Corporate Business & Types of Companies

1. Introduction:

The growth of an economy is characterized by vibrant business activities and for the development of a good economy or nation, there has to be a regulatory framework that aims to carry out activities of an economy in a pre-determined manners, so that the development takes place throughout the length and breadth of the country in an orderly manner to bring about a positive change in the standard of living of the people.

The word Company indicates as an entity formed under the Companies Act, 2013. Most people connect word with a Private Limited Company; however there are also various other types of companies.

2. Growth of Company Form of Organization:

From time immemorial, enterprising individuals have been carrying on businesses in different ways. The most common form of organization are the

• Proprietorship concern, and
• Partnership firms, which are presently suffering from various constrains.

For example, a partnership firm has no legal existence as an entity separate from its partners. The partnership firm is not distinct from the partners who form a partnership firm and the partners may have many limitations on their own.

At any point of time, they may find it very difficult to meet the increasing financial requirement of business. As the liability of the partners of the firm is unlimited, the creditors of a firm are creditors of the partners themselves.

As per Section 69 of the Indian Partnership Act, 1932,a registered firm can be treated as a separate legal entity for the purpose of suing and being sued, unlike unregistered firm. Apart from this, there are not many advantages of being a partnership firm except that there is no codified law that keeps a close watch over the affairs of the firm. A partnership firm is always susceptible to events like death of a partner, which may result in dissolution of a firm. Further, there is no ceiling on the maximum number of members or partners an association or a partnership firm can have.

The Supreme Court in Sham Sunder v. State of Haryana [1990] 67 Comp Cas 1 (SC), held that “the essential characteristic of a firm is that each partner is a representative of the other partners. Each of the partners is an agent as well as a principal. He is an agent in so far as he can bind the other partner by his acts within the scope of the partnership agreement. He is a principal to the extent that he is bound by the acts of the firm.” Section 2(a) of the Partnership Act defines as “act of the firm” to mean any act or omission by all the partners, by any partner or agent of the firm which give rise to a right enforcement by or against the firm.

An unregistered firm has certain other limitation. Section 69 of the Indian Partnership Act, 1932 does not permit unregistered firms and partners from instituting suits in certain cases.

Hence, limited liability is a major attractive for the formation of companies in India. There will be substantial differences between a partnership firm constituted under the Indian Partnership Act 1932 and a private limited company incorporated under the Companies Act, 1956 or 2013. The main attraction is that a company has its own legal entity status and a perpetual succession and mostly companies are formed as limited liability companies only.

3. Broad Categories of Companies:

A company formed and registered under the Act is known as a Company for the purpose of the act.

A company may be formed and registered as a private limited or public limited, whether with or without share capital, whether with or without limited liability. Even a one person company is treated as a private company only, though it will have only one member.

The hallmark of a company is the concept of limited liability of its members and therefore, there are not many companies with unlimited liability.

Generally Companies are classifies on the basis of;

• Incorporation
  • Statutory Company
  • Registered Company
• Liability of Members
  • Limited by Shares
  • Limited by Guarantee
  • Unlimited
• of Members
  • By 7 or more persons – Public Company
  • By 2 or more persons – Private Limited Company
  • By 1 person – One Person Company (OPC)
• Ownership
  • Government Company
  • Non-Government Company
• Size
  • Small Sized Company
  • Other than Small Sized Company
• Control
  • Holding Company
  • Subsidiary Company

4. Conclusion:

We came to conclude that corporate form of business is more acceptable, more continent and having limited liability with perpetual succession are a major advantageous to the entrepreneurs. Moreover, the Ministry of Corporate Affairs (MCA) also notified various exemption notifications for Section 8 Companies, Private Company and Government Companies.

(About the Author: CS J. S. VIRANI is a Founder Proprietor of J. S. VIRANI & CO., Practicing Company Secretary, Bhavnagar, Gujarat, India 364001. Anyone can be reached at [email protected] or Cell 09913332005)