1. Concept & meaning of company, Types of companies, , Other concepts

Concept & Meaning

A company is a voluntary association of persons formed to carry on some purpose. It is an artificial person created by law. It has a separate legal entity and enjoys perpetual succession. It is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership. For a layman, the word refers to a business organization. But not all business organizations are companies. An organization becomes a company when it is registered or incorporated under the Companies Act.  A company can own property, have bank accounts, raise loans & also incur liabilities. The liability of a company is usually limited (except for unlimited companies). In the broad sense, there are various types of companies but in the narrow sense, It is basically of 3 types namely Public companies, Government companies & Private companies. As the company is an artificial person, it can act only through a human being acting as an agent. Such agents are called Directors of the company. They are the ultimate controller of the company & are vested with all the powers.

Promotion/Incorporation / Registration of a company

 A company is an artificial person that comes into existence only after incorporation. A company is incorporated under the Companies Act, 1956 (now 2013) and at the ‘Registrar of Companies (ROC).

The various steps for incorporation are as follows;

1. Lawful Purpose – The first & foremost requirement to start a company is the presence of a lawful purpose. When the purpose is unlawful, the Registrar may refuse to register the company.
2. Application for Approval of Name: In the first step, permission is obtained for the approval of the name. The name of the company should not be prohibited under ‘Emblems and Names Act, 1950’. The name should not resemble any existing or registered company. For that purpose, the applicant gives a panel of three to five names in order to avoid delay. The registration fee for this purpose is Rs.1000.

(ii)     Preparation of Memorandum of Association: The next step is to prepare the ‘Memorandum of Association’. A Memorandum of association is known as the constitution of a company & it describes its objectives and powers & scope. It should be properly stamped & signed by the members of the company.

(iii)    Preparation of Articles of Association: It is a document containing the rules and regulations relating to the internal management of the company. This is required for the private and public companies but a public company can adopt Table A, Schedule I of the Companies Act, 1956 (now 2013).

(iv)    Preparation of other documents: There are certain other documents which are required to be filed such as;

(i)     Consent of first directors.

(ii)   Power of Attorney executed by the promoter in favor of an advocate to carry out the legal formalities.

(iii)  Copies of preliminary agreements,

(iv)  Information regarding registered office.

(v)    A statutory declaration that all the legal formalities have been complied with.

(v)      Payment of Fees: The next step is the payment of requisite fees. The amount of fees varies in the case of companies with share capital and companies without share capital.

(vi)    Incorporation Certificate: After filing all the documents and payment of fees, scrutiny is made by the Registrar. If everything is in order, the name of the company is registered in ‘Register of Companies’ and an Incorporation Certificate is issued. A private company can start a business after getting certificate of incorporation.

CLASSIFICATION/TYPES OF COMPANIES

 According to Incorporation :

• Chartered companies : These companies are incorporated or registered under the Royal Charter issued by the king or head of the state. These are given certain rights and privileges.

              Example :The East India company.

• Statutory Companies :These companies are formed under a special act of parliament or a state legislative. They may or may not use the word limited. They are given wide powers.

      Example :Reserve Bank of India, Industrial Development Bank of India etc.

• Registered Companies :These are the companies which are registered under the companies Act, 2013. They may be limited by shares or guarantee.

          According to Liability :

• Companies Ltd by Shares : These companies have a share capital (i.e. capital divided into shares). The liability of shareholders of such companies is limited up to the investment or unpaid amount only.
• Companies Ltd. by Guarantee :These companies have a stipulation  in the memorandum clause that the members guarantee to pay a certain amount of money in case of its winding up. The amount undertaken to pay is called guarantee money.
• Unlimited Companies : These companies do not have a share capital & the liabilities of the shareholders of these companies is unlimited. Such companies are rare to find & they are not required to use the unlimited at the end of their name.

According to Transferability :

• Private Company : A private company is a company which is formed with the association of at least two members and maximum  200. They use the word ‘Pvt. Ltd’ after their name. The shareholders are basically the family members and they can’t issue shares to the public directly.
• Public Company :It is a type of company which requires at least 7 persons for incorporation & the maximum membership is unlimited. They use the word ‘Ltd.’ after their name and they are allowed to issue shares directly to the public.

On the basis of Ownership :

• Government Companies : A company owned either by the State Government or central government or both is known as ‘Government Companies’ The government may invest either the whole capital or it may purchase majority of shares (i.e. 51%)

             Example : Steel Authority of India Ltd.(SAIL)

• Holding Companies :It is a company which controls the policies and internal matters of any other company.
• Subsidiary Companies : This  is a company whose policies and internal matters are controlled by another company.

On the basis of Nationality :

• Indian Companies: A company which has been registered in India under the Company’s Act, 1956, is known as an Indian Company. It may or may not operate in India.
• Foreign Companies :It is a company which has been incorporated outside India but has a place of business in India.

Two new companies were introduced in the companies act, of 2013

One Person Company - One Person Company (OPC) means a company formed with only one (single) person as a member, unlike the traditional manner of having at least two members. OPC under the Companies Act, 2013 is a separate legal entity having perpetual succession, which is required to be registered as per the provisions of the Companies Act, 2013. The liability to repay the loan availed by the OPC is limited only to the OPC, unlike, a sole proprietorship which is not a separate legal entity, thus making the sole proprietor personally liable for any loan or any credit facility availed. Further, registration of a sole proprietorship is not required.

Small Company - As per the new definition of small company provided under section 2(85) of the Companies Act, 2013, the small company means and covers the company which satisfies the following two conditions-

Condition 1 – Paid-up capital of the company should not exceed INR 2 Crores; and

Condition 2 – Turnover of the company should not exceed INR 20 Crores.

However, it is important to note here that the following companies, despite satisfying both the above conditions, are not eligible to qualify as a small company-

• A public company,
• A holding company,
• A subsidiary company,
• Company registered under section 8,
• A company that is governed by any special act.