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”.
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”.
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”.
Features:
1. Registration
2. Separate legal entity
3. Common seal
4. Perpetual succession
5. Limited liability
6. Separation of ownership from management
7. Transferability of share
8. Separate property
(1) Registration or incorporated
association: Joint Stock Company is an incorporated association.
The company is created only when it is registered under the Companies Act of
1956. It comes into existence from the date mentioned in the certificate of
incorporation for the formation of a public company at least 7 person - and for
Private Company at least 2 persons are necessary.
(2) Common Seal:
The common seal of the Company is the seal on which the name of the company is
engraved. The common seal of the company is used as its official signature,
i.e., the common seal of the Company is affixed to all those important
documents which requires the signature of the company. The common seal of the
Company is formally adopted at the first board meeting held immediately after
the incorporation of the company. The common seal cannot be affixed to any
document unless authorized by the board of directors by a resolution.
(3) Separate Legal entity: A
Joint stock companies has entity quite distinct or different and independent of
the existence of the members who constitute it. (It can enter into contracts,
acquire and dispose of properties, sue and be sued in its own name like natural
person.
The Company has no physical existence, it cannot act
by itself. It has to act only through some human agency, i.e., Board of
directors.
(4) Perpetual succession:
Joint stock companies has a perpetual succession or continuous existence. It is
created by law and an end to it be put by the process of law only. In other
words, the life of the company is not affected by the death, insanity or
insolvency of its members. Even if all the members of a company were to die, it
would not end the life of the Company. This is because the Company has a
separate legal existence quite different from that of its members.
(5) Limited liability: The liability of the members of a Joint
stock companies is:
a. Limited by shares
b. Limited by guarantee.
a)
Limited by Shares: The liability of the members is limited
only to the amount unpaid on their shares, whatever may be the liability of the
company. For e.g., if a shareholder holds 100 shares of Rs. 10 each, and has
already paid Rs. 6 per share, he is liable to pay only the amount unpaid on his
shares, i.e., Rs. 4 per share on his 100 shares, and if he has already paid the
value of Rs. 10 per share on his 100 shares, his liability will be nil.
b)
Limited by Guarantee: The liability of the members is
limited to the extent of the amount guaranteed by them i.e., the amount which
the members have agreed to contribute to the assets of the company in the event
of its winding up.
(6) Separation of Ownership from Management: In a
company, shareholders are the owners but
the management is entrusted to aboard of directors who are separate from the
body of the shareholder. The shareholders do not directly participate in the
day-to-day management of their company. However the ultimate control of the
Company rests with the members for the members are empowered to remove any
director and replace him by a new director and to amend the memorandum and the
articles of association.
(7)
Transferability of Shares: The shares of a public limited Company
are freely transferable i.e., the members of a public limited company can
dispose of and transfer their shares to any persons they like without the
consent of the company or the other members, as per conditions laid in the
articles of the Company. But there are certain restrictions on the transfer of
shares in respect of private limited companies as the very nature of the
Company indicates, namely, private.
The
free transfer ability of the share provides:
i)
Liquidity to the investors.
ii)
It helps the Shareholders to sell their
share in the open market and satisfy their financial needs.
iii)
It provides financial stability to the
Company
(8) Separate
Property: A Company has a right to own and transfer property
since it is a legal entity. A shareholder has no proprietary right in the
property of the Company but merely to their shares "in-other words, the
property of a Company belongs to the Company and not to the individual
shareholders of the Company.
KINDS OF COMPANIES:
Companies
may be classified into different kinds or types from different points of view:
1. Classification of companies from the
point of view of incorporation or registration: From the point
of view of their incorporation, companies can be classified into three types.
They are.
(a) Chartered companies: If a
Company is incorporated under a special charter granted by the monarch it is
called a chartered companies and is regulated by that charter. Chartered
companies were common in the 17th and 18th centuries. For e.g. British East
India companies, Bank of England, Chartered Bank of Australia etc. are examples
of chartered companies. This form of organization does not exist in India, as
there is no monarchy.
(b) Statutory Companies:
A statutory Company is a company which is incorporated under a special or separate
act of the legislature (i.e.., parliament). A statutory company requires
special powers and privileges which it does not get under the companies Act.
So, it is registered under a special act of the legislature. The powers and
activities of a statutory companies are regulated by the special act under
which it is established. This method of incorporation is adopted for companies
of national importance and public utility companies, such as railway companies,
electricity supply companies, etc. The RBI, SBI, LIC, UTI, etc. are examples of
statutory companies.
(c) Registered Companies:
A company is brought into existence by registration with the registrar of
companies under the companies Act of 1956, is called a registered company. The
activities of these companies are governed by the companies Act. These
constitute the most important Joint stock companies.
2. Classification of
Registered Companies on the basis of the liability of members: From the point of view of the liability of the
members, registered companies may be classified into three categories. They
are:
a)
Companies Limited by Shares: Companies limited by share are companies in which the
liability of a member is limited to the nominal or face value of the shares
held by him. In short, these are the companies in which the liability of a
member is limited only to the amount unpaid on the shares held by him. These
companies are mostly trading companies. Most of the companies registered under
the companies Act are of this type.
b) Companies Limited by
Guarantee: Companies limited by guarantee are companies in
which the liability of each member is limited to a fixed amount which he has
guaranteed i.e. agreed to contribute to the assets of the company to meet the
liabilities of the company in the event of its winding up. The amount
guaranteed by each member is mentioned in the Memorandum of Association or
Articles of Association of the Company. The members are required to pay the
amount guaranteed by them, not during the life of the company but only when the
company is wound up and the assets of the company are not sufficient to meet
the liabilities of the a)
company.
These are mostly non-trading companies formed for the purpose of promoting art,
culture, charity, science and education, etc.
c)
Unlimited Companies: Unlimited companies are companies in which the
liability of members is unlimited i.e., members are liable for the debts of the
company to an unlimited extent in the event of its winding up. Each member is
liable to contribute from his private assets in proportion to his capital, in
the company towards the amount required for the payment of the entire or full
liabilities of the company. If any of the members is unable to contribute
anything from his private assets, then, that additional deficiency is to be
shared among the remaining members in proportion to their respective capital in
the company.
3. Classification of companies on the basis of
ownership: On the basis of ownership, companies may
be classified into two kinds. They are:
a. Government companies
b. Non-government companies
a) Government companies:
A Company in which not less than 51% of the share capital is held by the
central government and or by any state government or governments is called a
government companies. It may be a public company or a private company. Some of
the prominent government companies are: Hindustan Machine Tools, Bharat
Electronic Limited, Indian Telephone Industries and Hindustan Aeronautics
limited.
A Government company may be permitted by
the central government to drop the words “Private Limited" or the word
"Limited" from its name. The Central Government can by notification
in the official gazette, restrict or modify the application of certain
provision of the companies Act in regard to government companies.
b)
Non- Government companies: A non-government
company is a company which is owned and managed by private investors.
4. Classifications of
companies on the basis of nationality: On
the basis of nationality, companies may be classified into two kinds, they are.
a)
Domestic
companies
b)
Foreign
companies
a)
Domestic companies: A Domestic company is a company which is incorporated
in India Today most of the Joint stock companies in India are domestic
companies.
b)
Foreign Company: A foreign Company is a Company which is incorporated
in a foreign country, but which has established a place of business in India India
5. Classification of companies on the basis of
control: On the basis of control companies may
be classified into
i)
Holding companies
ii)
Subsidiary companies.
i) Holding Companies and
Subsidiary Companies: As per section 4 of the companies Act of 1956," a
holding Company is a company which is controlling a subsidiary company".
In other words, a holding company is a company
a) Which
holds more than 70% of the nominal value of the equity share capital of another
company or
b) Which controls the composition of the
board of directors of another Company
c) Which controls more than 50% of the
total voting power of another Company
ii) As per section 4
of the companies Act of 1956, "A subsidiary Company is a Company which is
controlled by a holding Company". In other words, a Company becomes the
subsidiary of another Company if:
a)
The
other Company holds more than 50% of the nominal value of its equity share
capital or
b)
The
other Company controls the composition of its board of directors or
c)
The
other Company controls more than 50% of its total voting powers
d)
It
is a subsidiary of another Company which is subsidiary of the controlling
company.
6. Classification of companies on the basis of
number of members: Registered companies
with share capital may be divided into two classes from the point of view of
the number of members
i)
Private Companies
ii)
Public Companies
i) Private Companies: Section 3(1) (iii) of the companies Act of 1956
defines a private company as a company which by its articles of association,
a) Restricts the right of its members to transfer shares,
if any
b) Limits the number of its member to two hundred , excluding
those members who are its present or past employees
c)
Prohibits
any invitation to the public to subscribe to its shares or debentures.
ii) Public Companies:
Section 3 (I) (iv) of the companies Act of 1956 states that a "Public
company is a company which is not a private company". In other words, a
public company is a company
a)
Which has at least 7 members
b)
Which has no maximum limit to the number of members,
c)
Which can invite the public to subscribe to its shares or debenture, and which
generally does not restrict the right of its members to transfer shares.
7. One Man Companies: One man company refers to a company in which one man
holds practically the whole of or the substantial no. of shares of the
companies, and has controlling powers over the company and some dummy members
who are mostly his relations or friends, hold one or two shares each. The dummy
members are included only to comply with the statutory requirements of the
minimum no. of members.
8. Global company:
A global company or corporation, on the other hand, is an enterprise or company
which is also involved in trade relations with other countries. Unlike MNCs,
global companies do not have official headquarters, and they are composed of
autonomous units which are parts of one parent or global company. Each unit in
a certain area or country handles their individual concerns, and the parent
company handles concerns which involve the overall global company. Like MNCs,
they hire the local workforce, but they usually pay local workers a higher
salary.
Global
companies sell the same products or services in every market using the same
image and maintaining the characteristics that their company’s products are
popular of. An example of a global company is McDonald’s which has stores in
most parts of the world.
PRIVILEGES OF PRIVATE COMPANIES:
A. Privileges
enjoyed by all private company's (i.e. both independent private' company's and
subsidiary private companies).
1.
Only two members are sufficient for a private Company at the time of
registration.
2.
The company can immediately Commence business on obtaining certificate of
incorporation. It need not wait for certificate of commencement of business
3.
A private Company need not file a prospectus or a statement in lieu of
prospectus with the registrar of companies.
4.
A private company is not required to hold the statutory meeting or to file
statutory report with the registrar
5.
A private company can proceed to allot the shares without observing the usual
restriction applicable to allotment of shares.
6.
The minimum number of directors is two only.
7.
Restriction imposed on public companies regarding further issue of share do not
apply to a private company.
Differences between a
Public Company and a Private company
Minimum number:
The minimum number of persons required to form a public company is 7. It is 2
in case of a private company.
Maximum number:
There is no restriction on maximum number of members in a public company,
whereas the maximum number cannot exceed 50 in a private company. Act 2013
maximum number increased to 200.
Number
of directors. A public company must have at least
3 directors whereas a private company must have at least 2 directors (Sec. 252)
Restriction
on appointment of directors. In the case of a public
company, the directors must file with the Register a consent to act as
directors or sign an undertaking for their qualification shares. The directors
or a private company need not do so (Sec 266)
Restriction
on invitation to subscribe for shares. A
public company invites the general public to subscribe for shares. A public
company invites the general public to subscribe for the shares or the
debentures of the company. A private company by its Articles prohibits
invitation to public to subscribe for its shares.
Name
of the Company: In a private company, the words
“Private Limited” shall be added at the end of its name.
Public
subscription: A private company cannot invite the
public to purchase its shares or debentures. A public company may do so.
Issue
of prospectus: Unlike a public company a private
company is not expected to issue a prospectus or file a statement in lieu of
prospectus with the Registrar before allotting shares.
Transferability
of Shares. In a public company, the shares are
freely transferable (Sec. 82). In a private company the right to transfer
shares is restricted by Articles.
Special
Privileges. A private company enjoys some
special privileges. A public company enjoys no such privileges.
Quorum.
If the Articles of a company do not
provide for a larger quorum. 5 members personally present in the case of a
public company are quorum for a meeting of the company. It is 2 in the case of
a private company (Sec. 174)
Managerial
remuneration. Total managerial remuneration in a
public company cannot exceed 11 per cent of the net profits (Sec. 198). No such
restriction applies to a private company.
Commencement
of business. A private company may commence its
business immediately after obtaining a certificate of incorporation. A public
company cannot commence its business until it is granted a “Certificate of
Commencement of business”.
Comments
Post a Comment