UNIT 6
INTRODUCTION TO COMPANY IN INDIA
MEANING AND DEFINITION OF COMPANY
A company is a legal entity created under the law to carry on business or other activities in an
organized manner. It is an association of persons formed for a common objective, usually with
the aim of earning profits. In the eyes of the law, a company has its own separate existence,
independent from its members. As per Section 2(20) of the Companies Act, 2013, a company
is defined as "a company incorporated under this Act or under any previous company law."
This legal status allows a company to enter into contracts, own property, sue, and be sued in its
own name. Chief Justice Marshall famously described a company as “an artificial being,
invisible, intangible, and existing only in contemplation of law.” This means that a company is
a creation of law and has rights and duties similar to those of a natural person but without
physical form.
FEATURES OF A COMPANY
1. Incorporated Association: A company must be registered under the Companies Act.
Only upon registration does it become a distinct legal entity capable of functioning as a
corporate body.
2. Separate Legal Entity: Upon incorporation, a company gains an identity independent
of its shareholders. It can own property, borrow money, enter contracts, and conduct
business activities distinct from its members.
3. Perpetual Succession: A company’s existence is not affected by the death, insolvency,
or insanity of its members. The company continues to exist irrespective of changes in
membership until it is wound up according to the law.
4. Limited Liability: The liability of members in a company is limited. In a company
limited by shares, members are liable only to the extent of the unpaid amount on their
shares. In a company limited by guarantee, liability is restricted to the amount members
guarantee to pay in the event of winding up.
, 5. Artificial Legal Person: Although a company is not a living being, it is treated as a legal
person by law. It can own property, sue or be sued, and undertake obligations under its
own name, acting through directors and employees.
6. Common Seal (Optional): Traditionally, the company’s common seal served as its
official signature on documents. However, after the Companies (Amendment) Act, 2015,
it is no longer mandatory for companies to have a common seal; authorization can be
made through authorized officials' signatures.
7. Transferability of Shares: In a public company, shares are freely transferable, providing
liquidity to shareholders and making investment in companies attractive. Private
companies, however, restrict share transfer as per their articles of association.
8. Separation of Ownership and Management: Shareholders are owners of the company,
but the management is entrusted to a Board of Directors. This creates a distinction
between those who invest and those who manage daily operations.
9. Capacity to Sue and Be Sued: A company can initiate legal proceedings against others
and can also have legal action taken against it, in its own name.
10. Ability to Raise Capital: A company, especially a public company, has the advantage of
raising substantial funds by issuing shares and debentures to the public or through private
placements.
TYPES OF COMPANIES
Under the Companies Act, 2013, companies are classified into various types based on their
nature, structure, ownership, and liability. The important types are:
1. One Person Company (OPC): As per Section 2(62) of the Companies Act, a One
Person Company is a type of company that has only one member. It allows a single
entrepreneur to operate a corporate entity with the benefits of limited liability and
perpetual succession. OPC is suitable for small businesses where the business owner
wishes to maintain complete control but still enjoy the advantages of being a company,
such as separate legal status and easier access to funding compared to a sole
proprietorship. However, an OPC must convert into a private or public company once it
crosses certain thresholds related to turnover or paid-up capital.
INTRODUCTION TO COMPANY IN INDIA
MEANING AND DEFINITION OF COMPANY
A company is a legal entity created under the law to carry on business or other activities in an
organized manner. It is an association of persons formed for a common objective, usually with
the aim of earning profits. In the eyes of the law, a company has its own separate existence,
independent from its members. As per Section 2(20) of the Companies Act, 2013, a company
is defined as "a company incorporated under this Act or under any previous company law."
This legal status allows a company to enter into contracts, own property, sue, and be sued in its
own name. Chief Justice Marshall famously described a company as “an artificial being,
invisible, intangible, and existing only in contemplation of law.” This means that a company is
a creation of law and has rights and duties similar to those of a natural person but without
physical form.
FEATURES OF A COMPANY
1. Incorporated Association: A company must be registered under the Companies Act.
Only upon registration does it become a distinct legal entity capable of functioning as a
corporate body.
2. Separate Legal Entity: Upon incorporation, a company gains an identity independent
of its shareholders. It can own property, borrow money, enter contracts, and conduct
business activities distinct from its members.
3. Perpetual Succession: A company’s existence is not affected by the death, insolvency,
or insanity of its members. The company continues to exist irrespective of changes in
membership until it is wound up according to the law.
4. Limited Liability: The liability of members in a company is limited. In a company
limited by shares, members are liable only to the extent of the unpaid amount on their
shares. In a company limited by guarantee, liability is restricted to the amount members
guarantee to pay in the event of winding up.
, 5. Artificial Legal Person: Although a company is not a living being, it is treated as a legal
person by law. It can own property, sue or be sued, and undertake obligations under its
own name, acting through directors and employees.
6. Common Seal (Optional): Traditionally, the company’s common seal served as its
official signature on documents. However, after the Companies (Amendment) Act, 2015,
it is no longer mandatory for companies to have a common seal; authorization can be
made through authorized officials' signatures.
7. Transferability of Shares: In a public company, shares are freely transferable, providing
liquidity to shareholders and making investment in companies attractive. Private
companies, however, restrict share transfer as per their articles of association.
8. Separation of Ownership and Management: Shareholders are owners of the company,
but the management is entrusted to a Board of Directors. This creates a distinction
between those who invest and those who manage daily operations.
9. Capacity to Sue and Be Sued: A company can initiate legal proceedings against others
and can also have legal action taken against it, in its own name.
10. Ability to Raise Capital: A company, especially a public company, has the advantage of
raising substantial funds by issuing shares and debentures to the public or through private
placements.
TYPES OF COMPANIES
Under the Companies Act, 2013, companies are classified into various types based on their
nature, structure, ownership, and liability. The important types are:
1. One Person Company (OPC): As per Section 2(62) of the Companies Act, a One
Person Company is a type of company that has only one member. It allows a single
entrepreneur to operate a corporate entity with the benefits of limited liability and
perpetual succession. OPC is suitable for small businesses where the business owner
wishes to maintain complete control but still enjoy the advantages of being a company,
such as separate legal status and easier access to funding compared to a sole
proprietorship. However, an OPC must convert into a private or public company once it
crosses certain thresholds related to turnover or paid-up capital.
