LESSON : 1
MEANING, CHARACTERISTICS AND TYPES OF A COMPANY
STRUCTURE
1.0 Objective
1.1 Introduction
1.2 Meaning of Company
1.3 Characteristics of a Company
1.4 Distinction between Company and Partnership
1.5 Types of Company
1.6 Summary
1.7 Keywords
1.8 Self Assessment Questions
1.9 Suggested Readings
1.0 OBJECTIVE
After reading this lesson, you should be able to:
(a) Define a company and explain its features.
(b) Make a distribution between company and partnership firm.
(c) Explain the various types of companies.
1.1 INTRODUCTION
Industrial has revolution led to the emergence of large scale business
organizations. These organization require big investments and the risk involved is very
high. Limited resources and unlimited liability of partners are two important limitations
of partnerships of partnerships in undertaking big business. Joint Stock Company form
of business organization has become extremely popular as it provides a solution to
(1)
,overcome the limitations of partnership business. The Multinational companies like
Coca-Cola and, General Motors have their investors and customers spread throughout
the world. The giant Indian Companies may include the names like Reliance, Talco
Bajaj Auto, Infosys Technologies, Hindustan Lever Ltd., Ranbaxy Laboratories Ltd.,
and Larsen and Tubro etc.
1.2 MEANING OF COMPANY
Section 3 (1) (i) of the Companies Act, 1956 defines a company as “a company
formed and registered under this Act or an existing company”. Section 3(1) (ii) Of the
act states that “an existing company means a company formed and registered under any
of the previous companies laws”. This definition does not reveal the distinctive
characteristics of a company . According to Chief Justice Marshall of USA, “A company
is a person, artificial, invisible, intangible, and existing only in the contemplation of
the law. Being a mere creature of law, it possesses only those properties which the
character of its creation of its creation confers upon it either expressly or as incidental
to its very existence”.
Another comprehensive and clear definition of a company is given by Lord
Justice Lindley, “A company is meant an association of many persons who contribute
money or money’s worth to a common stock and employ it in some trade or business,
and who share the profit and loss (as the case may be) arising there from. The common
stock contributed is denoted in money and is the capital of the company. The persons
who contribute it, or to whom it belongs, are members. The proportion of capital to
which each member is entitled is his share. Shares are always transferable although the
right to transfer them is often more or less restricted”.
(2)
, According to Haney, “Joint Stock Company is a voluntary association of
individuals for profit, having a capital divided into transferable shares. The ownership
of which is the condition of membership”.
From the above definitions, it can be concluded that a company is registered
association which is an artificial legal person, having an independent legal, entity with
a perpetual succession, a common seal for its signatures, a common capital comprised
of transferable shares and carrying limited liability.
1.3 CHARACTERISTICS OF A COMPANY
The main characteristics of a company are :
1. Incorporated association. A company is created when it is registered under
the Companies Act. It comes into being from the date mentioned in the certificate
of incorporation. It may be noted in this connection that Section 11 provides that an
association of more than ten persons carrying on business in banking or an association
or more than twenty persons carrying on any other type of business must be registered
under the Companies Act and is deemed to be an illegal association, if it is not so
registered.
For forming a public company at least seven persons and for a private company
at least two persons are persons are required. These persons will subscribe their names
to the Memorandum of association and also comply with other legal requirements of
the Act in respect of registration to form and incorporate a company, with or without
limited liability [Sec 12 (1)]
(3)
, 2. Artificial legal person. A company is an artificial person. Negatively speaking,
it is not a natural person. It exists in the eyes of the law and cannot act on its own. It has
to act through a board of directors elected by shareholders. It was rightly pointed out
in Bates V Standard Land Co. that : “The board of directors are the brains and the only
brains of the company, which is the body and the company can and does act only through
them”.
But for many purposes, a company is a legal person like a natural person. It has
the right to acquire and dispose of the property, to enter into contract with third parties
in its own name, and can sue and be sued in its own name.
However, it is not a citizen as it cannot enjoy the rights under the Constitution
of India or Citizenship Act. In State Trading Corporation of India v C.T.O (1963 SCJ
705), it was held that neither the provisions of the Constitution nor the Citizenship
Act apply to it. It should be noted that though a company does not possess fundamental
rights, yet it is person in the eyes of law. It can enter into contracts with its Directors,
its members, and outsiders.
Justice Hidayatullah once remarked that if all the members are citizens of India,
the company does not become a citizen of India.
3. Separate Legal Entity : A company has a legal distinct entity and is independent
of its members. The creditors of the company can recover their money only from the
company and the property of the company. They cannot sue individual members.
Similarly, the company is not in any way liable for the individual debts of its members.
The property of the company is to be used for the benefit of the company and nor for
(4)
MEANING, CHARACTERISTICS AND TYPES OF A COMPANY
STRUCTURE
1.0 Objective
1.1 Introduction
1.2 Meaning of Company
1.3 Characteristics of a Company
1.4 Distinction between Company and Partnership
1.5 Types of Company
1.6 Summary
1.7 Keywords
1.8 Self Assessment Questions
1.9 Suggested Readings
1.0 OBJECTIVE
After reading this lesson, you should be able to:
(a) Define a company and explain its features.
(b) Make a distribution between company and partnership firm.
(c) Explain the various types of companies.
1.1 INTRODUCTION
Industrial has revolution led to the emergence of large scale business
organizations. These organization require big investments and the risk involved is very
high. Limited resources and unlimited liability of partners are two important limitations
of partnerships of partnerships in undertaking big business. Joint Stock Company form
of business organization has become extremely popular as it provides a solution to
(1)
,overcome the limitations of partnership business. The Multinational companies like
Coca-Cola and, General Motors have their investors and customers spread throughout
the world. The giant Indian Companies may include the names like Reliance, Talco
Bajaj Auto, Infosys Technologies, Hindustan Lever Ltd., Ranbaxy Laboratories Ltd.,
and Larsen and Tubro etc.
1.2 MEANING OF COMPANY
Section 3 (1) (i) of the Companies Act, 1956 defines a company as “a company
formed and registered under this Act or an existing company”. Section 3(1) (ii) Of the
act states that “an existing company means a company formed and registered under any
of the previous companies laws”. This definition does not reveal the distinctive
characteristics of a company . According to Chief Justice Marshall of USA, “A company
is a person, artificial, invisible, intangible, and existing only in the contemplation of
the law. Being a mere creature of law, it possesses only those properties which the
character of its creation of its creation confers upon it either expressly or as incidental
to its very existence”.
Another comprehensive and clear definition of a company is given by Lord
Justice Lindley, “A company is meant an association of many persons who contribute
money or money’s worth to a common stock and employ it in some trade or business,
and who share the profit and loss (as the case may be) arising there from. The common
stock contributed is denoted in money and is the capital of the company. The persons
who contribute it, or to whom it belongs, are members. The proportion of capital to
which each member is entitled is his share. Shares are always transferable although the
right to transfer them is often more or less restricted”.
(2)
, According to Haney, “Joint Stock Company is a voluntary association of
individuals for profit, having a capital divided into transferable shares. The ownership
of which is the condition of membership”.
From the above definitions, it can be concluded that a company is registered
association which is an artificial legal person, having an independent legal, entity with
a perpetual succession, a common seal for its signatures, a common capital comprised
of transferable shares and carrying limited liability.
1.3 CHARACTERISTICS OF A COMPANY
The main characteristics of a company are :
1. Incorporated association. A company is created when it is registered under
the Companies Act. It comes into being from the date mentioned in the certificate
of incorporation. It may be noted in this connection that Section 11 provides that an
association of more than ten persons carrying on business in banking or an association
or more than twenty persons carrying on any other type of business must be registered
under the Companies Act and is deemed to be an illegal association, if it is not so
registered.
For forming a public company at least seven persons and for a private company
at least two persons are persons are required. These persons will subscribe their names
to the Memorandum of association and also comply with other legal requirements of
the Act in respect of registration to form and incorporate a company, with or without
limited liability [Sec 12 (1)]
(3)
, 2. Artificial legal person. A company is an artificial person. Negatively speaking,
it is not a natural person. It exists in the eyes of the law and cannot act on its own. It has
to act through a board of directors elected by shareholders. It was rightly pointed out
in Bates V Standard Land Co. that : “The board of directors are the brains and the only
brains of the company, which is the body and the company can and does act only through
them”.
But for many purposes, a company is a legal person like a natural person. It has
the right to acquire and dispose of the property, to enter into contract with third parties
in its own name, and can sue and be sued in its own name.
However, it is not a citizen as it cannot enjoy the rights under the Constitution
of India or Citizenship Act. In State Trading Corporation of India v C.T.O (1963 SCJ
705), it was held that neither the provisions of the Constitution nor the Citizenship
Act apply to it. It should be noted that though a company does not possess fundamental
rights, yet it is person in the eyes of law. It can enter into contracts with its Directors,
its members, and outsiders.
Justice Hidayatullah once remarked that if all the members are citizens of India,
the company does not become a citizen of India.
3. Separate Legal Entity : A company has a legal distinct entity and is independent
of its members. The creditors of the company can recover their money only from the
company and the property of the company. They cannot sue individual members.
Similarly, the company is not in any way liable for the individual debts of its members.
The property of the company is to be used for the benefit of the company and nor for
(4)
