What is the Definition of a Company and its Features?

In India, the Companies Act, 2013 (“Act”), governs the formation and management of companies. A company is a legal entity that can undertake business operations in its name. It can sue and be sued in its name, own property, and enter into contracts. The Act specifies different types of companies that can be formed in India. The type of company chosen depends on the nature of the business, the number of members, and other factors. In this article we will try to answer the question “What is a Company and its Features?” in great detail.  

Definition of a Company as per Companies Act, 2013

Under Section 2(20) of the Companies Act 2013, “company” means a company incorporated under that Act or under any previous company law. This definition is not enough to understand the meaning of society. For more clarity, let us look at some of the definitions given by the various experts as follows: 

• Lord Justice Lindley: “A company is an association of many persons who contribute money or money to ordinary shares and are engaged in some trade or business and share the profits and losses arising therefrom.” The ordinary shares invested in this way are denominated in money and are the capital of the company. Members are persons who contribute to it or who are affected by it. The share of the capital to which each partner is entitled is his share. Shares are always transferable, although the right to transfer is often more or less limited.
• Prof. Haney: “A corporation is an artificial person created by law, having a separate entity with perpetual succession and a common seal.” Chief Justice Marshall: “A corporation is an artificial being, invisible and immaterial, existing only in contemplation of law.” As it is a mere creation of law, it has only the properties attributed to it by the Charter of its creation, either expressly or incidentally to its very existence.

In simple words, a company is defined as an association of persons formed for the purpose of carrying on a business or an industrial enterprise. It is an entity that has a separate legal existence from its members, and it can enter into contracts, own property, sue and be sued in its own name.

Types of Companies as per Companies Act, 2013

The Companies Act, 2013 is a legislation that governs the incorporation, functioning, and management of companies in India. The Act defines the legal structure of different types of companies that can be registered in India. These types of companies are categorized based on their objectives, ownership, and other factors.

• Private Limited Company: A Private Limited Company is a type of company that is privately held by a group of individuals or entities. It has a minimum of two and a maximum of 200 members. It is not open to the public for subscription of its shares, and it cannot invite the general public to buy its shares. The liability of the members is limited to the amount of share capital they have invested in the company.

• Public Limited Company: A Public Limited Company is a type of company that is open to the public for subscription of its shares. It can have a minimum of seven members, and there is no upper limit on the number of members. The liability of the members is limited to the amount of share capital they have invested in the company.

• One Person Company: A One Person Company (OPC) is a type of company that is owned by a single individual. It has only one member and one director. The liability of the member is limited to the amount of share capital they have invested in the company.

• Section 8 Company: A Section 8 Company is a non-profit organization that is formed with the objective of promoting science, art, education, religion, social welfare, charity, or any other useful object. It is not formed for profit, and the profits earned by the company are reinvested in the company for its objectives. It is exempted from paying income tax, and the liability of the members is limited to the amount of share capital they have invested in the company.

• Producer Company: A Producer Company is a type of company that is formed by a group of farmers, producers, or any other person engaged in the production of goods or services. The objective of the company is to improve the income and standard of living of the producers. The liability of the members is limited to the amount of share capital they have invested in the company.

Advantages and Disadvantages of Starting a Company

The benefits of starting a company include income diversification, a strong correlation between effort and reward, creative freedom, and flexibility. Another advantage of companies is that they create jobs. If an individual starts a business and it grows, they most often have to hire employees. This increases the number of jobs available in the country, employs people, reduces unemployment, and brings wealth to the economy. Starting your own company often brings a huge amount of personal satisfaction. This includes following your dreams and passions and leaving a legacy.

The disadvantages of starting a company include increased financial responsibility, increased legal liability, long working hours, health risks from stress, liability for employees and administrative staff, regulations, and tax issues.

Starting a company entails a huge amount of risk, from the time invested and thus the opportunity cost of not doing paid work to financial risk. Failure is of course one of the biggest drawbacks; however, many successful entrepreneurs confirm that their first ventures failed and that this experience was an important learning tool.

Many of the world’s largest personal fortunes have been amassed by people who have started their own companies.

Features of a Company

The following are the features of a Company:

• Incorporated Association: A company is formed when it is registered under the Companies Act (or other equivalent under the Act). To be considered a legal association, a company must meet the requirements regarding documents (MOA, AOA), shareholders, directors, and share capital.
• Artificial Legal Entity: In the eyes of the law, a company is an artificial legal entity that has the right to acquire or dispose of any property, enter into contracts in its own name, and sue and be sued by others.
• Separate Legal Entity: A company has a separate legal entity and is independent of its members or the people who control it. A separate legal entity means that only the company is responsible for paying creditors and being sued for its actions. Individual members cannot be sued for the actions of the company. In the same way, the company is not obliged to pay the personal debts of its members.
• Permanent Existence: Unlike other unregistered business entities, the company is a stable business organization. Its life does not depend on the lives of its shareholders, directors, or employees. Members may come and go, but the society goes on forever.
• Common Seal: A company, which is an artificially created legal entity, uses its common seal (with the company’s name engraved on it) as a substitute for its signature. Any document bearing the general seal of the company shall be legally binding on the company.
• Limited Liability: A company may be limited by guarantee or limited by shares. In a limited liability company, the shareholders’ liability is limited to the outstanding value of their shares. In a limited liability company, the liability of the partners is limited to the amount they agreed to contribute to the company’s assets in the event of its liquidation.

Incorporation of Company under Companies Act, 2013

The process of incorporating a company under the Companies Act, 2013 involves several steps. These include:

• Obtaining Digital Signature Certificate (DSC) and Director Identification Number (DIN): The first step is to obtain a DSC and DIN for the proposed directors of the company.
• Name Reservation: The next step is to reserve a name for the company by filing an application with the Registrar of Companies (ROC). The name should be unique and should not be similar to the names of existing companies.
• Drafting of Memorandum of Association (MOA) and Articles of Association (AOA): The MOA and AOA are the founding documents of the company and define its objectives, powers, and rules of operation.
• Filing of Incorporation Documents: The final step is to file the MOA, AOA, and other documents with the ROC to obtain the Certificate of Incorporation (COI). The COI is a legal document that certifies the formation of the company.

Compliances to be complied by Companies as per Companies Act, 2013

Once a company is incorporated under the Companies Act, 2013, it is required to comply with several legal and regulatory requirements. These include:

• Holding of Board Meetings and General Meetings: A company is required to hold board meetings and general meetings at regular intervals to discuss and decide on various matters related to the company’s operations.
• Maintenance of Statutory Registers and Records: A company is required to maintain several registers and records as per the provisions of the Companies Act, 2013. These include the Register of Members, Register of Directors, Register of Charges, and Minutes Book of Meetings.
• Filing of Annual Returns and Financial Statements: A company is required to file its annual returns and financial statements with the ROC within the prescribed timelines. The annual returns contain details of the company’s directors, shareholders, and financial performance, while the financial statements include the Balance Sheet, Profit and Loss Account, and Cash Flow Statement.

Conclusion

A company is a legal entity formed by an individual or group of individuals for the purpose of doing business, which is usually the sale of a business or product that the company needs or wants. Companies have been around for hundreds of years, and there are many different types depending on the size, scope, and goals of each.