Law Audience's Blog

I. ABSTRACT:

This short article is focused on explaining the “Kinds of Companies” under Company Law. There are numerous kinds of companies which can be incorporated under the Companies Act, 2013. Under the Act, the company can be incorporated by its basis. Basically, this Act provides the process of incorporation so that the companies can be registered through a valid process.

II. DEFINITION OF COMPANY:

Under the Act, the definition of the company is mentioned in Section 2 (20). It means a company which can be established under the Companies Act, 2013 or under any other earlier Act which is related to the companies.

It may be interpreted as an association which is incorporated as an artificial person, which has a distinct legal entity, common seal with perpetual succession i.e. the company has a forever existence which means the members may come and go but the company will operate.

III. CHARACTERISTICS OF A COMPANY:

A company as a legal entity has numerous features which combine together to create a distinctive organization.  The vital characteristics are as follows:

• SEPARATE LEGAL ENTITY:

A company has a separate entity which means that it is different from its members. It has its own common seal in its name and the assets and liabilities are also different from its members. It is competent to own the property, to borrow money, to enter into a contract and can be sued in its own name. 

• LIMITED LIABILITY:

The liability of the members is limited to the contribution of the assets in the company to the extent of the face value of the shares which is held by him. If the assets are not enough to pay the firm’s liability then the creditors can compel the members to pay from their personal assets. There is one exception i.e. if the members have paid all the dues which are related to their shares then they cannot be compelled.

• PERPETUAL SUCCESSION:

A company cannot be terminated unless it is particularly wound up or the purpose of forming a company has been completed. The members may come and go but the company will go on forever. The death or insolvency of any member will not affect the life of a company. 

• SEPARATE PROPERTY:

A company has a separate entity. The property of a company is its own. During the continuation of the company, the members cannot claim to be the owner of the company’s property. 

• TRANSFERABILITY OF SHARES:

In a company shares are freely transferable subject to some terms and conditions. 

• COMMON SEAL:

A company is not a natural person which does not include corporeal existence. The activities of the company are administered through the Board of Directors. It can also enter into a contract but it should be under the company’s seal. The common seal is considered as the official signature of the company. If any document has no seal then it will not be regarded as genuine which does not have any legal action. 

• CAPACITY TO SUE ND BEING SUED:

A company can be sued or sue in its own name. 

• SEPARATE MANAGEMENT:

The affairs of the company are managed by the Board of Directors. In the company, the shareholders are only the holders and not necessarily the managers of the company. 

• ONE SHARE-ONE VOTE:

In a company, the rules of voting are one share-one vote like if a person is holding 5 shares in the company then he has 5 votes in the company.

IV. DIFFERENCE BETWEEN COMPANY AND PARTNERSHIP FIRM:

a) COMPANY:

Section 2 (20) of the Companies Act, 2013 defines the company as a company which is created and registered under this or any earlier act which is related to the company. It is an association which is established by 2 or more persons, who want to do business together and registered with the Registrar of Companies according to the act. There are various kinds of companies which are defined under the act such as Public and Private Company, One Person Company etc. To register a company, the promoters are recommended to submit the copies of Memorandum of Association and Article of Association.

b) PARTNERSHIP:

It is defined under the Partnership Act, 1932. It means it is a connection between 2 or more persons who consented to share the profits of a business which is operated by all the partners or by any one partner who is working on behalf of all of them. There are many partners in the firm like a partner in profits, sleeping partner, minor partner, active partner etc. It is formed by an agreement between 2 or more people by registering it according to the provisions of the act.

The process of registration of a firm is very easy and the application must include these details:

• Firm’s name.
• Partner’s name and address.
• Location of the business.
• The term of business.
• Firm’s main office.

The following table compares the difference between a company and a partnership firm is as follows:

V. KINDS OF COMPANIES:

Under the Companies Act, 2013 there are three basic types of companies which are as follows:

• PRIVATE COMPANY
• PUBLIC COMPANY
• ONE PERSON COMPANY

a) PRIVATE COMPANY:

According to the Section 2 (68) of the Companies Act, 2013 it means a company which has a minimum paid- up share capital is Rs. 1 lakh or may be higher than this as prescribed by its articles.

• Prohibits the transferability of shares.
• Curtails the members limited to 200.
• Restricts to any invitation to subscribe for the securities.
• The term ‘Private limited’ should be used at the end of the company’s name.
• It must be created for a legal purpose.
• The minimum directors must be 2.

b) PUBLIC COMPANY:

The definition of a public company is given under Section 2(71).

• It is not a private company.
• It has a minimum paid-up share capital of Rs. 5 lakh or may be higher than this as may be prescribed.
• It may be created by 7 or more person.
• Must be created for the legal purpose.

In a renowned case Western Maharashtra Development Corpn. Ltd. V. Bajaj Auto Ltd [2010] 154 Com Cases 593 (Bom) The concept of free transfer of shares in the private and public company is concisely examined. The Companies Act held that the public company can easily transfer its shares and debentures but the private company prohibits the right to transfer the shares.

c) ONE PERSON COMPANY:

It is a type of company which can be created by one person.

(i) BACKGROUND OF O.P.C.:

Under the Companies Act, 2013 the concept of ‘One Person Company’ is enacted which means that any one individual can establish a company under this concept. The new act has removed various unessential provisions of the previous act i.e. The Companies Act, 1956 and according to the new act, the implementation of one Person Company is added. It is made to encourage the small business. In the year 2005, the committee of JJ Irani suggested the development of OPC. It was said that this legal entity should be provided with a simple legal procedure through numerous exemptions so that small businessman is not forced to put their time, resources on complex legal procedure. It is a concept which is applicable to the extent of liability in financial and legal. 

VI. CLASSIFICATION OF COMPANIES:

The classification of companies can be done on a various basis which are as follows:

1. ON THE BASIS OF INCORPORATION: There are 2 ways in which the company can be incorporated.

a) STATUTORY COMPANIES: These companies are established by a special Act of State Legislature or Parliament. The provisions of the act are not applicable to them. For example – State Bank of India, Unit Trust of India.

b) REGISTERED COMPANIES: The companies which are registered under the Companies Act, 2013 or any other earlier act.

2. ON THE BASIS OF LIABILITY: There are two types under this category which are as follows:

(i) UNLIMITED COMPANY: According to Section 2(92) it means a company which has no limit on the member’s liability. The maximum liability of the members is contributed to the full extent of its assets to fulfill the obligations of the company. It may or may not have share capital. If a company wants to re-register as a limited company then it can do so under Section 18 and they have to alter its articles and memorandum of the company according to the provisions of the act. 

(ii) LIMITED COMPANY: According to Section 3 (2) a limited company is a type of company which is limited by guarantee or limited by shares. In the case of a limited company in which the liability of the members is limited to extent of the face value of the shares.

a) LIMITED BY SHARES: According to Section 2(22), it means a company in which the liability of the members is limited by the memorandum of the company. No member can be compelled to pay more than the nominal value of the shares which is held by him.

b) LIMITED BY GUARANTEE: According to Section 2(21), it is a company in which the liability of the members is limited by the memorandum of the company to that amount for which the members contributed to the assets of the company even in the process of winding up of the company. It has a similarity i. it may or may not have a share capital. Without share capital, this company operates through the funds from fees, grants etc.

3. OTHER FORMS OF COMPANIES:

There are various other forms of companies which are as follows:

• Companies of Government.
• Companies of Foreign.
• Subsidiary and Holding Companies.
• Joint Venture Companies.
• Companies of Investment.
• Companies of the producer.
• Dormant Companies.
• The associations which are not formed for profit. It is created under Section 8 of the Companies Act, 2013. 

VII. CONCLUSION:

Through this article, the author wants to conclude that a company is an association which is formed by two or more people for any legal purpose. Under the new Companies Act, 2013 there are various new provisions are added by removing the unnecessary provisions of the Companies Act, 1956. The new concept of One Person company is enacted by the new act. It should be registered according to the provisions mentioned under the act. Under the act, there are various kinds of companies which can be incorporated through its basis. The company can be wound up if its purpose of formation is completed. The one main characteristic of the company is that it has a perpetual existence which means that it will run forever whether members may come and go and even if any member dies there will be no effect on the life of a company.