Define the company. How many kinds of companies?

Ans.

A company may be viewed as an association of persons who contribute money or money’s worth to a common stock and use it for a common purpose. It is a creation of law. It is also called an artificial person. A company has a capital divisible into transferable shares, having a corporate legal entity and a common seal. Though a company is a creation of the members of such a company, it is distinct and separate from its members. The capital and assets of a company are contributed by its shareholders but they are not the joint owners of its asset. Since a company enjoys the status of an artificial person, it can sue and be sued in its own name. A company usually raises its capital in the form of shares (called share capital) and debentures (debt capital or creditorship security).

Definitions of a Company

According to Section 2 (20) of the Companies Act, 2013, “Company means a company incorporated under this Act or under any previous company law.”

This definition brings out only one salient feature of a company that it exists only in the eyes of the law and its corporate personality is granted to it by the law, though it does not exist physically.

Chief Justice Marshall (USA): “Company is a person, artificial, invisible, intangible and existing only in the eyes of the law. Being a more creature of law, it possess only those properties which the teacher of its creation confers upon it, either expressly or as indicated to its very existence.”

Prof. Haney: “A company is an artificial person, created by law, having a separate entity with a perpetual succession and a common seal.”

COMPANIES REGISTERED UNDER THE COMPANIES ACT, 2013

Or

KINDS OF COMPANIES

1. On the basis of the Number of Members or Public Participation:

Three major types of companies may be formed under the Companies Act, 2013: (i) Public company, (ii) Private company and (iii) One person company (which is in fact a variant of a private company; and it has been introduced for the first time by the Companies Act, 2013. Any of these companies may be either a company limited by shares, or a company limited by guarantee, or an unlimited company. Companies limited by shares are the most popular form of companies being established in today’s corporate world.

(1) Private Companies: According to Section 2 (68) of the Companies Act, 2013, Private Company means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed by rules made under this Act, and which (company) by its articles (provides as follows):

(i) restricts the right to transfer its shares;

(ii) limits the number of its members to 200 (two hundred), except in case of one person company; and

(iii) prohibits any invitation to the public to subscribe for any securities of the company.

(2) One Person Companies: It is for the first time in the history of companies that the Companies Act, 2013 has provided for a new class of companies in the form of One Person Companies.”

As per Section 2(62) of the Companies Act, 2013, One Person Company’ means a company which has only one person as a member.

According to Section 3, a company may be formed for any lawful purpose by one person and it will be in the form of a private company only and called One Person Company. Such a company may be either a company limited by shares, or a company limited by guarantee, or an unlimited company.

It may be noted that for general purposes, One Person Company is a private company only.

(3) Public Companies: According to Section 2(71), a public company means a company which:

(a) is not a private company.

(b) has a minimum paid up capital of Rs. 5 lakh or such higher paid up capital as may be prescribed.

However, a company which is a subsidiary company of a public 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.

II. On the basis of Liability of its Members

(1) Companies Limited by Shares: “A company, having the liability of its members limited by Memorandum to the amount, if any, unpaid on shares respectively held by them, is termed ‘a company limited by shares.’ Such liability of a member can be enforced at any time during the existence of company or during its winding-up period.

(2) Companies Limited by Guarantee: 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, is termed ‘a company limited by guarantee’. The guaranteed amount may differ from member to member. The liability of the member for the guaranteed amount can be enforced only at the time of winding-up of company and not during the existence of company.

(3) Unlimited Companies: Unlimited company means a company not having any limit on the liability of its members. The liability may extend to the personal property of the members, like the partners of an unlimited liability partnership firm, for all the trade debts and liabilities of the unlimited company.

III. On the basis of Size:

(1) Small Company: According to Section 2 (85) of Companies Act, 2013, “Small company means, other than a public company:

(i) paid up share capital of which does not exceed Rs. 50 lakh or such higher amount as may be prescribed which shall not be more than Rs. 5 crore, or

(ii) turnover of which as per its last statement of profit & loss does not exceed Rs. 2 crore or such higher amount as may be prescribed which shall not be more than Rs. 20 crore.

Provisions of this section shall not apply to a holding company, subsidiary company, a company registered under Section 8 or a company or body corporate governed by any special Act.

(2) Large Company: Large company is one which is not a small company.

OTHER TERMS AND EXPRESSIONS RELATING TO TYPES OF JOINT STOCK COMPANIES

(1) Government Company: A government company is a company in which 51% or more shares are 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. A company which is subsidiary of a government company is also a government company [Section 2 (45) of Companies Act, 2013]. This is not a kind of company but only distinguished on the basis of its shareholdings.

(2) Subsidiary Company (Section 2(87)]: A company is subsidiary of another company if:

(i) That other company controls the composition of its Board of Directors. It means that the other company has the power to appoint or remove any person or persons from the directorship as its own discretion; or

(ii) That other company holds more than 50% of its equity share capital at its own or together with one or more of its subsidiary companies.

(3) Holding Company [Section 2(46)]: A company is a holding company if the other company or companies are its subsidiary.

(4) Foreign Company [Section 2(41)]: A company that is incorporated in a country outside India and has place of business in India is a foreign company.