial Person: A company is created by law and does not have a physical existence like a human being. It can own property, enter into contracts, and conduct business in its own name, but it acts through its directors and officers.
2. Separate Legal Entity: A company has a legal identity separate from its shareholders and directors. It can own assets, incur liabilities, enter into contracts, and sue or be sued in its own name.
3. Perpetual Succession: The existence of a company is not affected by the death, insolvency, retirement, or incapacity of its members. It continues to exist until it is legally dissolved.
4. Limited Liability: The liability of shareholders is limited to the amount unpaid on the shares held by them. Their personal assets cannot generally be used to pay the company's debts.
5. Common Seal: Traditionally, the common seal acted as the official signature of the company because a company, being an artificial person, cannot sign documents itself. Important documents were authenticated using the common seal.
6. Separate Property: The property owned by a company belongs to the company itself and not to its shareholders. Even the owners of the company cannot claim ownership of company assets.
7. Transferability of Shares: Shares of a company can be transferred from one person to another, subject to certain conditions. This provides liquidity and flexibility to shareholders.
8. Capacity to Sue and Be Sued: Since a company has a separate legal existence, it can file lawsuits against others and can also be sued in its own name for legal obligations and disputes
Types of Companies
1. On the Basis of Liability of Members
(a) Company Limited by Shares
A company limited by shares is a company in which the liability of its members is limited to the unpaid amount on the shares held by them. If the company incurs losses or is wound up, shareholders are required to pay only the unpaid portion of their shares and are not personally responsible for the company's debts. This is the most common type of company.
(b) Company Limited by Guarantee
A company limited by guarantee is a company in which members undertake to contribute a specified amount towards the liabilities of the company in the event of its winding up. The guaranteed amount is mentioned in the company's memorandum. Such companies are generally formed for charitable, educational, cultural, or non-profit purposes and usually do not distribute profits to members.
(c) Unlimited Company
An unlimited company is a company in which the liability of members is not limited. If the company's assets are insufficient to pay its debts, members may be required to contribute from their personal assets to meet the obligations of the company. Due to this unlimited liability, such companies are relatively uncommon.
2. On the Basis of Number of Members
(a) Private Company
A private company is a company that is owned by a relatively small group of people. It must have a minimum of two members and can have a maximum of 200 members. It restricts the transfer of its shares and cannot invite the general public to subscribe to its shares or debentures. This type of company is suitable for closely held businesses.
(b) Public Company
A public company is a company that can raise capital from the general public by issuing shares. It must have at least seven members, and there is no limit on the maximum number of members. Shares of a public company are generally freely transferable, and the company can invite the public to subscribe to its securities.
(c) One Person Company (OPC)
A One Person Company (OPC) is a company that is formed and owned by a single individual. It combines the advantages of sole proprietorship and corporate status by providing limited liability and a separate legal entity to the sole member. It allows a single entrepreneur to operate a business in the form of a company.
3. On the Basis of Ownership
(a) Government Company
A government company is a company in which at least 51% of the paid-up share capital is held by the Central Government, one or more State Governments, or jointly by both. These companies are established to carry out commercial and industrial activities under government control while operating as corporate entities.
(b) Non-Government Company
A non-government company is a company in which the majority of the share capital is owned by private individuals, institutions, or organizations rather than the government. Such companies are managed by private owners and operate with the objective of earning profits and expanding business activities